Nalcor VP of finance says he was 'out of the loop' on Muskrat cost estimates

Nalcor Energy's vice-president of finance admitted Wednesday he was often kept in the dark on many issues related to planning for Muskrat Falls.

"Whether it's purposely or not it's hard to know," Derrick Sturge, also Nalcor'schief financial officer, told the inquiry investigating Muskrat Falls.

No knowledge of large strategic reserve

Sturgeeven rearranged the financial team at Nalcor in the lead-up to the sanctioning of Muskrat in 2012 so he could focus more on the project.

But it was revealed both from his testimony and from evidence that Sturge often learned about progress very late in the process.

I feel a bit dumb on this. How could I have not have heard of this thing?But I cannot recall hearing the $500 million.- Derrick Sturge

And on the issue of the $500-million strategic reserve that was never included in the original $6.2-billion estimate for Muskrat which has come up repeatedly at the inquiry Sturge said he was not aware of it.

"I feel a bit dumb on this," Sturge said. "How could I have not have heard of this thing? But I cannot recall hearing the $500 million."

Sturge said he was aware that any overruns above what could be financed through borrowing would be covered by the provincial government.

But he says he was also unaware that the Muskrat project team had determined there was only a one per cent chance that first power from the Labrador generating station would be achieved by July 2017. That milestone is now at least two years behind schedule, and the $6.2-billion construction cost has soared to $10.1 billion ($12.7 billion when financing costs are included).

"When this project was sanctioned, you did not know anything about $500 million?" commission co-counsel Kate O'Brien asked.

"I never heard of it," Sturge replied.

"And you didn't know anything about a management reserve?" O'Brien followed.

"I heard of the conception, but I didn't know we had one," Sturge answered.

Not consulted on risk factor selected

Sturge said he was aware Nalcor had selected a P-50 probability factor on its cost estimates, but said he was not consulted on that decision.

The P-50 rating means there was a 50 per cent chance the project would have cost overruns or underruns.

O'Brien hinted Wednesday that a "key risk consultant" for Nalcor recommended a more cautious P-75 approach, and that this will be entered into evidence later in the inquiry.

Sturge said he was not also aware of this.

When O'Brien asked Sturge if he was frustrated about being kept "out of the loop," he replied: "yes."

Sturge said a "tight group" that included former Nalcor CEO Ed Martin and members of the project team kept a firm grip on information.

O'Brien also produced some notes made by Sturge from Aug. 8, 2012, just four months before project sanctioning.

Sturge wrote at the time he had not seen the final capital cost estimates for the Lower Churchill Project "in any level of detail" and referred to it as a "very strange process."

"It appears that Ed and the project team are keeping them close," Sturge wrote.

Sturge said he made the notes because of the frustration he was feeling at the time.

Another senior member of Nalcor's finance team, Auburn Warren, wrote Sturge in October 2012 under the subject line "gong show," just one month away from sanctioning.

Warren wrote that he had been "hearing rumours around the dinner table" about an impending announcement, and ended the with sentence with"Classic. Kept in the dark."

Warren was "gobsmacked" and sarcastically wrote there was no need to keep him in the loop because it's "probably better not to have anyone who can point out the flaws in what is being agreed to."

When pressed by O'Brien, Sturge said he didn't want to be an alarmist but added,"There were times, it's a big project, it's a complicated organization, I'd say there were times we were out of the loop."

O'Brien said, "But you're the VP finance."

But Sturge defended Martin and his team, saying, "I saw no reason why they would have any incentive to not do the right thing."

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