Natural Resources Committee on Oct. 21st, 2024

[Ted Falk, Conservative, Provencher, MB]

You said you are quite certain that the project will be able to return the $34 billion to the taxpayer at some point.

What kind of toll is going to be required in order for that to actually come to fruition?

[Mark Maki]

First off, as I mentioned in my comments and in Q and A, it's important that the owner be a disciplined seller. If they want to get their money back, they have to be disciplined. That also means they have to walk away from the table if they get an offer from somebody and they don't agree with it.

With respect to the tolling level, we are in the process now of defending our tolls in front of the CER. The customers are taking issue with that. Others are saying the tolls that we filed for are too low and are taking issue with that level.

The CER is going to have to sort all this out, but basically we think what we have filed for...in fact, they should be about 50¢ a barrel higher because of some elements of costs that have moved since we filed our tolls in the middle of 2023.

[Ted Falk, Conservative, Provencher, MB]

Is cash flow $34 billion?

[Mark Maki]

We think we're in the right, so we have to hold those tolls.

[Ted Falk, Conservative, Provencher, MB]

Cash flow is $34 billion.

[The Chair, Liberal, George Chahal]

Thank you, Mr. Falk. I gave you a little extra time, because Mr. Maki was wrapping up his answer, but you'll have another opportunity to follow up on that.

We'll now go to Mr. Jowhari for five minutes.

Mr. Jowhari, the floor is yours.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Mr. Chair, and welcome to our witnesses.

Thank you for your testimony, and I can see how proud you are of the work that your members have done on making sure that, as you called it, a piece of marble has been developed, and I can see that pride in your faces. Please convey that to your members as well, and thank you for making this project happen, given all the challenges.

Over the last number of meetings, we've kind of established, at least from my point of view, that there was a business case from a benefit, whether it was downstream of the economy.... I was very happy to hear that the margin now is $10. I recall that, at $9, it was $258 billion, and if you divide that by the number of households and the benefit that's coming in.... I'm not going to go there, but there is a lot of benefit.

My line of questions is going to focus on the key drivers.

We've talked about how numbers have increased. We can talk about whether the original number was properly done, properly estimated or not, but what were the key drivers and what were some of the key challenges? I think Mr. Campbell pointed to at least five of those challenges. What was the impact on the timeline and cost?

I believe that Mr. Maki said that $9 billion accounts for a third of these overruns. That's not under our control, but now that all the numbers are out, if this thing was estimated at, let's say, $12 billion, and now it's $34 billion, we are accounting for about $22 billion in overrun. What were the key drivers, and how do you break down those overruns by each one of those?

Who wants to start? Who feels more comfortable? Go ahead. You have three minutes.

[Mark Maki]

We look at it as five buckets. There's similar evidence that's included in our CER testimony by the company, which is focusing on uncapped costs—in other words, costs that we pass through to the shippers—but when you look at the whole project, the same categories basically apply, so I'm going to go through these five quickly.

Evolving and additional compliance requirements are one bucket. That's about $5 billion, or about 19% of the increase, and I'm going against the $7.5-billion estimate when the project was approved to go ahead. Information maturity is about $7.2 billion, about 27%—I'll come back to what some of these things are in just a second—indigenous accommodations are $2.3 billion, 8%; stakeholder engagement and compensation is $3.5 billion or about 13%; and the aforementioned exogenous factors total $8.9 billion, or 33%.

Those are five big buckets in our way of thinking.

[Majid Jowhari, Liberal, Richmond Hill, ON]

How much is that in total? I'm good at math, but not that good.

[Mark Maki]

It's $27 billion.

[Majid Jowhari, Liberal, Richmond Hill, ON]

I'm sorry, could you repeat that?

[Mark Maki]

It's $27 billion. I'm talking in big, round numbers from 7 to 34, just for sake of conversation.

With respect to the different categories, we talked about exogenous factors, COVID, fire, floods—things that are outside the company's control. I want to go back to indigenous accommodations for a minute, because it's relatively minor but very important.

Two good examples of this were the re-routing of the pipeline in the Coldwater nation. Basically, we moved the pipeline route away from the community, which is what they wanted, and we're all for that.

The other probably sizable one is south of Kamloops in B.C. There's an area called Pipsell Lake or Jacko Lake, and there we built five missile silos, which is an analogy, in the ground, and we connected them with a subway. It was a very big undertaking in order to avoid disturbing the surface as much as possible, which was incredibly important to the nation that was there. Those are a big component of that $2.3 billion, those two things, but there also were the archaeology programs and other things, which, again, were incredibly important to the proper execution of this project.

I touched on information maturity. That was $7.2 billion, and that was—

[Majid Jowhari, Liberal, Richmond Hill, ON]

Can you expand on information maturity? I have about 30 seconds.

[Mark Maki]

Yes, I would say that it's about the data that was available in terms of the construction plan. You know, urban pipelining is an incredible challenge. Instead of being able to do 10 kilometres in a day, you were basically doing, if you were lucky, 100 metres, but you didn't know what you were going to encounter. You knew it was going to be hard, but you had no idea how hard until you got in and started digging, and you realized that you could move a few metres a day, because you were having to cross all kinds of utilities, services and so forth. It's an incredible challenge.

[Majid Jowhari, Liberal, Richmond Hill, ON]

I'm out of time.

Mr. Chair, can I ask Mr. Maki to submit those numbers, because this is the very first time I'm getting a breakdown of the $27 billion? How is it paired with that? I would appreciate it if Mr. Maki could make that formal submission. I think those numbers were very valuable for us.

Thank you, Mr. Chair.

[The Chair, Liberal, George Chahal]

Thank you, Mr. Jowhari.

I will remind all of our witnesses that they can provide a submission, if they did miss anything, directly to the clerk.

[Ted Falk, Conservative, Provencher, MB]

Excuse me. I have a point of order, Mr. Chair.

On that point, could I also ask Mr. Maki if he would provide the committee with a breakdown of the original budget and the completed cost, not line by line with minutiae detail, but by subcategories.

[The Chair, Liberal, George Chahal]

Thank you, Mr. Falk. That's not a point of order, but I think Mr. Maki did hear what you stated, and he will be able to provide some information to the committee at a later date.

Do you have a point of clarification, Mr. Maki?

[Mark Maki]

Yes, thank you, Mr. Chairman. I just want to be clear with Mr. Falk. The project is still under construction. We're doing the remediation work, so it's not done yet. What you're going to get will be a forecast. Just please understand that. It's not perfect; it'll be a forecast.

[The Chair, Liberal, George Chahal]

Thank you for providing that clarity.

Now we'll go back to our order. We'll go back to Monsieur Simard for two and a half minutes.

[Mario Simard, Bloc, Jonquière, QC]

Thank you, Mr. Chair.

Mr. Maki, I read the PBO's 2022 report because I was interested in the pipeline issue. As the CEO of Trans Mountain, you've certainly read the report. I assume you'd be interested to know that, by early next month, the PBO should provide an update on those figures.

Now I would like to go back to the 2022 figures. According to the PBO, those numbers clearly indicated that the Trans Mountain project was going to be a net loss for Canada and an unprofitable undertaking. On the one hand, he attributed that to the skyrocketing cost. At the time, it was $21.4 billion; now it's $34 billion. On the other hand, there was the issue of delays. The PBO thought the project would be complete in 2023, but it took until 2024. I don't assume the PBO is going to find that the situation has improved.

Earlier, I heard you say that, in your opinion, the project was profitable. I'd like to know what your statement is based on. Are you able to demonstrate that to the committee? You have no doubt done some projections.

I'd like to know how we have such different results. Personally, I trust the PBO, but I also trust you. On the one hand, the PBO tells us that, at a cost of $21 billion, the project is a net loss for Canada and unprofitable. On the other hand, based on your analysis, at a cost of $34 billion, the project can be profitable. I would like to understand your reasoning a little better.

[Mark Maki]

As I understand the question, Mr. Chairman, it really centres around the PBO report from 2022 and an update that is forthcoming from the PBO on the Trans Mountain expansion project, what they saw as value and how that would have changed since the last study was done.

There are a few comments I'd like to make. First off, the project is done. When the 2022.... Mr. Giroux commented on this in his testimony and said there were a number of things he would have to update. The discount rate would be one, because the project's done. The risk is lower. The project is in service. The tolling is higher as a result of increases in costs in the uncapped areas of the project, so the toll goes up. We'll have greater clarity on cost, for sure. Interest rates will have an effect on what the discount rate is and how someone may look at it. However, bottom line, I don't know what his study will say.

My conviction is that we have to be disciplined sellers. I think if we're disciplined sellers, Member Simard, we can get our capital back. If we're not disciplined sellers, then the other outcome is more probable, so we have to be a disciplined seller. That means if we're not happy with value, we walk away.

[Mario Simard, Bloc, Jonquière, QC]

Okay, thank you—

[Mark Maki]

That is going to be an important concept here. In the meantime, while the owner has the asset and the rate cases are getting behind us and indigenous economic participation becomes a reality—

[Mario Simard, Bloc, Jonquière, QC]

Thank you, Mr. Maki. I can well understand that you may be a disciplined seller, but let's just say that you weren't very disciplined from a project management point of view. We are talking about an oil and gas project whose cost has risen to $34 billion. I find that over the top. In fact, I'm always surprised to see that the media isn't all that interested in the issue, because I think that in a decade or so, it will be seen as one of the Canadian government's worst fiascos. That's one thing.

I just want to know if your project is profitable. I suppose that at some point, someone might want to acquire the infrastructure. Is there any discussion right now about Trans Mountain eventually being sold by the Canadian government and taken over by a company? Has anyone expressed any interest?