28 April 2011

The cost of doing business: Muskrat Falls version

Building the gravity base structure and drilling production wells for the Hebron project are now estimated at $8.3 billion, according to news stories on Wednesday.  In its story, The Telegram cites documents filed as part of the Hebron consortium's development application.

That's two thirds more than the original estimate of $5.0 billion.


So if a project estimate prepared by people highly experienced in these types of projects and who have a keen interest in cost control has climbed by 66% in such a short period, odds are good that we can also change any cost estimates for a bunch of people with a lot less experience in building gigantic projects.

Like say Nalcor, a company that has, contrary to its own claims, shag-all experience in megaprojects.

They tell the world that a dam on the Lower Churchill river and a bunch of transmission lines will cost exactly the same as it would have in 1998:  roughly $6.2 billion.

Yeah, sure, buddy.

Put a Hebron cost multiplier on that sucker and you get $10.2 billion. We have not even factored in any inflationary impact.

But that is bad enough.

We are not done yet.

According to Premier Kathy Dunderdale, Muskrat Falls power would cost 14.3 cents per kilowatt hour to produce.  That is based on the project cost of $6.2 billion.

So if we can reasonably increase project costs by 66%, you can increase the cost per kilowatt hour by a similar amount.

Do the math.

It isn't pretty.

- srbp -