The people who push specific megaprojects usually over-estimate the benefits and under-estimate the costs.
That’s the result of a Scandinavian study of these sorts of things. The title is Megaprojects and risk. They used examples taken from around the world:
Cost overruns and lower-than-predicted revenues frequently place project viability at risk and redefine projects that were initially promoted as effective vehicles to economic growth as possible obstacles to such growth. The Channel tunnel, opened in 1994 at a construction cost of £ 4.7 billion, is a case in point with several near-bankruptcies caused by construction cost overruns of 80 percent, financing costs that are 140 percent higher than those forecast and revenues less than half of those projected (see chapters 2-4). The cost overrun for Denver’s US$5 billion new international airport, opened in 1995, was close to 200 percent and passenger traffic in the opening year was only half of that projected. Operating problems with Hong Kong’s new US$20 billion Chek Lap Kok airport, which opened in 1998, initially caused havoc not only to costs and revenues at the airport; the problems spread to the Hong Kong economy as such with negative effects on growth in gross domestic product. After nine months of operations, The Economist dubbed the airport a “fiasco”, said to have cost the Hong Kong economy US$600 million. The fiasco may have been only a start-up problem, albeit an expensive one, but it is the type of expense that is rarely taken into account when planning megaprojects.
With that as background, consider that all three federal political parties are backing a megaproject in Labrador where the numbers just don’t add up.
labradore does a fine job of exposing the problem using comments from the provincial legislature last week.
Opposition leader Yvonne Jones asked Premier Kathy Dunderdale about current costs estimates for things like a transmission line from Labrador to St. John’s. The current forecast price is the same as the price in 1998 despite the fact that - for example – steel prices have climbed 200% in the years since.
Dunderdale’s response is really interesting. She doesn’t explain anything but basically stands behind the contention that she and her geniuses have somehow magically eliminated the impact of inflation on this project.
Minor problem, notes labradore.
Nalcor’s geniuses told the environmental assessment panel reviewing the project that inflation still works, but only for things they have no interest in doing. Like say a power line to the small communities in Labrador who will will only get to watch the power lines run by their communities on the way to the island and Nova Scotia:
In fact, in 2001 the Province estimated that the cost of constructing transmission lines to these communities would be in the range of $300 million. With inflation and increased costs for materials and labour, that number would be even higher today.
- srbp -