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Ottawa may have overpaid for Trans Mountain to $ 1 billion



The federal liberal government may have overpaid the Trans Mountain Canadian project by more than $ 1 billion, according to budget officials, and there is a risk that its cost may drop further if there are any other delays in the construction schedule.

However, even if Ottawa paid too much, the value of the project for Canadian oil producers and, in turn, the government treasury, is significant because it closes the price gap that the oil spill suffers from, says the Budget Committee of the Parliament, published on Thursday.

The report states that both the existing pipeline and the proposed expansion project are estimated at $ 3.6–4.6 billion. The United States, which is an inaccurate range that binds it either to a significantly lower government purchase price – $ 4.5 billion. US, either directly to the money.

“The government has negotiated the purchase price at the top of the PBO's rating range. The PBO’s financial assessment assumes that the pipeline was built on time and within budget. ”

PBO estimates are further complicated by the fact that they do not have data on the cost of several pipeline terminals and the Puget Sound Pipeline pipeline — other assets acquired by Ottawa as part of a deal with a former supporter, Kinder Morgan. These related assets are not included in the number generated by the PBO, but officials said Thursday that if the expansion is not built, the cost of these facilities will be low.

Regardless, the PBO warns that any further delays in the project, increased construction costs or other changes in the “risk profile” threaten to significantly devalue the project, while adversely affecting the final sale price that Ottawa may receive when ultimately eventually sell his other essence.

A one-year delay will reduce the project cost by $ 700 million. If there are delays that exceed the planned completion date of December 31, 2021, the PBO said that it would be fair to conclude that the government would overpay for the asset.

The PBO estimates that the construction of the expansion project will create almost 8,000 jobs at its peak.

Impact on GDP

However, the true value of the Trans Mountain Expansion Project (TMEP) will be determined by the fact that oil producers will sell much more Canadian oil at world prices. Currently, since Canadian manufacturers have to sell virtually their entire product to refineries in the United States, Western Canadian Select is selling West Texas Intermediate (WTI), the gold standard in US oil prices, at a discount.

“It is difficult to determine the impact of TMEP on the price difference between the WTI and WCS brands. However, a recent PBO analysis determined that a reduction of $ 5 per barrel in this gap would on average lead to a 0.1% increase in real GDP and an increase in nominal GDP by 0.3 percent, "the PBO report said.

"This would have resulted in an annual impact on GDP of $ 6 billion over a five year period from 2019 to 2023."

The PBO estimates that if the expansion is not built, the Trans Mountain pipeline will cost about $ 2 billion.

The government stepped in to buy the pipeline, and planned an expansion last year after Kinder Morgan suspended all necessary construction costs while waiting for legal issues to be resolved.

BC. Premier John Horgan tried to stop its construction, prompting Ottawa to intervene and buy the project to "demolish it."

Indigenous groups have stated that the federal government did not adequately consult before Prime Minister Justin Trudeau and the Cabinet of Ministers gave the project the green light in 2016.

The Federal Court of Appeals overturned cabinet approval in August last year, citing inadequate advice and environmental assessments on the very day that Kinder Morgan shareholders agreed to sell most of the Canadian assets to Ottawa.

The federal government promised to build the project, despite its legal problems.


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