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Over-cost Muskrat Falls hydro megaproject will likely go ahead: CEO

ST. JOHN’S, N.L. – The Muskrat Falls hydro project will likely go ahead despite soaring costs and delays but changes are coming, says the new head of Newfoundland and Labrador Crown corporation Nalcor Energy.

“Substantial progress has been made, other commitments have been put in place — it’s very unlikely it will be cancelled,” Stan Marshall said Friday during a conference call to update Nalcor finances.

“It’s very likely that there will be delays beyond our control.”

Still, Marshall said he’s keeping “all options open” as he assesses cost and schedule overruns for a full status update he hopes to deliver in late June.

He said that report will include “what I see as necessary changes at the very senior management level” to better control the sprawling work site near Happy Valley-Goose Bay in Labrador.

The province has already spent almost $4.8 billion building the dam and power house on the lower Churchill River — the largest publicly funded project in its history.

Other adjustments could include replacing the major construction contractor, Astaldi Canada, Marshall said.

“We have an issue with them. We will hold discussions with them, and hopefully those can be resolved.”

Cost projections for the province have soared to about $7.7 billion from $6.2 billion, with first power delayed several months until 2018 or later.

The joint venture between Nalcor and Nova Scotia utility company Emera (TSX:EMA) will bring power to the island of Newfoundland and on to Nova Scotia using subsea cables and overland transmission lines.

Emera is building the underwater Maritime Link for an estimated $1.6 billion.

A recent interim report by EY — formerly Ernst and Young — found problems with oversight and said Nalcor’s cost and timeline forecasts last September were “not reasonable.”

Former Nalcor president and CEO Ed Martin said April 20 he was voluntarily resigning to spend more time with his family. The entire board that had served with him also quit, saying it had lost the government’s confidence.

The governing Liberals, who won power last fall after 12 years of Progressive Conservative rule, named Marshall as Martin’s replacement on April 21. Marshall, the former president and CEO of Fortis Inc., came out of retirement to accept the job.

Premier Dwight Ball has repeatedly promised a full public airing of Muskrat Falls costs and risks.

Former premier Danny Williams announced the project just before quitting politics in 2010. He said it would unleash the province’s potential as a renewable energy powerhouse while bypassing transmission hurdles through Quebec.

“Quebec will no longer determine the fate of Newfoundland and Labrador and one of the most attractive, clean energy projects in North America,” he said at the time.

His drive to skirt Quebec and bring power through Nova Scotia using subsea cables was fuelled by the famously lopsided Churchill Falls deal.

The 1969 agreement to ship power from Labrador to Quebec for sale has reaped more than $22 billion in profits for Quebec, versus about $1 billion for Newfoundland and Labrador. Quebec has steadfastly refused to renegotiate original terms, which did not reflect rising energy values and do not expire until 2041.

Williams and three successive Tory premiers sold the Muskrat Falls project as the cheapest option to fill Newfoundland and Labrador’s growing energy needs.

Former prime minister Stephen Harper signed off in November 2012 on a federal loan guarantee to save the province and Nova Scotia more than $1 billion in borrowing costs.

Harper at the time shrugged off Quebec critics who called it an unfair subsidy. He also called it a low-risk investment even though the project had not been endorsed by an independent regulator.

Energy consultant Tom Adams said Muskrat Falls from the get-go made little sense to many sector observers. There was the high cost of resulting power, the risk of cost bloat for a province of just 527,000 people, and the deluded notions of surplus power profits, he said Friday from Toronto.

“It floored people. This project has had a credibility problem from the beginning.

“That view was not shared by the movers and shakers that held the reins of power in Newfoundland and Labrador at the time,” Adams said. “But I think that’s a reflection of the insular character of the governance that allowed this thing to happen in the first place.”

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