Evidence of meeting #114 for Natural Resources in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was report.
A video is available from Parliament.
Liberal
Julie Dabrusin Liberal Toronto—Danforth, ON
Thank you. I just wanted to make sure that I was clear on the scope of your analysis and what it covers, because that helps in figuring out exactly what the next pieces are.
The final piece is just to quickly confirm if I understood correctly. When Mr. Falk asked the question about interest rates going down, that would change the discount rate you apply. Is that correct?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Presumably it would, yes. Other things being equal, yes.
Liberal
The Chair Liberal George Chahal
That's your time. You're right on time. Thank you, Ms. Dabrusin.
We'll now go to Mr. Simard.
Mr. Simard, you have two and a half minutes.
Bloc
Mario Simard Bloc Jonquière, QC
Thank you.
I want to pick up on Ms. Dabrusin's comment.
Mr. Giroux, I wish you had made political comments, but I feel you carefully avoided doing so. As much as I would like to hear your thoughts on that, let's focus on what's within your mandate.
I'll give you a little background. In 2022, after your first report was tabled, the Minister of Finance publicly stated that no more public money would be invested in the Trans Mountain pipeline.
Was that the case, based on your latest analysis?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Based on historical data that's in the public domain, our analysis indicates that, since that time, construction costs have increased by $12.8 billion.
Bloc
Mario Simard Bloc Jonquière, QC
Was any of that $12.8 billion government money? You talked about a hybrid funding scenario earlier, so I assume some of the funding came from the government.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Yes, a lot of the funding comes from Crown corporations that ultimately own the pipeline or the expansion. Since they are Crown corporations, everything is consolidated in the Government of Canada's financial statements.
So, some of the funding was obtained from the private sector, but I believe most of it, or at least a significant amount—my colleague, Mr. Stanton, is too polite to kick me under the table—comes from public loans.
Advisor and Analyst, Office of the Parliamentary Budget Officer
If I can add to what Mr. Giroux said, initially there was financing that was provided through TMP Finance and then, as of 2022, when they changed some of the regulations for the corporation itself, they started borrowing directly from financial institutions. The government is providing a guarantee on those loans, but the debt is taken on with the banks.
Bloc
Mario Simard Bloc Jonquière, QC
If I buy a house that costs more than I can afford, I don't get a government guarantee, so I see this government loan guarantee as a kind of financial support.
I say that because—
Liberal
The Chair Liberal George Chahal
Mr. Simard, your time is up. You can continue during the next round. Thank you.
We'll now go to Ms. Blaney.
Ms. Blaney, you have two and a half minutes.
NDP
Rachel Blaney NDP North Island—Powell River, BC
Thank you, Chair.
I have just one question. The Deputy Prime Minister came to our committee and said that she expected to sell the pipeline for more than the $34 billion spent by taxpayers. Your number suggests that the loss will be in the range of $6.5 billion to $15.2 billion. Can you explain to the committee the discrepancy between your numbers and Ms. Freeland's? Does she have information that you don't have?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
Just to be clear, the loss, based on the numbers that we have, would be lower than the numbers you mentioned because there are already some amounts that have been amortized over time, given that the pipeline is in operation.
It's possible that the minister has had discussions with potential buyers or that she has information as to the potential sale price. This would be normal in the context of discussions to potentially sell an asset of that magnitude, but these are numbers that have been provided to us by the Crown corporation, by the government, and they are in the public domain. Some of the information is confidential, but we were able to use it to assess the value of a potential buyer's willingness to pay.
Maybe she and the department have additional information, but we're not privy to that.
NDP
Rachel Blaney NDP North Island—Powell River, BC
The loss will be lower than the numbers I mentioned, but you also said it is based on how much the buyer is willing to spend.
I'm just wondering how you balance out that discrepancy. I understand there are some things that are being paid off and that process is unfolding, but we actually don't know if those numbers will be lower or higher. I'm wondering if you could talk about that a little bit more.
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
That's a very good point.
When Monsieur Simard referred to buying a house or acquiring a house, there are lots of comparisons, usually, on the same street and in the same city, but assets such as a pipeline are pretty unique. There are a few pipelines around, but they don't serve the same producers and they don't get to the same markets. That's why it's inherently difficult to assess the value of a pipeline.
One method is to look at the value of the future flows of revenue, given that the tolls are regulated. It's one method to assess how much the government could sell that asset for, but a buyer could decide to buy it for economic interests that went beyond the future flows, such as, for example, energy security purposes if it were a foreign entity or other factors if it believed that government policy would change in the future.
In one way or the other, they could be willing to pay more or even less, and then there is the aspect of the number of buyers. A bidding war is possible, but it's very difficult to know exactly until there's a “for sale” sign.
Liberal
The Chair Liberal George Chahal
Thank you, Mr. Giroux.
Thank you, Ms. Blaney.
We'll now go to Mr. Dreeshen.
Mr. Dreeshen, you have five minutes.
Conservative
Earl Dreeshen Conservative Red Deer—Mountain View, AB
Thank you very much, Mr. Chair. It's great to be here to listen to the explanation that many of us have been looking forward to for quite some time.
There was a discussion earlier about the mandate and, as you mentioned, its issues of importance and the impact on the national economy. That became the metrics that you were looking at.
As I mentioned to you earlier, having been on the public accounts committee, I think it's important to talk about the full life cycle of projects, whether it's a 40-year project or 50-year or 60-year project. I think that's important. I related the F-35s and the national defence, PBO and Auditor General time frames that they had. Obviously, there was a fair amount of confusion that had taken place there, but it would be nice if we knew exactly how many years we were going to be putting in there.
I would like a little bit of a clarification on the discussion on the cost of capital and how much of this was government-guaranteed, because if it's government-guaranteed, we shouldn't be worrying. I question what the concern would be as far as the interest rates are concerned and so on.
The other thing is that people have indicated the government bought the right to build a pipeline. Do you have any information on the litigation they would have been subject to had this not gone through?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
The rate guarantee is implicit in the fact that it is a Crown corporation. It's owned ultimately by His Majesty in right of Canada, as we call it officially, so the financing of government borrowings is done at a rate that is advantageous for the corporation, although it's slightly higher than the cost of borrowing for the Government of Canada.
The guarantees when the corporation got financing on the private market were probably done at a favourable rate, knowing who was ultimately behind the borrowings. From that perspective, the pipeline is benefiting from rather favourable terms of borrowing, both on the private and the public side.
What was the other part of your question?
Conservative
Earl Dreeshen Conservative Red Deer—Mountain View, AB
The other part had to do with the fact that there's potential litigation over not getting this pipeline built.
Perhaps we can move on from that, because one of the other things you had mentioned is how significant it would have been to have done some auditing at the construction stage. We see reports about woodpecker nests and so on, and how that stops it for a couple of weeks and, if there's an anthill, how much time it would take to be able to sort through that. I know people who have worked on it. It's not that those aren't significant things to consider; it's the length of time it takes to get from one stage to the next.
My concern is how we look at other projects that are going to take place in the country if we've set up these barriers of over-regulation and not getting things done in a timely manner. Is that anything that you could advise upon?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's something that has come up quite often in the context of big procurement projects, notably in the case of national defence procurement projects. What we find is that having a strong project management office with one person, or one group, clearly in charge helps to clear out the hurdles and ensure that whatever needs to happen happens in a timely manner.
That being said, with a project as unique as a pipeline, it probably was much more difficult to achieve that, given that there's not that much expertise in government or, broadly speaking, to make sure that things that need to happen happen in a timely manner, considering the number of regulations that need to be complied with.
It's not a very good answer, I know, but it's not something we looked at.
Conservative
Earl Dreeshen Conservative Red Deer—Mountain View, AB
That's fine. I appreciate that, because I think it is quite important because we'll be looking at trying to develop policies in order to manage this situation, and I think that's a critical part.
It has also been said that we're waiting until we find the right price. If I had a bunch of canola in a bin or something like that, we often think that way, and then we sell it for what we have to.
It's easy to make this statement that we're going to wait until the right price. What assurances do you have that this is at all possible?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
It's not for me to determine the right time to buy. I think that's something that clearly falls within the purview of CDEV, and they can ask for private sector or outside assistance to determine market conditions. It's not something I can comment on.
Liberal
The Chair Liberal George Chahal
Thank you.
We'll now go to Mr. Jowhari.
Mr. Jowhari, you have five minutes. Please go ahead.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Thank you, Mr. Chair.
I'm just going to go back to the line of questioning that I was asking. The price, the value that you have put on this pipeline, is based on the present value of 40 years based on certain risk. Now, let's assume that there is an interested buyer who will come forward in the next five years. We're doing a hypothetical situation everywhere, so let's say that in the next five years, an interested buyer comes in.
Can you tell me what elements of the risk that you had taken into account in your calculation could have been eliminated? For instance, would the toll at that time have been finalized, or would the utilization be finalized? Would our position on the discount rate be a little more clarified?
To me, those could position us to make a decision at that time, because I don't think—with all the respect that I have for you, your office, and your work—any buyer is going to come and say, “You know what? The PBO said it's going to be $29 billion, so I'm not going to pay more than that.”
Can you comment on all the variables that you've taken into account?
Parliamentary Budget Officer, Office of the Parliamentary Budget Officer
I would hope that a buyer would not base their offering price solely on a report and I would hope that they would do their own due diligence very thoroughly before coughing up $30 billion or $35 billion.
However, if they were to make an offer, I think their cost of capital would be an element of risk that would probably be taken out of the equation because they would have a pretty good idea as to how much it costs them to raise $25 billion, $30 billion, $35 billion or $40 billion to buy a pipeline. That would be one element of risk removed from the equation.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Then we have pipeline utilization and tolls that are left.
Do you have any comment on that?