Trans Mountain Pipeline’s Profit or Loss for Ottawa Will Depend on Potential Buyers: PBO

Whether the federal government takes a loss or makes a profit from selling the Trans Mountain pipeline will depend on how much potential buyers are willing to offer, says the Parliamentary Budget Officer (PBO).
Meanwhile, the pipeline’s total assets amounted to $35.2 billion, liabilities were $26.9 billion and shareholder equity was $8.3 billion, as of Dec. 31, 2023.
“Whether the Government records a profit or a loss on the eventual sale of the Trans Mountain Pipeline system will depend on what someone is willing to pay for it,” said PBO analyst Jason Stanton in the report.
The PBO says it will also depend on factors such as the number of potential buyers, the costs buyers would incur in the purchase, the market conditions at the time of the sale, whether it will be an arm’s-length transaction, or whether any group will be prioritized in the sale.
In its valuation analysis, the PBO did not include sunk costs, such as the purchase of the pipeline system in 2018, or capital investments before 2024. The budget watchdog added there are uncertain factors such as assumptions on pipeline utilization, and tolls and discount rate, all of which could affect the valuation.
The estimate of the current value of the Trans Mountain pipeline was based on two scenarios. In the scenario in which all contracts are renewed, the present value would be $33.4 billion, while a reversion to a cost-of-service scenario has a current value of $29.6 billion.
The PBO added that these are not the only possible scenarios, but are meant to provide an idea of how the value could be impacted by future service and tolling framework.
Stanton noted that if the pipeline was sold this year at either of the estimated values, “after the outstanding liabilities are repaid, the remaining amount would be less than the shareholder’s equity.”
“[Trans Mountain Corp.] would have to write off the balance of the equity and record a loss,” he wrote.
The federal government has said it does not wish to be the long-term owner of the pipeline and has already launched the first of what is expected to be a two-phase divestment process.
The first phase involves talks with more than 120 indigenous nations located along the Trans Mountain route to see if any of them are interested in an equity stake.
The second phase, for which the timing is unclear, will involve the consideration of commercial offers.