By Robb M. Stewart


OTTAWA--Canadians face potentially billions of dollars in losses on the sale of the federally-owned Trans Mountain pipeline, a report by the country's budget watchdog suggests.

The estimated total cost of the pipeline project has increased by 12.8 billion Canadian dollars, the equivalent of about $9.2 billion, since last calculated in June 2022, boosting the price tag to C$34.2 billion, Canada's Office of the Parliamentary Budget Officer said in an updated analysis released Friday.

The watchdog calculates the current present value of the now operational pipeline is between C$29.6 billion and C$33.4 billion, depending on what happens after the initial 20-year contracts expire, and whether there is a reversion to a "cost-of-service" scenario or the contracts are renewed.

Canada's government stepped in and bought the project in 2018 to ensure construction was completed, with a plan to eventually sell it. Based on the watchdog's analysis, a sale at a price within the present value window may mean a loss of between C$1.8 billion and C$5.6 billion.

The budget office said that based on the last annual report published by Trans Mountain Corp., it has total assets of C$35.2 billion, including liabilities of C$26.9 billion and C$8.3 billion in shareholder equity. That would mean that if the pipeline was sold in 2024 at a price inside the watchdog's present value estimate, the government would see a loss after outstanding liabilities are repaid.

The budget office in its report notes there is uncertainty regarding future cash flows for the pipeline, its ultimate lifespan and utilization and what tolls will be charged to shippers later in the pipeline's life.

"Whether the government records a profit or loss on the sale of the Trans Mountain pipeline network will ultimately be determined by the price a buyer is willing to pay," Parliamentary Budget Officer Yves Giroux said.

Giroux said the sale price will depend on factors including the number of interested buyers, their costs to secure the necessary funds, the timing and method of sale, market conditions and if some groups are given priority in any sale.

Trans Mountain, which became operational in May, is the twin of an existing line built in the 1950s that together can triple shipments of Alberta oil to the pacific coast to 890,000 barrels a day.

The government has estimated the expanded pipeline could lead to 40,000 new jobs, up to C$38 billion in tax revenue for provincial coffers, and a C$126.8 billion increase in gross domestic product. Late last year, Canada recorded a write-down on the pipeline asset of nearly C$1 billion.


Write to Robb M. Stewart at robb.stewart@wsj.com


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