Monday, 19 August 2013

NALCOR: NO PLACE FOR TRAINING WHEELS

Nalcor senior management does not possess the necessary confidence to engage the public in its high risk megaproject.   That is unfortunate.

A confident organization would be proud to display its talents and demonstrate exactly why it has no need to engage private enterprise to share, at least, some of the financial risk of Muskrat Falls.  It would give confirmation to its self-assessed capability, as “world class experts”. 

At least, that is how the Premier frequently refers them. 
A truly skilled Nalcor leadership would insist that the public is awash with sound, up to date information; it would welcome the views of critics and go out of its way to allay their concerns.    

It would want its leadership role, in the Province, confirmed by a well-earned reputation. Instead senior Nalcor management, and its Board of Directors, are afraid that the public may learn too much.
Nalcor releases information, but it is the innocuous stuff. 

An ardent policy of disclosure would include an open tendering system, permitting the public to see current contract awards, relative to pre-determined budgets.  It would release details of major management and design contracts such as the one to SNC Lavalin, it would discuss the challenges of cost overruns as well as technical problems, such as the North Spur.

In place of paying deference, Nalcor treats the public like dolts.  It hides behind the outer limits of secrecy afforded it by the Provincial Government.
There is a reason for this secrecy and it has little to do with “commercial sensitivity”, as CEO Ed Martin suggested at the Nalcor AGM.  

Hence, let's ask: does the Corporation actually possess the construction ‘experts’, about whom the Premier boasts?  
It is one thing for Nalcor to depend on SNC Lavalin for its expertise, but as private capital demands, the “owner” of the Project (in this case “Nalcor”) must still possess its own key personnel just to ensure its interest (which is the public interest) is protected.  That is fundamental. 

And, the required skill-set should not just be related to small projects in the tens of millions.  That scale does not even represent a training ground for megaprojects.  Such projects need people whose large-scale project management experience has been progressively scaled up, who have already  managed multi-billion dollar projects, and for whom a project, in the range of $7-10 billion is not a massive stretch, but is consistent with past management challenges.   

However much wishful thinking one may wish to apply, to people out of their league, Muskrat Falls is no place for training wheels.

While Nalcor looks to SNC Lavalin, Hydro Quebec no longer looks to that Company, though Hydro Quebec has long held construction expertise to assess whether SNC’s people are up to snuff.  Remember, it is Nalcor, not SNC Lavalin that is responsible for bringing this Project in, on time and on budget. SNC has no such vested interest.

What kind of expertise should the head guy at Nalcor possess, the one managing the $7.6 billion Muskrat Falls Project, the person reporting to the Nalcor Board?  For some perspective on this issue, let’s look at two other local mega projects, Hebron and Vale. 

The first Senior Project Manager on Hebron (who represented the “Owners”) was Mr. Hareesh Pillai. He is a person with Vice-Presidential level experience at Exxon Mobil.  Exxon Mobil is the largest Company in the world, by revenue.  He has a string of academic credits and 32 years of international management experience including as Exxon’s Resources Manager of Global Operations; he came to Hebron fresh from a multi-billion dollar project in the tar sands of Alberta.  

Mr. Pillai was followed, on the Hebron Project, by Mr. Geoff Parker, who is a Vice-President of ExxonMobil Canada and the current Project Manager.

A Professional Engineer, Parker has been with ExxonMobil for more than 20 years. During that time, he has worked on gravity base structures in Australia, Western Europe and Russia. Most recently, he was project manager of the Arkutun Dagi offshore platform in Russia, which he  managed from early concept through to substantial completion.

Now to Vale: Is that Company allowing freshmen into the big leagues, risking its dime?  

Until recently, Mr. Rinaldo Stefan, was a long time employee of Vale. He was Project Manager of the Vale Inco Long Harbour Project.  This guy has quite a CV, too.  He led the implementation of a Nickel Plant (Dalian, China), the Matsuzaka Plant Expansion (Japan) and the engineering work for the ECM (Emissions Control Material) Plant in Korea. He was Project Manager of the Cobalt Processing Plant in Thompson.                                         

Who is responsible for representing Nalcor’s interests in the $7.6 billion Muskrat Falls Project? Nalcor's Vice-President for the Lower Churchill is Mr. Gilbert Bennett.  A review of his CV informs us that he had a long career in telecom, including at Cable Atlantic and Newfoundland Telephone/Aliant. He is reputedly a bright person and well-intentioned.  He knows cabling, including fibreOp.  He has no mega project experience of any kind.

Nalcor's Mr. Bennett is a cable guy.  As one professional remarked: would you be happy if the surgeon giving you a heart transplant is the one who normally removes corns? 

CEO Ed Martin can’t help Mr. Bennett.  The highest position he attained was Business Manager at Petro Canada, a middle management position, not a VP.  He answered to a Vice President.  His experience is in oil and gas, as is the experience of most of the senior people at Nalcor. 

Can our man, on Muskrat Falls, rate the personnel SNC is sending down? Can he distinguish between a capable Project Manager and one who may be failing or whose focus is elsewhere?  Is there a page from his or Ed Martin’s CV that I may have missed? If so, would they mind sending it along?

Rinaldo Stefan, with his lengthy experience at Vale, working on large projects, could not manage the Project, in Long Harbour, without incurring substantial cost overruns. Even now, that Project, under a new Manager, languishes as it suffers a plethora of labour and other issues. The final price tag of the Long Harbour smelter will not amuse Vale shareholders.

It’s as if Nalcor is saying: we’ll try people with no megaproject experience…let’s see if that works!    
Remember, the last Hydro Project undertaken In Newfoundland was “Cat Arm" in the 1970s; moreover, it is small potatoes alongside Muskrat Falls. 

Then there's the Board of Directors at Nalcor, who have been shielded from the public debate on this Project.  If you are not impressed by Mr. Martin and Mr. Bennett, you had better check your expectations on the choice of Board Members. Check the link; make your own assessment.

I might remind readers that the Board of any company, individually and collectively, assumes enormous responsibility for the activities of the Company.  Whether they realize it or not, they are the ones who must answer, whether the Corporation is ready to undertake a Project of such dimension. The Board is ultimately responsible for its missteps and for the final outcome.  As to its current construction, the  Board, at Nalcor is seriously deficient.

When billions of dollars of money is at risk, such a Board should be constituted of nationally and internationally recognized and experienced men and women in finance, engineering, construction and law.  Their CV's ought to contain impeccable credentials and professional reputations.  They ought to be capable of winning instant respect in financial and engineering houses. 

Not just Government Ministers and senior officials, but business, professional groups, as well as the general public, ought to be confident of their knowledge and expertise as respected advisors, engaged in a risky and difficult undertaking. 

Nalcor's Board of Directors does not measure up.  

If private money were being used to construct Muskrat Falls and that Board, coupled with the two senior people at Nalcor, were the best talent the Company could muster to pull it off, investors would riot. There would be war!

Likely, because a different standard is applied to expenditures of public money, by all these people and the Government, too, there is an expectation no one will notice; no one will have to account.

Don't be too sure about that.

Muskrat Falls: A Reach Too Far? Indeed.

But, whatever your capacity for hope, Nalcor is no place for training wheels.

 

5 comments:

  1. I do not doubt the intelligence or ability of those at Nalcor. They seem capable, and Ed Martin is an extremely effective communicator. The issue I have had is that so little of the work seems to be done by Nalcor staff. There is a great dependence upon consultants. This includes all the financial information which was prepared by PWC. The question I have had since the beginning is "How many people really understand the economics of this project". I would be willing to be there are less than 20 people at Nalcor and at the government who have a real grasp of both the technical and financial terms of this project. Even 20 could be an overstatement? This is what troubles me, as the normal checks and balances of a real business are not present at Nalcor. If the project was not enabled by a monopoly the project would have never passed DG2.

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  2. 2 Leads on MF have an alarming lack of practical experience on hydroelectricity megaprojects. Oil and Gas man Ed Martin and Cable Guy Gil are far out of their depth, why didn't the NLPCs hire the most qualified person for such a massive project?

    Hiring such a person would cost $10s of millions of dollars but grants oversight currently non existent throughout Nalcor and NL gov. inability to answer detailed technical and financial questions is worrying on a $7-10 BILLION project.

    It is clear proper due diligence (realistic demand forecasts, cost, long term PPAs, LEGAL ISSUES, alternatives) were ignored and sidestepped through political motivations.

    62 gigajoules (GJ) 17,222 kWh per household annually - cost increase to 16.4 cents kWh = average residential power bills $2824.41 on the Island. Currently @ 11 cents kWh $1894.42 - MF will increase power bills $930 a year(MIN).

    Nalcor has exponentially increasing demand forecasts for NL - yet + $930 ($77.50 increase per month) for the same amount of energy will see SHARP demand decrease.

    http://www.thetelegram.com/News/Local/2012-11-07/article-3116826/The-bill-on-Muskrat-Falls/1

    NNLPCs say bills will go up $38 a month with MF, $82 without. YET $75.50 is the actual MF monthly increased, isolated option is ONLY $4.50 more a month?

    'cost of oil 2017 at Holyrood $324 million' how much would natural gas thermal generation be in fuel costs in comparison?

    Ed and Gil can answer the above? I'm not too sure they can(or will).

    Stop pussyfooting around NNLPCS update your figures!

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  3. The greatest minds in the fields of engineering and finance could not make this a viable project....the economics are simply not there and the technical issues may yet drive the project over double digits, in terms of billions.

    Ed Martin and Gilbert Bennett will go down in history, as will Premier Dunderdale and her government, as having engineered the biggest debacle we have ever seen in this province. That none of them are qualified to shepherd a project of this size through is, indeed, a scary proposition. Only a gullible and naive electorate would allow these people to proceed with this project. They are responsible, and should be held accountable, but we are guilty of standing idly by and not raising our voices in strong and effective protest.

    It will be forever to our shame that we have become so complacent as a people.

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  4. Complete a project on time and on budget in Newfoundland right now is extremely difficult. The overlap of the Hebron, Vale, and Husky Projects is creating a major shortage of tradespeople. There is a shortage of many resources. Why then is this a government project happening now? The government's biggest error is that they pushed this project through. They should had deferred it for a couple of years.

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  5. The puppets known as the Board of Directors at Nalcor do not need much in the way of qualifications. Check. And they don't have much. Check. But they are politically connected. Check. What does Chairman, Terry Styles bring to the table? Nothing! Check.

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