CEO MORE POLITICAL TOOL THAN ECONOMIST

Guest Post by PlanetNL
PlanetNL25: Nalcor CEO – Economic Skills Are Non-Essential to the Position

At Nalcor’s Annual General Meeting last week, CEO Stan Marshall offered up a view on Muskrat not heard before.  He has chosen to reframe the Muskrat Project as a combination of a good generation project saddled down by the burden of much too costly transmission systems.  Stan further suggested that had Muskrat energy been sold exclusively via Quebec transmission routes, it would be considered an attractive project, the envy of those other provinces still building their questionably expensive hydro projects.

In the PlanetNL17 post, entitled Exploding Transmission Costs a Terrible Blunder, the cost of Muskrat Project transmission was analyzed and found to be just as stupidly expensive as Stan says.  It’s nice to agree with the utility occasionally.  His assertion that Muskrat generation could be economic, however, is a long way from reality.  This post does some quick calculations to show that Muskrat Falls generation in its simplest guise isn’t viable in any market.

STAN MARSHALL INTERVIEW WITH GERMAIN NARROWS FIELD OF CULPRITS

The CBC report of an anonymous senior Nalcor engineer - who claims that low-balled estimates were used to obtain sanction for the Muskrat Falls project - has, again, shed light on a Crown Corporation that, sometime after 2009, went rogue.

The engineer’s allegations are now well-known, but Nalcor’s response – specifically Anthony Germain's interview – finds a retirement-minded CEO indicating casual indifference to what can only be described as the most serious accusations ever leveled at the government since Confederation. 

The CBC quoted the senior engineer using the words “absurdly low” to describe the estimates. In my Blog Post of February 2017, the same engineer used the word “falsification”.

Nalcor CEO Stan Marshall described the estimates as “unrealistic”.

“Absurdly low”, “falsification” and “unrealistic” – any difference is fundamentally meaningless.

In this context it is important to remember that we are not discussing the replacement of a culvert in Bung Hole Tickle. Estimating a multi-billion dollar project is complex work. It also goes through multiple layers of review – each time by a group more senior. 

MUSKRAT: ALLEGATIONS OF PHONY COST ESTIMATES

This is one engineer's story of how Nalcor "low-balled" the cost estimates for the Muskrat Falls project, paving the way for huge cost overruns. The alleged phony estimates led to an inadequate budget for the project, and indiscriminate contract awards — Astaldi a classic example. The engineer states that Nalcor failed to perform adequate due diligence — ignoring well-established processes designed to confirm valid estimates such as those used by SNC-Lavalin. The post also discusses the implications of those allegations for the integrity of our political process.

Muskrat Falls — A History of Misinformation — 2010 to 2015

In 2010, Nalcor hired SNC Lavalin (SNC) to conduct the engineering, procurement and construction management (EPC) for the MF project. A key aspect of the Company's role — essential to any decision to proceed — was the preparation of a cost estimate.

The $5 billion investment Premier Williams announced at that time quickly became $6.2 billion ($7.4 billion, including the cost of borrowing) as Nalcor sought sanction from the Dunderdale Government, in 2012. $6.2 billion was the cost figure Nalcor used in its Application to the PUB and the claim that the Muskrat Falls option exceeded the “isolated island” option by $2 billion.