Monday, 4 August 2014

THE OVERSIGHT COMMITTEE: STILL NO OVERSIGHT!

If the hot summer sun is making you testy, you’ll get no shade from the Government’s Oversight Committee on Muskrat Falls. 

The Committee released its first Report last Thursday, July 31st.    

Partisans will say Muskrat critics can find nothing right in this project; I suggest the latter profess the hope they are wrong.  But, hope has a spiritual undertone; a large construction project is a purely commercial undertaking, one to which hope is supplanted with solid planning, analysis and oversight, too. 

On March 26, 2014, following Tom Marshall’s establishment of the bureaucratic oversight committee, I wrote a post entitled: WHY MUSKRAT OVERSIGHT COMMITTEE IS A FARCEIt noted: “… the Premier eschewed demands for project reviews when he was both Minister of Finance and Natural Resources. He supported Premier Dunderdale’s position on ‘oversight’ even as he watched his colleague, Jerome Kennedy, bolt the Cabinet over the issue.” 


Given Marshall's long held refusal to acknowledge the importance of oversight, it was difficult to see how a Committee, one not independent of government, could effectively function.



The post made reference to other issues, too, including the lack of technical competence of the bureaucrats on the Committee; their inability to assess a complex construction project. 

The question of ‘independence’ naturally speaks to credibility.  That is not just because of the acrimonious history of the project or of the Government’s or Nalcor’s penchant for secrecy. 

If a comparison is sought, consider the smaller of the three project components – the Maritime Link.  The Nova Scotia Government requires that the Public Utilities Board (UARB) review Emera’s construction progress and examine any cost overruns; notwithstanding the fact that NL picks up 50% of the overrun tab! 

The Oversight Committee offers no proof that it has been given a mandate unfettered by Ministerial interference.  Moreover, the emptiness that characterises its first effort is strong evidence that they have been anything but plugged in to this project, from the very beginning. 

The Committee Reports that “(t)he Provincial Government has provided significant oversight for this project since its inception”, citing MHI, the Navigant Reports and that of the Independent Engineer (IE).  

The first two of these reports deals with review and boosterism.  Oversight is the process of reviewing construction progress consistent with a pre-determined budget, project schedule and quality controls, including the competence of management.    

That is exactly what E&Y is saying in Recommendation 1.2.1., page 1, dealing with Oversight Protocols; the Oversight Committee would be well advised to read it again.    

Then, too, the Committee seems unaware that the IE is acting principally for the Federal Government. It is unconcerned Nalcor may be spend $2 for $1 of work.

Disconcerting, too, is E&Y’s reference, on page 2, to “NEXT STEPS”.  E&Y wants the Government to “…finalize the information provisioning and protocols for oversight and reporting”.  It states “(t)he Oversight Committee terms of reference should also be finalized”.

Though this first Report is all about “process”, we are warned that the purpose and operating latitude of the Oversight Committee, even now, is still not completely determined.


E&Y also advises the Committee that it “should be supported with specialized skills” though we are not informed exactly what professional disciplines have been employed.  


In short, what we seem to have is a Committee that has not figured out how it should operate.

The Committee states its mandate is to provide reliable and transparent oversight so the public can have confidence that:

• The Project cost and schedule are well managed
• The Project is meeting the cost and schedule objectives
• The cost and schedule risks are being reasonably anticipated and managed

The problem is the Report offers absolutely no analysis of any of these issues

It engaged E&Y to help it ask the right questions; yet, the Report deals with not a single one.

It is not at all clear why Premier Tom Marshall called a Press Conference to declare that the public should be “satisfied” with the Report.

Marshall’s appearance might have made sense, except that the Report contained nothing to be satisfied about.  Indeed, it is equally hard to be dissatisfied for precisely the same reason, except if you thought a project already into serious cost overruns and lacking oversight for nearly two years, ought finally to get some.

Nalcor’s most recent Project Budget (p.14) and Milestone Schedule (pp.16-17) are included in the Report.  The Revised Budget $6.99 billion still does not contain ‘interest during construction’, now estimated at $1.2 billion.  The omission should get the Deputy Minister of Finance, a Chartered Accountant, odd looks at the next meeting of the Institute.  Imagine a person, at that level, unable to comply with Generally Accepted Accounting Principles!

And, on the matter of the Capital Budget, the page instructs the reader that the figures are stated ‘In $CDN Million’.  It is not.  The figures are written to nine digits. Presumably, the instruction is in error, unless the Committee has taken to using ‘Da Vinci Code’, though we have had enough of that from Ed Martin.  Frankly, such a basic error should not be found in such a brief and incomplete Report or one from such a senior group.

The addition of a Milestone Schedule was useful. But, the Committee did not offer a word as to whether the Schedule is on target. It did not note the ‘fudge’ factor involved in Nalcor’s estimate of ‘first’ power by December 2017.  Nalcor gives itself another five months, April 2018, to get the rest of the power on line.  
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The Committee makes no effort to say whether the project is well managed…it doesn’t say if things are going right or wrong.  It does not tell us why Nalcor continues to delay work on the North Spur stability problem, which ought to have been the first order of business. It conducts no review; it offers no conclusions. In short, there is not a single analytical line in the document on which to comment.

All things taken together, this Report is a confirmation that the Committee is dead in its tracks; it is a farce, a failure.

The Committee’s first error was having agreed to engage in a game of subterfuge.  It, too, is implicated now. Their acquiescence has afforded the Government political cover.  In time, Tom Marshall and Derrick Dalley will say… we had an Oversight Committee but it didn’t warn us.

After two years of spending on Muskrat, with little to show for the money, what has the public been given?

The Premier has created a larger falsehood.


There is still no oversight of Muskrat Falls.  Then, none was ever intended.

7 comments:

  1. Mr. Sullivan, every post you submit about Muskrat Falls tends to raise my level of indignation and frustration at the sheer stupidity, arrogance, incompetence, and, dare I say it, possible corruption of the current administration.

    The glib assurances they make in front of the television cameras masks a frightening reality that is difficult assessment but one that we know will severely hamper the province's fiscal capacity for several decades. It is tantamount to treason and theft, in my humble opinion, for politicians to stand there and assure us that all is well when they know, or should know, that nothing could be further from the truth. If they stand to gain nothing for themselves they know that many of their well-heeled supporters will gain at the expense of ordinary people.

    Their rationale for supporting this project has long since been shredded by many competent critics while they forge blindly ahead….presumably because of pressure from within their own circle. Any rational and fair-minded person, or collective entity, would never tolerate this kind of interference and shoddy analysis and call it comprehensive and thorough. Their failure to see this reeks of utter incompetence or high-level corruption and willful blindness. I have tried to sort through other possible reasons for their blind obsession and cannot come up with any that otherwise make sense.

    Much money has already been spent but let's keep the pressure on them and hope that somehow, some way, this fatally-flawed project can be halted and disbanded.

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  2. It is helpful to see the Milestone Schedule (page 16 of the Oversight Report), but aside from Project’s December 2012 Sanction, the first milestone is not until November 2015. According to the project's May 2014 monthly report (page 7), approximately 29.5% of the DG3 estimate for the dam and generating facility has already been spent. At this pace, more than 50% of the DG3 figure will be spent prior to achieving the first milestone and there are many milestones after that one until the facility is fully commissioned (now targeted as June 2018). At this early stage it already appears highly probably that there will be material cost overruns on the dam/generating station portion of the project.

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  3. All the more reason to feel increasingly nervous about the final cost.

    In my estimation, we are easily heading north of 10 BILLION dollars….a figure that is going to create major fiscal havoc and that, coupled with agreements and obligations built into the deal, will cause huge financial headaches for future generations.

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  4. Cost growth is one concern. Schedule is another. We have already been delayed a year. It is entirely reasonable to believe that it will be the end of 2018 before we get any material amounts of power from MF. However, if the LIL is built in time, or accelerated would Nalcor considering purchasing power from HQ to limit our fuel burned at Holyrood. The PUB should be pushing Nalcor to accelerate the LIL even if the plant is not ready. There could be 200 million in fuel savings in 2017/2018 if the link is in place.

    Of note the subsea cable installation is still going ahead in 2016. This will be 2-3 years before we need it. What is the warranty on this cable I wonder? We are also cutting 2 years into a 50 year design life.



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  5. Sources close to the project, who must of necessity remain nameless, are already assuming the cost is headed - rapidly- to 10-billion and beyond.

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  6. It is very concerning, but not surprising, if the costs of this project is indeed heading to 10 Billion in total. It would be a total condemnation of Nalcor if this is indeed true.

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    Replies
    1. Count on it being 10 Billion and it could well climb much higher.

      This project was a fiasco almost from the git-go…. but nobody had the guts to pull the plug and tell their rich supporters that they could not get richer still, at the expense of the average ratepayer in the province.

      This is simply a money grab by the well-heeled in the province who now treat it as their personal fiefdom…and why not? Ordinary people are allowing them to get away with it by having supported the current administration at the ballot box.

      They placed all their faith in Danny and his gang….but will be sadly and rudely awakened when they wake up to the fiscal disaster that is Muskrat Falls.

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