How Ed Martin's tight grip resulted in 'stale' Muskrat cost estimates

It was a testy day of drawn-out testimony at the Muskrat Falls inquiry Friday as a senior financial executive on the troubled hydro project revealed how former Nalcor Energy CEO Ed Martin kept a tight grip on information about project costs, often at the expense of those backing the project.

Many months would elapse, it was learned, before the main shareholder on Muskrat, the provincial government, and the federal government, which had co-signed a $5 billion loan guarantee in late 2013, were told of dramatic cost overruns and schedule delays.

At one point the legal team for the federal government, according to documents, threatened to cut off the flow of money unless Nalcor cleaned up its act.

The threat came after the federal government was caught off guard in September 2015. Nalcor has just announced capital costs for the project had grown to $7.65 billion, up from the $6.99 billion announced in mid-2014 and still more than the $6.2 billion the project was sanctioned at more than six years ago.

And this new estimate, it's been learned, did not include any of the expected increases related to the struggles being experienced by the main contractor, Astaldi, or other setbacks, including the hurdles being encountered on the 1,100 kilometre Labrador-Island Link.

According to evidence, Nalcor was aware for months that costs were soaring, but did not include this information in monthly construction reports to the federal government, with one official saying he learned "at the last minute" and was "surprised" at the amount of increase.

The Nalcor board of directors, too, was also advised of overruns long after they had been identified by the project management team and disclosed to Martin, according to evidence.

Martin the gatekeeper

So whose responsibility was it to disclose such problems?

The so-called gatekeeper, Ed Martin, said witness James Meaney.

"The understanding within the organization that anything with respect to a cost update or schedule update, Ed had to sign off on that before it was going to start moving through the steps of further consultation," Meaney testified.

"So are you saying that Mr. Martin had absolute control over the release of the information and project costs?" asked inquiry co-counsel Barry Learmonth.

"In terms of the final decision on cost updates? Yes." Meaney replied.

Meaney is Nalcor's vice-president of finance for power supply. He played a lead role in the negotiation of the federal loan guarantee and is the top bookkeeper for Muskrat Falls.

Meaney gave several examples of where he was aware of significant cost escalations, but that information was not disseminated to important partners, including the province, which had committed billions in equity and is obligated to pay any cost overruns under the terms of the federal loan guarantee.

Meaney admitted this sometimes resulted in awkward situations for him, but that he didn't demand that the information be shared.

"Yeah, I mean … we would know that there would need to be an update, yes," Meaney said of the information being shared.

"You know figures have changed, but you're forced to communicate stale information," Learmonth stated.

Meaney accused of being evasive

Meaney got a rough ride from Learmonth, who accused the Nalcor executive of being evasive and dodging questions.

Learmonth often asked the same question over and over, trying to get a yes or no answer from Meaney, but the conversation would end up going in circles.

We're talking about hundreds of millions of dollars.- Justice Richard LeBlanc

And at one point inquiry commissioner Richard LeBlanc also vented some frustration, questioning whether Meaney truly understood that he was being grilled about the spending of public money.

"What's hard to understand here … is how it would take so long to basically advise of such significant increases in money. We're not talking here about 15 cents. We're not even talking about $15,000. We're talking about hundreds of millions of dollars. And I think if you sort of just start to think about that perspective, you might understand why Mr. Learmonth is asking the questions he's asking," LeBlanc said.

The pattern of being tight-fisted over the disclosure of so-called final forecast costs for Muskrat has slowly revealed itself at the inquiry.

Various politicians, for example, have testified they understood the capital cost for Muskrat was $6.2 billion when the financing arrangement, including the loan guarantee, was finalized in November 2013.

But it's since been learned that it had grown by $300 million. There's evidence some senior bureaucrats in government were made aware of this by Nalcor, but may not have passed the information along to their political bosses.

This mystery is expected to be revealed during upcoming testimony at the inquiry.

Request for money withdrawn

Meanwhile, a forensic audit has also revealed the project team had forecast the capital cost for Muskrat at $7 billion in July 2013, months before financial close at $6.5 billion. This information was known to Martin and Nalcor vice-president Gilbert Bennett, but Meaney and others have testified they did not become aware of this until reading it in the forensic audit.

Meaney also revealed that in February 2014, he was asked to prepare an "authorization for expenditure" memo to the board of directors, asking for a contingency allowance of more than $400 million because contracts were being awarded at higher prices than budgeted.

But once the idea reached Martin and Bennett, said Meaney, the request for the money was withdrawn.

"It would have been the decision of Ed to not bring it forward at that time," said Meaney.

Martin and Bennett are scheduled to testify in June.

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