Cost overruns common: witness
Hydroelectric projects are usually more expensive than originally estimated, Oxford professor says
The first day of the Commission of Inquiry Respecting the Muskrat Falls Hydroelectric Project spent time on the cost and schedule overruns that plague hydroelectric megaprojects.
Bent Flyvbjerg, chair of major programme management at Oxford University’s Saïd Business School, was the only witness on the first day. Along with an extensive CV, he offered a report developed for the inquiry, co-authored with Alexander Budzier. It is based on a study of 274 hydro dam projects around the world, including projects in Canada. It warns the projects’ demands are commonly underestimated at the start, leading to overruns.
The report states hydro projects are high risk, with the only power projects riskier being nuclear power projects. In Flyvbjerg’s data set, there was “an average cost overrun of 96 per cent (median 32 per cent) and an average schedule overrun of 42 per cent (median 27 per cent).”
The root cause of these overruns is optimism and political bias, he said, leading to an early understatement of the real cost.
Basically, it’s easy and common to see the numbers as better than they really are, he said.
“Optimism bias and political bias are both deception, but where the latter is deliberate, the former is not. Optimism bias is self-deception,” his report states.
During questioning in the afternoon, Commissioner Richard Leblanc asked Flyvbjerg about best practices and actions being taken to protect against this kind of bias in project estimates. Flyvbjerg pointed to the United Kingdom and Hong Kong as examples, where the approach to large project estimates is along the lines of what he would recommend.
He said jurisdictions have developed regulations to specify the kind of information that must be available before a large, public project can move ahead.
He promoted the idea of regular, third-party review while public projects are ongoing.
He said there can be thresholds set by a project’s owners for when issues arising are automatically reported up the chain.
Early reporting and understanding of any delays is key to keeping costs down, he suggested.
Flyvbjerg said efforts should be made by governments to build and support project management skills within the public sector, for the public interest.
Throughout the presentation, in response to questions, he said more than once his comments were looking at hydro projects in aggregate, and he was not able to speak specifically to the Muskrat Falls project.
The data set used for his study and report to the inquiry did not include Muskrat Falls or the Churchill Falls project, also on the Churchill River in Labrador. It was something Thomas Williams, representing a collection of former provincial premiers and ministers (Danny Williams, Tom Marshall, Paul Davis, Jerome Kennedy, Derrick Dalley and Shawn Skinner), confirmed with Flyvbjerg. He also confirmed Flyvbjerg had not conducted any investigation or interviews specific to the Muskrat Falls project.
Flyvbjerg was asked at one point about the Public Utilities Board (PUB) operating as a third-party reviewer in the public interest. He said he was not familiar with Canadian public utility boards, but that he is aware of examples where a different kind of panel has been established for megaprojects, tapping representatives from companies around the world who will consider a project pre-sanctioning, and then conduct regular reviews to assure things remain on track, or report otherwise.
At one point, he also spoke about Crown corporations as project leads, saying internationally there are examples where they have established too much power compared with the government itself.
“That’s a problem. Because the money is actually coming from the government,” he said.
Again, he was speaking generally, not specific to Newfoundland and Labrador, and Crown corporation Nalcor Energy.
Tuesday will begin Muskrat Falls-specific testimony at the Lawrence O’brien Arts Centre. The witness schedule includes representatives for the Nunatsiavut Government, Conseil des Innu de Ekuanitshit, Innu Nation, Nunatukavut Community Council and Jason Churchill, who has written on the history of hydroelectric development on the Churchill River.