Last time, author and consultant to the Commission of Inquiry,
Dr. Brent Flyvbjerg’s thesis of “strategic misrepresentation or political bias”
(at P – 00004, p 17) was discussed as an explanation for how the
absurdly unnecessary and uneconomic project Muskrat Falls project received
Flyvbjerg’s thesis posits that “… forecasters and planners deliberately
and strategically overestimate benefits and underestimate cost and schedule in
order to increase the likelihood that it is their projects, and not the
competition’s, that gain approval and funding.”
Undoubtedly, there are still people who believe that the
Muskrat Falls project grew out of a process of evaluation based on the statutory
requirement of lowest cost and reliability.
Put through a year of tedious Witness testimony at the Muskrat Falls Inquiry where the pre and post-sanction
narrative took on a coherent thread, you might not be so readily assured that
Government’s legislated public interest obligations superseded those either political
or personal (legacy).
It is well worth chronicling the direct evidence supporting
Nalcor’s record of “strategic misrepresentation”. But even before the plethora of examples piled up there is significant evidence to suggest that the “fix” was in for Muskrat (or
It wasn’t easy in those early days to access the resumes of
the small group inserted into NL Hydro under Williams, the ones whom Dunderdale
described as “international experts” nor to get information that was more than propaganda. Then, an applicant conducting
a request under ATIPPA often had to be content with an answer from Nalcor that
stated bluntly: “does not support the Reference question”.
The Inquiry served its purpose on this account, too, confirming that from the moment the Williams Government announced its intention to use public funds to development an “energy warehouse”
it became less a plan than a conspiracy.
During Phase I of the Inquiry, Commission Counsel’s
examination of Paul Harrington, Muskrat Falls Project Director and member of
the Project Management Team, began on November 19, 2018 and continued for three
days. His testimony filled in some of the gaps in knowledge of how the
megaproject got started.
Principally what Paul Harrington had to offer the Inquiry was
the detail of his own work history as well as a little knowledge of Ed Martin’s.
As it turns out neither man previously led a megaproject or
for that matter, a large company unless, of course, Harrington omitted
something from his encounter with the Commission Co-Counsel. An appraisal of Harrington’s own experience – and that of Ed Martin’s with
Petro Canada – suggests that they were middle level managers, each one some
promotions away from the top job of a project general manager and much farther from the corporate suite.
Most notably, Harrington was sought by Martin, not at a
reasonable point in advance of Muskrat Falls Sanction in 2012, but far earlier
– in 2005.
You might ask: What was an ostensibly world-class megaproject
manager doing tied to a desk in St. John’s for seven years when, from Asia to the Middle East to North America, the best ones were in demand for “shovel ready”
On the Witness Stand Commission Co-Counsel, Kate O’Brien,
asked Mr. Harrington about “the previous work that you’d done – in what
previous position did you have that was closest in scope and responsibility to
that that you eventually took on with the Lower Churchill Project. Harrington
replied: “I would say the Hibernia Project…” O’Brien asked further: “So at – on
the Hibernia Project, what specifically was your title?”
MR. HARRINGTON: I was the – initially, the mechanical
completion or completions manager – or completions lead I think they used to
call it then, and then I was the deputy RFO manager (Ready For Operations). (p.3)
was not the Project Manager, nor even the Ready For Operations Manager. He was
the deputy RFO Manager. Back then Martin, as Harrington describes his friend’s
position, was in “kind of a business manager type role”.
fifteen years before construction on the Muskrat Falls project began. It is not
unfair to expect that Harrington might have been subsequently hired as ‘lead’ on
some other megaproject, beefing up his resume and his skill-set. At the
Inquiry, his testimony suggested no such thing.
on the Terra Nova project for Petro Canada. It, too, proved a long
distance from the top jobs both were seeking.
O’Brien’s questions continued. Harrington informed her that
both he and Ed Martin had worked on the “team” for Terra Nova giving no
indication that either he or Martin had led the “team”. States Mr. Harrington’s
transcript (p. 5):
So even after completion of the Terra Nova production platform,
which went into service in 2002, Harrington is assigned work on an insurance
claim which was “primarily led by Mr. Martin”.
Martin became Nalcor CEO in 2005 and, it seems, lost no time
assembling some of the old cronies with whom he had worked in the oil patch.
Returning to the transcript (p.4), O’Brien asks Harrington how
he got to be Project Director of the Muskrat Falls Project. He responds: “Okay.
Well, I was, you know, working on doing the start-up for White Rose, and I was
contacted by – I think it was Ed Martin, Mr. Martin, at the time. He asked me
to attend a kind of a brainstorming session that was being carried out in some
– I think it was the Guv’nor Pub on Elizabeth Avenue…”
Had Martin rescued Harrington from another mid-level position, this time on the White Rose project?
On the Witness Stand, Ms. O’Brien asks Harrington about the selection process that got him the
What was Harrington doing from 2005 to the time of Sanction –
November 2012? Evidently, planning a megaproject, pushing paper, getting ready
for a role, based on his testimony to the Commission of Inquiry, that he had
never previously occupied and for a project that would be either Gull Island or
the smaller Muskrat Falls. The “Isolated Island” Option didn’t even rank reference in dialogue with Commission Co-Counsel.
The “Isolated Island”, included a collection of thermal, wind and small
hydro, which could be constructed incrementally as Demand growth, if any, occurred. That far
less risk laden option found purpose only when then Premier Dunderdale was
forced by critics to subject Muskrat to review by the PUB. Little wonder that the
PUB complained bitterly that it literally had to drag information out of
Nalcor, even with a time extension, in its consideration of Government’s limited
Gilbert Bennett had already been placed by Williams as Ed
Martin’s second-in-command, having conveniently ‘moved over’ from his role as
V-P of Cable Atlantic. Who else was at the Gov’nor Pub that day? Interestingly, Ms.
O’Brien asked that question, too. This is Harrington’s answer:
One name that Paul Harrington likely missed was that of
Derrick Sturge, V-P Finance and Chief
Financial Officer for Nalcor. His testimony further confirmed Nalcor’s myopic
mission to build a megaproject.
On the Stand at the Inquiry, Sturge recalls his
return to Hydro in 2006 preparing for Nalcor’s formation and his subsequent
focus on financing alternatives for a large project. He recounts the team’s
effort to find a large-scale industrial customer; aluminum producers were a
particular focus. But the effort came to nothing. He picks up the story on p.9 (of his Inquiry Transcript):
Sturge then notes Nalcor’s employment of consultants, PwC and two
banks, to advise on financing availability, equity, and other requirements
required for pursuit of either Gull Island or Muskrat. He continues:
In October 2009, New Brunswick announced a potential deal
with Hydro Quebec and, as Sturge notes, the discussion became a two-way affair
Least cost and reliability later enters Sturge’s testimony but he
notes that “least cost” depended upon returns from the export market. It was important that he made this admission.
Realistically, there never was an export market that offered returns except at a
fraction of the cost of generating and transmitting power from Labrador. Besides, Sturge ought to have known that even a back-of the-envelope calculation of export revenue equalled only more “Muskrat Madness” considering the amount of capital employed in that pursuit.
The decision to do a deal with Emera, however, illustrates the level of desperation felt within Hydro Place and with Premier Danny Williams. Having no large industrial customer willing to make a large investment either in Labrador or on the Island AND dodgy Demand forecasts justifying only a 40% share of Muskrat’s capacity for Holyrood and growth (a figure both debunked and derided) Danny Williams and Ed Martin were in a position where, if their megaproject dreams were ever going to be realized, they would have to hang the entire project on the one and only – captive – market available – Island ratepayers.
Returning to the Witness Stand for a moment, Sturge explains to Ms. O’Brien that the export market returns helped Nalcor meet the requirement of “least cost” as well as Nalcor’s Internal Rate
of Return (IRR).
You might ask: why was 100% of project cost and 100% of the risk
downloaded on Island ratepayers – rather than a figure apportioned to the relative share of revenues expected from export sales?
The figure would only prove the silliness of the venture. More importantly, the export revenue did not have the benefit of certainty for the bankers. Only ratepayer sourced revenue was considered “bankable” which is why the “Term Sheet” for the Federal Loan Guarantee included a provision that ratepayers deliver the full annual revenue requirement of the project.
Who was warning the public of the direction of
power rates in the North Eastern United States in advance of the Sanction
Ceremony? Not Nalcor or the Government.
Myopia does have the effect of denial. And a lot of that was needed to justify the Muskrat Falls project.
Sturge’s testimony lacks any preoccupation with
the “risk” which ought to have accompanied consideration of a large-scale
project. In the real world, “risk” ought to have been center stage
in his testimony, as well as that of Ed Martin and Gilbert Bennett. At the end of it all, an observer would be
hard pressed to be sure that “Isolated Island” was an option at all.
When You Think Muskrat, Do You Believe Never Again?
Optmism Is Not A Plan: Addressing NL’s Fiscal Crisis
If the Commissioner chooses, he will have quite a Pandora’s
Box of examples that support Dr. Flygtvberg’s thesis of “strategic
misrepresentation” as the foundation for Sanction.
But first, the Commissioner ought to assess whether
“predetermination” – a conspiracy to proceed with one megaproject or another –
come hell or high water – caused a conflict with sound principles, economic and otherwise, to begin with.
He will have to throw into the mix the extent to which Nalcor violated “best practices” as part of the whole scheme. Such violations are
found in the failure to obtain legal clarity over water management, low-balled
costs, interference with the very Consultant’s Reports on which the public were
led to believe justified the project, the
failure to inform its Board or the Government of the true status of project
costs, even letting Premier Dunderdale proceed with sanction under the misapprehension
that all of the conditions precedent for the Federal Loan Guarantee had been
met. And that is only a partial list and the Government can be saddled with one, too, beginning with the absence of oversight.
And, don’t forget that a group of competent, senior and long
serving members of NL Hydro and CFLco weren’t invited to the Guv’nor that day
in 2005; the ones fired, that is. They wouldn’t have drunk the “Kool-Aid” anyway. In Ed Martin’s
“group-think” there was no room for “non-aligned” insiders.
From this perspective, too, it is hard not to think a
fool anyone who raises the spectre of “world class” or “business
case” when it comes to Muskrat.
Was Muskrat “predetermined”? Was this notion of “Isolated Island Option” a fraud from the start – not just the Cumulative Present Worth giving Muskrat an ostensible $2.4B advantage – but the whole idea?
Hopefully, the Commissioner will give that question his determination, too.