Natural Resources Committee on Oct. 21st, 2024

[Mark Maki]

In the corporate plans of the company and of CDEV, you'll see the structure, but TMP Finance basically is a funding corporation into Trans Mountain Corp. It was a provider of debt and equity funds for the original acquisition and for construction up until the time that the company began to borrow from external banks to pay for the project.

[Charlie Angus, NDP, Timmins—James Bay, ON]

Again, I'm not a businessman. I played in a punk rock band. However, I have to ask myself something here. You have a company set up that exists to hold debt, with no employees. That looks to me like a shell company. I'm thinking that Chrystia Freeland is a lot smarter than I am. Why would she set up a shell company?

A shell company is not all that difficult to set up if you're going to keep all the debt off your books. Then you could come to us at a future meeting and say, “I'm guaranteeing we're going to get all of our money back.”

Is it possible that TMP Finance was set up to hold the debt so that the government can wipe the debt and then you can continue to give the oil companies a subsidy of $11 to $13 a barrel because they're not having to pay the full cost back?

[Mark Maki]

It's an interesting question, but I really can't comment on what—

[Charlie Angus, NDP, Timmins—James Bay, ON]

Is it that you can't comment, or you don't know? Is this too hypothetical? This is a financial business case. There's a business case that I have to go back to voters and say that we put this money in and you're getting it back, but all the debt's being held in a shell company.

[Mark Maki]

Sure. It doesn't matter whether it's the financing company or an intermediary company; that's not an uncommon structure in any corporate setting. There's nothing unusual about that. What you have to look at, Mr. Angus, is very simple. Look at the balance sheet of Trans Mountain. There's capital that's supporting the asset side. There's $35 billion in assets. They are big, round numbers. You have to get $35 billion of value for the company. That's what you have to look at. It's very simple.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I agree, and that's why I'm really stuck on why you would be giving such a haircut on the toll rates, because that's how you make your money back.

Again, I'm not in the business, but I'm looking at the Tsleil-Waututh First Nation's report, where they said that since it wasn't recoverable in tolls, there's no way that the CER or the National Energy Board should have approved this. They wouldn't have approved it from a private shipper if they couldn't say they were going to get their money back.

How is it that you can go and get these approvals if you don't have a financial plan that says the money's actually being made back now that you're operating?

[Mark Maki]

The toll design that the company has employed was designed to provide a very reasonable rate of return under all kinds of different circumstances, including the one that we find ourselves in. Over the life cycle of the project, the return that we expect to get in the project would be reasonable in any regulated context. That is how we assess and see this project.

[Charlie Angus, NDP, Timmins—James Bay, ON]

It's with a $13-a-barrel subsidy.

Thank you.

[The Chair, Liberal, George Chahal]

Thank you.

We'll now proceed to our next round of questioning

The first speaker, for five minutes, is Mr. Falk.

Mr. Falk, the floor is yours.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you to all of our witnesses for your appearance here today and for your testimony.

Mr. Maki, I would like to begin with you.

The project initially was purchased for $4.5 billion, with construction costs at roughly $5.3 billion, for a total of just under $10 billion. It quickly escalated to $12 billion. The next report was $20 billion; then it was $30 billion, and now it's $34 billion.

Can you confirm to this committee that this is the end cost of this project?

[Mark Maki]

When we talk about the project cost, Mr. Falk, in any context, we're always speaking about what we expect or forecast at completion. The project cost forecast at completion is somewhere between $34 billion and $34.5 billion. That should be the final cost. Based on what we know today, it's someplace in that range. I think our current working number is about $34.2 billion.

[Ted Falk, Conservative, Provencher, MB]

The initial purchase and consideration for the project would have included somebody doing their due diligence on construction costs and firm fixed-price contracts.

Was that the case?

[Mark Maki]

That predates my time, but I can say with a high degree of certainty, Mr. Falk, that there was in fact a very thorough due diligence process by the government when it bought the system.

As I mentioned earlier in the Q and A, with Mr. Schiefke, if you go back in time and look at costs of comparable projects at the time, they would have seen other projects of similar scale and scope that would have been costed at the same amount.

The world changed; that is the bottom line.

[Ted Falk, Conservative, Provencher, MB]

I understand that, Mr. Maki, but on a $12-billion project, you would have had some firm fixed-pricing, some fixed contracts.

How do you then move from $12 billion to $20 billion to $30 billion to $34 billion, if you have fixed contracts with vendors, with suppliers and with contractors? How in the world does that change?

I come from a contracting background.

[Mark Maki]

Yes. I would say, Mr. Falk, that some elements of the contracts would have been fixed—primarily materials that they would have bought early in the project. With respect to the rest of the work, it was largely time and material. It was driven by the amount of work that would have been encountered.

One of the big changes that would have been an element of this—and this has been commented on by both gentlemen—is the use of, effectively, poor-boy construction techniques. What that means in pipeline parlance is basically that we don't get the economies of scale from continuous cross-country pipelining like you might see in eastern Alberta, Saskatchewan or Manitoba.

Instead, it was having to build, pick up, move, build, go back, fill in, pick up and move, so efficiencies were never realized—

[Ted Falk, Conservative, Provencher, MB]

That's as Mr. Campbell indicated in his testimony as well. However, you would have had fixed pricing for different segments of the project.

Did you commit to $12 billion without fixed pricing?

[Mark Maki]

There was no way.... There was no contractor who would have done fixed pricing. That was Kinder's experience at the time. They were working on the project, and the government stepped in. There was very little fixed-price contracting on this. It was time and material. That was how most of it was done.

[Ted Falk, Conservative, Provencher, MB]

Wow. That's interesting.

I want to follow up a bit on what Mr. Angus was asking about the financing there.

My understanding is that roughly $13 billion or $14 billion was financed directly by the Government of Canada. Forgive me with my numbers; they could be a little off. Also, there was $17 billion of traditional financing through banks.

Would that bank financing have been available without the Government of Canada co-signing the loan?

[Mark Maki]

It would have been available, probably at a much higher cost than what was available with a government guarantee.

[Ted Falk, Conservative, Provencher, MB]

What is the cost of that financing?

[Mark Maki]

It varies. It's typically tied to interest rates and what you might see in the markets.

The last borrowings we did were in the neighbourhood of 5.5% to 5.75%—something in that range. It changes every time we do a draw.

[Ted Falk, Conservative, Provencher, MB]

What kind of rate of return is the Government of Canada getting?

[Mark Maki]

Please clarify that question a little.

[Ted Falk, Conservative, Provencher, MB]

The Government of Canada has borrowed TMP money, which finances TMX. What is the Government of Canada's return on its investment?

[Mark Maki]

That'll play out, Mr. Falk, when the asset is disposed of in the end.