the status of the Astaldi contract at Muskrat Falls.
Astaldi’s version may not be entirely
accurate either; but it is very different than the one Ed Martin
relates, and we need to know why..
2013, after six months of evaluation, Nalcor awarded a contract to Astaldi to build the powerhouse, intake, gated spillway,
transition structures and other associated work. Astaldi booked the contract with
a value of C$1.0 billion.
Martin told reporters: “We do have an issue with the powerhouse that
Astaldi is constructing. They have
fallen behind significantly”. That lag will have “schedule implications….and
with schedule implications, there will be some cost implications”, the CBC
the first time Ed Martin has spoken poorly of Astaldi’s performance; the Muskrat Falls Oversight Committee has referred to the problem frequently, too. This excerpt from the March 2015 Report is just one, and not necessarily the latest, example:
Last year, Nalcor
blamed Astaldi for having blown the schedule on the powerhouse and spillway,
too. Issues with the large Italian contractor extended to the controversial
Integrated Cover System (ICS), the “Dome”.
last year, that the demolition of the estimated $120 million ICS, built to
advance construction of the powerhouse during the winter, was Astaldi’s cost and
decision to make. Astaldi tore down the steel/concrete structure even before it
was completed. Nalcor
clearly stated that the dome would have no impact on the consumer. It remains
an open question why the dome was tore down.
the Independent Oversight Committee’s confirmed the existence of penalties in
the Astaldi contract and cited “liquidated damages” could be assessed the
Company if construction milestones are not reached.This Report excerpt is confirmation:
suffered a pretty bad year, financially, in 2015.
would be wrong.
together with the Reports of the Muskrat Falls Oversight Committee, might also
suggest Nalcor was ready to assess “liquidated damages” for the delay. If Astaldi did not concur it might be expected to face legal action by Nalcor; in which case
the Astaldi CEO would have to disclose to his shareholders.
will not find any such warning in Astaldi’s Third Quarter 2015 Report. It states “works on the Muskrat Falls Project are in line with current schedules”, as the excerpt below confirms.
Neither is the Full Year 2015 Financial Results Presentation apologetic. Astaldi CEO Stefano Cerri released the Report on March 9, 2016, less than a week before Nalcor’s AGM. In contrast to
what Ed Martin told the media, Astaldi states that production at Muskrat Falls
has reached “remarkable levels” (p.10). This
excerpt from the Report confirms Astaldi’s position:
wasn’t the only claim shielded, until now, from the Newfoundland and Labrador
public. There are others. Taken together, they constitute a remarkable difference in
the narratives of the two CEOs.
booked 320 million euros from Muskrat Falls in 2015, about C$500 million; that
is not a lot of revenue against which to conduct a full or even a partial
write-down of the Dome, underwrite low productivity, as Nalcor asserts, take a reserve
for possible Nalcor litigation, and still not lose money. None of this adds up!
|Astaldi CEO Stefano Cerri|
I’ll let a
long time Muskrat analyst, known to me, who posted on last week’s Blog to relate
why Astaldi doesn’t feel a need to warn
shareholders of anything. He writes:
CEO cited challenges with the MF project, due to things such as severe weather
(which is likely Nalcor’s risk). The CEO also disclosed that there was 320
million Euros ($500 million) of revenue booked in 2015. This was taken at 0
margin (no profit). The CEO was grilled by the analysts in the (subsequent
Conference Call) to explain why Astaldi was not making a profit in Canada. He
replied that he was optimistic the final negotiations with Nalcor would produce
comments on “the Canadian project” compelled me to also listen to the audio
recording of the Astaldi CEO’s Presentation and the Q&A Session, with stock
analysts, which followed.
feeling threatened, financially, Astaldi seems to enjoy a relationship with its
“Canadian client” unhindered by rancor or legal threat.
excerpt from the 2015 Astaldi Report, shown above, Astaldi reveals that
negotiations are “on-going with the client to redefine the schedule and the conditions
of the project”.
statement exposes CEO Ed Martin as possibly playing fast and loose in naming who is actually to blame for Muskrat schedule delays and cost overruns.
|Exhibit from Astaldi 2015 Annual Report confirms contract value, % completion data, etc.|
into the Astaldi CEO’s verbal Presentation….around 20 minutes into the proceeding. He states, through a translator:
10 you will see two factors which led to apparently lower profitability in this
quarter as a result of the sterilization of margins from Canada given that
today negotiations are underway which obviously have been very positive with
the client. This is a project that is going to lead to break-even, one-time,
one-shot drop, in the income statement on the fourth quarter……”
excerpt comes out of the Q&A Session in which the Astaldi CEO responded to
a question from an analyst:
the Canadian contract negotiations now underway we are confident…I can’t
provide other details, I have already said too much…a contract where we have
exceeded 40% in terms of work progress…a very complicated contract from an
operational viewpoint in terms of logistics and in terms of operations due to
the climatic conditions. Last year was the worst winter in 30 years. …I was
landed in very critical conditions I remember. So obviously this is a very
complicated contract…that’s our job…negotiations are underway; we expect that
in the short term it will reach a conclusion.”
can see, Astaldi is not a company seized with concern over its performance.
is suffering any distress, it is due only to having recorded zero profit last
mention of lawsuits for damages. There is only a reference to “climatic
conditions”, a “complicated contract” and “positive…negotiations…underway”.
questions that need to be addressed by Nalcor; such as:
|Nalcor CEO Ed Martin|
What kind of contract has Nalcor entered into when the “cost” and schedule” implications,
over which Martin blames Astaldi, are actually a matter of “positive” negotiations
“, and not a demand for “liquidated damages”?
drawn a ‘line in the sand’ for Nalcor by putting these assertions in writing and making them public?
to decisions taken (or not taken) by Nalcor?
is not whether Astaldi is right, but whether the Nalcor has been performing so badly as to allow the expertise of major contractors to trump Nalcor’s inexperience.
disingenuous, absent the capacity to speak
the simple truth?
who commented on last week’s Blog offers this blunt assessment:
that Martin cannot talk about these commercial matters. The CEO of Astaldi has
to talk about these things as a publicly traded company. Ed Martin can’t
provide an update to the very people who are paying for this project.”
If Premier Ball is going to “open the books on Muskrat Falls”, I think he had better hurry! Substantially, Muskrat was picked clean by Nova Scotia; chiefly because Martin let them, just to trigger the Federal Loan Guarantee.
I wonder if he will award Astaldi the bones of the ratepayers, too.