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Thursday 25 April 2019

WHEN DOES DECEPTION BECOME A CRIME?

Guest Post by David Vardy
Have Nalcor and government officials transgressed against the law or have they simply neglected their duty to serve the province, notwithstanding the consequences of their actions? That is the question. 

Section 7 of the terms of reference of the Muskrat Falls Inquiry reads as follows:

“The commission of inquiry shall not express any conclusion or recommendation regarding the civil or criminal responsibility of any person or organization.”

This suggests that any action based on legal transgressions must begin outside of the Inquiry. As the Inquiry progresses through its second phase there may be evidence which will point clearly to violations of civil and/or criminal law. The question now is whether sufficient information has been compiled to determine what recourse the people of the province have as a result of the injury and damage to the public good.


Former Premier Kathy Dunderdale boasted that Muskrat Falls had more review than any other project. Even this were true, which is doubtful, should the assertion include “independent” reviews manipulated and edited by public officials to achieve a predetermined outcome?


Determination to build Lower Churchill 
The Energy Plan affirms “a plan to develop the Lower Churchill. The evidence emerging from the hearing is that there was a determination to undertake either Gull Island or Muskrat Falls. To  support this plan demand forecasts were exaggerated and the opportunity afforded by conservation and demand management programs and other alternatives were dismissed. Up to 2010 most of the focus was on Gull Island either for sale west or to attract energy intensive industry such as aluminum. In 2010 the attention of government shifted to Muskrat Falls as part of a deal involving the Maritime Link to create an Anglo-Saxon Route which had up to then been deemed uneconomic. Muskrat Falls was driven not by demand for electric power but as part of a geo-political strategy to bypass Quebec and to seek redress from the injustice of the Upper Churchill. Without growing demand the replacement of Holyrood was used to justify the cost of Muskrat Falls.

Joint Review Panel
What have we learned from the Muskrat Falls Inquiry? The Joint Review Panel (JRP) told us they were not convinced that the project had a viable business case. They called for an independent review of the financial viability of the project. Sadly this fell on deaf ears.

Natural Gas
Dr. Stephen Bruneau made a strong case for natural gas. Government retained Ziff Consulting to take a critical review. Nalcor officials took control and ensured that the Ziff report strongly rebutted natural gas as an alternative to Muskrat Falls. This undue influence exercised by Nalcor came out clearly in the examination of Nalcor witnesses. Wood Mackenzie did another study on natural gas and its discussion on liquefied natural gas was removed on the direction of the Minister of Natural Resources.

DG2 Reviews 
Navigant were commissioned by Nalcor to give their seal of approval. They reported in 2011 when only DG2 cost estimates were available, based on less than 10% of the engineering design.

The PUB was asked to conduct a review, one whose terms of reference were carefully contrived to prevent the Board from examining all options. They too were given only preliminary cost estimates and they were denied additional time in order to access more refined cost estimates.

Despite pressures to intimidate the Board they held fast to their independence, concluding that the evidence presented to them did not allow them to reach a conclusion.

Manitoba Hydro International
Then MHI, the PUB’s consultant, was engaged to review the project and to confirm that it was the “least cost option”. They were given access to the later DG3 cost estimates based on more engineering design. They were denied access to the risk report prepared by Westney which had recommended inclusion of $500 million in strategic risk. They were not asked to review the business case. Officials consciously intruded into the editing of the MHI report, which was touted both by Nalcor and the Government as the definitive endorsement of the wisdom of sanctioning the project.

Validation Estimation 
Validation Estimation were engaged to review the cost estimates but they raised questions about the risk assessment. They never completed their report for Nalcor despite the fact that Nalcor quoted positive comments from a draft report written by John Hollman and cited it out of context to pretend that the cost estimates were “best in class”.  Validation Estimating called for a risk factor higher than a P50 which would have raised the cost estimates and Nalcor did not want to hear this criticism of their work.

Westney Consulting
Westney Consulting CEO and owner Richard Westney told the Inquiry that Nalcor should have used a P75 cost estimate for contingent and strategic risk and that both should have been included in the estimate. This would have increased cost by $1.3 billion.

Independent Project Review
The Grant Thornton forensic audit relates how a group of experts was convened to undertake an expedited Independent Project Review (IPR) within the time frame of a week and given selected files by Nalcor personnel. They recommended that strategic risk be included in the final project cost. Nalcor personnel attempted to edit their report so that it would seek “recognition” of strategic risk rather than “inclusion” of the $500 million within the cost estimate. The group resisted this attempt to influence their independent report.

Independent Engineer
Throughout the process there were repeated efforts to edit documents and to remove anything negative about the project and to understate the risks. In its phase 2 report Grant Thornton identified numerous efforts by Nalcor to edit reports from the Independent Engineer to put a more positive spin on the IE’s observation that contingency reserves were too low.

Letter to Finance Minister Jim Flaherty
The independent review which the Joint Review Panel called for never happened, despite the great profusion of documents relied upon by Premier Dunderdale and others as assurances that the government had done its due diligence. In point of fact they did not allow an independent review to be conducted, nor did the federal government see fit to listen to the advice we gave in a letter signed by Richard Cashin, Roger Grimes, Dr. John Collins, Cabot Martin, Ron Penney and the undersigned to the Federal Finance Minister calling for a “full and transparent” before the federal loan guarantee was given.

Conclusion
A picture is emerging of contrived cost estimates and manipulation of “independent” reports by officials and Ministers. The people of the province were deliberately misled. At what stage must citizens take legal action to ensure that those who attempted to mislead the public are brought to justice?

When information is withheld and independent reports are edited, manipulated and distorted to achieve a given end are there sanctions which can be invoked other than penalizing the governing party at the ballot box? Processes have been subverted and normal checks and balance overruled. The effect has been to increase the risk of injury to the public good. This has led to an enormous financial cost to the people of the province.

Is it fair that the perpetrators of these damaging acts are not held responsible? Is there any way to hold those who exposed the province to these huge losses and environmental damages to account and to make them financially responsible? These are fundamental questions especially for those who believe that the Inquiry should be about more than the chronicling of irresponsible behavior by both elected and non-elected officials. It is true that if the project had been aborted the Lower Churchill Project group would have had to fold its tents. They had an interest in ramping up a Lower Churchill Project, whether it be Muskrat or Gull. The Inquiry has yet to hear evidence that those officials personally benefitted from their actions other than as paid public employees and contractors.

While there is no smoking gun pointing at criminal behavior there is clearly evidence that the norms of due diligence and best practices were overruled. Fraud is defined as wrongful or criminal deception intended to result in financial or personal gain. It appears that the Inquiry has no mandate to deal with the issue of civil or criminal responsibility. If not the Inquiry then who will take this up? We invite readers to offer their opinions as to how those responsible can be brought to justice, given that this matter has been excluded from the Inquiry’s terms of reference.

David Vardy