The team tasked with building the Muskrat Falls hydroelectric project watched their identified contingency evaporate within four months of the project’s green light.
While sanctioning in late 2012 came with a choir and much to-do, and allowed Nalcor Energy to push ahead with its contracting, the key milestone for the project was “financial close” in November 2013, according to a new auditor’s report from Grant Thornton.
Before reaching financial close, settling financial arrangements, Nalcor Energy had received bids from contractors (ultimately hired) exceeding the planned project budget at that point by about $600 million.
“The amount of this overage exceeded the (sanctioned) tactical contingency (of $368 million) by over $230 million. Hence, prior to financial close, Nalcor should have been aware that the contingency amount included in (the sanctioned) budget was insufficient,” reads the report from auditor Scott Shaffer.
He repeated the point on the stand at the Muskrat Falls Inquiry on Monday.
And while the budget was already blown, Nalcor Energy did not try to restate the expected costs on the project.
“Based on our interviews and documents reviewed, nothing came to our attention to indicate that Nalcor attempted to recalculate the contingency and/or the entire capital cost estimate between April 2013 and financial close." — Grant Thornton auditor Scott Shaffer
Project director Paul Harrington reportedly told Shaffer it was “not my call” to do it, pointing to individuals higher up in Nalcor Energy and the provincial government.
“Based on our interviews and documents reviewed, nothing came to our attention to indicate that Nalcor attempted to recalculate the contingency and/or the entire capital cost estimate between April 2013 and financial close (November 2013),” the auditor stated.
Before the day was out, members of the Muskrat Falls Concerned Citizens Coalition issued a statement, posing a series of questions, asking when it was that Nalcor Energy’s CEO was aware of the budget problem, when it was communicated to the rest of the Nalcor board of directors and the provincial government, and the response that followed, if any.
A detailed commentary on the auditor’s report was also issued by the coalition. In it, they have more questions about what the Government of Canada knew about the unexpected project costs and shifting schedule.
Ahead of the latest round of public hearings for the inquiry, Commissioner Richard LeBlanc issued notice that the inquiry would now include the independent engineer in evidence gathering, in trying to determine what happened on the project and when. The independent engineer was working for the federal government, as part of the federal loan guarantee agreement.
Shaffer said the financial close and the federal loan guarantee locked in Nalcor Energy. Prior to the execution of the federal loan guarantee, the corporation could have decided not to proceed. But once the guarantee was on, he said, Nalcor Energy was committed to seeing it through and paying the price.
At the time of financial close, the auditor said, the project was six months behind schedule.
Shaffer continues on the stand Tuesday. He has yet to be questioned by lawyers for parties with standing, including contractors such as Astaldi Canada and representatives for project leaders past and present at Nalcor Energy.