A repeat, first published December 17, 2014:
BC’s Minister of Energy said in mid October that the $7.9 billion budget for Site C had been examined by top international experts and was assuredly “reliable.” Two months later, Premier Clark revealed the dam budget had jumped to $8.5 billion. Days passed and when project approval was announced, the budget had jumped to $8.775 billion.
Once again, the British Columbia Liberals demonstrate practiced mendacity. They are consistent though since mega-projects of the past five years typically doubled between first announcement and completion but were invariably pronounced to be on-time and on-budget. The mantra will be used again for the Peace River project, and it will be echoed by the compliant proMedia, even if the dam costs $18 billion. Overages will be accepted,
because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns — the ones we don’t know we don’t know.
A comprehensive study, published in Journal of the American Planning Association, was titled Underestimating Costs in Public Works Projects, Error or Lie? The front page sidebar states,
Based on a sample of 258 transportation infrastructure projects worth US$90 billion …it is 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.
The Oxford University authors make the following observations,
- Costs are underestimated in almost 9 out of 10 projects. For a randomly selected project, the likelihood of actual costs being larger than estimated costs is 86%.
- Actual costs are on average 28% higher than estimated costs.
- Estimated costs are biased, and the bias is caused by systematic underestimation.
- Costs are not only underestimated much more often than they are overestimated or correct, costs that have been underestimated are also wrong by a substantially larger margin than costs that have been overestimated.
- Underestimation of costs at the time of decision to build is the rule rather than the exception for transportation infrastructure projects. Frequent and substantial cost escalation is the result.
- Underestimating the costs of a given project leads to a falsely high benefit-cost ratio for that project, which in turn leads to two problems. First, the project may be started despite the fact that it is not economically viable. Or, second, it may be started instead of another project that would have yielded higher returns had the actual costs of both projects been known. Both cases result in the inefficient use of resources and therefore in waste of taxpayers’ money.
The Sierra Club believes that latter point is significant,
British Columbians will be shelling out up-front, B.C. will be losing big time on the jobs front. Building geothermal plants to the same capacity would employ almost 1,900 people – compared to only 165 for Site C. And this doesn’t even take into account development of the agricultural sector in the valley.
The retired head of the Association of Major Power Users of BC, Dan Potts, estimates the proposed Site C Dam would lose $350 million a year for taxpayers and BC Hydro ratepayers. The 30-year pulp mill manager told media in Vancouver yesterday that the project, estimated to cost $8 Billion or more, is “fundamentally uneconomic” – based on its outmoded technology and power trading prices that are likely to remain far lower than the cost of electricity produced by Site C.
Prof. Bent Flyvbjerg was co-author of an article in the Harvard Business Review about the runaway cost of a project at a large American clothing company,
A $5 million project that leads to an almost $200 million loss is a classic “black swan.” The term was coined by our colleague Nassim Nicholas Taleb to describe high-impact events that are rare and unpredictable but in retrospect seem not so improbable. Indeed, what happened at Levi Strauss occurs all too often, and on a much larger scale…
Former Premier Glen Clark created a $200 million black swan intended for coastal waters. The cost of Christy Clark’s rare bird will be measured in billions.
Read this article Lies my energy minister told me from December 12.