Finding details on the financial transactions on the Trans Mountain pipeline requires a lot of digging.

How much has the Canadian government spent to date acquiring the Trans Mountain pipeline, how much revenue has it generated, how much will be spent on its expansion?

Those are some of the questions raised in a new report by the American Institute for Energy Economics and Financial Analysis (IEEFA).

The IEEFA is typically bearish on fossil fuels and bullish on renewable energy. Its economic analyses of fossil fuel projects are typically pessimistic, often calling into question the economics of fossil fuel projects.

But the IEEFA does raise some valid questions in its report about the federal government’s reporting – or lack thereof – on financial matters related to the Trans Mountain pipeline.

“It’s very difficult to see a full accounting,” said Kathy Hipple, one of the report’s co-authors. “In fact, it’s impossible. The Canadian taxpayers, we believe, are owed a single-source document, a single-source audit, as if they were looking at this transaction from start to finish.”

Nearly a year ago, in May 2018, after Kinder Morgan Canada (TSX:KML) announced it might cancel its $7.4 billion pipeline twinning project, the Trudeau government announced it would buy the existing Trans Mountain pipeline for $4.5 billion, and try to find a buyer to take over the project.

It didn’t fund a buyer, so the government is responsible for the project’s expansion, which would cost the government an additional $6 billion to $8 billion.

The cost of the expansion has been estimated at $7.4 billion to $9.3 billion, but $1.2 billion was already spent, leaving a balance of $6 to $8 billion.

There has been a lack of transparency and details around the project’s financing. As the IEEFA points out, only $1 billion on the $6 to $8 billion that still needs to be spent appears to have been committed.

“The government has committed to spend $5 billion for the purchase of the pipeline, $1 billion for construction to expand it and another $500 million to underwrite environmental liabilities,” the IEEFA report finds.

The IEEFA report also points to the federal Department of Finance’s reporting in November 2018 that the Trans Mountain pipeline had earned $70 million since it was acquired. The report says the statement on revenue “has not been supported by any further financial filings.”

When Trans Mountain was owned by a publicly traded company – Kinder Morgan Canada (TSX:KML) – details on its financial operations and performance were published quarterly, as per securities and exchange regulations.

But now that it’s s owned by the government, there has been a lack of financial accounting.

When the Trudeau government announced it would buy the existing Trans Mountain pipeline, and the Trans Mountain Expansion Project (TMEP), the price that was announced was $4.5 billion. That included $1.2 billion for money already spent on the TMEP.

The Trans Mountain Corporation is now owned by the government through the Canada Development Investment Corp. (CDEV).

The CDEV has yet to publish its 2018 annual financial report, which should contain details on things like revenue generated by the pipeline. Until then, it’s a bit of guesswork.

In a September 2018 quarterly financial statement, the CDEV reported that the pipeline had generated $33 million in revenue in one month, September 2018, and operating income of $15 million, before interest costs, taxes and depreciation (EBITDA).

So, since September 2018, the Trans Mountain pipeline may well have generated well over $200 million in revenue – something the government should be eager to disclose.

As for how much the Canadian government paid and where the money came from, the CDEV reported in its last third quarter financials that the Canadian government borrowed $5.2 billion from the Export Development Canada for the acquisition. That included $500 million for a letter of credit required in insurance for any environmental mishaps.

Although the purchase price was $4.5 billion, Kinder Morgan had to pay the Canadian government roughly $300 million in capital gains. So, the government ended up paying slightly less than $4.5 billion.

The CDEV stated the purchase price for the Trans Mountain pipeline and associated infrastructure (including the Westridge Marine Terminal) and the TMEP was $4.3 billion. That included $1.2 billion for the construction spending that had already taken place on the TMEP prior to purchase, plus $1.1 billion in goodwill.

The project was halted in August 2018 by the federal Court of Appeal, and the Trudeau government has been working ever since to address two key issues raised by the court before trying to approve it again.

The IEEFA asks if, given the project’s delay, it is now missing spending benchmarks, and whether the revenue it generates will be sufficient to pay off government debt.

Asked to respond to some of the questions raised by the IEEFA, one CDEV official referred questions from Business in Vancouver to another CDEV official, who referred BIV to the previous official.

Neither could answer when the CDEV’s annual report would be posted. Normally, they are done by the end of March. The federal Department of Finance has not yet responded to BIV’s request for a response to the IEEFA report.

The circular response received from the CDEV, and lack of response from Finance, underscores one of the central points made by the IEEFA report: There is a distinct lack of transparency and proper accounting on the government’s part around the project’s financials.

“The government of Canada has structured the acquisition of the Trans Mountain pipeline, its planned expansion and ongoing operation in a way rendering it impossible to determine how much taxpayers are paying now and will pay in the future,” the report states.

“It’s an extraordinary step for the Canadian government to buy a pipeline, and then commit to expanding it, with the goal of ultimately selling it,” Hipple said. “But again, we don’t have enough information that sits in one place that is accessible for the Canadian taxpayers to determine what they’ve already spent and what they’d be on the hook for.”

Trans Mountain has said it will respond to the IEEFA report. This story will be updated when it does.

nbennett@biv.com

@nbennett_biv