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The lesson in the Parliamentary Budget Officer’s report on the government purchase of the Trans Mountain pipeline isn’t really that Ottawa might have overpaid by as much as $800-million – pinpointing the project’s value is still a mug’s game. It’s the illustration of how big a financial gamble the pipeline-expansion project is – and how much that risk grows with every delay.

Risk is more or less the biggest factor in determining the pipeline’s price tag. Trans Mountain’s real eventual value, a few years from now, won’t match the PBO’s estimate. Its value will either be a lot lower or a lot higher, depending on whether it gets through all the legal and regulatory hoops and actually gets built. We just can’t be sure which.

The office of Parliamentary Budget Officer Yves Giroux estimated the value of Trans Mountain – both the existing 300,000-barrel-a-day Trans Mountain Pipeline (TMP) and the Trans Mountain Expansion Project (TMEP) that will carry 540,000 barrels a day more – at $3.6-billion to $4.6-billion.

The headline figure is embarrassing for the Liberal government because they paid $4.4-billion for it, near the high end of the PBO estimate. Finance Minister Bill Morneau quibbled with the figures and told reporters that in the negotiations, he’d talked the pipeline’s controlling owner, Kinder Morgan Inc., down from $6.5-billion.

Haggling is haggling, of course. But the negotiations were tough. In a sense, Kinder Morgan had the Liberal government over a barrel: The TMEP was the only real medium-term hope of building a pipeline to the ocean and alleviating the discount on Alberta oil. Prime Minister Justin Trudeau promised it, the Alberta oil patch needed it and the whole project was falling apart. In the end, Ottawa paid full price, in the PBO’s estimate, but not badly over the odds.

It got worse, though. And it could keep going that way. The PBO calculations provide some sobering estimates for the impact of delays and cost overruns. A one-year delay, it estimated, would lower the current value of the pipeline by roughly $700-million. As it happens, a court ruling delivered three months after Ottawa bought the pipeline has delayed it for at least a year. If Ottawa had waited till after that Aug. 30 decision, fending off the pressure, it could have forced a better deal.

The PBO also estimates a 10-per-cent increase in the estimated $9.3-billion construction costs would decrease the pipeline’s value by $453-million – a measure of how much that budget affects the viability of the business plan.

Those estimates make it easy to understand why Kinder Morgan was itching to get out, and no other investor was rushing to get in: The legal risks, from permitting to First Nations challenges and the potential for other delays and cost overruns, could rapidly wipe out value. Kinder Morgan already had an operating Trans Mountain pipeline that the PBO valued at $2-billion to $2.8-billion. The expansion project was deemed to be worth about $1.6-billion to $2-billion, and a year’s delay and a 10-per-cent construction overrun could wipe out half that value. That’s a big risk.

Risk plays heavy in the valuation estimate, too. Mr. Giroux’s staff built one estimate by calculating the present value of the pipeline’s future cash flow. But a big part of that calculation is discounting that future cash flow for risks it might not be reaped. In other words, if there was no risk, the Trans Mountain expansion would be worth billions and billions more.

Down the road, perhaps three years from now, Trans Mountain won’t be worth that much. It will either fail, probably through legal obstacles – in which case the expansion will be worthless and it will be worth the $2-billion-ish price of the existing pipeline. Or it will be approved, get built and be ready to ship oil – in which case it will be worth more, at least in nominal terms, than Ottawa paid.

That reflects the difference between a business-case valuation and a government gamble. The Trudeau government’s argument was that Canada needed the pipeline expansion. In fact, the PBO estimates it could add $6-billion a year to Canada’s GDP by reducing the discount on Alberta oil. For Ottawa, it’s not a question of rate of return. It’s a straight bet, like picking red or black at a roulette wheel. The question is still whether that pays off.