The latest progress report shows that Nalcor had a productive summer, but an extrapolation by the researcher and writer JM of information in the latest progress reports points to first power from Muskrat Falls in September 2018 and full commercial power by the middle of 2019.
In at post at Uncle Gnarley, JM described the challenge facing Nalcor in 2015:
As correctly noted in the March 2015 oversight report the productivity improvements in Q2 2015 are essential to meeting the final milestone schedule. For the Muskrat Falls team, the summer of 2015 is really “make or break” for the project. They need to get the project back on track before the construction schedule is hampered yet again by another Labrador winter. Winter begins earlier in Labrador than it does on the Island. The project team knows this. The questions is this: is the productivity improving at a pace where the schedule can be recovered? [sic] If Nalcor have any hope for schedule recovery they must first start meeting their originally planned productivity targets. In the July 2014 schedule, they planned to complete about 6.7% of the project in Q1-2015. With all their mitigation measures, Nalcor should be looking for about 33% complete by the end of June.
The green dots show Nalcor has had some periods where it came close to hitting project targets. Basically, those few successes haven’t been enough to make up the delays. While Nalcor is officially optimistic it can get things back on track, odds are decidedly against it. Frankly, given the number of things Nalcor has been dead wrong about on this project – cost being the most obvious one – it’s amazing anyone still accepts their assurances about anything.
A combination of factors have produced a situation where Nalcor is off schedule. Some of that slippage in timeline has been caused by weather, as Nalcor’s Ed Martin has acknowledged. Other delays and cost over-runs have been caused by problems on the project management side, starting from within Nalcor itself.
Change orders - amendments to the project – have been flowing fast and heavy since the beginning of construction. Some people working on the project have groused privately that they have seen more change orders on this project than on any other project like it that they have worked on previously.
In his briefing with reporters this week, Nalcor boss Ed Martin cited changes to the footing of towers as an example of the sorts of new information that are causing cost over-runs. That’s probably the most simplistic and the least costly example of the over-runs. A more significant cost driver has been changes to the location and orientation of the dam itself. The North Spur will be another serious cost driver.
Both of those are the result of rushing the project through Decision Gate 2 approval in 2010 to meet an entirely artificial, totally political timeline. The attitude taken by both Nalcor and the provincial government was that they would green light the project and just fill in the blanks later.
Some of the blanks were critical and may well have led to a cancellation of the project if the details had been known when they ought to have been known, that is, before the project proceeded.. That’s essentially the same fundamental management problem that led Nalcor to slide through Decision Gate 2 on the pretence that this was the same project approved in 2006. It wasn’t. The project in 2010 had a different configuration and was aimed – fundamentally – at a different goal.
Nalcor should have started the whole decision process again, from scratch. The problem – an entirely superficial one – is that if Nalcor had done that, Danny Williams would not have had his 2010 retirement announcement. Nalcor fudged the details. Nalcor officials didn’t have to worry about the consequences because the politicians had committed to build something on the Lower Churchill no matter what.
Des Sullivan – author of Uncle Gnarley – tells the story of his engineer friend with decades of experience on major construction projects. Every time the two meet, the engineer says one thing: DG 2 times two point five. That’s his way of saying that the final cost of a project the size of Muskrat Falls will be two and half times the cost estimate at DG 2.
Let’s be optimistic and let DG 2 for Muskrat Falls be the point when the provincial government green lit the thing in November 2010. At that point, Nalcor said the price would be $5.0 billion. Based on the advice from Sullivan’s engineer pal, the final cost of Muskrat Falls would come in at $12.5 billion in 2019, all in. The current official estimated cost of Muskrat Falls is $7.6 billion, with another $1.5 billion or so in interest costs. That puts the current cost of the project – all-in – at around $9.0 billion.
The risk of additional delays and cost over-runs is high, according to the recent progress report. There are easily another $600 million in added costs likely to come as the project is only half done, at best. In other words, it won’t take much for the project to hit $10 billion at this rate. In fact, we’d be safer to assume that Muskrat Falls is going to hit the $10 billion mark already..
We should be setting our expectations for a project that will cost around $12.5 billion.
If you think that is scary, just remember that we still have no confirmation that Nalcor can control water flows on the river to produce enough electricity to meet its contract commitments to send free electricity to Nova Scotia.
Put that together with the $12.5 billion cost estimate.
Think of those two things together whenever you hear any politician say that we must finish this project and cannot let it fail.
Politicians should think of those things in light of yesterday’s post. Imagine going into an election in 2019 with Muskrat Falls at $12.5 billion, domestic electricity prices skyrocketing to pay for it, and you being the Premier who insisted this project must not be allowed to fail.
Voters won’t even remember who Danny Williams and Ed Martin were at that point.
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