Auditor General: Financials show ‘significant uncertainty’ for Trans Mountain Expansion project
Reports cite major cost increases and reliance on external financing.
Crews work on the Trans Mountain Pipeline Expansion near Kamloops, B.C. – Trans Mountain
- In January, the project team estimated the project would cost $30.9 billion, nearly $10 billion more than their estimate just a month earlier.
- Following the revised cost estimate, the Government of Canada announced it would spend no additional public money on the pipeline.
- In March, the project team announced that construction was close to 80% complete, with mechanical completion expected to occur at the end of 2023. They expect the pipeline will be in-service in the first quarter of 2024.
The Whole Story:
The Trans Mountain Pipeline Expansion Project is in serious financial trouble, government reports show.
According to documents released by Canada’s Auditor General, for the second year, the Trans Mountain Corporation’s year-end financial statements disclosed a “significant uncertainty” about the Crown corporation’s ability to continue operating.
The uncertainty was related to the corporation’s ability to fund the remaining construction costs and to make the necessary payments on its existing debt.
“While this disclosure did not cause us to modify our audit opinion on the Trans Mountain Corporation’s 31 December 2022 financial statements, we assessed the uncertainty to be important enough to mention it in our report,” read the report. “During our audit work, we also assessed that the corporation appropriately described the matter in a note in its financial statements.”
Earlier this year, the corporation revised its cost estimate for the pipeline expansion project to $30.9 billion. The corporation had previously reported costs of the project in December 2022 to be $21.1 billion. In early 2023, the corporation proposed a borrowing plan to finance the remaining construction costs.
The Treasury Board approved both the revised cost estimate and the borrowing plan in April 2023 through the 2023–27 corporate plan of the Canada Development Investment Corporation (the Trans Mountain Corporation’s parent Crown corporation). This corporate plan also anticipates that the revenue from the transport of crude oil in the expanded pipeline will begin in the first quarter of 2024.
In February 2022, the Government of Canada announced it would spend no additional public money on the pipeline. Since then, Trans Mountain Corporation has had to obtain external financing to fund the remaining costs of the project.
“If the corporation cannot finance the full remaining construction of the pipeline expansion, it will be unable to put the expanded pipeline into service to generate revenue,” concluded the report.
In July 2023, the corporation reported that the borrowing limit on its existing credit facility with a group of Canadian financial institutions, which is guaranteed by the Government of Canada, was increased to $16 billion. Notably, as of 31 December 2022, the corporation had already borrowed $7.2 billion from this credit facility.
“Given that it will need additional funding to meet the remaining construction costs, the corporation, in its unaudited financial statements for the second quarter of 2023, continued to report a significant uncertainty over continuing operations,” stated the report. “Our mandate includes bringing important matters like this to Parliament’s attention.”
The original Trans Mountain Pipeline was built in 1953. The expansion is essentially a twinning of this existing 1,150-km pipeline between Strathcona County (near Edmonton), Alberta and Burnaby, B.C. It will create a pipeline system with the nominal capacity of the system going from approximately 300,000 barrels per day to 890,000 barrels per day. The project involves laying 980 km of new pipeline.
In March, the project team announced that construction was close to 80% complete, with mechanical completion expected to occur at the end of 2023. They expect the pipeline will be in-service in the first quarter of 2024.