The federal government has scrapped plans to build three large supply and support vessels for the navy, saying the bids from two contending contractors were too high.
The shipyard at Marystown was part of one bidding consortium.
While some topsides fabrication for the Hebron project may go to Marystown, the modules likely to be built in the province are small and no where near as lucrative as the $3.0 billion Joint Support Ship contract.
The provincial government seemed to be signaling something was up two weeks ago when the Bull Arm fabrication site - soon to become a subsidiary of the Energy Corporation - demanded immediate return of two large towers even though Bull Arm has no use for them in the foreseeable future.
Concern in Marystown led to a meeting between town leaders and energy minister Kathy Dunderdale that appeared to quiet the matter.
Dunderdale used the Hebron project to threaten the shipyard and the community over the towers. She said that the reluctance to return the fabrication stair towers from Marystown to Bull Arm would damage the Hebron negotiations and the prospect of future work. She made no effort to explain how the two might be linked, especially considering that the provincial government is a partner in the Hebron project and that its Bull Arm facility was the only site in the province where the gravity base structure could be built.
Dunderdale also likely knew at the time of the public fracas that construction at Bull Arm for the Hebron gravity base would not begin until sometime after 2012. One oil industry official told news media last week that concrete pours wouldn't begin at Bull Arm until 2013 or 2014.
The towers were originally built at Bull Arm for the Hibernia project at a cost of $8 million dollars. They were used at Bull Arm during outfitting of the Terra Nova floating production and storage vessel (FPSO) and by Marystown on the White Rose project's FPSO.
The Marystown yard is currently bidding on a refit of the Terra Nova FPSO. Bull Arm is apparently also bidding on the work.
In early August, community leaders noted that the government-owned Bull arm site already enjoyed a competitive advantage over the privately-owned Marystown shipyard. Marystown deputy Mayor Julie Mitchell:
suggested should Bull Arm need the infrastructure for a project, the matter might be different but, as of the moment the facility doesn't need the towers.
As it stands, she said companies who lease the Bull Arm site from government already have an unfair advantage over Kiewit when bidding for contracts. They don't have overhead costs, pay only a nominal rental fee and can walk away when the project is complete.
Kiewit has a bid placed on an upcoming Terra Nova project, with other companies that could potentially use the Bull Arm site also said to be in the running.
This week the provincial government also announced plans to convert the Bull Arm corporation into a subsidiary of the Crown-owned energy corporation. As such, Bull Arm will continue to enjoy significant cost and tax advantages over its private sector competitors while at the same time being entirely exempt from the public tender act. It will also enjoy inside connections to the Hebron, Terra Nova, White Rose and Hibernia projects through the energy corporations work on White Rose and Hebron.
The Bull Arm company will be shielded from the province's open records laws under changes made to the energy corporation act in the spring sitting of the legislature.
In the House of Assembly last spring, Dunderdale used the prospect of other construction work - evidently including the JSS contract - to dismiss concerns about how much Hebron work would actually be done in the province once the deal was signed:
MS DUNDERDALE: Mr. Speaker, we are on the cusp of such development in this Province that we have never seen before in our history. We have a number of potential projects lined up here. Any one of them, any one of those projects, will fill up just about every bit of capacity we have in this Province.
As Bond Papers noted, government negotiators appeared to have operated under the mistaken assumption that major construction work in the province was all but guaranteed and that industrial capacity would be fully utilized. That would explain why last week's announcement of the final Hebron deal set minimums for local work rather than include the initial insistence that all work that could be done in the province would be done here.
The cancellation of the JSS contract follows on the failure of the NLRC second refinery proposal in June. The company is seeking investors for its failed bid and is currently operating under bankruptcy protection. A proposed natural gas terminal in Placentia Bay remains a proposal and the prospects of a Lower Churchill development are limited.
Of the projects to which Dunderdale referred, only the Vale Inco smelter-refinery at Long Harbour appears to be firm. Premier Danny Williams and Dunderdale jetted to Brazil last November to meet with Vale Inco officials about the project.
Under the company's development agreement with the former Grimes administration, Vale Inco is contractually bound to build a smelter-refinery in the province.
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