The former top public servant in Newfoundland and Labrador said senior Nalcor officials were dishonest when it came to disclosing cost estimates for the controversial Muskrat Falls project.

Julia Mullaley also said she was bothered that some bureaucrats in the departments of Finance and Natural Resources appeared to be aware of a significant jump in the cost estimate in 2013, but did not pass that information along to her or politicians.

All this came out at the Muskrat Falls public inquiry on Wednesday in St. John's, as Mullaley was grilled about her involvement in the project during her time as clerk of the executive council between August 2013 and September 2016, a critical period for the troubled project.

And if that wasn't enough to digest, a mystery about the whereabouts of Mullaley's records from her time as clerk also deepened, with inquiry commissioner Richard LeBlanc ordering her to go to Confederation Building during a break in the day's proceedings to search for notebooks that might contain relevant information about the project, which is billions over budget and years behind schedule.

The search proved futile, however, and it's now assumed her notes were discarded by someone in government's office of information management.

Pulling no punches

Unlike other witnesses who have carefully considered their words when it came to critcizing Nalcor and its leadership, Mullaley didn't pull any punches, and the target for her frustration was clearly Ed Martin, the former Nalcor CEO who left under a cloud of controversy in 2016.

Martin was the project "gatekeeper," and largely responsible for providing information to government, which is the 100 per cent shareholder of Crown corporation Nalcor Energy.

But there's growing evidence that Martin, likely based on the argument that the information was commercially sensitive, was very selective in the amount of information shared with government — especially in relation to cost estimates.

Former Nalcor CEO Ed Martin is pictured on the witness stand at the Muskrat Falls inquiry on Tuesday, Dec. 11, 2018 (Terry Roberts/CBC)

Mullaley said she was "shocked and angered" at revelations contained in a forensic audit carried out by Grant Thornton of the construction phase of Muskrat Falls, specifically evidence that the Muskrat team was forecasting a final cost for the project at $7 billion in the summer of 2013.

This information was passed along to Martin and Nalcor vice-president Gilbert Bennett, but was never disclosed to government, according to the audit and multiple witnesses at the inquiry.

I can't imagine as a public servant here knowing that information and not bringing that in. - Julia Mullaley

This is significant because the project was being promoted at a construction cost of $6.2 billion at the time.

"I can't imagine as a public servant here knowing that information and not bringing that in," Mullaley said of the $7-billion cost estimate.

'No personal recollection'

What's more, it appears very few people in government — including Mullaley — knew that Nalcor added more than $300 million to the capital cost in late 2013, just ahead of what's known as financial close. This is notable since financial close was the point of no return, because it included a commitment from the province that the project would be completed, with taxpayers picking up any and all cost overruns, and she said Nalcor was pushing hard to reach that point.

"I have no personal recollection at all of knowing that number at any time around that financial close area," Mullaley said of the $6.5-billion figure used to finalize a federal loan guarantee and financing terms from lending institutions.

Mullaley said she didn't become aware of the higher number until budget preparations in March 2014.

That's despite documents entered into evidence at the inquiry showing some bureaucrats in government were aware of the higher figure prior to that financial close.

"I think what really bothered me is I was seeing the emails through disclosure documents and I was seeing references to the $6.5 billion in some emails where some of our senior officials in Finance particularly, and Natural Resources, were copied on," said Mullaley.

"Generally, if senior officials like that know the number, it's very standard process that I would know the number and the ministers would know the number, the premier. That would be standard. So it bothered me when I could see them in the email."

There's also evidence of the project team forecasting a project cost of $7.5 billion to Nalcor leadership, but leaving government in the dark again.

The information was not honest. - Julia Mullaley

Inquiry co-counsel Barry Learmonth asked Mullaley whether she believed government was being "conned" by Martin and Nalcor.

This was her response:

"To me, the information was not honest. If you knew it was 7.5 [billion] but you're in there doing a rebaseline at 6.99 [billion], that is not being honest with government."

During discussions with the provincial government, Mullaley said Martin often said there were pressures on the project, but expressed confidence that the cost and schedule could be maintained.

In hindsight, Mullaley said she now feels misled.

"When I can look at the numbers and know that there was a different set of numbers there, that's what angers me. I feel like almost these second set of numbers are here, that no one ever knew about, but those questions were being asked," she said.

"But they weren't honestly being answered."

Mullaley is now the province's auditor general, a position she has held since December 2017.

'That's a ridiculous statement': Martin

Martin, who has been present at the inquiry at other times when he wasn't on the stand, didn't mince words about Mullaley's damning testimony.



"I think that's a ridiculous statement," Martin said, when asked for his reaction to Mullaley saying she felt misled.



Although Martin isn't back on the stand for a couple of weeks, he told reporters, "It's better to get ahead of some information and put it out there."



The specific issue in Mullaley's testimony that has Martin on the offensive is the timing of sharing the forecast estimate with the province when he held the top job at Nalcor.



"A forecast final cost is something — it's up, it's down, you're waiting for contracts to come in, you're waiting for bids to be evaluated … [it's] moving all the time," he said.



Ed Martin remained defiant at the Muskrat Falls inquiry on Thursday, May 29. He wasn't testifying, but called Mullaley's testimony that she was misled about the project 'ridiculous.' (Peter Cowan/CBC)



"The context that I or someone else could provide doesn't often come until weeks, or sometimes, months afterwards.… Unless those things are balanced at a given time, it sort of takes on a life of its own, as to what's happening, but without the full picture, it's difficult for people to understand," he said. Martin also took a swipe at the inquiry, saying the way a single witness at a time is asked questions and provides answers for long stretches can be problematic."The context that I or someone else could provide doesn't often come until weeks, or sometimes, months afterwards.… Unless those things are balanced at a given time, it sort of takes on a life of its own, as to what's happening, but without the full picture, it's difficult for people to understand," he said.