Investigation: Petrowest numbered company awarded $10 million Site C dam contract on eve of bankruptcy
Petrowest’s financial woes were widely known when BC Hydro quietly awarded a major contract to a B.C. numbered company — 1054143 — that an investigation by The Narwhal reveals was incorporated by key Petrowest executives. The numbered company received millions in public funds while Petrowest fell into receivership, its assets seized just weeks after the contract award
By Sarah Cox, for The Narwhal
BC Hydro gave $10.9 million in Site C dam direct award contracts to a B.C. numbered company whose officers and directors were top executives of Petrowest, the Alberta company that went bankrupt and was dismissed from Site C’s main civil works consortium, The Narwhal has learned.
The largest of the contracts, for $10.1 million, was awarded to the numbered company in late July 2017 — just two weeks before Petrowest was dismissed from the consortium for insolvency, according to documents obtained through a Freedom of Information request.
BC Hydro confirmed that the contract, for Site C dam “river road remediation and erosion and sediment control,” was completed in 2018 — after other Petrowest assets were seized by the company’s creditors.
Former BC Hydro CEO Marc Eliesen described the contract as “astonishing” and called on B.C. Auditor General Carol Bellringer to investigate the award, which was handed out one month after the NDP formed a new provincial government promising increased transparency.
“It’s unimaginable that you would award a contract to a company that you know is in great financial difficulties because it has been reported extensively in the media,” said Eliesen, who is also the former CEO of Manitoba Hydro and Ontario Hydro.
“Why didn’t BC Hydro cancel the $10 million direct non-competitive contract to a numbered company [run by] the same people who went into bankruptcy? Where is the fiduciary responsibility by BC Hydro senior management? Something is not right.”
Expert in business ethics calls lack of transparency ‘worrisome’
BC Hydro awarded the numbered company — 1054143 BC Ltd. — the $10.1 million contract on July 26, 2017, according to the FOI response.
Six months prior to that, on January 26, 2017, BC Hydro also handed the company a $786,141 direct award contract for exactly the same work, the documents reveal.
A timeline detailing Site C dam contracts awarded to Petrowest and the numbered company incorporated by Petrowest in 2015. Graphic: Carol Linnitt / The Narwhal
David Silver, the chair in business and professional ethics at UBC’s Sauder School of Business, said awarding direct bids to numbered companies is “particularly worrisome on the transparency front, and requires a level of justification that is difficult to meet.”
BC Hydro, as a Crown corporation, has a “special ethical duty to responsibly administer contracts, and to provide reasonable assurances that it is doing so in the public interest,” Silver told The Narwhal.
“This means that it should be biased towards a competitive bid process.”
When there is a good case to be made for a direct bid contract BC Hydro should normally “provide a public justification for going to the direct bid, explain the selection process, identify the people responsible for the decision, and identify the recipient of the contract,” said Silver, who also directs the W. Maurice Young Centre for Applied Ethics, a UBC interdisciplinary research unit.
“…secrecy breeds corruption, and corruption breeds secrecy.”
“In certain cases there may be a justification for shielding some of this information, but the strong presumption should be in favour of transparency as secrecy breeds corruption, and corruption breeds secrecy.”
Numbered company listed seven top Petrowest executives as officers
The Narwhal previously reported that BC Hydro awarded almost $90 million in Site C dam contracts during a recent 18-month period without asking for bids. Three numbered companies in total received contracts, according to a FOI response.
Four companies that donated to the BC Liberal party also received direct award contracts totalling $11.5 million.
The names of 10 companies were redacted, along with the amount of the direct award contracts and a brief description of the work involved.
Documents released via Freedom of Information laws showing Site C dam direct award contracts handed out by BC Hydro. Numbered company 1054143 is underlined in red.
The Petrowest numbered company 1054143 BC Ltd. was incorporated on November 2, 2015, according to documents The Narwhal paid to obtain during a visit to the B.C. registry services office in Victoria, which will only release company documents in person.
Eliesen pointed out that “when you establish a numbered company you don’t want to be transparent.”
The company incorporated under the name “Petrowest Corporation,” using the address of Petrowest’s corporate headquarters in Calgary. It listed two officers, Petrowest CEO Rick Quigley and Petrowest CFO Lloyd Higgins.
Over the next three years, 1054143 BC Ltd. reported seven Petrowest executives as its director and officers at various times.
The numbered company’s last annual report, filed November 9, 2018, listed Quigley and three other Petrowest executives as its director and officers. Quigley reported a mailing address in Charlie Lake, just outside Fort St. John, while the other three executives continued to use Petrowest’s corporate address in Calgary even though Petrowest no longer existed.
On January 15, 2019 — as The Narwhal waited for a response to its FOI after BC Hydro legally extended the deadline for replying, saying it needed “to consult with third parties” — the numbered company filed a notice of articles, listing Quigley as the only director.
Quigley was replaced as Petrowest CEO in May 2017, shortly before the company went into receivership, but he remained a senior member of Petrowest’s executive management team, focusing on the Site C dam and “other potential upcoming major projects,” according to a public statement from Petrowest.
Former KPMG partner highlights inconsistencies
Receivership documents say that Petrowest’s main creditors did not have security over the numbered company’s property.
According to the documents, that rested with Crown Capital, described as a “specialty finance company focused on providing capital to successful Canadian and select U.S. companies that are unwilling or unable to obtain suitable financing from traditional capital providers such as banks and private equity funds.”
Eoin Finn, a former partner with KPMG, one of the world’s largest auditing firms, called the numbered company’s escape from Petrowest creditors “odd.”
“Why would the receiver [Ernst & Young] declare to the court in its October, 2017 receiver report that 1054143 BC had ceased operating?” Finn asked.
“This when the company had just been awarded a $10,123,621 direct contract from BC Hydro… days before parent Petrowest went into receivership.”
Petrowest received a notice of termination from the Peace River Hydro Partnership from Acciona on August 11 2017, relating to “a number of events of insolvency and default,” according to a report from Deloitte LLP, the consulting firm hired as part of a fast-tracked independent review of the Site C dam in the fall of 2017.
Two days later, Petrowest announced that its lenders were seeking immediate repayment of all owed debt. The company was officially placed in receivership on August 15, 2017.
Ernst & Young did not return a phone call from The Narwhal seeking clarification about why the numbered company’s assets were not seized to repay Petrowest creditors.
According to BC Hydro’s annual financial statements, the numbered company received contracts worth $11.1 million in the fiscal year ending March 31, 2018. BC Hydro also reported that it paid the numbered company $277,241 for goods and services in the fiscal year ending March 31, 2017.
Federal direct award contracts capped after handouts to ‘friends of the ruling party’
Democracy Watch co-founder Duff Conacher said BC Hydro’s decision to give direct award contracts to a Petrowest numbered company raises many questions.
BC Hydro would get the best price by putting Site C dam contracts out for bidding, Conacher pointed out.
“You don’t just hand it to one company…It sounds like a favour to the one division and those executives that they were essentially escaping with [the contract] even though the rest of the company was going under,” Conacher said in an interview.
“So the question is why? That’s a question for BC Hydro to answer. How did they reach that decision?….I’d be very surprised if they can come up with some sort of justification for handing that company that contract and not seeking bids from other qualified companies.”
BC Hydro did not offer an explanation in response to questions from The Narwhal.
BC Hydro media spokesperson Mora Scott said in an email that Petrowest Construction was “designated by one of the local First Nations as their business partner to complete the work” given to the numbered company, but she provided no further details.
Scott also told The Narwhal that the contract awarded to the numbered company involved “the implementation of remediation work to stabilize a section of River Road, including the construction of new drainage ditches and sediment ponds, excavation and cleanout of existing ditches, repair and installation of culverts, revegetation works, as well as other erosion and sediment control work defined in the contract.”
The B.C. energy ministry, which is responsible for BC Hydro, referred all questions about numbered company contracts to BC Hydro.
BC Hydro’s latest financial statements, for the fiscal year ending March 31, 2018, list 30 numbered companies as recipients of goods and services contracts.
Conacher, an adjunct professor of law and politics at the University of Ottawa, pointed out that the federal government prohibits direct award contracts worth more than $25,000 unless there is a “special justification” such as a national emergency or national security interests.
That regulation was instituted because federal contracts “were often handed out to friends of the ruling party and at inflated prices, wasting the public’s money,” Conacher said.
“Sole source contracts are still allowed if there’s only one firm that could possibly do it. But it all has to be justified and it’s all transparent.”
International hydro expert Harvey Elwin, who has held major leadership roles with large multinationals working on hydroelectric projects around the world, has testified that he has never seen such a high level of confidentiality on a hydro project as he has encountered on the Site C project, including during his work on China’s Three Gorges dam.
The rise and fall of Petrowest
Petrowest was established in 2006 with the consolidation of energy and infrastructure services companies in Alberta.
It acquired a Fort St. John lease and road-building company owned by Quigley — Quigley’s Contracting — for about $30 million in total consideration, in a deal brokered in 2006 and completed in 2007, according to receivership documents.
Quigley became the general manager of B.C. operations for Petrowest. He was promoted to president and CEO of Petrowest in 2010, the year the BC Liberal government announced it was moving forward with the Site C dam, then a $6.6 billion project. Site C’s price tag now sits at $10.7 billion, following a $2 billion increase approved by the NDP government.
Receivership documents show the numbered company was part of Petrowest’s construction arm — also known under trade names that included “Rick’s Mechanical” and “Quigley Contracting” — which operated a fleet of heavy equipment that included dozers, tracked hoe excavators, articulated rock haulers, compactors, graders, and scrapers as well as other ancillary support equipment.
Petrowest was awarded its first Site C dam contract in May 2015, when its construction arm was given a $7.3 million sub-contract for site preparation work for the housing facility for the Site C dam workforce, a contract BC Hydro awarded to the ATCO Two Rivers Lodging Group.
But by far the most lucrative Site C dam contract for Petrowest came in November 2015, two weeks after the numbered company’s incorporation.
That was when Premier Christy Clark announced that BC Hydro had awarded Site C’s $1.75 billion main civil works contract to the Peace River Hydro Partners — a consortium made up of Petrowest, the South Korean multinational conglomerate Samsung C&T Corp., and a Canadian subsidiary of Spain’s Acciona S.A. Acciona donated more than $13,000 to the BC Liberal party between 2009 and 2013, according to B.C.’s political donations database.
Petrowest had a 25 per cent working interest in the Peace River Hydro Partners, which BC Hydro commissioned to build the earthfill dam, two diversion tunnels and a concrete foundation for the dam’s generating station and spillways.
Petrowest in financial trouble when BC Hydro awarded it largest Site C dam contract
The inclusion of Petrowest in the consortium allowed BC Hydro and the B.C. government to say, in statements widely reported in the media, that the civil works partnership had, in the words of former BC Hydro CEO Jessica McDonald, “strong Canadian and local content.”
“Petrowest is a Fort St. John company and its CEO Rick Quigley has been a lifelong resident of Fort St. John,” McDonald said at a press conference to announce that Peace River Hydro Partners had beat out three other finalists for the main civil works contract.
The press conference also featured Quigley and Clark, wearing her trademark hard hat.
“People didn’t do their due diligence and, if they did, they should be fired.”
McDonald noted that the partners had built similar projects around the world as well as major infrastructure projects in the Peace region, saying “we have confidence in their skills and experience to deliver this hydro project.”
But Petrowest was already in financial trouble at the time of the civil works contract announcement. Only weeks after the announcement, the Financial Post ran a story saying Petrowest was operating on borrowed time from its lenders.
Eliesen said BC Hydro should never have contracted Petrowest in the first place. “The question of why they included Petrowest in the consortium goes unanswered.”
“You didn’t have to be a forensic accountant to determine that this was a firm that should not be part of any major consortium with responsibility for the main civil works contract,” Eliesen said.
“People didn’t do their due diligence and, if they did, they should be fired. If a firm is in financial difficulties why would you want to entrust important work in a big construction project to these people?”
Eliesen also pointed out it was widely known that Petrowest was in financial trouble when BC Hydro directly awarded the $10.1 million contract to Petrowest’s numbered company.
“They went into receivership…they issued a notice,” Eliesen said in an interview. “In the last days of July to award a $10 million contract? You just have to shake your head.”
Sarah Cox is an author, journalist and public speaker based in Victoria, B.C.