‘A major red flag’
Nalcor’s rejection of risk report ‘highly irregular,’ expert says
Nalcor Energy’s refusal to accept the risk-assessment report that its prime consultant on the Muskrat Falls project tried to deliver in 2013 is “a major red flag” the provincial government should investigate, says an expert in corporate governance.
“It’s highly irregular for a CEO not to have knowledge of this report,” said Richard W. Leblanc, an associate professor of law, corporate governance and ethics at York University in Toronto who has worked with Crown corporations all over the world for 20 years.
“I have never heard of a report outlining significant risk being rejected. This is a significant report. … Snc-lavalin has experience with projects of this nature.
“This is of the utmost urgency for the Government of Newfoundland and Labrador. I wouldn’t rule out halting the project.”
Snc-lavalin says it “attempted” unsuccessfully to hand over the 24-page report on the major risks involved in the massive Lower Churchill hydroelectric project to the Crown corporation four years ago.
The report warned of great potential for cost overruns, delays, political fallout and safety concerns.
“It is strongly suggested that these identified risks be discussed openly and with full transparency amongst the parties,” the report says.
Then-nalcor CEO Ed Martin has said the report was never “transmitted” to him and he has no recollection of it.
I spoke to Leblanc by phone at Harvard on Thursday, where he was finishing up a teaching session. When I told him that Nalcor’s executive is refusing
“This is of the utmost urgency for the Government of Nefoundland and Labrador. I wouldn’t rule out halting the project.”
to tell the public why it rejected the report and, in fact, denies knowing it even existed, Leblanc was astounded.
“It is highly irregular for a commissioned third-party expert report not to be received and implemented. It is also anomalous to not receive an expert report without explanation,” he said. “A reasonable interpretation was that the report may have been intentionally quashed, which, if true, is highly irregular given the material risks you described, including worker safety.”
I told Leblanc there have been employee accidents and three fatalities on the project since 2013, as well as a near doubling of costs — to $12.7 billion in public money — and a two-year delay before power comes online.
“When I hear the word fatality, that’s very serious,” he said.
Richard Leblanc knows how Crown corporations are supposed to operate and be governed.
He says Nalcor’s handing of Snc-lavalin’s risk report is atypical in his experience, and that the company is risking its reputation by not acting in a transparent and accountable way.
“What Nalcor should have done was disclose the basis on which the Snc-lavalin report was rejected,” he said. “There should’ve been continuous accountability to the public. … If you disagree with the report, there’s an obligation to explain why. Not responding is just not an option.”
Last week I asked Nalcor’s communications manager, Karen O’neill, who the Snclavalin report had been sent to at the Crown corporation.
“Can I please get the distribution list for the April 2013 Snc-lavalin Local Churchill Risk Assessment Report 505573, indicating to whom the report was sent at Nalcor?” I wrote via email.
O’neill’s response was to refer me, once again, to a statement CEO Stan Marshall made to the media last month:
“Mr. Marshall’s statement on June 28, 2017, addresses your question about awareness of the report and if this was a record held by the company,” O’neill wrote. “Stan noted in his statement: ‘I subsequently asked Nalcor Energy executives about the report but no one was aware of it nor was there a copy in the company’s records.’”
Well, the fact that people said they weren’t aware of the report isn’t proof Snc-lavalin didn’t try to deliver it to them. And the fact there was no copy in the company’s records could simply mean any trace of it has been expunged.
Speaking generally — and not about Nalcor in this instance — Leblanc says corporations aren’t always responsive to being told about risk.
“Risk mitigation costs money,” he said. “In my experience, management is sometimes averse to making the spend.”
When I told him of my correspondence with Nalcor in the past few weeks in trying to determine who Snc-lavalin had attempted to present its report to, and why it was ignored, Leblanc said the company should be accountable to the people of the province.
“It sounds like the responses are not transparent,” he said. “This is now a reputational risk issue (for the Crown corporation). You should not be receiving the kind of answers you are receiving.
“You deserve not only accountability from Nalcor, but from the government of Newfoundland and Labrador. The costs have gone up significantly. There is a certain amount of corporate immunity, but government has control over this project.”
And that’s whose lap this mess will ultimately end up in — and both the current Liberal government and the players in the previous Progressive Conservative administration had better be prepared to take responsibility.
The fact that this report has existed for four years and the public only learned of it last month is not good governance, nor good corporate governance. Both the provincial government and Nalcor are responsible to the people of this province as the shareholders of this project and as the ratepayers who are saddled with its crippling cost.
When I think back to a few months ago when I sat in a couple’s living room in St. John’s — both senior citizens with a fixed household income — as they showed me their heat bills and expressed their fears about not being able to keep their house once Muskrat Falls electricity rates double and triple current costs, I am incensed that the people in charge of this boondoggle are seemingly answerable to no one.
This week I wrote to Nalcor again, this time asking why Stan Marshall did not share the Snclavalin risk assessment report with Premier Dwight Ball before June 2017, when he had known about it for a year.
Once again, I was steered back to Marshall’s June 28th statement:
“On my reading of the SNC report I took it as confirmation that by April 2013 professionals associated with the Muskrat Falls project had recognized the risk factors that have subsequently increased the cost of the project.”
Recognized? Perhaps. Successfully mitigated?
Not a chance.