Despite its $23 billion in debt, Trans Mountain wants to borrow more

As of March 2023, documents from Trans Mountain and other federal government departments indicate the expansion project is about 80% complete.

However, the 2023-2027 Corporate Plan is a summary (new window) Canada Development Investment Corporation (CDEV)’s Trans Mountain revealed He was heavily in debt But it expects to be able to flow about 890,000 barrels of oil daily through the expanded pipeline, making enough profit to pay off the debt.

In its 2022 annual report, (new window)CDEV qualified for Trans Mountain’s loans Financial losses Loans from the federal government are considered low but increase when it comes to private lenders.

There is a risk of getting into debt

As of December 2022, Trans Mountain Corporation (TMC), which manages the extension project, has already received at least $10 billion from major Canadian banks through a guarantee from Ottawa, in addition to money borrowed from the federal government, and more is needed. Billions of dollars to get the job done.

The trouble, says CDEV, is that Nothing is guaranteed Trans Mountain will be able to secure private financing. This uncertainty over borrowing capacity, combined with Ottawa’s reluctance to invest more public funds in the project expressed serious doubts about TMC’s ability to continue in business.

If Trans Mountain can no longer borrow, CTM will warn structure of [projet d’agrandissement du réseau de Trans Mountain] to be laid off, workers to be laid off, contractors to be laid off and date of commencement […] It’s late.

However, TMC has promised to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.4 billion in the first year of operation of the expanded pipeline. The company hopes to start paying back its debts.

Cost explosion

Between the labor, materials, environmental requirements and engineering issues posed by British Columbia’s topography, expansion project costs skyrocketed.

When the pipeline was purchased from Kinder Morgan for $4.5 billion in 2018, the cost of the expansion project was estimated at $7.4 billion. As of February 2020, the estimated cost has risen to 12.6 billion before reaching 21.4 billion in 2022. To date, the estimated total bill is $30.9 billion higher.

Some 80% of the costs are not passed on to consumers in the form of pipeline tolls, protected by their contracts with Trans Mountain.

Selling at a loss?

Since acquiring the pipeline to complete the expansion works, the federal government has maintained that it is only the temporary owner of the structure. However, Trans Mountain’s business plan does not call for a short-term sale.

Even if the pipeline is put up for sale, Laura Lau, chief investment officer of Brompton Funds, doubts Ottawa will be able to recoup the roughly $35 billion sunk into the pipeline.

I believe we should be prepared to be sold at a lossshe said.

The same story about economist Robin Allan in a report, (new window), (in English) Prepared for a group of environmental lawyers in Vancouver, it says that if Trans Mountain is to be sold, Ottawa will have to pay liabilities. It smells like debt reliefshe wrote.

In the meantime, even though there is no intention of investing more capital in the project, the federal government will still have to pay interest on the public debt and be responsible for $10 billion borrowed from banks for a federal guarantee.

Originally scheduled for 2022, commissioning of the triple capacity pipeline will not happen before the first quarter of 2024.

With information from David Thurton