Thursday, 21 April 2016

ENGINEER'S "OPEN LETTER" TELLS PREMIER GET ADVICE, RESET MUSKRAT

Re:  the Muskrat Falls Project – “TIME TO GET SOME GOOD ADVICE”

Dear Premier:

The release of the Interim Report from EY dated April 18, 2016 left me with many questions about your judgment and the decisions you have taken regarding the Muskrat Falls Project. 

I am a Professional Engineer who has spent many years engaged in the management of many large construction projects. My remarks are intended to assist your deliberations.

You are a Pharmacist, by training, and a successful entrepreneur. But, you know no one can be an expert in all things, and particularly on matters pertaining to a complex project, like Muskrat Falls.

However, you have been in the House of Assembly since 2007; you have had time to see how this Project was conceived and sanctioned by the former PC Government. You were there when the people of the province demanded additional information on the Project. You watched as project costs climbed and allegations swirled over how it is being managed.


To silence these concerns, the PC Government established the Oversight Committee made up of senior (busy) civil servants who also had no particular expertise, or training, in the construction of a multi-billion dollar hydroelectric project.

Following the General Election, I had expected that you might develop your own independent plan on how to assess the project.

The EY Interim Report having been released, I now have reason to be concerned about the type of advice that you have received from Nalcor, the Oversight Committee, and even the Finance Minister, who previously endorsed the Project, as a Member of Nalcor’s Board of Directors.

I saw the Election as your opportunity to reset this Project and to get it under control.

The fact that Nalcor cannot provide you with a firm completion date, or even proper estimates on the cost to complete, should have steered you to an independent path.

I understand and am sympathetic to the calls, from many quarters, for the cancellation of the project.  But like you, I believe we have gone too far with the capital investment to completely stop the project.  However, “a time out” or “reset” of the Project may have been prudent. But you chose otherwise. You seem to have heeded what Nalcor has asked.  That is unfortunate.

You are aware there is no immediate need for additional power in the province, and no delay claim can be made regarding the Nova Scotia Agreement, at least not according to the Chairman of Nalcor. 

Accordingly, this winter can only be regarded as a lost opportunity to reset the Project, readjust the cash flow, provide new management, and issue new completion dates, in line with the employment of a far more experienced and capable people than has led the project to date.

What did your Government do?

First, you supported the current project management group at Nalcor.

I am wondering on what basis this decision was made and what advice you received. 

I have taken notice of Ed Martin’s resignation, just hours ago, as CEO but his removal, alone, will not correct the enormous problems this project faces.

Second, rather than reorganize or disband the current Oversight Committee, you endorsed its composition, and excused its inability to provide TRUE oversight.

This Committee is made up of senior bureaucrats answering directly to Cabinet. They have no experience in oversight matters. In fact, they provide no real benefits to the project.

Based upon the Reports the Committee has issued to date, they have taken no proactive role to resolve the plethora of problems, evident to engineers and to others, who frequently report from the project.

Evidently, the Oversight Committee Members merely meet with Nalcor officials every few months to get a Project update and regurgitate the data in a politically friendly way. There is no evidence that they have conducted any independent investigation of the growing problem of cost or management; nor have they provided, or are competent enough to provide, solutions to the all-important project schedule, which is the priority of every competent management team.
  
Third, you hired EY at additional cost to taxpayers, to conduct a review of the project cost, schedule, and related risks.

While EY are recognized internationally, they are best known for project accounting skills, not for expertise within the fields of project management and engineering.

Indeed, I suggest, you ought to have had some insight into their performance, EY having been installed from the beginning, as a consultant to the Oversight Committee.

Again, this was a lost opportunity to get critical facts the Government, and the public, sorely needed.

The EY Interim Report, Paragraph 4.1, states:

“the Review has been based on data and information provided by Nalcor.  EY has not sought to independently verify this data. EY has had access to Nalcor’s team but did not have direct access to the contractors.  EY has not conducted any engineering review, physical inspection or validation of the construction process.”

Premier, you are receiving advice from a Firm which has conducted no engineering review or physical inspection of the works. This approach to review finds no resemblance to any standard of engineering practice.

The people of the province deserve a more substantive and more credible Review of a project in serious trouble; one Nalcor can no longer hide.

Even Nalcor’s formal reply to the EY Report was issued on the same day it was released. I will let you decide how that is perceived by us.

What could you have done?

It has been suggested numerous times by very knowledgeable and senior people in our community, an independent Board or group of people should be appointed to provide true oversight and commentary on Nalcor's management and the progress of the Project.

There are many Firms available that have actually worked in northern Canada on hydroelectric projects that can provide you advice, paths forward, and improvements to the Project. In fact, most of our offshore projects were reviewed by an in-house process called “Cold Eyes Review”, a group of partners' experts from other projects.

Sir, you had choices. But you have chosen not to get truly independent advice. That decision leaves me very concerned as to this project’s future.

Where are we now?

We seem to be waiting for Nalcor to negotiate some type of agreement with the contractor, Astaldi. You must know these talks are being headed by the same people that chose Astaldi in the first place. Nalcor negotiated a contract containing some very questionable and risky terms, for the province. They decided on a process that resulted in the award of some very large contracts, too. 

The Astaldi contract is one of the largest ever awarded on a Canadian hydroelectric project. It certainly does not follow the model that an experienced Quebec Hydro successfully uses. Indeed, the decision to award the contract to a non-Canadian Firm, one that has never worked in the Canadian north, is very suspect.

We have heard many versions of how the Astaldi contract is either a “unit price” or a “cost plus” contract. Based on personal experience, I can only conclude it is a mess.

This is not the first time, in Canada, that large concrete projects have been undertaken in a winter environment. To state that the contractor did not perform well in the first 15 months, as EY disclosed, indicates to me that Nalcor’s site management is not competent and that the Astaldi contract did not contain adequate terms and conditions to enforce performance or provide for the application of penalties.

Even now, we have not been told the whole truth regarding Nalcor's responsibility for this situation or if we can expect Astaldi will have to pay damages attributable to the delay of the powerhouse and related components.

Paragraph 2.2 of the EY Interim Report confirms that the Project is now being managed by an integrated project team of approximately 400 people. Those people are likely located in St. John’s; not on the construction site, where they need to be; a matter the EY Report ought to have commented upon.

Paragraph 2.2 also confirms that SNC Lavalin’s original contract was changed in November 2013, that they had lost direct control of the construction management, and are now part of an integrated team headed by Nalcor, SNC Lavalin, and third party consultants.

You need to inform us, Premier, as to this question: what was the original SNC Lavalin Contract value and what is the final estimated value of the contract, now that the construction management responsibility has been removed from SNC?

I also suggest you need to find out: how many of those management personnel are working directly on the various site locations? What is the day rates of the 400 people, and the overall cost to the project? I believe, Sir, you will be surprised.  Nalcor’s estimated cost is $775,000,000.

You will also note, there is no mention in the EY Report of the major cash flow reductions on the Muskrat Falls project published for January, 2016. In the period from September to December, the monthly cost incurred on site averaged approximately $85 million. In January, 2016 only $17 million was spent.

I can only surmise, based upon these expenditures that the Project, in Labrador, was virtually shut down. Again, it was a good opportunity to reset the Project.  But, that said, no explanation is offered as to how the project is being advanced and if any value is obtained for that expenditure.

As a Professional Engineer, I am forced to conclude the EY Review lacked not only essential independence. It did not answer any of the hard questions that inspire confidence among engineering professionals, or the public; nor does it confirm that Nalcor possesses the skills needed to get this megaproject on any trajectory, except to waste hundreds of millions of public money.

Some questions and observations:

-----      How many people of the 400 management integrated team have ever worked on a large hydroelectric project in a northern climate?

----       Work on the main dam cannot start until the river diversion is completed. River diversion necessitates a working spillway and a cross river coffer dam. What is the schedule for the construction of the main dam?

----       Why has Nalcor delayed the balance of the plant contract for over a year?
           
----       The same contractor, Vallard, was selected to construct the high voltage DC line as the high voltage AC line, connecting Muskrat Falls to Churchill Falls. Why was the larger contract awarded without a public tendering process?  Nalcor is exempt from the Public Tendering Act and seems to follow some very irregular tendering practices, in some cases. There is certainly no oversight from Government on this aspect of the project.

----       The site agreement for labour was negotiated directly by Nalcor, not by its contractors.  The terms were included in legislation enacted by the PC government and formed the legal basis of the special project agreement. This very expensive contract was    negotiated at a time of peak labour demand. Maybe it is time for Nalcor staff, and labour, to take a significant cut to wages, given the financial crisis and the excessive wages being paid to workers at all levels.

Finally, Premier, I am at a loss to understand how a higher level of governance, at the Board level of Nalcor, will provide substantial cost savings or project improvement, as the Minister of Natural Resources has proposed.

Successful Projects are ones with good contracts, quality materials, overseen by knowledgeable site managers who are given authority to build the project.

Adding another layer of bureaucracy, essentially what is proposed, will not improve Muskrat Falls, just as having the same people make the same mistakes, over and over again, will not do anything except give the people of the province the assurance the project will cost more, and suffer even more delays.

Premier, you also need reminding that all the main equipment for the powerhouse was manufactured in China. I am very dubious about Nalcor’s oversight of this manufacture; an earlier Oversight Committee gave the matter notice but indicated none of the standards of a “survey” and all of the aspects of a “tour”. When the project is completed, how reliable will power be? Who is overseeing those “quality assurance” issues? 

As you may know, New Brunswick Power is taking down a concrete dam 50 years early, as the concrete is falling apart. Could this be Muskrat Falls in a few years?

Mr. Premier, no resident of this Province wants Muskrat Falls to be a financial millstone; but you need to know this project has been managed poorly, from the very beginning.

Ed Martin’s departure constitutes a welcomed opportunity to get this project on track.  I suggest, if you are to avoid a legacy of profound mismanagement, financial as well as technical failure on the Muskrat Falls project, you need to reflect on your approach to those issues. 

Sound advice, from those with the technical skills to provide the highest calibre “Cold Eyes Review”, is the only antidote to a massive failure of this project.


With every best wish I remain,


A Concerned Newfoundlander and Professional Engineer

22 comments:

  1. How I wish this Concerned Newfoundlander and Professional Engineer had written this letter 4 or 5 years earlier.

    Danny's and Nalcor's flawed assumptions, Nalcor's deceptions, fabricated/non-transparent analyses, grossly overstated forecasts and benefits, etc., etc., etc. were first apparent as early as early 2011 (and since then I have written, if memory serves, about 30 or more articles/letters on almost every aspect of this fiasco).

    But better later than never. This letter was and is badly needed and outlines very well some of the ongoing concerns and offers some sound advice. However, it fails to acknowledge that 1) we don't need the power, 2) we can't afford the project, and 3) the project is too high a risk.

    In my view, the best 'reset' is to stop the whole project(and option 2? --- put the powerhouse, dams, etc on hold and focus on completing the transmission lines. Maurice Adams, Paradise





    ReplyDelete
  2. As an engineer, I read this letter with the greatest of interest and admiration, having been written by a professional engineer with obvious considerable experience, concern for the mismanagement of this project, love of this province,and very sound advise to our premier, who lacks understanding of engineering and project management.I have read this letter slowly and considered it a great summary of the frustration of what many, especially many engineers, must feel over the last few years. I felt this sort of letter from a professional engineer was long overdue. I was curious to see the name of this engineer, as I reached the end of this amazing overview of the mess of Muskrat Fall. And then my disappointment to see no name at the end. But why. Do we as a whole society live in a culture of fear of going public with candid views like this. Surely this writer should be applauded for such candid views. Was his letter send to the Premier without his name. This letter follows that of Mr Gordon, another professional engineer whose photo and name was part of the posting on this site. Nevertheless, a great letter by this engineer who remains unknown to the public.

    Winston Adams (Electrical engineer)

    ReplyDelete
  3. Winston, I have a master in engineering and work for government. Including your name on anything that challenges the status quo or embarrasses powerful or politically connected individuals in Newfoundland can easily get you blacklisted or disciplined. Additionally, if your company gets engineering consulting business via ministerial appointments (they almost all do), it could cost you hundreds of thousands of dollars in lost consulting work. I fully expect that when a minister expresses his displeasure to the principal of an engineering firm about something an employee wrote, that engineer is in trouble. Likewise, government workers would be disciplined by HR for criticizing their employer and likely be denied future promotions. I would actually have been shocked if he/she had not been anonymous. Generally, only retired professionals can disturb the status quo in such a small place (e.g. Newfoundland and Labrador) without financial repercussions. It is unfortunate.

    University professors also have this problem. They can offer advice and secretly review things others publish, but cannot safely use their names unless they are tenured and even then it can be dangerous. I could give you many fascinating examples but can't identify others nor myself.

    ReplyDelete
    Replies
    1. This sobering but deadly accurate.

      When do we stop pretending we live in a democracy and are instead under the thumb of our oligarchs? If academics and professionals cannot speak out are we resigned to subservience to egotistical, selfish, tyrants?

      Transparency is the only disinfectant. When will it be demanded by the MF victims?

      Delete
    2. Not really surprised, and good to see you state it. Nevertheless, a sad situation. Few are even willing to state their profession.
      Winston Adams

      Delete
    3. And some still wonder why letters to the editor should have a signature attached. It has all the parameters of a death knell.

      Delete
  4. That is a sad comment. This is not post-Soviet Russia, it is Canada. Freedom of speech is a probably the most important freedom we have, the fundamental component of true democracy and the hallmark of civilized society. I hope someday that every Newfoundlander will be able to speak freely without fear of economic reprisals.

    John D Pippy

    ReplyDelete
    Replies
    1. First - Brilliant article by this (smartly shrouded) professional.

      It should surprise NOBODY that this professional, (who is looking out for the safety and future of our fellow NL'ers and our children), has to hide his identity for doing so.

      Our Governments, (time and again, not just this one) get so caught up in pandering to their own pocketbooks and egos that we simply MUST change our system of governance. Nothing else has worked or ever will.

      You can fight human nature, but you will lose... and losing we are.

      Where there are opportunities to gain wealth without consequence they will do it, and are doing just that as we speak. Dwight has retirement housing, Cathy (while on the board) has/had interests in selling to Nalcor (in the tens of millions). There was Moores who (purportedly) filled his pockets and retired to Florida, Tulk with cheap/free farmland, Peckford with a sweet deal on cucumbers (for him), Williams with huge land grabs and oil/Muskrat gluttony.... we're doing the same thing over again ... Insanity has been defined as doing the same thing over but expecting different results. If our water came from Flint Michigan I could understand it. Similar "leadership" there too. Pigs making money and screwing over their countrymen.

      In five + decades I've seen two individuals who seemed to have enough integrity to be Premier for the people's reasons... Joey Smallwood and Clyde Wells, (sorry for pairing you up this way Mr. Wells but there seems to be nobody else to put you with). The rest were either largely ineffective, (Tulk? Rideout? Davis? Tobin?), downright useless (Dunderdale?), or as corrupt as the money is deep, (you name the corrupt one/s, there are hungry, heinous lawyers out there just waiting for me to write that one here!!)

      Systemic change is the ONLY answer. If not... then what?

      This province is so completely mired in corruption that our own (oligarch) Finance Minister can't see past her own personal/government buisiness interests long enough to provide some respect/human decency to the low-income masses that voted her in. Many of whom earn squat and pay waaayy more than their fair share. (3-10 times what she pays on a percentage of income basis). Fair minded Minister?

      I don't know what it's going to take, (perhaps an assassination or two... or maybe just some (real) jail sentences, (not like the "time-out" in the countryside that convicted criminal Ed Byrne was forced to "endure"), to change the corrupt and pompous culture at the top of this pension factory we call government.

      If you're not wealthy or connected to the Illuminati culture you'll get nothing but another shower of urine from the eighth floor window, and when you publicly identify as speaking out, they'll add the solids and dump all over your family too, (be they disabled children/students or not). ... and yes they have stooped that low in my case. Thanks Minister Jackman (loser).

      Anyway.... YES keep your head down, but keep it out of your shady spot though. We'll need smart brains to help tear down the outhouse of corruption that was once a symbol of democracy. .... and yes there IS a huge stinking mess underneath, just like any other outhouse.

      More public stench (exposure) to come folks... stay tuned

      Delete
    2. You haven't been paying attention. The political culture of Newfoundland is rotten and corrupt, a fact that Danny Williams took advantage of during his time in office and something that Premier Ed Martin relied on during his reign as well. Snitches get (metaphorical) stitches. Traitors get blacklisted. Whistleblowers too.

      The place is rotten.

      Delete
  5. I agree with the government employee. I am a government employee also and I was at the rally today outside Confederation Bldg. I brought a copy of the petition to ban the levy back to work and was told to be very quiet about trying to get signatures so as not to let the "bosses" know. I thought this was a democracy and that the politicians worked for US. This is getting scary.

    ReplyDelete
  6. As a citizen of NL and not a engineer the poster sums up my concerns very well..I voted liberal in past election and feel if the government doesn't take this well written advise given by the way free of charge then we r surly in for failure as a province and failure as a democracy. Tks for the write up

    ReplyDelete
  7. I’ve been watching from afar and... what a conundrum! Time to reflect. Hydro Quebec is building the La Romaine complex, twice the size of Muskrat Falls a couple of hundred miles away. They have easy land access to all markets and they will produce electricity, some say for around 9 cents per Kwh which they will sell for 3 or 4 cents at the American border. Electricity sells in the US for what it costs to produce it with natural gas. To be competitive, the cost of producing hydro power 1,000 miles away from the market plus the cost of transport plus the line losses must be equal or less than the competition. Based on this fact, it is unrealistic to think that a project like MF can be viable unless you cook the books and depreciate the assets over an unrealistic period, forget to include maintenance and replacement costs, etc.

    I don’t have the numbers but I would assume that the cost to produce electricity at MF at the point of sale will be more expensive than La Romaine due to the complexity of the transportation, the inexperience of the team and the uncertainty of the North Spur soil conditions.

    In current economic terms, neither one of these projects is viable either in short or long term.

    With $6 Billion committed, and cancellation costs, it would now be completely ludicrous to cancel the project outright.

    Now here’s the good news:

    The US, Canada and 190+ other countries have made a commitment to cut greenhouse gasses A LOT by 2030 and nobody has any idea how to really do this. That’s where projects such as La Romaine and Muskrat Falls make a lot more sense. It appears that this time the Europeans are going to shame us into putting our promises into actions. Would this be a game changing opportunity?

    I would recommend that clear heads in Newfoundland sit down with clear heads in Quebec and the indigenous people of Labrador to come up with a much better game plan to produce and sell power in the US to replace all the power now produced by coal plants which will be forced to close in the next 10 to 15 years. 2030 is not that far away and the demand for “clean” power will skyrocket. Now is the time to ramp up Gull Island, optimize Churchill Falls and do whatever it takes between Quebec and Newfoundland to extract every possible kilowatt hour out of all the harnessable rivers in this corner of North America. Hydro Quebec has done a masterful job doing just that in James Bay. They haven’t developed a large scale project in 20 years. I am sure they would be glad to take the challenge to properly develop the Quebec and Labrador hydroelectric potential. Bond money can be raised at the lowest rates in 50 years. Now is the time to act.

    The local Indigenous people also have a lot to say in this. With this in mind, back in the 60’s, the Churchill Falls project was developed with very little input from them just as any other project in that time period. I’d say that they hold the key to renegotiate the Churchill Falls contract so they can get their fair and just compensation. They, after all are the owners of the land and the rivers, not Newfoundland and not Quebec. This is an undeniable fact.

    Now is the time to bury the damm hatchet between Newfoundland and Quebec. Newfoundland needs Quebec and Quebec needs Newfoundland. The US needs both partners to work together and the world needs clean power. I smell an opportunity….

    Pierre Lebel
    Frederick, MD

    ReplyDelete
    Replies
    1. There will barely be enough power from Muskrat to displace holyrood, let alone displace fossil-fuel generation anywhere else.

      Delete
  8. I sure hope the review will encompass all aspects of the project. Especially where the contracts went and the shareholders of those contracts. When it was going beyond a reasonable over-run someone should have questioned the project. This Maritime link is questionable in being anywhere feasible. My humble option Gull Island should been done first with power going through Quebec. When politicians cannot get their own way and start something than leave it (Muskrat Falls project) should been stopped than. Sam Saunders

    ReplyDelete
  9. Ball has changed horses.

    While Marshall has spoken of cost overruns, delays, etc. (all related to getting Muskrat "back on track"), he has said nothing about the water management agreement, methyl-mercury, the North Spur, etc. --- all show stoppers.

    Stan Marshall's job is to put Muskrat back on track. Maurice Adams

    ReplyDelete
  10. Personally I would like to see some Investigative Journalists such as Michael Harris writing about all this!

    ReplyDelete
  11. Maurice, I will forward my report filed with the PUB ( will appear there later) on efficiency possibilities for demand reduction of 400 MW, and test results of mini-splits on housing : COP average 3 or better (66 percent reduction on heating) and peak demand half at -15C to -20C range (this testing at -8C and other by US Dept of Energy to -13F). Testing on 1 minute intervals and 1 hr average, switching from mini-split to bseboard heater, and can be monitored remotely, even watch energy consumption on smart phone as it changes). Sort of what Manitoba Hydro said the power companies needed to do, end-use research, but say they cannot afford to do it! Your charts imply demand reductions from meter readings,but are average, whereas these are minute by minute. Trust you will find them interesting, as well as the report itself.

    ReplyDelete
  12. Can some one help me out.... Stan Marshall, who is to sort out the Muskrat Mess, I have read or heard that he is both an engineer and a lawyer. If so, an electrical engineer?(given his experience in the power business). By his own words, in the Telegram, he pictures himself as a mafia don, like in the God father movie, retired, in his garden harvesting potatoes, instead of roses. A sense of humour , I trust, and not to be taken literally, o rmaybe so?

    ReplyDelete
  13. From Bloomberg: http://www.bloomberg.com/research/stocks/people/person.asp?personId=8092891&privcapId=875612

    "He (Stan) is a Member of the Law Society of Newfoundland and Labrador and a Registered Professional Engineer in the Province of Newfoundland and Labrador. Mr. Marshall holds a Bachelor of Applied Science Degree in Chemical Engineering from the University of Waterloo and Bachelor of Law at Dalhousie University."

    ReplyDelete
  14. This comment has been removed by a blog administrator.

    ReplyDelete
  15. Great article and right on the money. Cold eyes review for this and also how we are spending tax payer money on government services.

    ReplyDelete
  16. I thought Muskrat Falls project was suspect from the time that the then Premier Danny Williams quit. It has continued to deteriorate since its inception. What a waste of money! Is Churchill Falls even operating at maximal capacity yet?

    ReplyDelete