03 December 2014

Just do the math: Wiseman confirms Muskrat Falls cost at $7.3 billion #nlpoli

Twitter sometimes produces some gems.

Like on Tuesday when Tom Baird,  a mathematics professor at Memorial pointed out that the province’s finance minister had a wee bit of a problem with basic math.

“Just do the math,”  Ross Wiseman told Liberal leader Dwight Ball during Question Period on Monday.  “ Based on the current projected cost of that project of $6.9 billion, our investment over time, over the life of that project, the construction of that project, will be about $2.3 billion…”.   And that $2.3 billion, according to Wiseman was the 25% investment the provincial government had always said it would put into the Muskrat Falls project.

Wiseman didn’t just say it once.  He repeated the same thing again in answer to Ball’s next question:

As I said a moment ago, the total investment in the Muskrat Falls Project over the life of that project will be about $2.3 billion; simple math, the project is $6.9 billion, 75 per cent, the loan 25 per cent equity. Just do the math and that is what you will end up with, Mr. Speaker.

Then there was a third question and, again,  Wiseman’s reply:

It is simple math when I said there is 25 per cent equity going into the Muskrat Falls Project of $6.9 billion, I say, Mr. Speaker.

Minor problem, as Baird noted. $2.3 billion would be about 33% of $6.9 billion, 25%. “The man is in charge of $7B budget and can't do fractions.”

That’s not surprising.

Funny, sure.

But not surprising.

We’ve had finance ministers over the past few years who have buggered up all sorts of things.  The most common one is talking about reducing “net debt” and treating “net debt”, which is a calculation of assets and liabilities, as if it was anything more than that.  It goes up and down, depending on how many assets you have and, from the standpoint of spending,  it has no impact whatsoever on the amount of interest you pay on your debts.

At one point, Tom Marshall couldn’t even figure out how many imaginary dollars Nalcor and/or Muskrat Falls would produce at some fictitious point in the future.


Mixed up.

Talking about one thing, but meaning another.

Par for the Conservative course.

Like when they talk about “investing” government money when what they really mean is that they are just spending it.

Wiseman was just confused and confusing about what 25% is.  He was also confused about the project itself.  You see, when they originally announced the project, the Conservatives talked about the dam at Muskrat Falls, plus the line to the island plus the line to Nova Scotia.

Total cost for all three was supposed to be $6.2 billion,  with $5.0 billion covering the dam and the line to the island.  Earlier this year,  Nalcor revised the price estimate for those two bits for the second time.  Now it would be $6.99 billion.  And as with the time before that when they raised the estimated cost, they only talked about the dam and the line to the island.

And they called that the Muskrat Falls project.

Let’s go back to the percentages.

Wiseman talked about the percentages and the amount of money besides borrowing that the provincial government would put in the project.  He used the word “equity.”  He said it would be $2.3 billion.  On top of that comes the $5.0 billion raised by borrowing under the loan guarantee.

Well, as your humble e-scribbler pointed out in December 2013,  If you took $5.0 billion as the borrowing under the loan guarantee, you could figure out the actual amount the provincial government would have to cut in.  That’s because the loan guarantee agreement spells out how much equity went with each of the project components, that is, the dam and the line to the island. 

When you work it out,  $5.0 billion goes with $2.2 billion in equity.  Tom Marshall insisted in December 2013 that the equity component of the thing was going to cost us $1.9 billion.  Up to now, the provincial Conservatives have never waivered from that figure -   $1.9 billion  - even though that wasn’t enough “equity” to meet the terms of the loan guarantee agreement.

Now we know the truth.

It only took a year.

And in characteristic fashion, Wiseman insisted that this is something that he and his colleagues “have indicated in this House many times.”  Nothing could be further from the truth.  Search through Hansard over the past couple of years and you will not find either 25% equity or $2.3 billion.  The only figure they allowed was $1.9 billion and that,  not surprisingly, added up to the unbelievably accurate figure of $6.99 billion.

As Wiseman admitted on Monday, though,  neither the $1.9 billion figure or the price of $6.99 billion is true, even if Nalcor’s much-delayed quarterly financial update included the assurance from chief executive Ed Martin that the project was bang on the $6.99 billion estimate. $5.0 billion in borrowing plus $2.3 billion in “equity” adds up to $7.3 billion which is pretty much what SRBP told you fully one year ago.

But there’s more.

The figure Wiseman used works out to 31.5% percent of the correct total. Baird got the math right but he used the wrong total when he said it was 33%. The percentage of equity in the new total – $7.3 billion -  is not exactly halfway between the 25% equity in one subcomponent of the project and the 35% maximum in another.  it’s off and that’s a wee bit problematic.

The percentage still doesn’t work out, in other words.  Then you have to consider that Wiseman absolutely insisted that $2.3 billion was 25% of the project costs.  He might have been mistaken, but Wiseman was so insistent that you’d almost think he’d read the numbers somewhere,  like say in a briefing note. Under pressure in his new job,  it’s possible he just got a little confuddled in some of the details.  It’s easy enough to do if, for example, the total share of the whole project is – just coincidentally – the equity share allowed under the loan guarantee for one bit of it.  Ross might have have faithfully repeated what he understood, even if he got some of the details a bit wrong.

Some simple math can tell us  what the project cost would be, if $2.3 billion really is a quarter of it.  Multiply it by four and you get $9.2 billion.

$9.2 billion.

That’s $1.9 billion more than revised cost of the dam and line to the island.  That’s not as outrageous a number as you might think.  We have two possible explanations that could fill up that extra money. 

Earlier this year,  Nalcor said the interest cost on the dam and line would be $1.2 billion.  Add in a few extra costs that we haven’t been thinking about, and maybe you can get that figure up around  $1.9 billion.  That’s one possibility but, frankly, it’s a bit of a stretch.

The other possibility – more likely  - would be to include the cost of the Maritime Link in your definition of “Muskrat Falls project.”  The estimate of the project last year was around $1.5 billion.  Maybe the project has hit some cost increases of its own since Emera offered that estimate of $1.5 billion in early 2013.  Given the escalation in all the other parts of the project,  it’s a bit odd that Emera’s cost estimate is so precise and steady.

Of course, it could just be that Ross got it wrong and the 25% was just bad math on his part.  It’s just that given his accuracy about the equity amount of $2.3 billion,  it would be just weird for him to make a simple math mistake.