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 $7.9 billion cost estimate for the Peace River project was 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,