completion of testimony by Premier Dwight Ball on Friday, June 5th brought
Phase II of the Muskrat Falls Inquiry to a close. His comments can easily be
described as anti-climactic given the larger narrative that the Commissioner,
Judge Richard LeBlanc, has heard. Yes, it was important to hear the Premier’s
version of the events that led to Ed Martin’s departure as Nalcor CEO, and
about the mess he faced having taken Office. But the Commissioner’s advice to
the Premier at the end had far more relevance than anything Ball shared.
It wasn’t as if the Premier had had the
intestinal fortitude to let Mr. Martin grovel in front of a Judge pleading for
his severance package. Or even that his lack of forthrightness leaves us
doubtful how both “ratepayers” and “taxpayers” will escape Muskrat’s
underestimated and misunderstood financial burden.
said, for all its shortcomings, Phase II Witnesses offered the public — if
anyone was listening — significant insight into a megaproject ill-conceived
from the start and as poorly managed as one might expect from a team of
cronies. We heard lots about the Astaldi Contract and the problem of
constructing the Labrador Island Link, largely absent geotechnical
investigation. We also heard about lost notebooks and listened to plenty of
larger narrative, however, was of a government that gave complete control of
the public Treasury to Ed Martin. The Commissioner is likely to have a lot to
say about the latter’s copious employment of the “commercial sensitivity”
refrain, just as one hopes that he will be merciless with successive Premiers
conflicted by the public interest and their own political self-interest.
about Nalcor’s lack of cooperation, EY, after having obtained evidence that the
$7.65 billion project cost released in September 2015 was a fiction, suggested
that the reasons given for 10 of 11 issues deemed “commercially sensitive” by
Nalcor were bogus.
if members of the public wanted to obtain a quick handle on Nalcor’s secrecy
and lack of professionalism — and avoid the mind-numbingly poor recall and lack
of knowledge of so many others — they might, accompanied by a large double-double,
listen to the Examination of EY’s Michael Kennedy, in which he told his story
of bureaucratic foot-dragging, complicity by the Oversight Committee, and the
complete absence of political leadership at a very critical time.
said, this item will not attempt to recast the 76 days of Hearings but will
simply offer the most compelling takeaways from Phase II. Others may differ on
the selection, but this is my take:
Confirmation that the Government was not informed at “Financial
Close”, November 2013 (when the conditions precedent were met allowing
access to the Federal Loan Guarantee, at which time the Government could have
paused or cancelled the project), that contract bid prices exceeded the amount
budgeted by 25% or $600 million. The Bids exhausted a drastically understated
Contingency Allowance and increased total project costs from $6.2B to $6.5B
(plus financing) only four months after sanction! The Government and the public
were not informed. At this point, Nalcor knew that the project was already
suffering a delay of 6 months on a schedule given a 3% chance of succeeding by
Westney, Nalcor’s Risk Consultant.
Confirmation that there were no Reviews conducted of the Project Estimates.
Remember how Ed Martin used to say that the estimates and the business case
Consulting Firm of Validation Estimating were engaged to review the cost
estimates, but weren’t allowed to finish the job after they raised questions
about risk assessment. If any attestation to its lack of professionalism were
needed, Nalcor used an out-of-context comment from Validation Estimating’s
Draft Report to suggest that the estimates were “best in class”. The Firm’s
Head, John Hollman, also called for a Risk Factor higher than P50, which would
have raised Project Estimates at the start. No, Nalcor did not share that
testimony added to assertions that grew out of Phase I which revealed that
Nalcor attempted to manipulate any negative feedback from ostensibly
Independent Reports, most notably MHI (which neither assessed the Business case
nor received the Westney Risk Report). The latter had recommended the inclusion
of $500 million of Strategic Risk in the project estimates.
There were no checks and balances on Nalcor, and no Oversight role was played
by Government. Neither prior to project sanction nor afterwards did the Finance
Department undertake an analysis of the financial risk to the Province of the
Muskrat Falls project. The Department of Natural Resources and the Executive
Council were little more than conduits for Cabinet Papers in which Nalcor was
seeking one formal Approval or another. The Reports claimed by former Premier
Danny Williams to have been conducted were not found at the conclusion of Phase
II either. Funny that!
of the extent to which critical government departments were left out of the
Muskrat decision was heard from one Deputy of Finance during Phase I and,
during Phase II, from a second Finance Deputy and the Deputy Minister of Natural
Resources along with the Clerk of the Executive Council, who served principally under
senior bureaucrat stands in line for a leadership award on Muskrat. Rather they
exemplify precisely how, in the British Parliamentary tradition, government
bureaucracies (including senior officials) are not supposed to behave. Todd
Stanley, a former Deputy of Justice, described — even if with some regret —
that Nalcor had become a “runaway train”.
Oversight Committee established by Tom Marshall was completely ineffective — a
fact well-known when it was struck — based upon its bureaucratic composition
and lack of power; matters confirmed by the Consulting Firm EY, hired to give
it guidance and to perform the investigations. It was stone-walled by Nalcor,
but the Oversight Committee deferred to Nalcor anyway. They relied solely on
Nalcor for their data. Nalcor edited their Reports.
the so-called Independent Engineer, acknowledging that his was a perfunctory
role, didn’t perform a deep dive on any issue. The Provincial Government,
having given the Government of Canada a “Completion Guarantee” for the project,
was essentially treated by Nalcor as a blank cheque.
Ed Martin maintained tight rein on the release of financial information,
including to the Nalcor Board of Directors and to the Provincial Government.
(No evidence was given that any of Nalcor’s VPs had ever attempted to
countermand Martin’s direction). Grant Thornton wrote in its Forensic Audit
that Nalcor’s expenditure commitments often exceeded its own official forecasts
described in the requests for the Board’s Approval for Expenditure (AFE).
had the strangest way (more precisely described by Grant Thornton as contrary
to “best practice”) of accounting for cost overruns: it didn’t update its
forecasts until the cost overruns were actually booked, when most (normal)
companies use the results of Bids, trending of costs, and Quantitative Risk
Analysis performed by Consultants, like Westney, schooled in the science.
did not provide timely information to the Government of Canada or the
Independent Engineer, either. The Inquiry heard evidence that Nalcor was
threatened by the Federal Government’s lawyer that payments under the Federal
Loan Guarantee (FLG) would be cut off if more timely financial information
As reported in a June 17th Blog Post entitled Paul Davis Kept Lid on Release of Cost OverrunsPrior to 2015 General Election, EY, the Firm hired to assist the Oversight
Committee, confirmed that the $7.65 billion project cost, released in September
2015, was underestimated. While Nalcor and the Oversight Committee played
“footsie” over its claims of “commercial sensitivity”, going so far as to
bifurcate the Report in order to isolate the ostensibly more sensitive parts,
neither Report was released until after the General Election — held November
30, 2015. Undoubtedly, some partisans will think this decision astute.
Stand Marshall’s objective — to “Finish Strong” — is in grave doubt, and not
just due to GE Alstrom’s lack of readiness with the software required to run
the power capacity of Muskrat through the Labrador Island Link.
Stan showed up at the Inquiry regaling the Commissioner with his characteristic
bluster, no one could mistake victory’s impossibility.
good choices survived Ed Martin, and Marshall didn’t exactly arrive at Nalcor
accompanied by an international skill-set or brilliant ideas. His singular
management change was to bifurcate the project. Though it was wise to give
Gilbert Bennett less to do, the decision to keep Astaldi around, or any of the
Project Management Team, was questionable. He had given the Italian connection
an $800 million settlement in 2016, only to see the Company kicked off the site
in 2018. Another arbitration of similar size is now underway threatening, in
the process, the current $12.8 billion price tag for the project. “Finish Strong”
may best be a boast kept within the sphere of personal training outfits like
New World Fitness!
As noted, the Commissioner’s advice to the Premier outweighed anything Ball had
to say. While, for reasons known only to him, Stan Marshall believes that we
can trust Nalcor, the Commissioner, on the other hand, is more sceptical. Though the Premier awaits a Report from the PUB on rate mitigation, the Commissioner
noted that while he was not “suggesting malfeasance by anyone,” he would like
to see the costs tied to the Muskrat Falls project (including maintenance and
operating costs) stated by Nalcor to receive independent review.
the Commissioner: “I do believe the ratepayer of the province deserves some
form of oversight with regard to the calculation of those costs that are
basically going to form that [guaranteed] stream of revenue” required from
course, the Commissioner didn’t need to tip his hand as to what his Report
might contain. Deception on a massive scale is a theme that has permeated the
Inquiry like a noxious odour. Based on the PUB’s Interim Report there is
evidence that it has been far too reliant on Nalcor for its data. The PUB’s
Final Report on Rate Mitigation will be worth little if this situation
are you listening?