MARCH 18, 1971
Churchill Falls and Beyond
AN ADDRESS BY William D. Mulholland, M.B.A.,
PRESIDENT OF BRINCO & PRESIDENT,
CHURCHILL FALLS (LABRADOR) CORPORATION
CHAIRMAN The President,
Harold V. Cranfield
GRACE Rev. Richard D. Jones
To build an immense power dam is no game for sissies. Toughness of fibre is demanded of everyone in such an arena. The construction of the Churchill Falls dam and its associated power station epitomizes this. Youth is not enough, its master builders need to be tempered in the crucible of experience as well. Not yet 45 years of age, our speaker of today is admirably suited to his task. Within the past year, a number of articles have been written about dam builders for Fortune magazine which helped orient me for today. It would seem that four important considerations must all be met if there is to be success. First one has to be able to raise considerable capital. Secondly since we live in a society that is very conscious of ecology the vociferous critics will hound spoilers of nature out of the country. Thirdly one needs to be skilful in the "political game" when one is creating a power source with the expectation of shipping the commodity across the border. Finally the engineering is tremendously imaginative when one is creating the mightiest hydro-power generator in the world. One doesn't have any model to copy. If I read the balance sheet of our speaker's personal assets correctly I find that his contribution is multiple but to my astonishment he does not seem to be there because he is a civil or electrical engineer but rather because he is skilled in finance, persuasion and management. (The engineering came later as an intellectual exercise!)
To be the person chiefly responsible for raising a half billion bond issue sets him squarely in the centre of those with ability to create confidence. This particular bond issue is reported to be the largest ever arranged on Wall Street by an investor-owned company. My information sources state that this is less than half the 1.2 billion total cost of this construction complex that will not be delivering power until 1976. When it does, however, the electrical energy it produces will be 34.5 billion kilowatt-hours per year, more than enough to provide for the needs of the entire City of New York though Mr. Bourassa may not be letting it flow that way!
What kind of man is this then? He was born in Albany, New York in 1926, received his early education at Christian Brothers Academy of that city, earned his Arts degree at Harvard, graduating cum laude and attended Harvard Graduate School to acquire his Masters degree in business administration. Before he was twenty years of age, that is by 1946, he had seen two years service in the United States Army with foreign service in the Philippine Islands as an infantry company commander. (I put that in because there are a few old and many young men of this club who think that military titles and honours are dirtier words than "fuddle-duddle". They would have you believe that it frightens young men away from the Empire Club because soldiers are all old men. I admit to having a commission as an infantry officer myself at the age of 22 in 1930 but because I am shortly to get old age assistance doesn't make all who believed in peace-keeping through service to be either old or war mongers.) I digress.
Five years after the British Newfoundland Corporation (Brinco) was founded, our speaker had joined them. This was in 1958 and in eleven years he was President and Chief Executive Officer. He has many years of success in finance behind him, stemming from his early association with the investment banking firm of Morgan Stanley and Company to which he became a partner in 1962. He, no longer, is part of that firm. Our speaker has at least eight excellent reasons for being a conservationist. They are his four sons and four daughters. In addition his life is further oriented to the appreciation of unspoiled nature for he is a member of the National Audubon Society and lists as his recreational interests, fishing, shooting, riding and sailing. The enjoyment of these certainly relates to the preservation of the balance of nature.
A lake one-third the size of Lake Ontario is to feed this Churchill Falls dam, and failing to see it in photographs taken from the air suggests to me it will be created by flooding land. This ecological challenge has obviously been met along with the political, financial and engineering one. It seems a logical follow-through when one realizes that Brinco's President is a member of the Advisory Council, "The Institute for the Future." The Christian Century Magazine of July 1968 clearly states their purpose is to convert problems created by society's technological assaults upon nature into circumstance by which society will become the beneficiary rather than the victim of civilization.
Let us hear from the man himself. I will name but two of his appointments: President and Chief Executive Officer British Newfoundland Corporation Limited (Brinco) and President and Chief Executive Officer, Churchill Falls (Labrador) Corporation Limited who are building Churchill Falls. His topic: "Churchill Falls and Beyond". Here is Mr. William David Mulholland, M.B.A.
I have learned from experience that it is more or less expected of me to give a progress report--a communique from the front, if you like--on the Churchill Falls Project regardless of the formal subject on which I am to speak. This is right enough and serves to remind us, if we need reminding, not only of the broad and continuing interest in the Project, but also that it represents the amalgamation of the contributions of many, many thousands of people in hundreds of organizations. In a sense we speak for all of them and if I am able to give you a good report of our progress it is because of their efforts.
The essential bigness of the Project is probably already well known to you. We will generate about 34 billion kilowatt hours a year. This is approximately 18 % of all the electrical energy generated in Canada in 1969. The Project will cost about $950 million and is fully financed. Construction began four years ago and will continue for another six years although the plant will go into commercial service next year.
Today we stand somewhat past the halfway mark. Our peak year is behind us. Of the total estimated direct cost of the Project of $665 million, only about $113 million remains uncommitted including the balances in our provisions for contingency and escalation. Major contracts yet to be awarded include the last of three 735 kv transmission circuits, the Gabbro control structure, and the 230 kv transmission lines which will connect the Churchill Falls and Twin Falls plants. Incurred costs to date total about $404 million or about 60% of the direct cost estimate. As you probably gathered from my reference a moment ago to balances in our contingency and escalation accounts, we continue to be operating within our budget and do not presently foresee any change in this position.
We are scheduled to begin commercial service from this plant on May 1, 1972. Following the very superior performance during 1970 of our Project group and associated organizations, our schedule was restored to a proper internal balance, correcting the distortions caused by the 1969 rail stoppage, without the Project schedule having been adversely affected. Accordingly, we expect to be in a position to spin our first two units before the end of this year, as was the intention when this Project was formally committed more than four years ago.
The title assigned to my remarks today "Churchill Falls and Beyond" is rather more suggestive of prophetic revelations than of what was intended--a discussion of one or two features of the Project which seem to me to foreshadow continuing developments in the technique of carrying out large undertakings.
The thoroughness of the planning for the Churchill Falls Project surpasses anything in my experience. It began, of course, many years ago and, to some extent, is still going on. It has stood us in very good stead and I am convinced that had the quality of planning for this Project not been up to such a high standard, we would be experiencing some serious problems by now.
It is extraordinarily difficult to achieve integrated planning. Engineers prefer to talk to other engineers and so on. Notwithstanding, it is essential to achieve a marriage of disciplines early in the planning process, particularly between the technical and financial members of the family. We have achieved a fair measure of success in this respect but it is difficult to explain to someone else just how one goes about it. I am still struggling in my own mind with the problem of how best to organize or institutionalize this process.
It will probably strike you as a whimsical thought, but I would liken good planning to treading water. This is meant in the sense that one is in intimate, continuous contact with one's environment through every sense and at the same time constantly adjusting position to maintain equilibrium. A good plan is less an end than it is a state.
I would say that the feature that impresses me the most about good planning is the number of times one goes through almost the same exercise over and over again. It's hard work, time consuming and very often unspeakably monotonous but it pays important dividends and it is an incomparable teacher.
Good planning like the gods must grind finely. Unfortunately, this is not in the nature of most of us and part of the planning process is the waging of unceasing war on the implicit. By the time every activity has been spelled out in explicit terms and every dollar similarly accounted for, it is surprising how many hidden shoals have been revealed. It is a painful process and you sometimes wonder if it is worth the effort, but I assure you that it is.
I am always in awe at what can be accomplished by concentrated effort. Most organizations have a fairly good faculty for concentration in the face of a serious crisis. This is, in my opinion, however, a low order of sophistication as responses go. The same organization may come apart under pressure of more than one crisis at a time. A better organization will concentrate more selectively and deal adequately with the multiple crisis. However, that same organization can trigger a crisis cycle by over-concentration since the other side of the coin is neglect. As attention is diverted from the trouble-free areas to the problem areas, predictably, they too begin to go wrong. Ideally, response is measured by criticality which is a function of nature, magnitude and timing, and it is never absolute--by that I mean you never commit all the fire engines to one fire. The ability to make rational judgements is, of course, made possible by thorough planning and greatly impeded by the lack of it. A really high grade job of planning will permit very fast, sophisticated responses to several situations at the same time, provided the necessary information is being transmitted promptly.
Detailed, meticulous planning goes hand in hand with an effective control and management information system. I can recall from my own experience instances of managements struggling manfully to put right a project which had gone wrong without any real chance of being successful. Why? Because they were always struggling with problems which had existed two months or three months earlier. Timely information is vital, first, to identify deviations from plan and, second, to keep the planning current.
In support of the view that all of this trouble is worthwhile, I should point out that today we are still reporting results against the original Project plan--costs and schedule--without embarrassment. The fact that we are still using the Project plan as an effective tool of Project control after four years of construction is an impressive indication of the painstaking work which went into its preparation.
While this aspect of the Churchill Falls project is intrinsically interesting, that is not my only reason for stressing it upon this occasion. As most of you know, the undertaking of large financial commitments spanning long periods of time can be a risky business and there are a number of chilling examples of this. At the same time the need for such ventures is growing all the time and I think will continue to grow. It is very important that we develop the techniques for carrying them out successfully and this is true whether we are speaking of private or public initiatives.
If long term capital is considered to be scarce in Canada, and it is, then in most of the rest of the world it is in desperately short supply. It would appear as well that on a world wide basis, at least, that the shortage is worsening and that we are falling further behind in meeting the needs which available capital, in company with the necessary skills, could help to satisfy. Ordinary prudence would dictate taking pains to decide wisely where to commit capital and following with appropriate measures to conserve it.
There has been great progress in the last few years in devising and improving these techniques so that today it is possible to approach an undertaking requiring a large investment with a reasonable degree of confidence. While the record has not in the past always been one to inspire unqualified confidence, I think we might reasonably expect to see an improving trend. We would hope that one of the benefits of the Churchill Falls Project will be some progress in advancing the state of the art in this area.
We hope too that as a result there will be an increase in the level of confidence which attends the prospective launching of large enterprises for there are a number here in Canada on a scale comparable to that of Churchill Falls which should be launched. Some, such as the Arctic pipeline, are already well known to you. Others will doubtless become so, for it seems that we live in one of those periods when mankind's needs are expanding at an almost unbelievable rate.
Other than food, clothing and shelter, one of the most basic needs is for energy in its various forms. I am sure there is no point in my elaborating upon a situation whose critical potential is doubtless as well known to you as it is to me.
For some time we have had under study the question of the construction here in Canada of a facility for the isotopic enrichment of uranium, utilizing the gaseous diffusion process. The enrichment process is an important element in the nuclear fuel cycle for certain types of power reactors in wide use throughout the world.
Uranium contains two isotopes--uranium-235 and uranium-238--though in widely differing proportions. Uranium-238 accounts for more than 99 per cent of the uranium content while the less abundant U-235 accounts for only 0.71 per cent. The U-235 isotope is the all-important factor making uranium an effective fuel for electric generating plants. While some nuclear reactors such as the Candu reactor operate on natural uranium by using a heavy water moderator, most reactors for nuclear power plants now in operation or under construction throughout the Western world will be of the light water type requiring a higher concentration of U-235. Reactors requiring augmented or "enriched" fuel are expected to account for approximately 90 percent of the Western world's nuclear power plants by the late 1970's.
In order to increase the U-235 content to between 2.0 and 3.5 percent--the percentage required for light water reactors--several enrichment processes have proved workable. At present, however, only the gaseous diffusion process has been demonstrated to be reliable and economic as a process for uranium enrichment in large scale, high volume applications.
The limited availability of enriching capacity in the free world will result in a critical shortage of enriched fuel in a few years. It would appear therefore that steps should be taken at once to augment existing free world enriching capacity. We have concluded that a strong prima facie case can be made for the feasibility of such a facility in Canada. A final conclusion, however, can only be reached after further study and investigation in areas, including alternate process technology, which require prior official sanction. We have taken the initial steps to secure this approval.
In our view Canada is the best location for a new enrichment facility and the question of whether such a facility should be located in Canada should certainly not be allowed to resolve itself by default. While it is easy to overstress the importance of projects in which one is interested, we sincerely believe that this decision will be one of great importance to Canada.
Accordingly, we have asked the Government of Canada if it would permit such a facility to be located in Canada and if it would support diplomatically our initiative in launching such an undertaking, which will of course have international ramifications.
In view of the very important questions involved of national and international security, of relations with other nations and of national policy in other areas, it is unthinkable that we should undertake this project without the wholehearted approval and support of our Government.
Subject, of course, to a favourable response from the Government of Canada and to our ultimate judgment as to the feasibility of the project, we would propose to take the lead in conducting the complex commercial negotiations and in organizing, planning, constructing and managing the project.
We recognize that it would be premature to form a judgment as to the precise ownership structure of the project and will at the proper time approach this question with an open mind. We do believe, however, that this project will be dependent to an extraordinary degree upon international co-operation for its success and that, accordingly, participation in the ownership by entities domiciled outside Canada should be encouraged. For our part we are prepared in principle to welcome such participation.
A major part, perhaps all, of the initial capacity of the proposed facility would be reserved for performing enrichment services on a tolling basis. Similarly, it would be expected that a major part, or all, of the initial capacity would be committed under long-term agreements.
We have considered in our studies several sites in Canada for such a facility but are not prepared to form a conclusion as to a particular location at this time nor is it likely that we shall do so for some time yet.
By way of a rough order of magnitude figure, the cost of an enrichment facility of moderate size would approximate that of the Churchill Falls Project. Its requirements for electrical power would exceed 2,000 megawatts. It would require as feed a quantity of uranium oxide substantially in excess of the current annual production of Canada. The construction period from commitment to final completion is estimated to be eight years, during which time employment would number from five to ten thousand men. Once the facility is in full operation a staff of approximately 1,000 will be required.
One can not, as I have pointed out, make a final judgment at this point in time as to whether a Canadian enrichment facility should in fact become a committed project. However, contemplation of the possibility that in due course a favourable judgment might be indicated highlights another feature of the Churchill Falls Project which I think may foreshadow an important trend in the technique of carrying out these very large undertakings.
One of the very pronounced and, I think, significant characteristics of the Churchill Falls Project is the variety and prevalence of partnership relationships, and one of the generally overlooked aspects of the Project is how well they have worked. This particular characteristic has attracted some attention from researchers searching for significant patterns indicating future trends in the methods of doing business. Believed to be of significance is not only the partnership form itself (as you know Churchill Falls is a partnership among Brinco, Hydro-Quebec and the Government of Newfoundland) but the feature of a mixed partnership between government and industry.
We have also had some very successful partnership relationships operating in another dimension. The joint venture of H. G. Acres and Canadian Bechtel in the engineering-construction management sphere and the integration of the resulting organization with our own project management group both in the field and in Montreal has been in our view a very successful experiment. Something of the spirit if not the form of partnership is also evident in the field of labour-management relations. It says something for both the skill and the spirit of both sides of that relationship when you realize that we are now in our fifth year of construction with a history of harmonious relations which is in marked contrast to the general experience in this area.
I could elaborate further on this aspect but I don't believe it is necessary to do so. I would say instead that I personally believe that an increasingly important determinant of success in carrying out and managing projects like the Churchill, whether the initiative in a particular instance comes from industry or government, is going to be the skill with which these relationships, which are never exactly the same twice running, are created and conducted. If this is right it portends both a tremendous challenge and a tremendous responsibility for leaders in business and government charged with getting these jobs done. More than ever before it will require not just experience and technical virtuosity but courage, wisdom and integrity to forge and preserve these partnerships for progress. Without the same degree of support from precedents, rules and established organizational contexts as we have been accustomed to in the past, it is true that a greater burden must inevitably be assumed by the men involved in these undertakings. At the same time, however, the opportunity is there to grasp, if they will, of creating new and better ways of responding to the challenges of our times.
Looking back upon our experience in Churchill and ahead to the requirements of such new challenges as that of the nuclear fuel project which I outlined to you a moment ago, I think that this trend, if indeed it is a trend, must be to the good. For does it not suggest that even as we move inexorably toward bigness, complexity, and sophistication the quality of the man and of his relationship with other men is paradoxically becoming not less but more important?
The gratitude of the Club was expressed by Mr. H. N. R. Jackman.