The Uncle Gnarley Blog has a new website. Click here to visit to view the latest posts!

Monday 4 May 2015


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.

Recent Posts by Cabot Martin:


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.