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Trudeau’s Oil Pipeline Is a ‘Net Loss’ for Taxpayers, Watchdog Says

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(Bloomberg) -- Canadian taxpayers will lose money from Prime Minister Justin Trudeau’s decision to nationalize a pipeline after costs escalated amid delays in expanding the system, according to the country’s budget watchdog.

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A project to expand the Trans Mountain Pipeline, Canada’s sole conduit for crude from Alberta’s oil sands to the Pacific Ocean, has faced repeated delays and cost increases since Trudeau’s government bought the system from Kinder Morgan Inc. in 2018.

In February, Trans Mountain announced a 70% jump in expansion costs to C$21.4 billion ($16.55 billion) partly due to delays, the effects of the pandemic and flooding last year. While the government said it would spend no additional public money on the pipeline, it guaranteed a C$10 billion loan for it in May. The company said when the cost increase was announced that the “business case supporting the project remained sound.”

The net present value of the system is now C$3.9 billion, C$600 million lower than the purchase price, the Parliamentary Budget Officer said Wednesday in an updated costing report.

“Based on the new developments since the previous report, specifically the increased construction costs and the delay in the in-service date, PBO finds that the Government’s 2018 decision to acquire, expand, operate, and eventually divest of the Trans Mountain assets will result in a net loss for the federal government,” the watchdog said.

Trudeau’s government stepped in to buy Trans Mountain to ensure work on increasing its capacity to 800,000 barrels a day from 300,000 would be completed after Kinder Morgan threatened to cancel the project amid fierce opposition in British Columbia. Canada’s oil producers have struggled for years with a shortage of export pipelines, lowering the price they receive for their oil and hindering growth in Alberta’s oil sands. Trudeau sought a difficult balance between saving a project that was crucial for Canada’s oil industry while, at the same time, pledging to help fight climate change.

‘More Sovereign’

Both the government and the company dismissed the budget watchdog’s findings.

The pipeline expansion “is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient,” Adrienne Vaupshas, press secretary to Finance Minister Chrystia Freeland, said by email. “Independent analyses from both BMO Capital Markets and TD Securities have confirmed that the project remains commercially viable. The federal government intends to launch a divestment process after the project is further de-risked and after economic participation with Indigenous groups has progressed.”

Citing more than 23,000 direct and contracted jobs, as well as billions of dollars in taxes and royalties, Trans Mountain Corp. said the PBO report “does not include the significant benefits generated for Canadians,” according to an emailed statement.

But critics of the pipeline seized on the report as evidence the government can’t have it both ways on climate and helping the oil industry.

“The federal government is losing money on the pipeline whose profits they promised would pay for green energy,” Keith Stewart, senior energy strategist for Greenpeace Canada, said by email. “Rather than pouring billions more into a money-losing, climate-destroying pipeline that only benefits oil company bottom lines, let’s spend it directly on green energy solutions.”

The project to boost the system’s capacity, which is currently underway, continues to face opposition and active protests along its route, including from some Indigenous communities. Should work be halted after this month and canceled, the government would need to write off more than C$14 billion in assets, resulting in a “significant financial loss,” the PBO said.

(Updates with government, company and Greenpeace comment.)

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