OTTAWA—Parliament’s budget watchdog says expected delays in construction of the government-owned Trans Mountain expansion project will reduce the oil pipeline’s value by hundreds of millions of dollars.

In a report published Thursday, the Parliamentary Budget Office pegged the value of the expanded Trans Mountain pipeline between $3.6 billion and $4.6 billion, not including terminals and other assets attached to the pipeline. The report said Ottawa’s final purchase price last year of $4.4 billion was at the high-end of what the pipeline will be worth if the expansion goes ahead.

But Yves Giroux, the Parliamentary Budget Officer, said even a one-year delay in construction would reduce the value of the pipeline by $693 million. A two-year holdup would degrade its value by almost $1.3 billion.

The pipeline would also lose value if construction costs — currently forecast at $9.3 billion — go up. A 10 per cent increase, for example, translates to a $453-million hit to the pipeline’s value, the report says.

These declines make the Liberal government’s investment in the pipeline “risky,” Giroux said, because they could reduce how much it can be sold for when and if the government tries to find a buyer in the private sector. The Liberal government has said it wants to sell Trans Mountain after it clears the way for the expansion to get built.

“It’s a very risky project, to have bought something that nobody else in the private sector wanted,” Giroux said.

“To my knowledge there were no other bidders for the assets when Kinder Morgan decided to get rid of them.”

Ottawa bought Trans Mountain from the Texas-based oil giant last year, in an effort to ensure the proposed expansion gets built in the face of opposition from the British Columbia government, environmentalists and First Nations.

But construction was halted months later by a Federal Court of Appeal decision that quashed approval for the project. The court ruled Canada’s environmental regulator was wrong to exclude marine shipping form its assessment of the project, and that the federal government failed to meaningfully consult affected Indigenous peoples.

Ottawa then ordered the National Energy Board to redo its assessment and launched a new round of consultations in an effort to clear the way for construction again.

Speaking to reporters outside the House of Commons, Finance Minister Bill Morneau defended the government’s purchase of the pipeline as “a good economic decision.” While he said it’s too early to say if the expansion can be built by December 2021 — Kinder Morgan’s estimate last year, which Giroux called “very optimistic” — Morneau argued construction will be good for the economy, because it will help Alberta companies sell more oil at better prices outside the United States.

He also said the net price for Trans Mountain was closer to $4.1 billion — right in the middle of the budget officer’s valuation range — if you take into account $325 million in capital gains tax that Kinder Morgan paid when it sold the pipeline. Sales documents filed last year with the U.S. Securities and Exchange Commission show Kinder Morgan’s first proposal was to sell Trans Mountain for $6.5 billion.

“We paid an appropriate price,” Morneau said. “We can see the significant commercial advantage in the purchase, but also an advantage to Canadians: allowing us to get our resources to international markets, not just the United States.”

The budget officer’s report also estimates the economic impact of the expansion project. At the height of construction activity, Giroux expects 7,900 jobs to be created and 0.1 per cent growth to Canada’s Gross Domestic Product.

Increasing the capacity of the pipeline to 890,000 barrels a day would also increase the sale price of Canadian oil, the report says, though by exactly how much is difficult to predict. A $5-per-barrel increase would add $6 billion per year to Canada’s GDP, the report says.

Critics from the opposition parties, however, pounced on the budget officer’s report as evidence the government overpaid for the pipeline.

“It feels to me like they got themselves boxed in, and they went to play Texas Hold’em with a Texas oil company and lost—big time,” said NDP MP Nathan Cullen.

Conservative MP Matt Jeneroux predicted there will be more delays to the project, and said the government needs to abandon its legislation to overhaul the project assessment project and stop its carbon pricing plan. “Canadians are paying for Justin Trudeau’s mistakes,” he said.

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After releasing his report, Giroux said the impact of the Federal Court decision will likely delay the project by at least one year. If it never gets built, he estimates the pipeline will be worth between $2 billion and $2.8 billion.

In a worst-case scenario where Ottawa sells Trans Mountain without building the expansion, the government would end up losing about $2.5 billion on its investment, he said.

“From a financial perspective the risks are significant, but should this get build, it will be a relief for the oil sector of Alberta.”

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