Nfld. & Labrador

No lowballing on Muskrat Falls estimates, says former CEO Ed Martin, despite testimony from his deputy

Former Nalcor CEO Ed Martin fired back Thursday against suggestions that costs estimates for the Muskrat Falls project were lowballed in order to help Nova Scotia's Emera and secure a federal loan guarantee.

Martin says negotiation with Emera was a good one, with both sides meeting their objectives

Former Nalcor Energy president and CEO Ed Martin spoke with reporters outside the hearing room at the Muskrat Falls inquiry Thursday. (Terry Roberts/CBC)

Former Nalcor CEO Ed Martin fired back Thursday against suggestions that costs estimates for the Muskrat Falls project were lowballed in order to help Nova Scotia's Emera and secure a federal loan guarantee.

"I'm confident that was the right estimate and was absolutely not lowballed. Not lowballed," Martin said in a stern tone outside the hearing room at the Muskrat Falls inquiry.

Critics seized on admission

Martin was responding to an admission from his former deputy on Monday that Nalcor removed strategic risk allowances and took a riskier approach to the project in 2010 in order help Emera get approval for the Maritime Link from the Nova Scotia utility regulator, the Utility and Review Board (UARB).

Nalcor vice-president Gilbert Bennett was in charge of the Muskrat Falls project when it was sanctioned in 2012. (Terry Roberts/CBC)

Gilbert Bennett, who was vice-president for the Lower Churchill Project when it was sanctioned, said it also allowed Nalcor to get approval for a $5-billion federal loan guarantee — reducing borrowing costs by hundreds of millions  —because the partnership with Nova Scotia would transform Muskrat in a regional project.

I'm confident that was the right estimate and was absolutely not lowballed. Not lowballed.- Ed Martin

"I'm acknowledging that's what was done," Bennett said under intense questioning from inquiry co-counsel Kate O'Brien.

Bennett's statement was seized upon by critics who have long charged that the public was not given the full picture when Muskrat was sanctioned at at capital cost of $6.2 billion by then-premier Kathy Dunderdale in 2012.

When asked Wednesday why he didn't tell his main contact in government about the lowballed estimates. Bennett repeatedly said the responsibility to communicate with government lay with Martin.

Bennett was 'incorrect'

But Martin showed up at the inquiry Thursday after being out of the province, eager to share his side of the story with reporters.

When asked about Bennett's statements about the cost estimates, Martin said they were incorrect.

"I'm sure he was focused on the actual question at that moment. They were talking about the Emera negotiations. And taken in that context, we were doing things in the negotiating perspective. He was probably thinking about that," said Martin.

Martin said he went into negotiations with Emera with a bottom-line price for the base capital estimate in his back pocket. But he presented a higher number, knowing Emera would push to have it lowered in order to make the case to the UARB that the link was the least-cost option.

'It worked out well for us'

That base number was $6.2 billion, and Martin said he would not go below that threshold, and was willing to scuttle the deal if Emera pushed beyond that.

"I knew at the end of the day, internally, we were going to assign a certain budget to the project team," Martin said.

"And what happened at the end of the day, both things came together. Emera and the UARB were able to come to a conclusion on what suited them, and it just happened that it matched up what suited us with respect to the actual project budget. I call that a good negotiation. It worked out well for us."

Martin confident in estimate

And Martin said he was very confident in the base estimate.

"That process was done internally, done with experts, and checked and rechecked."

So how could Bennett confuse things?

I was clear in terms of what could happen outside of the base budget, and I was very clear in terms of we needed to be able to cover that.- Ed Martin

Martin said he was leading the negotiations with Emera, while Bennett was "leading the project team."

And how about a Nalcor submission to the inquiry written primarily by former deputy project leader Jason Kean, who wrote that a $500-million strategic risk allowance was removed because the "concept" of strategic risk was not acceptable to Emera?

Martin said Kean was also incorrect.

"I can't fault Mr. Kean for putting down what he thought without having the context. But I'm giving the context now," Martin said.

Martin said the confusion may have occurred during the negotiating process, when he was requesting that various analyses be conducted by the project team. 

"He wouldn't necessarily be involved in understanding the negotiation process with an external entity where I'm using a series of numbers to get to a deal," Martin said of Kean.

Martin said there was never an intention to include strategic risk in the cost estimate because "that's not the way it's done."

Martin, left, with his lawyer, Harold Smith, is observing hearings Thursday at the Muskrat Falls inquiry. (Terry Roberts/CBC)

From the start, he said, the plan was to develop a base budget, and add risk allowances that the project team could control.

For things beyond the control of the project team, Martin explained, efforts would be made to manage and mitigate. But he acknowledged there was still a possibility that things could go wrong from from a strategic perspective, and he said he made this clear to the Nalcor board of directors and the provincial government on many occasions.

Government to 'backstop' project

He said he never spoke in confusing terms about things like strategic, tactical, management or other types of risk.

He said the important consideration in that regard was that government could fund those types of overruns.

"We need to have some assurance we can complete this job if something happened, and they gave us that through a contingent equity letter," Martin said the government's decision to "backstop" the project.

He said there was no firm number as to how much that might be.

"I was clear in terms of what could happen outside of the base budget, and I was very clear in terms of we needed to be able to cover that. And that was the main point, to make sure they understood that. And they did understand that," he said.

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