Nalcor court filings put Astaldi red ink at $240M in Muskrat Falls legal clash
Italian company contends 'pain share scheme' was developed by N.L. corporation
Behind-the-scenes details of a simmering financial dispute between Nalcor Energy and the main contractor on the Muskrat Falls hydro generation site have spilled into the public domain, as part of a potentially messy legal battle.
Documents filed at Newfoundland and Labrador Supreme Court show:
- More apparent payments made to Astaldi by Nalcor since the two sides agreed to a revised $1.83-billion deal two years ago.
- More details on Astaldi's troubled financial situation in Labrador, with debts apparently topping $240 million — more than a third of that owed to Nalcor.
- Previously-undisclosed allegations about the commercial dispute between the two sides, as Astaldi's work on Muskrat Falls reaches the home stretch, at more than 95-per-cent complete.
The legal conflict includes a request for arbitration from Astaldi to Nalcor on Sept. 27, and a notice of default from Nalcor back to the Italian firm a day later.
Astaldi says it is not in default, and allegations made by Nalcor are "false."
Notice of default details
In a Sept. 28 letter to Astaldi, Nalcor's Muskrat Falls Corporation said the contractor defaulted on the initial 2013 agreement, a revised deal signed in 2016, and an "incentive funding contract" of Sept. 6, 2018.
That letter claimed that Astaldi does not have enough funds to finance working cash flow, and its Italian parent company is "unable or unwilling" to provide funds to help out. It also noted that Astaldi is "unable to to meet weekly payroll for its personnel."
It noted that Astaldi had accounts payable of more than $18 million based on invoices from subcontractors and suppliers and "has failed to pay its debts as they generally have become due."
The notice outlined other debts owed by Astaldi, including $92.8 million to Nalcor, $78 million to its Italian parent company, and $51 million to Unicredit, an Italian banking and financial services firm.
Those amounts combined total nearly $240 million.
CBC News reported last week that lien claims from Astaldi contractors and unionized workers had reached $34 million.
Nalcor declined comment on the court filings.
In a statement, the Crown-owned energy corporation said Astaldi "continues to work on site today and Nalcor continues to pay them in accordance with the requirements of the contract currently in place with them."
'Pain share scheme' cited by Astaldi
On Sept. 27, a day before receiving that default letter, Astaldi submitted a notice for arbitration to Muskrat Falls Corporation (MFC).
Astaldi said Nalcor realized early in the contract period that it had underbudgeted the cost of the project.
"MFC and its sole shareholder, Nalcor Energy, thereupon and in an effort to transfer financial obligations and responsibility from themselves and others for whom they were legally responsible, developed and implemented a 'pain share' scheme," Astaldi alleged.
The contractor said Muskrat Falls Corporation "acquired and exercised direct discretionary control over Astaldi's solvency and used this control to keep Astaldi on the brink of financial default."
That happened "particularly during times of negotiation of compensation and schedule revision events," Astaldi claimed.
The firm accused MFC of breaches of contract, fiduciary duty and duty of honest performance.
Tuesday's court hearing in St. John's was aimed at how — or if — the arbitration process would proceed.
Astaldi went to court in Ontario to push forward with the arbitration process.
Nalcor filed an application in Newfoundland and Labrador to have the appointment of an arbitrator set aside.
Both sides agreed the matter would proceed in this province, at least for now.
It's due back in court next week.
Other agreement reached after 2016
Two years ago, Nalcor and Astaldi reached a deal to boost the value of the company's Muskrat Falls contract to $1.83 billion.
The initial contract had been in the range of $1 billion to $1.1 billion.
"All disputes and outstanding commercial items have been addressed," Astaldi said in a Dec. 21, 2016, press release.
But subsequent agreements included in the court filings show more apparent payments to Astaldi over and above that $1.83-billion amount.
A Dec. 14, 2017, settlement agreement — which had strict confidentiality provisions — tacked another $20 million onto the total.
And there was also a May 29, 2018, "re-advance agreement" between the two sides, whereby Nalcor agreed to provide an "additional advance" of more than $17 million.
The contract cited financial troubles at Astaldi's Italian parent company, which was "currently in the process of re-financing and cannot provide cash support" to the Canadian operation in the short term.
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