ED MARTIN - THE JIG IS UP

Guest Post Written by "JM"

The release of the Government’s most recent oversight report exposes the extent to which the Muskrat Falls project is in trouble.   

With every slipping milestone, and changing cost estimate, the credibility of Nalcor’s leadership is being questioned, too.   

Both Pam Frampton at the Telegram  and the CBC’s Azzo Rezori  penned excellent columns this past weekend,  as did Russell Wangersky on Monday, which documented clear frustration with Nalcor’s ability to obfuscate the real truth on the project’s status. 

The delay to the project cannot be hidden.  One has to look no further than to the pictures of the site, 3 years into construction, to truly understand the extent of work that awaits completion. 

Top: artist's rendition completed Muskrat Falls project (Nalcor image).
Bottom:  image shows current status of construction.

There is no denying that the completion of the concrete pour on the Spillway is a great accomplishment: 48,000 m³ placed during the last year.  It is a massive structure, and represents an important milestone for the project. 

However, the Spillway is minor when compared with the 460,000 m3 of concrete required for the powerhouse, and 200,000 m³ for the North and South Dams.  In total, some 760,000 m³ of concrete will be required to complete the project.  

The author extrapolates that, to date, only 20-25% of the total concrete requirement has been completed. Assuming 75% of the concrete hasn’t been placed, the figure is equal to 570,000 m³.  

In his July 2015 interview on NTV,  Ed Martin indicated that Astaldi is completing over 20,000 m³ of concrete per month, a figure nearing a Canadian record. Assuming 25,000 m3 can be cast in each of the 6 good weather months, and only half of that volume achieved in the 6 month winter period, recent site experience indicates that 225,000 m³ of concrete can be cast per year (about double the 2015 rate).  Simple extrapolation suggests this rate of concrete placement is equivalent to about another 2.5 years of concrete operations.  

The pour rate of concrete is not the only metric that one can use to peer into the project’s progress, but its accuracy is well recognized in the construction  industry.

Based on the current schedule, the concrete placement for the powerhouse will not be completed until mid-2017.  But, of course, finishing the concrete does not complete the powerhouse, anyway. 

When you examine the original schedules provided by Nalcor (page 156 of this Link), concrete completion, associated with the power house, occurs nearly 2 years prior to the date proposed for full commercial power (the schedule indicated completed powerhouse concrete placement by Q2-2015 to achieve full commercial power by Q2-2017).   

The November 2013 Independent Engineer's Report  also indicates a 2 year period is required, following completion of concrete operations, to allow for the installation and commissioning of the mechanical equipment inside the power house.    

Stated another way, an optimistic completion date for full commercial power is mid-2019.   Considering even modest amounts of future slippage, it will be the end of 2019, or later, before first commercial power occurs.   

In a less optimistic context, when you consider the meager progress which occurred in the first three years of the project, full commercial power in Q4-2019 actually remains a stretch target, in the opinion of the author. 

Nalcor can talk about schedule improvements, mitigation measures, and alternative execution strategies; however, it is time that they began to properly forecast future schedule performance, based on past experience.   

It is time for Nalcor to release the optimistic (P10), likely (P50) and pessimistic (P90) schedules for the completion of the project.  They need to base these forecasts on historical norms, rather than merely adding slippage to date, to the original project schedule. That approach meets no engineering standard.

Equally important, Nalcor must provide more information to show how their most recent cost estimate of $7.6 billion has been determined. 

One of the most worrying aspects of Ed Martin’s recent announcement was the acknowledgement the North and South dams were significantly over budget.  That means the problem was formally recognized in Nalcor’s cost estimates only with the signing of the contract. 

Yet, Nalcor must have known about this significant overrun in late 2014, after the bid closed.  The public record suggests they knew in December 2014, when Nalcor advised the oversight committee that clarifications on the contract were underway (page 25 of Report). 

The current project $7.6 billion estimate should not be an arbitrary number.

Accepted engineering practice is to forecast using sensitivities based upon change orders, future contract awards, and estimated future costs to arrive at the most realistic final landing position.  Nalcor seem to make project cost revisions only when change orders are executed, or when contracts are signed.  This is not standard practice in project cost reporting. 

Nalcor need to provide full transparency as to the anticipated final project costs, considering all known factors, including the schedule delay.  CEO Ed Martin should not be making offhanded, and oblique references to the potential for future cost increases, as he did in interviews last week.  The engineering profession offers Nalcor well-defined methodologies for project cost estimation. The estimates are available in-house, and constantly updated by his own staff; the problem is Martin does not want to share that information with the public. 

To be perfectly blunt, the jig is up for Nalcor. It is time for Ed Martin to be fully transparent.  As it stands, the public should consider the information, released last week, pure fiction.
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Related Post by "JM"

RECOVERING MUSKRAT'S SCHEDULE: THE SUMMER OF VALIDATION

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Finally, some issues require special emphasis:

Firstly, Nalcor must come clean on the project schedule.  2019 is a more likely completion date, than 2018, for full commercial power.  This delay will have an impact on the direct costs of the project, the interest during construction, and the associated delays between the contractors.  

A year’s delay will result in a minimum of $150 million additional interest costs during construction (IDC) and $150 million in direct management costs.  It will result in a good many change orders, too, because one contractor will issue delay claims, due to the lack of progress made by another contractor.  Delays of this nature will surely get messy and expensive for Nalcor, and by default the people of the province.  Then there are the damages must pay Emera for their delay.    

Secondly, it is time for Nalcor to acknowledge that the final cost of the project includes the interest during construction of the equity borrowed by the provincial government.  The province will be injecting nearly $3 billion equity in this project, once the most recent over-runs are considered.  The majority of this money will be borrowed.  There is a cost to borrowed equity.  It is significant, too.  

Whether Nalcor and the Provincial government want to acknowledge the fact or not, Muskrat Falls is a $10 billion dollar project, possibly higher, when all the costs are reflected in the estimate and the entire IDC is recognized.  

Thirdly, the failure of Nalcor to be forthright with the people of the province, with respect to both the date for first power and anticipated project costs, is eroding the professionalism to which the Crown Corporation lays claim. It is obvious to anyone, in the business, that full power from Muskrat Falls will not be available until 2019. Even to meet this completion date, strong execution will be needed throughout the remainder of the project. 

Nalcor’s refusal to be transparent is worrisome. Martin’s obfuscation gives rise to many questions about the mandate this Crown Corporation, especially its ability execute.

The public may not be ready to digest the reality of even higher costs; but they should get ready. $10 billion in 2020 may, yet, be a best case scenario.