The Trans Mountain pipeline received $320 million in subsidies from the Canadian and Alberta governments in the first half of 2019 according to a Canadian Press story on Nov. 19, 2019. (Photo by THE CANADIAN PRESS)

The Trans Mountain pipeline received $320 million in subsidies from the Canadian and Alberta governments in the first half of 2019 according to a Canadian Press story on Nov. 19, 2019. (Photo by THE CANADIAN PRESS)

Trans Mountain received $320M in government subsidies in first half 2019: report

The money included $135.8 million in direct subsidies and $183.8 million in indirect subsidies

The Trans Mountain pipeline received $320 million in subsidies from the Canadian and Alberta governments in the first half of 2019, says a new report by an economic institute that analyzes environmental issues.

The money included $135.8 million in direct subsidies and $183.8 million in indirect subsidies that were not clearly disclosed to taxpayers, says the report by the Institute for Energy Economics and Financial Analysis.

“This is a very large subsidy. It really does require more public discussion and public disclosure,” says Tom Sanzillo, the group’s director of finance.

Sanzillo and the report’s co-author, institute financial analyst Kathy Hipple, analyzed the second-quarter report of the Canada Development Investment Corp., a Crown corporation meant to further the country’s economic development that counts Trans Mountain Corp. among its subsidiaries.

The document is public but presents a consolidated picture of the development corporation’s finances, including revenues from the Canada Hibernia Holding Corp., which operates the Crown’s interest in oil reserves off Newfoundland and Labrador.

This accounting treatment obscures the real financial state of Trans Mountain, Sanzillo says.

“It’s a good form of accounting. I’m not criticizing it. It just shouldn’t be the only mechanism for showing the public how much money is being spent on this,” he says.

The Canadian government gave the development corporation just over $5 billion to finance the acquisition of Trans Mountain, the report says. Trans Mountain Corp. must make regular interest payments to the Canadian government at a rate of 4.7 per cent.

The cash was provided to Trans Mountain in two sections: a $2.8 billion loan and a $2.3 billion equity investment. The interest on the loan must be paid from the pipeline’s business activity, while the interest on the equity investment can be paid from a third-party subsidy, the report says.

The Canada Hibernia Holding Corp. covered the interest on the equity investment for the first half of 2019, representing a direct subsidy of $46.3 million, the report says.

Trans Mountain posted a $10.9 million loss in this reporting period prior to taxes, the report says.

However, the loss is subsidized in the consolidated financial report by the Hibernia corporation’s earnings, amounting to another $10.9-million direct subsidy, the report says.

Sanzillo also says the development corporation uses an “accounting gimmick” to obscure Trans Mountain’s pension liability of $24.4 million. This is one more direct subsidy, he says.

Finally, the Alberta government reduced corporate taxes through a tax credit starting in January 2019. This policy action allowed Trans Mountain to save $54.1 million in taxes, yet another direct subsidy that the development corporation uses to turn the corporation’s pre-tax loss into a post-tax gain, according to the report.

READ MORE: B.C. First Nations drop out of court challenge, sign deals with Trans Mountain

Sanzillo also identifies what he calls an indirect subsidy; the difference between the interest a private company would have charged Trans Mountain versus the rate charged by the Canadian government.

Canada’s 4.7 per cent interest rate stands in contrast with the 12 to 15 per cent rate of return used by its former owner, Kinder Morgan, the report says.

Sanzillo used the lower figure, 12 per cent, to calculate that a private company would have charged Trans Mountain $302.1 million in interest in the first half of 2019. The Canadian government, meanwhile, charged it $118.3 million.

That amounts to an indirect subsidy of $183.8 million for the first six months of the year, according to the report.

The report authors acknowledge that the Canadian government does not have to adhere to commercial standards.

“(The report) is about transparency and not meant to be a legal challenge to the right of the Canadian government to subsidize the pipeline project. It is a matter of dollars at risk that the Canadian taxpayer might absorb,” it says.

When the authors added the $46.3-million interest payment and the $24.4-million pension expense back to Trans Mountain’s financials, they concluded the pipeline corporation had a $67.1-million pre-tax loss and a $12.9 million loss after taxes.

The Canadian government plans to ultimately sell the pipeline. If it does so for a lower price than it paid for the infrastructure, it can legally forgive any debt that is left over, Sanzillo adds.

The Canadian Press was unable to reach out to the Department of Finance and Trans Mountain Corp. for reaction until the group’s report was published Tuesday morning.

Laura Kane, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Mackenzie Ashley-Lynn Gilfillan was last seen Jan. 10 in the 45000-block of Menholm Road. (RCMP photo)
RCMP asking for help to find missing Chilliwack woman

Mackenzie Ashley-Lynn Gilfillan was last seen Jan. 10 in the 45000-block of Menholm Road

Chilliwack Chiefs
Chilliwack Chiefs acquire forward Ben Woodhouse from Wellington Dukes

The BCHL club swapped future considerations to the Dukes for the 20-year-old forward

Chilliwack is still one of B.C.’s COVID hot-spots, according to the latest weekly numbers from the B.C. Centre for Disease Control.
Chilliwack records 140 COVID cases over seven-day period

Chilliwack’s case count per 100,000 people is among the highest in the province

An Abbotsford man was killed in a motor vehicle accident on Highway 3 on Monday, Jan. 18. (Black Press file photo)
Abbotsford man killed in Highway 3 crash near Hedley

Fatality was discovered by passing tow truck driver

Light boxes installed recently near Five Corners, seen here on Jan. 18, 2021. (Paul Henderson/ Chilliwack Progress)
Mystery of the large light boxes in downtown Chilliwack revealed

Some suggested ‘warming stations’ for the homeless; others guessed ‘public art’ installations

Provincial health officer Dr. Bonnie Henry prepares a daily update on the coronavirus pandemic, April 21, 2020. (B.C. Government)
B.C. adjusts COVID-19 vaccine rollout for delivery slowdown

Daily cases decline over weekend, 31 more deaths

A female prisoner sent Langford police officers a thank-you card after she spent days in their custody. (Twitter/West Shore RCMP)
Woman gives Victoria-area jail 4.5-star review in handwritten card to police after arrest

‘We don’t often get thank you cards from people who stay with us, but this was sure nice to see’: RCMP

An elk got his antlers caught up in a zip line in Youbou over the weekend. (Conservation Officer Service Photo)
Elk rescued from zip line in Youbou on Vancouver Island

Officials urge people to manage items on their property that can hurt animals

A Trail man has a lucky tin for a keepsake after it saved him from a stabbing last week. File photo
Small tin in Kootenay man’s jacket pocket saved him from stabbing: RCMP

The man was uninjured thanks to a tin in his jacket

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

Tla-o-qui-aht First Nation Chantel Moore, 26, was fatally shot by a police officer during a wellness check in the early morning of June 4, 2020, in Edmundston, N.B. (Facebook)
Frustrated family denied access to B.C. Indigenous woman’s police shooting report

Independent investigation into B.C. woman’s fatal shooting in New Brunswick filed to Crown

Delta Police Constable Jason Martens and Dezi, a nine-year-old German Shepherd that recently retired after 10 years with Delta Police. (Photo submitted)
Dezi, a Delta police dog, retires on a high note after decade of service

Nine-year-old German Shepherd now fights over toys instead of chasing down bad guys

Nurses collect samples from a patient in a COVID suspect room in the COVID-19 intensive care unit at St. Paul’s hospital in downtown Vancouver, Tuesday, April 21, 2020. (THE CANADIAN PRESS/Jonathan Hayward)
5 British Columbians under 20 years old battled COVID-19 in ICU in recent weeks

Overall hospitalizations have fallen but young people battling the virus in hospital has increased

Most Read