Big questions loom now that Nalcor Energy has named Astaldi Canada, a subsidiary of one of Italy's largest construction firms, as contractor for the $1-billion civil-works construction at the Muskrat Falls hydropower development on Canada's Lower Churchill River in Newfoundland and Labrador. The owner already has spent nearly $2 billion on site preparation work, with more than 900 workers now at the jobsite. However, the project lacks a major power-transmission deal or federal loan guarantee, and a court challenge is pending over water rights.
The civil-works award is the largest single contract associated with the development, including construction of the powerhouse, intake and gated spillway. But new contracts could be at risk, says Paul Antle, a chemical engineer and venture capitalist campaigning for the leadership of the province's Liberal Party (if nominated, he hopes to run for premier in 2015). "It boggles my mind that the province moved forward with construction on this project without having the financing in place," he says.
Astaldi plans to begin work on the 824-MW facility before the end of 2013 and proceed until 2017. Andritz Hydro, headquartered in Germany, is scheduled to deliver the turbines, some of the largest in the world, in 2015. Several surveying and excavation contracts already have been awarded. SNC Lavalin, Quebec, is EPCM consultant.
The work is risky. "It's one thing to be owed $100,000, but when you are talk-ing about multimillion-dollar sums, a contractor would be well advised to ask the owner to show documentation that they can pay it," says Bernard Coffee, a St. John's, Newfoundland and Labrador lawyer who represents contractors. "When a contractor builds an office building, there can be a mechanical lien clause for the property to be sold if an owner can't pay. … Some of the expenses can be recovered there. But Muskrat Falls—who are you going to sell that to?"
Coffee has been advocating for "legal certainty" before the project continues. A suit in Quebec Superior Court over water rights to Labrador's Churchill River could drastically limit the amount of electricity produced by Muskrat Falls. State-owned utility Hydro Quebec says its 5,000-MW facility farther upstream on Churchill has rights to use all the water needed to run at near-full capacity. In addition, Muskrat Falls has limited reservoir storage capacity. Hydro Quebec's decisions in relation to production at its facility will determine the water flow downstream at Muskrat Falls. "This issue should be determined and resolved before any further expenditure is made," Coffee says.
Taxpayer funds also are at risk. Antle says he spoke to contractors who are worried many jobs on Muskrat Falls are already 30% over budget. "SNC Lavalin and Nalcor would be the only ones holding the exact numbers and expenditures, but it's all being held in secret. I'm only relaying what I've been told by contractors working on the project," Antle says. "There's no transparency."
The lack of transparency may scare off investors. "Nalcor is going to have to borrow money internationally through markets in Toronto or New York by, probably, issuing bonds to capitalize it," Antle says. Greater risk means higher interest rates. "If the project gets further down the line with expenditures and really needs new funds, interest rates become very high in those situations. We should have had the financing tied up before we started issuing contracts."
Stephen Harper, Canada's prime minister, promised to "backstop" this project, up to $6.3 billion, which would protect contractors and reduce interest rates on money borrowed to complete sections of the work. "If there are defaults, they'll write a check for up to $6 billion," Antle says. "That, however, is contingent on a power deal with Nova Scotia. Right now, it's not a deal."
Nova Scotia power utility Emera is in negotiations with Newfoundland and Labrador to build a $1-billion undersea transmission link to access Muskrat power and sign a 25-year purchase contract. The Canadian government has said it will not provide a loan guarantee without a Nova Scotia deal, Coffee says. The parties seemed close to concluding an agreement, but Nova Scotia elected new leadership earlier this month.
"The new Liberal government in Nova Scotia is not supportive of Muskrat Falls," Antle says. Nalcor, SNC Lavalin, and the Ministry of Natural Resources of Newfoundland and Labrador declined to comment.