Thursday, January 7, 2016

Liberal estimates and guesstimates

This article first published here in October 2014 is even more significant today.

BC's Minister of Energy and Mines says the $7.9 billion budget for Site C is "reliable" and the estimate of "direct construction costs" of $3.8 billion has "an 18% contingency." Bill Bennett's words are imprecise but if $3.8 billion includes the contingency, the allowance for known unknowns and unknown unknowns would be $580 million, 8% of the entire project cost. Compare that to two much smaller Liberal projects that are $2¼ billion, or 98% over budget.

In 2006, Vancouver Sun's Miro Cernetig wrote $3-billion plan to end gridlock:
"VICTORIA -- A $3-billion plan aimed at staving off gridlock in the Lower Mainland will be revealed today, with plans for more and bigger bridges, wider and longer highways and more green-friendly bicycle lanes for the next decade and beyond..."
The plan included $1.5 billion for a new Port Mann Bridge and two additional lanes on Highway 1 as well as $800 million for the South Fraser River Perimeter road. According to the Transportation Investment Corporation Annual Report 2014, the final cost of the first project is $3.319 billion. The truck highway from Roberts Bank to Port Mann cost $1.235 billion. The cost overrun for the two recent capital works is 98% of original estimates.

In his public statement last week, Bennett assured listeners that cost estimates for the Peace River project were accurate because they were reviewed by external engineers, including SNC-Lavalin, a company that Liberals enjoy working with but one that has admitted winning contracts through corruption. Even when the participants are not ethically challenged and/or incompetent, processes to establish budgets for large capital projects are problematic.

Scientists associated with Oxford University conducted a study of 245 dam construction projects across five continents. From the abstract of their paper:¹
"A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. ...We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams — excluding inflation, substantial debt servicing, environmental, and social costs. ...The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.
Commenting about the paper in The Guardian, two of the paper's authors said,
"With an average cost overrun of over 90%, large dams have one of the highest cost overruns among all infrastructure asset classes. This result is before accounting for negative impacts on human society and environment, and without including the effects of inflation and debt servicing.

"What's worse, planners do not seem to learn. Forecasts are likely to be as wrong as they were between 1934-2007. Dam budgets today are as wrong as at any time during the 70 years for which data exist."
Another paper worth noting is Cost Underestimation in Public Works Projects: Error or Lie? It,
"found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts."


¹Full reference: Ansar, Atif, Bent Flyvbjerg, Alexander Budzier, and Daniel Lunn, 2014,
"Should We Build More Large Dams? The Actual Costs of Hydropower Megaproject Development,"
Energy Policy, March, pp. 1-14,
DOI: 10.1016/j.enpol.2013.10.069

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  1. And Chrispy intends to twin the Trans Canada from Kamloops to the Alberta border for $600 million. So far she has got from Monte Creek to Pritchard (well almost), a distance of about 10 km, for somewhere around $100 million. Doesn't leave much for the remaining 3 - 400 km. I think it'll cost about $600 million just to get out of Golden!

  2. Noarm, must say I very much appreciate your research that clarifies so much of the BC Libs flim flammery when it comes to costing and accounting for projects. My husband and I are both retirees from BC Government service and are aghast at what current politicians get away with. As well, thought I would pass on that our last little "infotainment" from the Pension Management folks was gleefully advising us on how well the BCIMC was investing our pension funds. Of course, after reading the true status of how well these 'investors' do for us as well as other taxpayers funds, I read it with more interest. Found to my horror that Timberwest is a recipient (you know the company that has Rich Coleman's brother as an executive) as well as partnering with SNC Lavalin (admitted crooks as well as having Gwyn Morgan advising ms. Photo-op. Other proud investments are commercial towers in Toronto and Vancouver. No wonder I get pennies on the dollar as my annual "cost of living increase". I shudder when I hear my neighbours caterwauling about as retired government employees we are the recipients of this gold-plated pension paid for (in full is inferred) by the poor taxpayer. I'm having a difficult time even trying to talk myself into staying in this province.

    1. My wife and I are seriously looking at doing just that. selling our property and moving back east somewhere. It is still in the planning stage, but I see very little positive for BC in the bleak future ahead. Living in British Columbia is now becoming exceedingly expensive and as senior citizens, we have to make do with our pensions and retirement funds.
      Good old conservatism at work eh !!! - and no, the BC Liberals are anything but liberals.

    2. Having been retired for the last year I can't believe how we are nickled and dimed ( msp,ect).And because we refused a smart meter we get to pay and extra $400 a year to"read " our meter.Yes you can work and pay taxes for 40 years but just try and live on the crumbs when you retire.

  3. A now what are the "estimates"with a 70.cent dollar?

  4. No worries, Bennett will make up any cost overruns with all the money he is saving approving more hydro IPP's.

  5. Hope some is keeping tabs on all the contracts that will have to be rescinded. The taxpayer, should not have to pay due to the "con job" of a government that obviously does not serve the public any way. This nonsense has to end and soon.

  6. In addition to rising BC hydro rates, we get this, which I presume is still going on:

    "In 2012 the British Columbia government took $5.7 million from health authorities, $4.5 million from school districts and $3.8 million from colleges and universities to buy carbon offsets."


    BC Hydro in 2012 spent $720,300 on dubious carbon offsets, even though it is about 95% clean hydro power.

    The former BC Auditor General criticized the carbon offset program as not credible.

    1. And who do you think is one of the biggest beneficiaries of these carbon offsets? TIMBERWEST. Yet they don't appear to be putting anything aside in the Comox Lake drainage from there carbon bootie. The clearcutting in this drainage is directly affecting the drinking water for thousands of residents in the Comox Valley. Water shortages and boil water advisories plus flooding are the new norm in the valley....wonder where they are applying these funds? Certainly not where they should be.



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