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Feds won’t explain claim pipeline expansion will raise $500M in tax revenue

The federal government says the Trans Mountain pipeline expansion will bring another $500 million a year in corporate tax revenue to be spent on fighting climate change, but the Liberals won’t say where they got that number.

The figure was cited by the government when it approved the project a second time last June and was also included in the Liberals’ campaign platform.

In 2018, the government stepped in to buy the existing pipeline between Alberta and the B.C. coast from Kinder Morgan Canada for $4.5 billion. The company and its investors got cold feet about proceeding as political opposition to the pipeline threatened unending delays, so Ottawa bought it. The government intends to see through the expansion and then sell it back to the private sector.

Under heavy criticism from environmentalists for pushing a major pipeline project at the same time as they’ve insisted on the need to slash greenhouse-gas emissions, the Liberals promised any new revenue from the expansion project, including corporate taxes, will be spent only on climate-change mitigation. That includes natural solutions like tree planting and clean technology projects.

Matthew Barnes, a spokesperson for Finance Minister Bill Morneau, said in an email Monday the $500-million figure was a “Finance Canada estimate based on the additional corporate tax revenue that the federal government could receive from the successful completion and operation of TMX.”

British Columbia-based economist Robyn Allan, who is skeptical about the benefits of the expansion project, said she has not been able to get the government to explain the figure for months and is accusing the government of obstructing the information because the analysis won’t hold up to scrutiny.

“If they can’t tell you how it was derived it really begs the question if there is any substance to it at all,” she said.

She is also demanding the government tell Canadians what the expansion is going to cost to build. The last estimate was $7.4 billion but that figure is now several years old and hasn’t been updated since the federal government bought the pipeline.

The existing Trans Mountain pipeline carries about 300,000 barrels a day of crude oil and related products from Edmonton to a terminal in Burnaby, B.C. The expansion project is to build a second, roughly parallel, pipeline to nearly triple the system’s total capacity. The expanded pipeline is primarily to carry diluted bitumen to be loaded on oil tankers for export.

The government’s hope is if Canada can get more oil to coastal ports, new buyers in Asia will step in, reducing Canada’s reliance on the United States as an oil customer and increasing the price Canadian producers can get.

It is the linchpin in Prime Minister Justin Trudeau’s attempt to continue to benefit from Canadian natural resources while fighting climate change. Alberta is angry the pipeline hasn’t yet been built, and blames Trudeau’s regulations and climate policies for the delays on Trans Mountain and the lack of other new pipelines as well.

Climate activists argue the pipeline works against Canada’s promised reductions in greenhouse-gas emissions.

 


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

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Two First Nations in British Columbia’s Interior that had been part of a court challenge against the Trans Mountain pipeline expansion have reversed course and signed deals with the Crown corporation.

The Upper Nicola Band and Stk’emlupsemc te Secwepemc dropped out of the Federal Court of Appeal litigation, leaving four B.C. First Nations to fight the case.

The Upper Nicola says in a joint news release with Trans Mountain on Friday that its deal represents a “significant step forward” toward addressing environmental, archaeological and cultural heritage concerns.

It says the agreement provides resources to support its active involvement in emergency response and monitoring while also helping avoid and mitigate impacts on the band’s interests and stewardship areas.

A news release from Stk’emlupsemc te Secwepemc says its leadership came together and determined an agreement could be a tool used as part of a larger strategy to protect its cultural, spiritual and historical connections to the land.

Trans Mountain spokeswoman Ali Hounsell says the two bands dropped out of the court challenge last week after continued discussions with the corporation.

“The conversations we had, understanding what their concerns were, seeing where we could address them, ultimately led to their decision to withdraw their participation in the Federal Court of Appeal,” she says in an interview.

Upper Nicola Chief Harvey McLeod says in the news release the band’s negotiating team came up with the “best deal” possible under the circumstances.

“The bottom line is that the consultation process needs to change,” he says. “We still have a number of significant issues that must be addressed directly with Canada.”

The band continues to hold Canada to a consent-based approach consistent with the United Nations Declaration on the Rights of Indigenous Peoples, he adds.

The four remaining Indigenous groups involved in the court challenge against Trans Mountain are the Tsleil-Waututh and Squamish Nations in Metro Vancouver, the Coldwater Indian Band in Merritt and a coalition of small First Nations in the Fraser Valley.

The court has ruled that upcoming arguments can only focus on whether the latest round of Indigenous consultation was adequate.

Last week, the Tsleil-Waututh and three environmental groups sought leave to appeal that ruling in the Supreme Court of Canada, claiming the Federal Court was wrong to refuse to hear arguments about the risk of an oil spill or threats to endangered southern killer whales.


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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.


Activists call on insurance firms to stop coverage of Trans Mountain pipeline

A coalition of environmental and Indigenous groups is calling on insurance companies to drop or refuse to provide coverage of the Trans Mountain pipeline, although they concede its lead liability insurer has said it will continue to serve the federal government-owned company.

If it can convince insurers to bow out of covering the pipeline and its recently approved expansion project beyond an Aug. 31 renewal date, Ottawa will be forced to self-insure, which will put public dollars at risk, the coalition of 32 groups said in a news release on Thursday.

“The coalition hopes that by pushing companies to drop their existing insurance policies with Trans Mountain and to stop insuring future oilsands projects, it will show the Canadian government that the expansion is uninsurable and should not continue,” the activists say in a news release.

In a response, Trans Mountain said it isn’t concerned about obtaining property and business interruption insurance that’s appropriate for a company of its size.

“Trans Mountain has all the required and necessary insurance in place for our existing operations and for the expansion project and we will do so moving forward,” it said in an emailed statement.

“We have no reason to expect any issues with renewal.”

It added it will have $1 billion in financial capacity for cleaning up oil spills as required by legislation.

In a copy of the letter sent to 27 insurers, the coalition asks them to avoid the “reputational and financial risk” of supporting the pipeline from Edmonton to the West Coast in view of the institutions’ commitments to support the Paris climate change agreement and Indigenous rights.

Only 12 of the companies responded to the letter, the coalition says, with most refusing to discuss their dealings with specific clients.

Switzerland-based Zurich Insurance Group, however, has indicated it plans to continue to insure the existing Trans Mountain pipeline, a position the coalition says betrays its climate change and Indigenous rights commitments.

The activists provided a copy of a letter they say is from the company’s CEO, noting that while Zurich’s policy is to restrict insuring oilsands assets, its position is to talk to Trans Mountain’s owner to sort out its climate change goals and clarify whether the pipeline is actually “dedicated” to oilsands.

“It’s clear Zurich needs to commit to not insure the pipeline expansion,” said Tzeporah Berman, international program director at Stand.earth, in the coalition release.

“We are encouraged by Zurich’s recent policy, and we are calling on other insurance companies to stop insuring the expansion of the fossil fuel industry.”


Regulator seeks opinions on Trans Mountain pipeline process resumption

The National Energy Board has issued a certificate for the Trans Mountain pipeline expansion after it was approved by Ottawa last week, but is seeking input from affected parties and the public on its resumption of regulatory processes.

The federal regulator says it will accept public comments online or via fax or mail until July 5, and has set a deadline for initial company comment of next Friday, with reply comments due on July 9.

It is proposing to continue processes that were underway and to rely on decisions and orders issued before the Federal Court of Appeal struck down federal approval of the project last August, “unless relevant circumstances have materially changed.”

Ian Anderson, CEO of the Crown corporation building the Trans Mountain pipeline expansion, said shovels could be in the ground by September and oil could be flowing in new segments of the pipeline between Edmonton and the West Coast by mid-2022.

But that timeline depends on the NEB being able to reinstate the record from the previous regulatory proceedings so that the project can be brought back to the same state of construction readiness as last summer, he said, a process he expected to take some weeks.

The NEB says it wants to provide clarity on next steps for the project as efficiently as possible.

“Following the comment period, the NEB will decide how the regulatory processes will resume. Until that decision is made, Trans Mountain cannot rely on previously issued decisions and orders to start or resume project construction,” it said in a statement.


Premiers Kenney, Moe to work together on rig rules as they meet in Saskatchewan

Premiers Moe and Kenney.

Premiers Moe and Kenney.

The premiers of Alberta and Saskatchewan are pledging to harmonize regulations governing the movement of oil and gas rigs in the two provinces.

Jason Kenney and Scott Moe have signed a memorandum of understanding noting that some commercial trucking rules are not suitable for service rigs, which spend most of the time in a field, not on a road.

The goal is to make it easier for rigs to be moved from job site to job site in both provinces without getting bogged down by two sets of rules.

The agreement was signed as Kenney and Moe appeared together at an oil trade show in Weyburn, Sask.

The two conservative premiers praised the policies of their respective governments, while taking shots at Prime Minister Justin Trudeau and the federal carbon tax.

Both heralded their support for pipelines and say they are confident the federal government will approve the stalled construction of the Trans Mountain pipeline expansion by the June 18 deadline.