Nalcor wanted to push some Muskrat costs to ledger of inactive project, inquiry told

Derrick Sturge says there was a "strong suggestion" that Nalcor Energy engage CIBC as the lender for the massive amount of borrowing needed to finance the Muskrat Falls project.

He was also asked about shifting large amounts of money around as construction of the controversial hydro project was ramping up, the top financial executive at the government-owned energy corporation said during the ongoing Muskrat Falls inquiry.

Sturge surprised theinquiry with that information during his second day as a witnesson Thursday.

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The information came at the end of his testimony, after his lawyer, David Buffett, asked this question:

"Was there ever a time you were asked to do something you didn't want to do or felt uncomfortable in doing?"

'It just didn't make sense'

Sturge recalled a conversation with an unnamed member of the Muskrat Falls project team about three years ago related to the Labrador Transmission Assets, the new power lines connecting the hydroelectric generating stations at Churchill Falls and Muskrat Falls.

Thatproject is nearly complete, with a cost that has increased to more than $900 million.

The LTA, as it's called, is part of the larger Lower Churchill Project, which also includes the Muskrat Falls generating station, the transmission line from Muskrat to Newfoundland's Avalon Peninsula, and the Maritime Link to Nova Scotia.

Sturge says he was asked to move "some" of the capital cost of the transmission line project from the Muskrat side of the ledger to Gull Island, which is another prospective hydro development on the Churchill River.

I just couldn't support putting costs into a project that wasn't an active project.- Derrick Sturge

Gull Island was initially envisioned as the next hydro development in Labrador, but was shelved in favour of the smaller Muskrat project around 2009.

Sturge said no to the request, telling commissioner Richard LeBlanc and the inquiry, "It just didn't seem to make sense," and, "I just couldn't support putting costs into a project that wasn't an active project."

A massive financing deal

There was another situation Sturge says made him uncomfortable.

Just after Muskrat was sanctioned in 2012 at a capital cost of $6.2 billion, Sturge said there was a strong suggestion to him that CIBC be engaged to provide financing for the massive project.

The plan was to borrow $5 billion, and the provincial government was expected to pay the remainder through an equity stake in the project.

The project had attracted a substantial amount of interest from the financial services industry, and there was a competitive bidding process underway to determine who would provide the financing.

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The late Jim Prentice, thensenior executive vice-president and vice-chairman of CIBC, and former Alberta premier,was publicly extolling the merits of Muskrat Falls in late 2011.

Making it more attractive to lenders was the fact that the federal government was providing a loan guarantee, which would ensure Nalcor received the best interest possible, but also provided assurance to whomever financed the project that their money was secure.

By the time the financing was in place in 2013, it was the largest single bond issue for a infrastructure project in Canadian history, according to testimony at the inquiry.

Sturge says sometime after sanctioning in December 2012, former Nalcor CEO Ed Martin approached him about CIBC.

"And what was your reaction to that?" Buffett asked Sturge.

"Absolutely no," Sturge said.

"We run a fair, competitive process, and [I]said no to it. And it died. I never heard of it after that."

But Sturge believes Martin was asking on behalf of someone in the provincial government.

We run a fair, competitive process, and [I]said no to it. And it died. I never heard of it after that.- Derrick Sturge

Sturge says there was no pressure on either issue, and the matters went away just as quickly as they were brought up.

A financing deal was eventually signed with the TD Bank and a syndicate of other lending institutions.

As for Sturge's testimony on these matters, there were no follow-up questions.

Sturge was not available for an interview, and his lawyer said he could not offer any more detail than what had been provided on the witness stand.

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