Finance Canada defends $10 billion loan guarantee for Trans Mountain
Finance Canada is defending its $10 billion loan guarantee for Trans Mountain to help the company complete its pipeline expansion after opposition parties and environmental groups called it a fossil fuel subsidy.
The financial support comes after the government said in February that no more public money would be poured into the project.
“This is standard practice which puts in place an insurance policy for institutions that have invested in the project – it does not reflect any new public expenditure,” A press release of Finance Canada said. “The Government of Canada has not spent any money to put this guarantee in place.”
After Politico reported for the first time the government was providing the loan guarantee, the federal ministry said Finance Minister Chrystia Freeland announced a funding freeze for the government-owned pipeline project.
On Parliament Hill, CBC reporters repeatedly asked Freeland about the government’s new federal support for Trans Mountain. The minister kept answering questions.
In February, Freeland announced that the costs of the Trans Mountain pipeline expansion project had nearly tripled from its original price of $7.4 billion – which then-owner Kinder Morgan had projected in 2018 – to 21, $4 billion.
“I want to assure Canadians that there will be no additional public money being invested in (Trans Mountain),” Freeland said at the time.
“(Trans Mountain) will obtain the necessary financing to complete the project through third-party financing, either in the public debt markets or from financial institutions.”
Ottawa provided bridge funding to the pipeline in December
On Wednesday, Finance Canada confirmed that Trans Mountain has “now secured up to $10 billion in third-party financing from a group of Canadian financial institutions.”
The statement does not specify which institutions are financing the completion of the pipeline, but indicates that Trans Mountain will pay a fee to the government for the loan guarantee.
The release also says Ottawa provided $1.75 billion in “bridge funding” in December to ensure construction stays on schedule. Finance Canada said in its statement that the loan “has been repaid in full with interest.”
Contacted for comment, Trans Mountain referred CBC to the government’s statement.
After the loan guarantee was announced, opposition parties attacked the federal government for continuing to financially support a Trans Mountain pipeline expansion project that is now over budget and behind schedule.
“This government has done a terrible job,” said Kyle Seeback, the Conservative environment critic. “They don’t do the hard work of figuring out what these things cost.”
“This is another handout to the oil and gas industry as this government says it is considering leaving,” said Green Party MP Mike Morrice.
Environmental groups have called the loan guarantee a subsidy, citing the World Trade Organization’s definition of the word.
“This is a continuation of our government supporting this project which is no longer financially viable,” said Sven Biggs, Canadian Oil and Gas Program Manager for Stand.earth.
The Institute for Energy Economics and Financial Analysis, which conducted a financial analysis of the pipeline, said the TMX project has not attracted private sector investment and must depend on government support to continue.
“By understanding the real economics of the project, you realize that the only way to finance this project is… through debt. And the debt must be guaranteed by the Canadian government,” said Omar Mawji, energy finance analyst at the Institute for Energy Economics and Financial Analysis.
Construction of the Trans Mountain expansion is expected to be completed by June 30, 2023, nine months behind the revised schedule. The pipeline was expected to be completed by September 30, 2022.
The pipeline will not begin transporting oil until the Canada Energy Regulator gives it final approval to operate. Trans Mountain said the pipeline won’t see its first revenue until Sept. 30, 2023.
In April, the project was almost 50% complete. When complete, it will increase the pipeline’s production from around 300,000 barrels per day to around 890,000.