Nalcor CEO Ed Martin has confirmed the Muskrat Falls Project is undergoing “cost pressures” his statement will likely become repetitious.
trip to the confessional is more than just an affirmation that ratepayers and
taxpayers will be bitten; it is an admission of that Agency’s incompetence for
having pursued a foolish project in the first place.
Martin’s guarded revelation (he won’t say how much over-budget)
was made mid-way or near the end of the Project, just possibly the public
might experience some solace that the damage is containable. But the Project has barely begun. The project is already a year behind schedule.
struggling to stave off disaster.
Proof that the Project is off the rails is
slowly emerging. Appendix “A” of the Independent Engineer’s Report contains a summary of anticipated award dates for the Major
Contract Packages. The dates were
summarized for the original DG3 schedule and the forecast schedule of August,
the Independent Engineer’s August 2013
schedule with the actual status contained in the February 2014 Monthly Report, it is clear that Nalcor is unable to stay on schedule.
That ability to meet deadlines is fundamental to the success of the construction business. It is really the ‘canary in the coal mine’ for identifying the costly problem of delay. The schedule is rarely
improved during construction.
Independent Engineer (IE) was wise to point out that Nalcor’s schedule was too
aggressive given the large project’s remote location. The IE indicated a range of 5 to 7 years. Nalcor’s schedule was based on 5.25 years.
is this: are the delays identified by Ed Martin the result of
proactive planning to reduce costs, or are they the result of Nalcor
consistently not meeting its project milestones? Is the lower cost argument purely ‘spin’ used
to mask the evident under-performance by his project team?
advanced the idea that he was prepared to modify the construction schedule to
save money. Even if true, he could not
have meant “savings” as you and I define them.
He must have meant ‘savings’ in the context of a worse
Construction (IDC) including interest paid by the Government on its
(which shows up as Provincial debt).
– direct management costs.
– site costs.
million additional cost for one construction year.
going to spend ~$350 million as a cost savings measure? I don’t think so.
Ed Martin seems to be a person more into ‘voodoo’ economics than widely accepted principles like ‘time value of
Wednesday, April 30th the Telegram reported him saying delays in the
Muskrat Falls project won’t add to the interest to be paid on Nalcor’s $5 billion construction
is a home owner who simultaneously pays rent and interest while his house is
being built except Martin wants you to believe the extra year’s rent don’t
add to his project costs.
Muskrat Falls robs the project of cash flow every day commissioning is delayed,
depriving the Company of revenue that can be applied to interest and other
business, must capitalize ‘interest during construction’ (IDC). It is a
cost feature of the Project – no different than labour and materials. In Nalcor’s case, the additional cost is recaptured via your
Purchase Agreement (PPA) which will determine the power rate you will be
charged to pay off the cost of Muskrat Falls.
That means the PPA can still be changed at any time.
What is more, a 1 year
delay seems now to be a best case scenario. The same Professional Engineer who reviewed these delay costs suggests a more likely
completion date is early 2019.
Resources Minister Derrick Dalley.
stated Nalcor has no liability to pay penalties for failing to supply the
Maritime Block until Muskrat’s completion. He omits the fact that all such
contracts contain a “time is of the essence” clause“. This is a statement of warning to the
contracting parties that performance is expected within the proscribed period
of time failing which damages may be claimed by the injured party.
its $1.5 billion investment in the Maritime Link without compensation. It is possible that Emera is behind schedule,
too. But, don’t expect full disclosure,
on these issues, until a general election is out of the way.
also failed to mention the impact of a delay on the Energy Access Agreement
(EAA). That’s the sweetened deal Nalcor
gave Nova Scotia in order to obtain the NS UARB’s support and to trigger the Federal
24 year Agreement under which Nalcor has committed a cumulative total of 28.8
TWh of electricity (in addition to the Maritime Block).
specifically runs until 2041 and legally requires Nalcor to supply virtually
all its so-called surplus or ‘market-priced’ power to a maximum of 1.8 terawatt
hours (TWh) or an average 1.2 TWh annually over the 24 years.
achieve the cumulative total of 28.8 TWh during the Term, the minimum offering
to Emera of 1.2 TWh will have to increase because the contract period is naturally shorter.
and Emera have entered into a side deal, one not released for public
consumption, Emera may invoke a Condition called “Variance” in which Nalcor is legally committed to 75% of its electricity obligation. (“THE NEW DEAL WITH EMERA: WHAT WILL NALCOR THINK OF NEXT?” offers an explanation of the EAA and the Variance Clause.)
will all that power come from?
Related Reading: MUSKRAT FALLS: THE SKINNY ON COST OVERRUNS
nutshell, any delay in the Muskrat Falls Project is serious. The additional commitments to which Nalcor has obligated us will further challenge our
pocketbooks and our patience.
Now, that might be a far better reason why time is of the essence!