OUR FISCAL FUTURE: DAVID VARDY'S IDEAS FOR CHANGE

Readers of this Blog will recognize the name David Vardy as an occasional contributor. Others know him as one of the earliest critics of the Muskrat Falls project, having outlined his concerns in a Paper prepared for Action Canada, entitled Making Best Use of the Lower Churchill: The Muskrat Falls Development. But most people will know Vardy as an economist who served at the senior level of the public service for almost 30 years including as Clerk of the Executive Council (Secretary to the Cabinet), President of the Marine Institute, Deputy Minister of Fisheries, and Chair of the Public Utilities Board. In addition to several medals and awards, David Vardy is also the recipient of an Honorary Doctorate from Memorial University.

In modern parlance, Vardy is a policy wonk.

BALL HITS HOME RUN (WITH EYES CLOSED)

The departure of Ed Martin was a signal that carried, at minimum, the certainty change is coming to Nalcor. A good thing, too. When logistical challenge sees Ed Martin, his Board of Directors, and the old gang leader himself, Danny Williams, unable to keep straight something as simple as whether the failed CEO is leaving voluntary or was pushed, Muskrat Falls must really be in a mess. 

The appointment of former Fortis Inc. CEO Stan Marshall is a "home run" for Premier Ball, even if there is evidence he may have swung the bat with his eyes closed.

Now, one of the original "naysayers" of the "troubled" Muskrat Falls project has become Head of the Crown Corporation. As former Premier Cathy Dunderdale was fond of saying: "imagine that!"

Stan Marshall may do more than just end a costly, corrosive, and destabilizing era of state sponsored deception. While, alone, that would be a welcomed achievement, understandably public focus is directed to matters financial.

Certainly, my "worry" barometer has fallen from something approaching "panic".

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.

ASTALDI CONTRACT "A RECIPE FOR DISASTER" AMONG CONCERNS OF TOP HYDRO ENGINEER

Guest Post by James L. Gordon, P. Eng.

When Astaldi demolished the half-built dome, I just could not understand the reason for their decision. Now I know!

All hydro projects built in Northern Canada are constructed with heated and illuminated, insulated fabric enclosures covering all concrete work, sometimes with a small high-speed crane at the top to transport concrete buckets and skips of re-bar. The enclosures provide an excellent 24-hour, 7 days per week work environment, greatly increasing productivity.

With the release of the EY interim report, they mentioned that remuneration for the work undertaken is based on man-hours. Page 9, part 5.8, states –“However, the payment mechanism is based on person-hours expended rather than m3 of concrete poured.” This is a recipe for disaster, since the contractor, Astaldi, can increase remuneration and hence profit, by increasing staff.

A STORY OF POLITICAL CHAOS: PUBLIC SHOULD DEMAND NEW BUDGET

The Government’s first Budget, one entitled “Restoring Fiscal Confidence and Accountability”  will do nothing of the kind. It is, in brief, something akin to a “sick joke”; except the April “fools” are the ones the public just elected.

This is a Budget which the Liberal Government’s PR builders assured would reflect the beginning of some political leadership, absent so far; the kind that would rectify Tory incompetence.

What the province got, instead, was the blunt artistry of a clique of deceivers.

The Government has confirmed, again, Nalcor CEO Ed Martin is firmly in charge.  

It takes no great mind to figure out the singular agenda of Finance Minister Cathy Bennett, even if it is lost on union leaders of NAPE and CUPE, that the Province took a very retrogressive step, yesterday. Instead of stepping back, this Liberal Government has actually advanced our collective march over a very steep fiscal cliff.

EY REPORT: BALL CAPITULATES TO NALCOR CLIQUE

Written by Cabot Martin and Des Sullivan

Yesterday, the Minister of Natural Resources, Siobhan Coady did not release the Review promised in January, on the Muskrat Falls project; one that was supposed to have been completed by March 31, 2016.

What we have, instead, is an INTERIM, or unfinished, flawed, and incomplete, Report from EY. 

While the Minister acknowledged, yesterday, the project is suffering major problems and is concerned about the situation, the Premier has given the project the green light anyway - a response that is completely inconsistent with the financial risk to the Province implicit in EY's findings. 

It seems Premier Ball and his Minister concluded, long ago, that whatever the Report contained, they would not put the project on hold and delay a restart - not even for 45 days - when the full EY Report would be finished. 

With timing one would only expect from Nalcor, Coady dropped the EY Report in our laps two days before the very day on which a painful Budget will be delivered by the Finance Minister.

BUDGET CRISIS: ELEPHANTS WEIGH, "SUNSHINE LIST" ILLUMINATES

On Thursday, April 14^th the Finance Minister will deliver the Liberal prescription for a Province facing financial collapse. While there is fear over how deep the pain might be, a greater concern is that it will not hurt enough.

The Tories were incompetent, unwise, and reckless. The Liberals are faced with a monumental challenge. This week we will discover if they are capable of answering the call of leadership, or if they, too, will choose delay, as a remedy.

The Budget is late; it should have been unveiled by the third week of March; the very fact compounds the Government's growing reputation for dither. 

On the positive side, the Finance Minister told the CBC we have to fix a "culture of spending". That is probably the most important thing the Minister could have said. 

The "Wiseman Plan", of Premier Davis' former Finance Minister, embraced the unsupportable belief that oil prices were cyclical; that  the government could keep on spending; all they had to do was wait awhile, prices would rebound. The Tories ran deficits even when oil revenues were at their highest;  Wade Locke gave them a reassuring nod.

PUB SHOULD SAY "NO" TO AT LEAST PART OF PROPOSED RATE HIKE

When the "expert witness" for Newfoundland Power gave testimony to the PUB on April 4, 2016, in support of Newfoundland Power's (NP) General Rate Application, one part of the evidence was disturbing in its clarity. NP is seeking a rate increase with effect from July 1, 2016 of 3.1%. If granted, the increase will up NP's return on equity to 9.5%.

This piece will not deal with whether NP's Application is reasonable in its entirety. Of interest, here, is the Utility's claim to a risk premium and its rationale justifying the higher return. Roughly a third (0.9%) of the proposed 3.1% relates to this demand.

Readers may recall that prior to Muskrat Falls sanction some people, including this Blogger, suggested the Province's electrical distributor should weigh in on the debate over Muskrat. Newfoundland Power stayed mum. But since DARKNL, NP has expressed a flood of concern, and with an urgency larger even than a Spring freshet on the Lower Churchill.

P3s: GOVERNMENT NOT READY AND THEY ARE NOT RISK-FREE

If the Provincial Government proceeds with Public Private Partnerships (P3s) and Alternative Service Delivery (ASD) models to provide infrastructure and services, the public will need to understand this approach is not risk-free.

What might that risk be? It is that the returns from P3s will reflect the worst of what the public service and the private sector, combined, have to offer.

To begin with, the suitability of the P3 service model should not be defined either by NAPE or by the NL Employers Council, who are on opposite sides of the issue.