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

Unknown-2The 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.

Unknown-3“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%.

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 TransMountain 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.

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

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

Sanzillo used the lower figure, 12%, 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.


Ontario to expand beer, wine to convenience stores, finance minister says

Ontario’s finance minister says the province will be moving ahead with an expansion of beer and wine sales into corner stores, big box stores and more grocery stores, promising the move will cut prices and prevent any potential privatization of the LCBO.

Vic Fedeli said Thursday that the Progressive Conservative government will make good on a pledge made during last spring’s election to offer consumers more choice when it comes to where they can purchase booze.

20387772_5bdd6d49a5_z“Our government is actively working to expand the sale of beer and wine to corner stores, box stores, and even more grocery stores,” Fedeli said during a speech to a business audience in Toronto delivered ahead of his first provincial budget on April 11.

“We made a commitment during the campaign to provide consumers with greater choice and convenience, and we plan on delivering.”

Fedeli gave no timeline for the move but said greater competition in the sector will lower prices for consumers and expand product availability.

Ontario currently has the lowest density of retail outlets selling beer, wine, cider and spirits in Canada, Fedeli said, with less than 3,000 outlets selling alcohol compared to Quebec’s approximately 8,000.

The minister also said the government has no plans to privatize the LCBO despite receiving a report last fall that recommended consideration of the sale of some government assets.

Fedeli called the chain of over 600 LCBO outlets a “prestige asset in Ontario” and said a sell-off would not be part of the government’s plan to eliminate a deficit that the Tories have pegged at $13.5 billion.

“We believe this will open it all up without any need whatsoever to privatize that valuable asset,” he said of the move to have alcohol sold in corner stores and big box stores.

Fedeli said the idea of selling government assets to address the deficit won’t help the government in the long run. He said the previous Liberal government’s sale of its General Motors shares and part of its Hydro One ownership stake just temporarily covered for budget problems.

“We have a structural deficit. That means the day-to-day bills that are being paid with borrowed money,” he said. “Selling an asset doesn’t solve that, it only puts a band-aid on it for a year.”

NDP Leader Andrea Horwath said she would be focused on enhancing services for people of the province if she were premier, not expanding access to alcohol.

“We have a government that’s taking teachers out of classrooms, reducing autism services for kids but making sure that we can have beer in every corner store,” she said. “I think they have the wrong priorities.”

Last year, the Tory government cancelled a scheduled increase in the provincial beer tax, forgoing $11 million in potential revenue, and brought back so-called buck-a-beer.

Buck-a-beer lowers the minimum price of a bottle or can of beer to $1 from $1.25. Brewers are not required to charge less and the minimum price doesn’t apply to draft beer, nor does it include the bottle deposit.

Interim Liberal leader John Fraser said the move to greater availability of alcohol in corner stores is something that could require more public consultation.

“Change in alcohol and beer and wine (availability) in Ontario has always been very incremental,” he said. “We should talk to people. If we do something like that it has to be done in a responsible way.”

The previous Liberal government had expanded alcohol sales beyond the LCBO during their term, authorizing more than 350 grocery stores to sell beer and cider, and 70 to sell wine.


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