An independent review has warned the cost of Manitoba Hydro’s Keeyask hydro generating station could soar as high as $10.5 billion and not be ready until 2022, more than a year behind its original schedule.
The final cost could be 62 per cent above the budget set by the former provincial NDP government. The original cost estimate was $6.5 billion, but has already skyrocketed to $8.7 billion.
A redacted copy of the report prepared by Calgary-based construction-cost consultants MGF Project Services for the Public Utilities Board lays the blame on the contractor.
Its performance is the largest single contributor to planned cost and schedule not being met," said the report, which cites the contractor’s "poor productivity.
Manitoba Hydro immediately rejected the consultant’s conclusions Monday and said the project will be ready in August of 2021 at a cost of $8.7 billion.
Crown Services Minister Cliff Cullen told reporters the provincial government accepts the Hydro belief that MGF’s methodology is flawed.
The report on Hydro’s capital projects spending was commissioned by the PUB, currently hearing Hydro’s application for an annual 7.9 per cent rate increase through 2024. MGF found the Bipole III transmission line megaproject, Manitoba-Minnesota transmission line project and the Great Northern transmission line are all generally performing well on budgets and schedules.
In sharp contrast, Keeyask is anything but.
The MGF report says there was an amended agreement Feb. 28, but the contractor is "not meeting the revised productivity factors for concreting and earthworks." It notes Manitoba Hydro staff are competent and professional, but lack the skills and expertise to be construction managers.
The contractor is BBE Hydro Constructors LP, consisting of three companies: Bechtel Canada Co., Barnard Construction and Ellis-Don. A staff member at its Wellington Avenue office said Monday the company has already shut down for the holiday break, and no one responded to a request for an interview.
Poor productivity has resulted in far more man-hours being required to perform work, and once the contractor falls behind schedule, all the other services on the megaproject fall behind while adding to their costs, the report concluded.
The heavily redacted report says 1,030 separate activities are behind schedule, some by as many as 204 days, and 97 are critically behind schedule.
"This is unacceptable management, and more importantly, not in accordance with the contract," said MGF, which has calculated that Keeyask won’t be ready to go before Nov. 25, 2022, more than a year beyond the original completion date.
Catching up to the schedule would require longer working hours, more resources and more concrete work in winter, which the consultant did not recommend, given the project’s productivity issues.
The final cost will be in the $9.5- to $10.5-billion range, said the consultant. If Manitoba Hydro wants to hit the low end of the range, MGF recommends it needs to take over the project.
There are many cost-saving and contract management exercises that Manitoba Hydro can implement, which can drive down the final cost. Our recommendation is to do this without delay.
The energy utility has worked with a management company for the past year to oversee Keeyask, Hydro spokesman Bruce Owen said Monday.
"We’ve always said there was risk inherent in these large projects. Certainly, there was a setback early in productivity," said Owen.
Hydro believes there is no reason the contractor cannot meet the current targets of $8.7 billion and August of 2021.
The government is concerned about additional delays and cost overruns, but the provincial Conservative government accepts Hydro’s position that won’t happen, Cullen said.
This company may have a different methodology than Manitoba Hydro," Cullen said. "They’re (Hydro) not making any revisions. It’s not their first rodeo, they’ve been in dam construction before.
Cullen said he didn’t know what Hydro is questioning in MGF’s methods, and his own officials haven’t analyzed the report.
"We wouldn’t be having these discussions if there were appropriate oversight in 2013," Cullen said.
The Keeyask hydro generating station is currently estimated to cost $8.7 billion and be in operation by August of 2021.
There are U.S. customers lined up to use some of the station's output, but Manitoba Hydro says it could be the 2040s before Manitoba needs power from Keeyask.
When the project broke ground in 2014, it was expected to cost $6.5 billion, be ready by the summer of 2020 and to supply energy to meet Manitobans' needs in about five years.
The megaproject is 725 kilometres northeast of Winnipeg on the lower Nelson River. It is 35 kilometres upstream of the existing Kettle Generating station where Gull Lake flows into Stephens Lake, 58 kilometres east of the community of Split Lake and 30 kilometres west of Gillam.
Construction on the 695-megawatt Keeyask generating station in northern Manitoba officially kicked off July 16, 2014. It is expected the Keeyask generating station will provide an average of 4.4-million kilowatt hours of energy each year.
The hydroelectric dam project is a joint effort between Manitoba Hydro, the Tataskweyak Cree Nation, War Lake First Nation, York Factory First Nation and Fox Lake Cree Nation. Planning for the joint agreement began in 2009.