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article imageOttawa overpaid by $1.2 billion for Trans Mountain pipeline

By Karen Graham     May 31, 2018 in World
Toronto - If the federal government manages to overcome strong opposition in British Columbia and complete construction of the Trans Mountain pipeline expansion under budget and on schedule, taxpayers may recoup the $11 billion investment. But it is a "big if."
At least that is what analysts with Royal Bank are saying about Prime Minister Justin Trudeau's pipeline purchase reports the Toronto Star.
But the pronouncement does have its caveats. Besides the $4.5 billion the federal government agreed to pay to Kinder Morgan, there is the estimated $6.4 billion cost of actually constructing the pipeline. So let's say Ottawa gets the pipeline extension built and has no cost overruns or delays. This means taxpayers will have an $11.1 billion pipeline on their hands.
 Alberta is closer than ever to building a pipeline because we have played our cards strategically a...
"Alberta is closer than ever to building a pipeline because we have played our cards strategically and in our best interests. But, if it becomes necessary to strategically deploy our resources, we will." - Rachel Notley
Alberta Premier Rachel Notley
Moody’s Investors Service says the estimated gross earnings from the pipeline after it is operating, could be $1.3 billion a year. Keep in mind the key phrase is "gross earnings." This is because gross earnings do not exclude the cost of goods sold, general and administrative expenses, or other costs.
“If Kinder Morgan could get this project built on time without major cost overruns, it would be a very valuable stretch of pipeline,” says Richard Masson, a fellow with the University of Calgary’s policy school and former head of the Alberta Petroleum Marketing Commission. "They decided the risk was out of whack and they backed away.”
“The guarantees from the feds and the additional $2 billion from Alberta are too nebulous,” he said. “It’s very difficult to imagine anyone else stepping up where Kinder Morgan feared to tread.”
Skeptics aren't so sure it's a good deal
Kinder Morgan estimated it would cost $7.4 billion to build the pipeline extension that would nearly triple the pipeline’s capacity. And they say they have already spent $1.1 billion in getting the project started. But they also admit the estimate is now out of date - plus it doesn't take into account delays caused by ongoing court challenges and permitting in B.C.
However, Kinder Morgan has agreed to help the government find a buyer in the next two months. And this is an important aspect of the deal. Finding an interested buyer will be tricky owing to the fierce opposition by anti-pipeline activists. And added to that issue is the issue of getting construction started.
Just because the federal government will soon have a pipeline all its own, even if it's just a "starter pipeline," doesn't mean it will be easy to find a buyer. Major players in the petroleum industry already have their hands full with projects of their own.
In an interview with The Star, Laura Lau, who helps manage $1.5 billion in assets, including shares of TransCanada and Enbridge, at Brompton Corp. in Toronto, pointed out that the time is not right for many companies that have big projects to take on another project.
“If they buy Trans Mountain, they have to not do something else,” Lau said. “There’s only so much money to go around.”
More about trans mountain pipeline, overpaid by $12billion, completion on schedule, selling to investors, Opposition
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