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Trans Mountain pipeline expansion cost jumps 70% to $12.6 billion

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Delays and design changes have driven the cost to build the Trans Mountain pipeline expansion up by about 70% to $12.6 billion from the $7.4 billion estimate made three years ago, the company says.

The project has cost about $2.5 billion to date, including the impact of delays and additional regulatory processes, leaving an additional $8.4 billion needed to complete construction, plus $1.7 billion of financial carrying costs, said president and CEO Ian Anderson on a conference call Feb. 7.

He said the project owned by the federal government is now expected to be in service by December 2022.

“It’s really important to know that the project that we’re all working on and building today is not the project that we originally envisioned and introduced early in 2012,” he said.

“Nor is it the one we last provided a cost estimate for in early 2017. It isn’t even the one we envisioned as early as 2018 when our ownership changed. It’s much, much more today.”

About half of the higher cost was caused by delays and the other half by scope changes such as adding thicker pipe in some areas and enhanced leak detection provisions, he said.

Anderson says the company is recommending that Ottawa, as owner and lender, set aside a further $600 million reserve for cost impacts beyond the control of Trans Mountain.

The estimate of $7.4 billion was made in 2017 by the previous owner, Houston-based Kinder Morgan, Inc., which sold the expansion project and existing pipeline to the federal government in 2018 for $4.5 billion amid doubts that it could be built in the face of opposition from the province of B.C.

Opponents have attacked the greenhouse gas emission and oil spill risks of the pipeline project but they’ve also charged it will be a money-loser trying to tap unproved markets in Asia and that it will fail financially and leave the public holding the bag.

The total cost of more than $17 billion is higher than feared and means it will be impossible for the federal government to sell it to a new owner as planned, said Sven Biggs, climate and energy campaigner for Stand.earth, in an interview on Friday.

“Any time a major project increases its cost by this much you have to hit the pause button and reconsider whether or not you’re still getting value for the taxpayer,” he said.

“My humble assessment is that, no, this project has never been in the interests of taxpayers. It was very difficult to justify it at $7 billion or $9 billion.”

But Anderson said it will be a money-maker right out of the gate.

“The cost of the project as you know is shared by Trans Mountain and our shippers and they will tell you that this continues to be a project they very much want and need, one that will bring benefits to all Canadians,” he said.

“The rate of return on this project is without question. The day we turn on the taps, it will start making money. It will make money every day through its contractual period of 20 years.”

He pointed out 80% of the space on the pipeline is contracted for 20 years to 13 clients including domestic oilsands producers like Suncor Energy Inc. and Canadian Natural Resources Ltd., as well as international firms such as Total S.A. and a subsidiary of PetroChina.

The federal government believes it is important to “make the necessary investments to open up new markets” for Canadian oil, said Finance Minister Bill Morneau in a statement on Friday.

“Safety and design enhancements have achieved a higher standard for environmental protection. It now supports more union jobs in B.C. and Alberta and is providing training opportunities. This is now a better project, moving forward in the right way,” he said.

Opponents of the pipeline expansion have vowed to do whatever it takes to stop the project despite losing a legal challenge before the Federal Court of Appeal earlier this week.

The four First Nations who lost the court challenge have 60 days to seek leave to appeal to the Supreme Court of Canada.

The expansion project would triple the capacity of the existing pipeline between Edmonton and a shipping terminal in Burnaby, B.C. to about 890,000 barrels per day of diluted bitumen, lighter crudes and refined products.


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Montrealers battle over reasons why their booming city is plagued by empty storefronts

On the corner of Montreal’s historic St-Laurent Blvd. and trendy St-Viateur Street – known for the 24-hour St-Viateur Bagel Shop – lies an empty storefront that has become a symbol of the city’s retail woes.

And Danny Lavy, co-owner of the company that owns the building, has joined a list of real estate players fingered as neighbourhood villains in various pockets of the city.

Lavy and other landlords are accused by local residents, city politicians and small business owners of being major contributors to the wave of vacant storefronts plaguing such storied Montreal arteries as St-Denis Street, Ste-Catherine Street, and Park Ave.

The city last month began holding public consultations to gather suggestions on what to do about the estimated 15 per cent of street-level retail space that sits empty despite a growing population and booming economy. Those who appeared before the committee cited city taxes, lack of parking and changing consumer habits to explain the problem.

But many also expressed frustration with what they called avaricious landlords, who they say are snapping up buildings in popular neighbourhoods, forcing out long-standing tenants with rent hikes and then letting the storefronts sit empty.

Lavy says anyone who believes that doesn’t understand basic economics and the realities of running a business in Montreal.

“Are you joking?” he said in a recent interview at the suggestion his company purposefully lets storefronts sit empty. “We are willing to take … lower and lower rent. You think I’d rather pay my mortgage and city taxes and be empty?”

Buildings on popular streets such as St-Viateur are worth a fortune, he said, adding that former owners on the strip were more than happy to sell to him. When you factor in new mortgage payments, city taxes and renovation costs, landlords need to find tenants who can pay prices that reflect the market’s new value.

The empty store at the corner of St-Laurent and St-Viateur used to house a cafe and music venue selling a meatless menu to a mostly young and bohemian clientele. But Coop Le Cagibi was forced out in 2018 when the previous landlord jacked up the rent. The space has been empty since.

City councillor Richard Ryan is running the consultations and says the city doesn’t have the data to quantify the role real estate speculators and wealthy landlords are playing in the vacancy problem.

But Ryan, who represents the Mile End district where Le Cagibi was located, said there is “no reason” a renter can’t be found to replace it.

Roughly 14,000 workers around the neighbourhood shop and eat on St-Viateur daily, Ryan said in a recent interview. Mile End is also one of the most densely populated parts of the city. St-Viateur, he said, “has all the elements.”

Mark Lazar, a real estate developer with mixed-use properties across the city, said it’s easy to blame so-called greedy landlords for vacancies, but a deeper reflection on the matter reveals other causes.

A lot of vacancies on commercial arteries are big spaces that don’t respond to the current needs of the market, Lazar said in an interview.

Fifteen years ago many of these spaces were filled with spacious restaurants feeding large crowds, he said, but today “entrepreneurial young chefs” are opting for cozier spaces.

Additionally, landlords have to pay hefty upfront costs to renovate before tenants move in. “Today, the cost of (having) a tenant is not well understood,” Lazar said. “They think any tenant can walk in like they walk into an apartment that is already furnished.”

A business owner on Ste-Catherine Street who didn’t want to be named because she is in litigation with her landlord, said in an interview she had tried in vain a couple of years ago to negotiate an affordable rent for several unoccupied retail spaces on the street.

But at least four times, she said, the various real estate agents didn’t want to negotiate because the owners allegedly didn’t care whether it was rented or not. Even empty, the buildings were “just gaining value,” she was told.

But Lazar and Lavy say the main factor behind the vacancies is taxes.

Global real estate consultant firm, Altus Group, calculates that Montreal has the highest commercial real estate taxes among large Canadian cities.

Montreal taxes, Lavy said, “are completely out of whack for a retail operation. Retail is already destroyed because of the internet.”

Ryan and his committee are still collating data from an online survey and from the consultations. He couldn’t say when he’ll be able to propose recommendations to council or what they will include.

But, he said, “people are expecting us to do something.”

Ryan said he’s heard from fiscal experts that big landlords can write off losses associated with empty properties to reduce taxes on revenues from other buildings in their portfolio. Alternatively, he said, the big players have the financial cushion to let the space sit empty and wait until a major chain comes knocking with the means to pay the high rent.

Ron Rayside, with architecture firm Rayside Labossiere, filed a submission to Ryan’s committee, in which he suggested the city impose a tax on owners who let their storefronts sit empty for long periods of time, with the levy increasing the longer it is left empty.

A commercial artery is the heart of a neighbourhood, he said in a recent interview, and there is growing concern that too many are being allowed to wither. “It’s where people walk around, where there is life, where you can meet people,” he said.

Lavy said he had good news for those worried about St-Viateur: He found a business to replace Coop Le Cagibi. “I’m putting a lot of money into it. It’s going to be open by the summer,” he said.

“I can tell you every place I have on St-Viateur will be open by the summer. And I happen to love St. Viateur. Not like – love.”