'I feel let down': Former top civil servant 'jarred' by forensic audit of Muskrat Falls
Lawyer says government ‘naive’ for accepting Nalcor's word
The man who once led Newfoundland and Labrador's public service during a critical period in the province's history had no idea that Nalcor had omitted a half-billion-dollar strategic risk allowance from its cost estimates for Muskrat Falls.
Robert Thompson was also surprised to learn there was just a one per cent chance that Nalcor would deliver first power from the controversial hydro project in July 2017. That was the schedule given to the public six years ago when Muskrat was sanctioned at a construction cost of $6.2 billion.
"I certainly feel let down, certainly today," Thompson said Wednesday afternoon following a full day of testimony at the inquiry investigating why the hydroelectric project is billions over budget and at least two years behind schedule.
'I don't have an explanation'
Thompson said he learned these details from a forensic and investigative audit by accounting firm Grant Thornton into the decision to sanction Muskrat Falls.
The audit was commissioned by the inquiry and released in September.
It revealed that a $497-million strategic risk allowance recommended to Nalcor in an independent risk assessment of the project was not included in the cost estimates.
And the audit found that the project management team knew there was practically no chance of delivering first power on schedule, which would mean increased costs for the project.
The project team recommended that a reserve allowance be included to cover the cost of any delay, but according to the audit, "Nalcor executives wanted to maintain the [schedule], and no reserve allowance was made."
I didn't realize that anyone had assessed the likelihood of meeting the July [2017] date at such a low probability. That's a surprise.- Robert Thompson
Thompson said he should have known about this.
"I don't have an explanation as to why it wasn't presented to us. So I'm really looking forward to hearing that explanation," Thompson said.
"I didn't realize that anyone had assessed the likelihood of meeting the July [2017] date at such a low probability. That's a surprise."
In the dark
Thompson served a long career in the public service, beginning in 1982, and left government in 2013, less than a year after Muskrat Falls was sanctioned.
He served as clerk of the executive council, the province's most senior public servant, from 2003 to 2007, and again from 2010 until his departure from government, under premiers Danny Williams and Kathy Dunderdale. In between, he served a period as deputy minister of natural resources, the department that oversees government-owned Nalcor.
For years, the Lower Churchill Project was one of the most important files on his desk, but it appears some very important information about the cost and schedule for Muskrat was kept from him.
Other government, and even Nalcor officials have delivered similar testimony at the inquiry.
Government was simply accepting whatever Nalcor told you, with very little review. And I suggest to you that was a very risky decision to make.- Barry Learmonth
"We were never presented with this in my recollection," said Thompson. "That's why it seemed so jarring to read about it in the Grant Thornton report. It was news to me."
And as he has suggested before, inquiry co-counsel Barry Learmonth said it's evidence that Thompson and others were "naive" and "blindly accepting" of the work being done by Nalcor in the lead-up to the sanctioning of the massive project.
Muskrat has been described as the biggest gamble in the province's history, one that now includes a price tag of nearly $13 billion and uncertainty about how the large debt will be repaid.
In one of several testy exchanges throughout the day Learmonth said, "Government was simply accepting whatever Nalcor told you, with very little review. And I suggest to you that was a very risky decision to make."
All-in costs up by 70 per cent
Total costs for Muskrat have now soared by more than 70 per cent — more than $5 billion — since the project was sanctioned in 2012.
Thompson acknowledged that government did not carry out a review of the estimates brought forward by Nalcor, with the following explanation:
"In this context we had Nalcor, a Crown corporation, with a board of directors, shareholder alignment, with highly qualified people, and there had been these cold-eyes reviews by other consultants, so that was the context in which we felt satisfied to release [cost estimates] to the public."
Learmonth countered that government had a duty to scrutinize every move by Nalcor.
'We did good work'
Thompson's testimony was similar to other government witnesses in that he said Nalcor was counted upon to provide accurate and timely information on everything from capital cost estimates and construction schedules to communications strategies with the public.
Thompson said government and Nalcor were an "integrated" team, and government accepted the estimates of Nalcor, just as it would if an independent engineer had provided cost estimates for a new hospital.
"We were relying at that point on the quality of the work that was going on within the project team in Nalcor and we were satisfied with the kinds of assurances we were being provided," Thompson testified.
Thompson disagreed with Learmonth's assertion that government was naive in its handling of Nalcor.
He said there were numerous independent reviews and there were constant meetings between senior government and Nalcor officials.
"We felt we were doing a credible job in providing independent oversight on the project at that time," he said.
As for the omission of the strategic reserve and the high-risk schedule for first power, answers to these questions are expected later in the inquiry when people like former Nalcor CEO Ed Martin and others are called to the witness stand.
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