FIVE WORRYING TAKEAWAYS FROM DANNY WILLIAMS’ TESTIMONY

Former premier Danny Williams fired back at critics at the Muskrat Falls Inquiry calling their opposition to the project "reckless, irresponsible and shameful." Williams went so far as to term them “bottom feeders”. Even the Uncle Gnarley Blog earned his wrath referred to as “Uncle Nobby, Nutty or whatever”. Eventually, it seems, the Commissioner had heard enough. This is an excerpt: 

But Mr. Williams we are living in a democratic society so you being a politician in the past would know that there are people who are going to agree with you and people who are going to disagree with you. So people have a right, I assume, to disagree and while you may not like the tenor of their statements I suspect that, in a democracy, we have to give people the right to express their views. – Judge Richard LeBlanc

The Commissioner’s rebuke of Williams’ disparagement of Muskrat Falls’ critics was one noteworthy moment of Williams’ testimony last Monday and Tuesday, October 1 and 2.   

For a public trying to keep abreast of the painful narrative that is Muskrat Falls, a few more of Williams' assertions deserve highlighting. There are others but I will note only five takeaways at least some of which you may find disturbing:

1.       Williams' testimony gives us some insight into his philosophy regarding large government-funded capital projects. The 2007 Energy(Warehouse) Plan stated that revenues from non-renewable resources should be used to develop renewable resources. At the Inquiry, Williams went further with the idea suggesting that revenues from oil and gas should be used to offset losses from renewable projects. 

One does wonder if he is making the assertion only because the Muskrat Falls project is seriously off the rails and is threatening the solvency of the province. Why would Government - or anyone - use money to make unviable projects "appear" viable when there are more economic options available? Economists call this practice capital destruction. It makes no sense. 

It makes even less sense when Williams must know that the oil revenues to which he refers are needed for public services.  Having fully allocated them, the Government still can't balance the Budget - which makes the revenue unavailable for such an imprudent subsidy in any case.

Williams at the Inquiry

2.      Williams acknowledged the importance of a Water Management Agreement (WMA) to manage the water flows when there is more than one hydro facility on the same river. He indicated that he was aware that Hydro Quebec had refused to agree to a WMA and that Nalcor had applied to the PUB to obtain approval for such an agreement, though it was framed in a manner such that it would not derogate from rights already held by HQ. The PUB sanctioned agreement was worthless without the compliance of HQ but Nalcor held it up as the real thing. Nalcor told the PUB that, in the absence of a WMA ,Muskrat’s output would be significantly curtailed.

Giving testimony, Williams admitted that the Government had accepted legal opinions from sources he did not name and noted that his Administration allowed preparations for project sanction to proceed without greater judicial clarity of the water management issue. As we know, the Quebec Superior Court did not uphold the Government's claim that the supply obligations contained in the Upper Churchill Renewal Agreement were different than under the original contract. The matter is now under appeal. Williams did not comment on the recklessness of that decision but indicated only the need to move forward with the Muskrat Falls project.

3.      Williams gave the impression that his Administration had given the project and Nalcor's recommendations rigorous review. Williams said the departments of finance, natural resources, the treasury board and others worked closely with Nalcor to evaluate the project before sanction. There was one problem with Williams' claim, however. 

First, Inquiry co-counsel Barry Learmonth informed Williams that he was unable to find evidence of the reviews he said had been performed by those departments. Learmonth went so far as to state that "based on what we have found in our investigation, it appears that government simply accepted the review, and work and cost estimates provided by Nalcor … without any analysis or review."

Evidently, Inquiry commissioner Richard LeBlanc had been informed of the problem and chose, at the end of the examination of Williams, to comment that it is his understanding that when a government department makes plans to spend public money, there is a "fairly rigorous" evaluation of the risks to the province's fiscal situation. Leblanc added: "It is a bit surprising to us that we haven't seen that."

Williams commented that "I don't want to leave you with the impression that information came in from Nalcor and it just went right up this clean pipe through government". The Commissioner, however, seemed to be in a "show me" frame of mind. 

Readers of this Blog, over the years, will recall assertions that the Department of Natural Resources served no role in relation to Muskrat except as a conduit to Cabinet. The Department did not have the personnel capable of performing any serious assessment of the project. Neither did the Cabinet Secretariat or the Department of Finance. 

The real story is that once Nalcor began to assert itself, Finance officials were not even permitted to discuss with the Crown Corporation revenues due government in advance of preparations for the Budget. Based upon this Blog's sources, the Inquiry is not likely to be any better informed on this issue than it is already. 

4.      Williams was asked by Commission Counsel about the issue of risk contingency, a matter on which Forensic Auditor, Grant Thornton (GT) has reported. GT stated that at a risk averse P75 level, $1.3 billion would have been added to the Muskrat Falls option. 

The Commission produced an Exhibit in which Nalcor had proposed the more appropriate P75. A hand written noted on the Exhibit suggested that P75 would place “more much stress…on the project cost” and that it was “a very conservative approach”.  The writer of the note remains unknown. However, Nalcor subsequently reverted to a P50 Contingency level, lowering one allocation and keeping $300 million out of the project costs altogether. No one told the public, including Williams, that the full price tag on Muskrat was low-balled. 

The Exhibit (below) was shown at the Inquiry. 

Nalcor Briefing page with hand written notes. Also note P75 Risk allocation, later dropped to P50 which suggested low likelihood of cost overruns and, hence, a low contingency budget added to project costs.

Williams denied any knowledge of the Risk issue. 

More interestingly he exhibited no concern that Nalcor, ostensibly, failed to inform him of the omission. $300 million is a rather large sum to be hiding. The public might have expected acknowledgement or even surprise that Nalcor had failed obtain formal Cabinet approval for such a decision. In place of an expression of bewilderment, there was only the heaping of praise by Williams on dismissed former Nalcor CEO Ed Martin.  

I expect the Inquiry will hear more evidence on this subject. Noted in the Forensic Audit Report, too, the matter contains the element of cover-up.

5.      "From my own personal legacy perspective, I stand by this wholeheartedly", reporter Sue Bailey quoted Premier Williams in a December 2012 Canadian Press story. But on the witness stand, Commission co-counsel Barry Learmonth asked Williams to respond to criticisms that he had pushed the megaproject through for the sake of his own ego and legacy. “Nothing, I’m under oath, could be further from the truth,” said Williams. (Bold has been added in both cases; no additional commentary would seem to be necessary.)