Muskrat Falls Inquiry explores companies' financial relationship
Representatives from Astaldi Canada’s project team will continue on the witness stand at the Muskrat Falls Inquiry Thursday, as lawyers at the Inquiry explore — among other things — Astaldi’s financial agreements with Nalcor Energy and the company’s final days on the megaproject.
Astaldi’s finances had been under watch.
In early 2016, Nalcor’s finance team was briefing executives on Astaldi’s financial position — not Astaldi Canada, but parent company Astaldi S.p.A.
Documents in evidence at the Inquiry state Nalcor used an “external consultant with global reach on a confidential basis” to produce the assessment in late 2015, provided to Astaldi for input. It was updated in 2016.
“In recent years Astaldi S.p.A., the parent of Astaldi Canada and a publicly listed company on the Italian stock exchange, has expanded its operations into lower margin lines of business while at the same time increased debt levels — this has put significant pressure on debt ratios and raised credit agency concerns in late 2015,” a Nalcor summary later stated.
At the time of its Muskrat Falls contract award, the company looked better off in terms of debt. Astaldi Canada also posted the required $350 million in letters of credit and performance bonds.
But Astaldi S.p.A.’s share price dropped 50 per cent after third-quarter results in 2015. And it was exposed, particularly on a handful of projects in Turkey.
“Nalcor now understands from Astaldi that these contracts have been renegotiated and their financial exposure has been somewhat reduced, however, Astaldi having to declare significant losses on the Muskrat Falls contract in their 2015 year-end results could evaporate that financial relief,” Nalcor’s internal assessment warned.
In February 2016, on the heels of a cabinet meeting, Premier Dwight Ball, Minister Siobhan Coady and others met for more than three hours with consultant EY.
“EY is real surprised that discussions with Astaldi to resolve the $600 to $800 million issue are still at a high level, even though the problem has been evidence for 18 months,” stated notes from the meeting, now in evidence at the inquiry.
“Astaldi will obviously try to prevent booking any loss on Muskrat Falls in their (March) statements,” the notes also stated.
Supplemental financial agreements were made between Astaldi and Nalcor as the project progressed and was disrupted by change orders, disputes and a lagging schedule.
There was the “bridge agreement” of July 2016, settling some change orders and increasing the project price, then the final “completion contract” in December 2016, setting the total price for Astaldi’s work on a new, delayed schedule at $1.83 billion (it was originally $1.1 billion).
A subsequent “settlement agreement” added about $20 million.
A “re-advance agreement” in mid-2018 committed Nalcor to additional advances of $17.1 million over time, including a $10.3-million advance in June 2018 — because Astaldi S.p.A. was “in the process of re-financing” and unable to provide short-term cash support.
In early August 2018, Francesco Rotundi (for Astaldi) sent an email to Nalcor project management team members Lance Clarke and Scott O’Brien. He wrote about Astaldi hiring an additional 100 people and making more equipment available to speed up work. He also talked about finances.
“I ask for you to consider my request on the letter of credit this will show your commitment to making things work with Astaldi,” he stated, in the email now in evidence.
“You have seen our cash flow, we are reviewing it and from outcome it's clear that we need support now on until September, after this period everything will be manageable, if we don’t burn the invoice to be paid at that time, anticipating that payments to cover this period costs. Otherwise I believe it will be a big mess for us and serious harm to the project and both our companies.”
In mid-September, O’Brien was sending a formal letter to Astaldi project manager Don Delarosbil, as well as Rotundi and representatives at AIG and Liberty Mutual, accusing Astaldi of having made financial “misrepresentations.” O’Brien said Astaldi had responded to questions about the payment of outstanding invoices by suggesting a new finance agreement was in the works with Nalcor Energy that would allow for the bills to be paid.
“(Astaldi) is fully aware that any funds provided (…) are intended to be utilized for the completion of the outstanding works and not for payment of any contractor accruals and/or accounts payable,” O’Brien wrote. “Accordingly (Astaldi’s) statements as noted above to its subcontractors, suppliers and vendors are a deliberate misrepresentation of the facts and have misled these third parties regarding (Astaldi’s) ability to pay the arrears and has incorrectly and falsely placed the burden upon (Nalcor) to facilitate such payments.”
The company was told to “cease and desist,” and to write to everyone waiting for money and tell them about Astaldi’s ability to make payments.
In September 2018, Nalcor issued a notice of default to Astaldi (one the contractor has since challenged). The notice mentioned work progress, but chiefly cited unpaid bills.
“(Astaldi Canada) does not have either sufficient funds on deposit in its bank accounts and/or access to sufficient credit facilities available from any financial institution to provide necessary funds to finance working cash flow,” it stated.
It said parent company, Astaldi S.p.A., was “unable or unwilling” to help.
On Oct. 25, 2018, Trades NL (the Resource Development Trades Council) issued a news release saying workers for Astaldi did not get paid. It also noted a lien filed, seeking $7.8 million in remittances for worker benefits, and asked for a meeting about project finances with Premier Dwight Ball.
News reports, led by investigations by the CBC’s Rob Antle, said the notice to Astaldi immediately followed a request to go into arbitration. Astaldi claimed Nalcor (the Muskrat Falls Corporation) had “acquired and exercised direct discretionary control over Astaldi’s solvency and used this control to keep Astaldi on the brink of financial default.”
The suggestion was it was the follow-through on a “pain share” scheme.
The commercial disputes between Astaldi and Nalcor have yet to be resolved.