Monday, 4 May 2015

A CANCELLING WE MUST GO

Guest Post By Cabot Martin

A conversation on Paddy Daley these days might go as follows:

Caller: “We should get out of Muskrat! Cancel her! Cancel her - right now!“

Paddy: “You want out?

You want to cancel?

Do you know what you are asking for?

How much do you think that is going to cost?

And where is the money going to come from?”

Such a conversation would neatly encompass the existential question facing us.
Yeah “existential” – big word - as in “if we don’t get this right, we are toast”.
As noted below, we are not well placed to answer such questions.
But we can make a start.

First thing is to size up the hole we are in.

The value of the amount of Muskrat Falls contracts fully issued and binding to date is far from clear but it has been put at about $3 billion.

That would be $3 billion committed to be spent, not $3 billion spent – big difference.

Because when you cancel a construction project, you don’t ever pay the contractor the full cost of the project/work to be done as originally conceived.
The courts will more or less confine the damages that a contractor can properly claim to out of pocket expenses to date and a reasonable profit foregone.

In fact, the standard penalty for cancelling construction contracts usually ranges about 15 to 20% of the total contract value.
Guest Post by Cabot Martin

So if $3 billion is the right number, then this would mean that the cost of stopping Muskrat right now in the spring of 2015 would be in the order of $450 million to $600 million.

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So, quite conveniently, the $750 million allocated to Nalcor in the 2015 /2016 budget would more than cover the cost of stopping Muskrat Falls – maybe even leave $150 million or more to be allocated to reduce the presently planned cuts.

The savings and money available for programs in next year’s budget would obviously be even bigger.

And similar large savings would be repeated in construction years 2017 and 2018 and probably longer - can't forget project schedule slippage and cost overruns.

In one fell swoop, the Muskrat monkey would not only be off our backs but off the backs of future generations as well.

Some say it is too late because it would cost too much to stop – billions are hinted at without quantification.

But they don’t have any paper to back it up.

In fact, apparently neither the Province, nor Nalcor.

Neither apparently has ever done an internal calculation of the cost of cancelling Muskrat contracts and of stopping the project – much less commissioned a truly independent analysis of that critical number.

This sounds pretty weird but fits with what little we know of Nalcor’s internal machinations.

But every now and then, the curtain slips back and a glimpse of the hands on the levers is seen – such as at the last Nalcor AGM.

Granted Nalcor AGM’s are mostly self-serving fluff; tough to take; the mob of consultants, corporate lawyers and various hangers on circling carefully for another grab is nauseating.

But patience can be rewarded - like the interesting exchange back on March 26 at the 2015 Nalcor AGM over in the Holiday Inn.

CEO Ed Martin was attempting to answer a question whether Muskrat’s economic rationale had been retested using crude prices more realistic than the $135 per barrel Nalcor still uses to justify Muskrat – like trying $60 to $70 per barrel.

He seemed unsure of himself as if it were a totally unexpected question.

And then to the rescue came Ken Marshall from Cable Atlantic, Chairman of the Nalcor Board of Directors.

Marshall abruptly cut Ed Martin off to say that Nalcor had never revisited the cost/benefit of doing Muskrat in light of the drop in oil prices.

And very aggressively further stated, they had no intention of doing so – case closed.

This was a very interesting intervention.

Because if you’ve never considered doing something, like Marshall says, stands to reason you’ve never calculated the cost of doing so.

So sounds like Nalcor has never looked into the cost of cancellation.

How about the Government?

Not likely; they have been parroting the Nalcor line all along.

But who knows, maybe the Cabinet’s Oversight Committee has done an analysis of the costs of cancellation.

If so, and the Government actually has a report detailing how much it would cost to cancel Muskrat, let it make it public ASAP.

So that the public can decide whether continuing with Muskrat is the wiser course of action or not.

And the Liberals, who too hastily say too late too - maybe they can ask for such a study as well.


Not to do so, would be a dereliction of duty.

4 comments:

  1. The next 6 months is make or break for this project, at least the generation component. They are 12-18 months behind schedule, and not getting much traction. They need to make real gains during this summer's construction season. Rumors are Astaldi are not performing well. We need to make a decision in June-July. Do we continue, or do we stop the dam, and just build the transmission line, purchasing power from Hydro Quebec. It is a tough position, and my feeling is that we need to continue.

    That being said we should NEVER have been in this decision. It was poor leadership. Adding 3 Billion in borrowing to pay for this "equity" investment is starting to show people what a mistake this was.

    Martin, Williams, Dunderdale, Kennedy have all been shown to be incompetent on this file.

    It is time for Martin to be fired from Nalcor. Someone needs to take the responsibility.

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  2. $600 million to cancel a project $2 billion over budget (last update can easily ellipse $10 billion for the final cost) but this would require leadership, something not seen in the current Gov or Nalcor. Nalcor board members with experience in construction and hydroelectric projects, no lets go with telecommunication and oil yes men instead. Ken Marshall saying they won't look into oil forecasts or cancellation costs is a justifiable reason for his removal from the BoD.

    The hypothetical caller would be asking the media, even Paddy, to do some research and investigative journalism into Muskrat Falls and Nalcor. NL Media for the large part have done a terrible job informing the public on the Muskrat Falls file, relying on op-ed fluff pieces/rants without factual sourcing. One perfect example is "Companies won't sign a natural gas supply contract with NL" not a single interview/source has corroborated this information.

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  3. What I do not comprehend is how few comments arise from each of these columns. Given the absence of hard hitting journalism - be it the cuts to the CBC or another lingering effect of Mr. Williams as Premier - it is left to bloggers such as Gnarley and the odd on point column in The Independent (forget the Telegram) to raise pertinent concerns about the viability of govt initiatives and the costs intended to be carried by generations of NLers. I look forward to these columns although they also raise serious concerns. Why will no one publicly tackle the key matters: Where is the opposition? The union leaders? The journalists? Makes one long for the days of Ray Guy. Without Gnarley there is little else to provoke the critical thinking of the public. Likely that is how politicians want it, but that does not bode well for the futures of many of us.

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  4. It seems (relatively) easy to comprehend why people don't comment. Decades of fraud, arrogance, impunity and repugnant, devious and occasionally unlawful, (and often immoral) acts by so called "leaders" have made many in the public, who may otherwise try to add their opinion, turn away from politics in absolute disgust. (I know, I'm one who has mostly turned away).

    Simply put, rather than put your faith in (vote for), yet another corrupt loser, its easier and far more comfortable to turn to something more positive, (game of crazy eights anyone?). Clearly this approach doesn't help anything or anybody and it leaves the door wide open for the uncaring, (in some cases perhaps psychopathic) politicians to fill their pockets and fantasize that they're doing good for others. It is in many minds though (young and older) the only way to deal with the filth that was, and still is, NL politics.

    That may help with your comprehension of the problem. Now, here's an overly simplified solution... TAKE BACK THE POWER!! God knows we've tried to change and improve things by switching out "leaders" (and be careful of anyone who calls themselves that, as Hitler was a "leader" too), but that simply hasn't worked in the 65 or so years since the original fraud in 1949,

    Today, however, things are different than back in Joey's day, (or Frank's or Brian's either). Today is the dawn of new democracy tool called the internet. In NL we (desperately) need a web site where the people can vote online unofficially and thereby cast their opinion, or plebiscite vote, on any number of issues. For instance if we took a vote on Muskrat Falls, using fair questions that allow sufficient and reasonable answers to choose from, (as opposed to very select and limiting questions as sometimes used in polling and the like), I'd estimate an 85% thumbs down result from all areas of the province. The gut feeling of the public on this is obvious, and you'd hear and read a lot more comments if the discussion waters didn't get so "muddied", (complicated with Tech issues/arguments so as to diffuse dissent). The average Joe/Jane is simply not equipped for that level of debate, so they feel inadequate to debate at all and then leave it the Uncle Gnarly types (God Speed Des), who have the intelligence and resources to kick back against the corruption.

    A simple system of voter registration and voter numbers could keep it secure from abuse (1 vote per voter #, on each issue, any additional vote attempts by that # to be rejected).

    With such a web site, the opinions of the public can be measured and displayed for all to see, and like it not (NOT) the politicians will be forced to comply, (at least far more than they currently do without such a democratic tool).

    Numbers still talk quite loudly to politicians, (far louder than even the most intelligent of opinions, even when those opinions are obviously correct), and any politician who seeks favour
    (fame, legacy, cheques and pensions), will simply have to listen and act accordingly or be tossed out on their sorry arse by public outcry.

    Open lines, blogs, and (real) news services (the Independant), are all fine and badly needed, but to take back the power you need numbers, cuz that's where the real power is.

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