There are a few matters that need to be discussed before the
details of the Muskrat Falls debacle test the patience of readers (as if they haven’t
Reflections on the past year, as the Inquiry examined a bevy
of politicians, bureaucrats and consultants, leads essentially to a single
question: how did so many people in positions of responsibility exclude
themselves from common ethical norms and processes, as well as the “best
practices” of their professions, affording themselves engagement in a lengthy,
complicated, and costly plan of deception to achieve the sanction of such a
reckless, state-sponsored project?
The question is only partly addressed here; the lengthy and
diverse evidence supporting the mostly likely thesis — better coming from the
Inquiry Commissioner anyway — would test most anyone’s patience. Still, the
likelihood of Muskrat’s repeat is high. If the next one is not on that scale of
“crazy” it is only because no one is foolish enough to lend us the money — not
because the current political leadership is any less reckless.
In this context, it is well worth reading from a Presentation
to the Commission of Inquiry by Consultant, Dr. Bent Flyvbjerg, who has studied
the successes and failures of megaprojects globally. The academic and lead
writer of the Presentation categorised the factors that gave rise to their
birth and applied his research to explaining why so many projects that should
have been “stillborn” received the enthusiastic support of their boosters,
leaving one purse or another far poorer.
Flyvbjerg’s thesis of “strategic misrepresentation or
political bias” (at P – 00004, p 17) is a quite suitable ascription for the
rationale that licensed, in Stan Marshall lexicon, the Muskrat “boondoggle”. It
fits with the facts as the Inquiry heard them, not just once but on multiple
occasions. After all, the Inquiry dealt with a multiplicity of forecasts and conclusions
— comprising a litany of contrivances neatly presented by Nalcor as if they
constituted a serious business case for the project. The explanation defined by
Flyvbjerg is given context in this quote from his Presentation:
“… 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.
“According to this explanation, actors purposely spin
scenarios of success and gloss over the potential for failure. This results in
managers promoting ventures that are unlikely to come in on budget or on time,
or to deliver the promised benefits.
“Political bias can be traced to political and organizational
pressures, for instance competition for scarce funds or jockeying for position,
and to lack of incentive alignment.
“The key problem that leads to political bias is a lack of
accountability for the parties involved in project development and
“(1) Because of the time frames that apply to major project
development and implementation, politicians involved in producing
overoptimistic forecasts of project viability in order to have projects
approved are often not in office when actual viability can be calculated.
“(2) Special interest groups can promote projects at no cost
or risk to themselves. Others will be financing the projects, and often
taxpayers’ money is behind them, including in the form of sovereign guarantees.
This encourages rent-seeking behavior for special interest groups.
“(3) Contractors, who are an interest group in its own right,
are eager to have their proposals accepted during tendering. Contractual
penalties for producing over-optimistic tenders are often low compared to the
potential profits involved. Therefore, costs and risks are also often
underestimated in tenders. The result is that real costs and real risks often
do not surface until construction is well under way.
“Explanations of cost and schedule overruns in terms of
political bias account well for the systematic underestimation of costs and
schedule found in the data. A politically biased estimate of costs would be
low, resulting in cost overrun, a politically biased estimate of schedule would
be short, resulting in delays.
“Optimism bias and political bias are both deception, but
where the latter is deliberate, the former is not.”
Flyvbjerg makes a very fine point in characterizing the
difference between “optimism bias” and “political bias” in the context of its
deliberateness. Still it is one, I suspect, that will not challenge the
Commissioner’s analytical skills too deeply, especially considering the
frequency with which the “best practices” claimed by both Nalcor and the
Government were ignored.
out, like error; biases compound!” – Dr. Brent Flygvberg
Interestingly, too, if anyone works through all the occasions
when bias influenced the rosy predictions (fulfilling Flyvbjerg’s first
criterion of deception) of the politicians and Nalcor senior bureaucrats, is
that another conclusion is warranted: it is that the Muskrat Falls project was
“predetermined”. This is an important issue for which the evidence is
substantial and, in the view of this observer, in alignment with Flyvbjerg’s
In addition, and by implication, “predetermination” placed all
alternatives to Muskrat outside the ambit of objective inclusion. Readers will
recall that Nalcor gave Muskrat a Cumulative Present Worth (CPW) that exceeded
the “Isolated Island” option by $2.4 billion. “Predetermination” of the Muskrat
outcome makes that “lie” palpably maddening!
The idea of “predetermination” has at least one other linkage.
The authority given Nalcor by the Williams’ Administration to build a
megaproject, in alignment with their Plan for an “energy warehouse”, enabled skirting of even the “normal” processes of government review and oversight.
The megaproject mandate essentially came cloaked with an
authority akin one taken by a “rogue” regime. Consider, for instance, the idea
that the CEO could arbitrarily decide what information could be kept secret
merely having classified it “commercially sensitive” — which often exhibited a
standard of disclosure far below that held by public companies on the European
and North American Stock Exchanges. Such secrecy having been “legitimized” in
legislation, it is not surprising that Nalcor’s wanton behaviours include even
the ill-treatment of its Board of Directors (even if they were unable or too
partisan to recognize the fact), and the failure to inform politicians of
critical project cost data.
This enabling afforded Nalcor the opportunity to engage in
“practiced” deception, considering the number of occasions and the many forms
in which it was employed. It is important to understand that, on the
government’s side, the enabling and the de facto (if not overt) nods of
approvals of its tactics permitted a style of Corporate behaviour that also became
It came as no surprise that in the Final Summation of Edmund Martin, the former
CEO, laid claim to such authority. His Summation in detail is beyond the scope of this piece but suffice to say whether
Martin’s argument is even coherent belies the expectation of a professionally-run
and ethical Corporation. Nalcor might, at least, have covered off the content of the briefings and decisions obtained from the Government, with a paper
trail — which it did not.
The Commission of Inquiry turned up multiple examples of both
“predetermination” of the project and “deception” of the government, but more
especially the public.
Public concern over Muskrat long ago shifted to the ‘bread and
butter’ issue of “rate mitigation”. That is understandable. But, as did the
Tories, the Liberals under Dwight Ball continue to use hundreds of millions of dollars
of public money (the Bay du Nord equity stake) for investments, though they
bring no experience to the table in the assessment of the risk against which this
money is put. There is only the hope that, if an investment is good for major
oil companies it is good for the province, too.
Often not even aware of the risk/reward fundamental or having
assessed the downside from a policy perspective, Government delivers these
investments to the public as a “fait accompli”. The public’s contribution is
their nod to blind faith that the politicians know what they are doing.
Is the horror of Muskrat the last such example? Not if
“optimism”, rather than fact-based analysis, is allowed to drive public policy.
P.S. In bringing to a conclusion an appraisal of some of the
evidence which the Commission heard during the past year, I will add a post that will chronicle some of the evidence confirming the Flyvbjerg
assertions of “optimism bias” as well as evidence that underpins the suggestion of Muskrat’s
certain sanction — “predetermination” — any other option having been set
up for rejection.
Finally, I want to address the question of penalties that
ought to be meted out to the “culprits” most responsible for saddling the
province with the Muskrat debacle.