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Stan Marshall says COVID-19 pandemic led to decreased productivity and heightened financing charges
Nalcor Energy CEO Stan Marshall has confirmed the $13.1-billion price tag for the Muskrat Falls project, but it’s likely not the last time the project will see a price increase.
Marshall updated the cost of the project on Monday, bringing it up from $12.7 billion to $13.1 billion. The increased costs come from $75 million in additional capital construction costs and $300 million in financing costs for the project. The $75 million in increased capital costs are down from the $150 million to $200 million price increase anticipated in May.
All things considered, Marshall says the Crown corporation has done a good job getting toward the finish line since the $12.7-billion cost was announced in June 2017.
“Things always will come at you that you don’t expect: whether it’s COVID, whether it’s fibreglass. There’s always those possibilities. You never say never,” said Marshall, in an interview.
“The bigger component is the loss of productivity … you can’t work like you could before. People couldn’t work in close quarters, helping each other out, that sort of thing." — Stan Marshall
“The sheer fact that we’ve held the costs pretty well steady for three years despite all the challenges, despite COVID, despite demonstrations, despite all that — we’re there with very little change in three years.”
The COVID-19 pandemic saw a four-month shutdown for the project, which contributed another $152 million in expenses for Nalcor to date.
“There’s three components. The smallest component is related to extra work, direct work because of COVID. You had to go in, bar things off, clean things up, put more protocols in place, that sort of thing,” said Marshall.
“The bigger component is the loss of productivity … you can’t work like you could before. People couldn’t work in close quarters, helping each other out, that sort of thing.
The third factor is the cost of the delay itself. Most of the costs of delay are financial, there’s also the fact that if you got to keep the camps going and keep things like maintenance, for example.”
The project’s schedule for full power has also been updated, as a result. It was previously expected the project would be fully operational by November 2020. Now, it’s estimated to be fully functioning by September 2021.
Marshall says due to how close the project is to completion, he doesn’t anticipate further schedule delays due to existing COVID-19 restrictions — unless in the event of outbreaks on site.
In a briefing, Marshall outlined several potential future cost increases that could befall the project and that aren’t accounted for in the updated cost and schedule of the project.
The Soldiers Pond site — where the Labrador-Island Link ends about 35 kilometres from St. John’s and where power is converted for use by customers — a number of problems have arisen. Fibreglass support beams have shown a defect that’s causing them to deteriorate quickly. Those will have to be replaced, but the cost is expected to be borne by contractor General Electric GRID (GE GRID). GE GRID is also responsible for issues with the synchronous condensers at the Soldiers Pond site, where vibrations detected in units still have not been resolved.
It was previously expected the project would be fully operational by November 2020. Now, it’s estimated to be fully functioning by September 2021.
Astaldi Canada also currently has a case currently under arbitration against Nalcor. Marshall says they’re looking for a $200-million settlement, while Nalcor has a $30 million-$40 million countersuit against the company. According to the Muskrat Falls Inquiry report by Justice Richard LeBlanc, Astaldi has already been paid $1.7 billion for its work.
“I think we have a very strong case, but it’s hard to know on a given day how a judge or an arbitrator might show sympathy,” he said.
“I think we’ll be substantially successful.”
The updated cost does not account for any future lawsuits or anything unforeseen resulting from the COVID-19 pandemic. Marshall says new agreements with GE GRID relating to the issues on the Soldiers Pond site should prevent future litigation relating to the issues.
“I don’t anticipate any significant new legal disputes,” said Marshall.
A $100 million initial payment on bonds related to the project are due to be paid by the province in December.
Elsewhere, Marshall says he will stay on as Nalcor CEO until April 2021.