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article imageSpending watchdog — Ottawa paid top dollar for Trans Mountain

By Karen Graham     Jan 31, 2019 in Politics
Canada's federal Liberal government may have overpaid for the Trans Mountain pipeline project by up to $1 billion, Parliamentary Budget Officer (PBO) Yves Giroux estimates.
Canada's spending watchdog says the Liberal government paid the "Sticker Price" when it bought the Trans Mountain Pipeline and extension project in May 2018 from Kinder Morgan for C$4.5 billion.
PBO Yves Giroux estimates the pipeline and extension are worth between $3.6 billion and $4.6 billion. So by his calculations, the government's purchase price of $4.5 billion was at the high-end of the total value of the pipeline package, reports the Financial Post.
Referencing the purchase of a vehicle, Giroux told reporters Thursday morning: “If it was a car, we would say they paid sticker price, they didn’t negotiate very much, they didn’t get that many deals or manufacturers rebates — quite the opposite,”
However, even if the government did pay too much, the value for the oil producers and Canada's coffers is considerable and will close the oil price gap that has been plaguing the oil patch, according to the PBO report released today.
"The government negotiated a purchase price at the higher end of PBO's valuation range. PBO's financial valuation assumes that the pipeline is built on time and on budget." And this is a key revelation in the report.
Even if there is a one-year delay in construction, the report estimates the pipeline's value would drop by $693 million, reports the Toronto Star. Then there are the construction costs to consider.
Currently, estimated construction costs are pegged at $9.3 billion if the project is completed by Dec. 31, 2021, the PBO estimates. An increase of 10 percent in construction costs would reduce the pipeline's value by as much as $453 million. The PBO calls delays in construction and increases in cost part of the "risk profile."
Any negative changes to the profile would devalue the project considerably and devalue the final sale price Ottawa could get when the pipeline is eventually sold, reports CBC Canada News.
“It’s a very risky project to have bought something that nobody else in the private sector wanted to acquire. There are lots of retirement or pension plans that like to buy infrastructure of that nature that generate streams of revenues,” Giroux said.
“From a financial perspective, the risks are significant for taxpayers, but should this get built, it will be a relief for the oil sector in Alberta because it will accelerate the opening of markets for Canadian oil.”
But Giroux noted the "worst-case scenario" - saying if the pipeline project did not go forward, the value of the property would take a significant drop. The government could lose upwards of $2.5 billion.
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