It appears that Kinder Morgan picked up a pretty penny when the Canadian Government decided to buy the Trans Mountain Pipeline Expansion Project, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).
The Texas-based company agreed to sell the project to the federal government on May 29 after months of uncertainty surrounding the future of the pipeline — uncertainty caused in part due to opposition from BC Premier John Horgan.
Kinder Morgan and the Government of Canada both announced that the pipeline would be purchased for $4.6 billion. The IEEFA says this leaves the feds either on the hook for the rest of the cost to complete the project or an expected loss if sold to a third party.
According to a June 26 report from IEEFA titled “Canada’s Folly: Government Purchase of Trans Mountain Pipeline Risks an Increase in National Budget Deficit by 36%, Ensures a 637% gain by Kinder Morgan,” Kinder Morgan walked away from the deal with a 637% return, as the report states that Kinder Morgan had spent approximately $610 million on the project.
“Kinder Morgan Canada has identified $1.1 billion in project expenditures to date,” states the report.
“IEEFA estimates that the outlay that can be attributed to Kinder Morgan Inc. for the project is approximately $610 million. Between them, Kinder Morgan Inc. and Kinder Morgan Canada will receive $3.89 billion in profit. This amounts to a return on outlay of 637%.”
The report also found that the purchase will increase Canada’s national budget deficit by 36%, bringing it from a projected $18.1 to $24.6 billion during the 2019 Financial Year.
This increase is caused by an estimated $6.5 billion in unplanned expenditure that IEEFA believes will come due to the purchase, further planning, and construction of the pipeline.
The purchase may also affect the annual deficit in 2020, which will reverse the trend in deficit reduction that Canada has been seeing over the past few years.
Since the purchase announcement, both Kinder Morgan and the Canadian Government have been quiet about the details of the deal, which is something at Tom Sanzillo, IEEFA’s Director of Finance, said needs to be reversed.
“All of the documents should be publicly disclosed now,” said Sanzillo in the release.
“There is every indication that the Canadian government has bought the pipeline at a high price and is likely to resell it for far less than it will pay to build it.
“The Canadian government is taking open-ended responsibility to absorb all costs and ensure profits for any potential new owner of the pipeline. As a result, long-term cost increases for taxpayers are effectively uncapped, posing a significant, unquantifiable liability.”
Closing on the deal, known as the Share Purchase Agreement, is set for August of this year.