Canada’s purchase of the Trans Mountain Pipeline – Economic and Financial Considerations

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The Fall Economic Statement 2018 outlined the Government of Canada’s $4.4 billion purchase of the Trans Mountain Pipeline, Trans Mountain Expansion Project, and related assets in August 2018. 

The Parliamentary Budget Officer (PBO) estimates that the TMP and TMEP have a value of between $3.6 billion and $4.6 billion. As such, the Government negotiated a purchase price at the higher end of PBO’s valuation range. 

One significant finding of this study is that delays in pipeline construction, an increase in construction costs and/or changes in the risk profile of the TMEP (reflected by the discount rate) can negatively influence the final sale price that the Government can negotiate for the TMP, TMEP and related assets.

The PBO finds that completing the project one year behind the planned schedule would reduce the value of the TMEP by $693 million. Similarly, a 10 per cent increase in construction costs would lower its value by $453 million.

 This study also estimates that the peak annual impact on real gross domestic product (GDP) and employment due to the construction of the TMEP would be 0.11 per cent and 7,900 jobs in 2020; this would decline thereafter.

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