Muskrat Falls and the politics of mistrust

I’m doing a little summer reading, dipping into a book called “Megaprojects and Risk,” by Bent Flyvbjerg, Nils Bruzelius and Werner Rothengatter.

I’ve only just begun, but already I would heartily recommend it, since the subject matter has relevance to our own situation.

This is from the back cover: “It is a fascinating account of how the promoters of multibillion-dollar megaprojects systematically and self-servingly misinform parliaments, the public and the media in order to get projects approved and built. It shows, in unusual depth, how the formula for approval is an unhealthy cocktail of underestimated costs, overestimated revenues, undervalued environmental impacts and overvalued economic development effects. This results in projects that are extremely risky, but where the risk is concealed from MPS, taxpayers and investors.”

It has a familiar ring. Lately I’ve been writing about an April 2013 risk assessment report on Muskrat Falls that the project’s prime consultant, Snc-lavalin, prepared and attempted to deliver to Nalcor, but which was inexplicably never received by anyone at the Crown corporation.

I’ve argued that the report contained serious warnings that should have been heeded. The most common counterpoint I hear is that Nalcor was well aware of all the risks anyway and took steps to mitigate them. That’s what former Nalcor CEO Ed Martin has said.

But it’s hard to square the notion that Nalcor addressed all the risks given the bloated cost of the project. Pegged at $7.4 billion (including the cost of borrowing) at the time of its 2012 sanctioning, it is now at $12.7 billion, and counting.

Given the generous performance bonuses paid to Nalcor executives in the years since Snc-lavalin’s risk report assessment was done, the mind boggles at how they might have financially rewarded themselves had the project been ontrack and on-budget.

Snc-lavalin’s report warned of risk exposure equivalent to $2.4 billion in 2013, when the project was only 20 per cent finished. Surely if work had been halted at that time until the problems were effectively mitigated, we would not be staring into an only 75-per-cent-completed money pit now.

And you have to ask: if Nalcor already had the risks well in hand, why refuse a report from a third party? Wasn’t Nalcor even curious about what it contained?

Here’s the thing about risk assessment: companies should not carry out their own. They can be reluctant to identify risk objectively and thoroughly, because risk mitigation never comes fast or cheap.

Vancouver-based company Riskope, an independent consulting firm that helps businesses manage risk, published an article in 2013 headlined “Can We Stop Misrepresenting Reality to the Public?” It outlines best practices in managing risk to help companies avoid creating public mistrust. They include: encouraging public consultation and participation from a project’s inception; and avoiding conflict of interest and biases by using exclusively third parties to perform risk assessments.

In the case of Muskrat Falls, Snc-lavalin was a third party — albeit with its own vested interests — and its findings were ignored. And there’s certainly been no public consultation where risk on Muskrat Falls is concerned, which is particularly galling since the people of this province have the most at stake.

But, back to my book. The authors — Flyvbjerg, from the University of Aalborg, Denmark, Bruzelius of Stockholm University, and Rothengatter, from the University of Karlsruhe, Germany — examined multi-billion-dollar projects around the world.

Megaprojects come with mega-risks — safety and environmental repercussions, the expenditure of massive amounts of public money, political and corporate reputations — and that can breed megamistrust among the public.

“Project promoters often avoid and violate established practices of good governance, transparency and participation in political and administrative decision making, either out of ignorance or because they see such practices as counterproductive to getting projects started…,” they write.

“Citizens are typically kept at a substantial distance from megaproject decision-making. … Megaprojects often come draped in a politics of mistrust. People fear that the political inequality in access to decisionmaking processes will lead to an unequal distribution of risks, burdens and benefits from projects.”

There’s plenty of mistrust in this province right now about Muskrat Falls and how the project is being executed. Can you blame us?

And you have to ask: if Nalcor already had the risks well in hand, why refuse a report from a third party?