SNC-Lavalin Corruption Scandal and Ontario's Energy Sector (Part I)

SNC-Lavalin TSX Stock Exchange (SNC.TO)

A. SNC-Lavalin's Corrupt and Fraudulent Practices

SNC-Lavalin is a multi-billion dollar Montreal-headquartered construction and nuclear engineering giant that conducts business and affairs in countries across the world.  In 2015, following a lengthy and highly complex investigation into its business and affairs, the Royal Canadian Mounted Police ("RCMP") brought formal charges against SNC-Lavalin for fraud and corruption in connection with nearly $100 million in bribes made to Libyan government officials between 2001 and 2011 (Source).  Among the more direct implications for SNC-Lavalin, a successful conviction against the corporate giant would mean the inability for SNC-Lavalin to submit future bids on, and therefore, secure highly lucrative government contracts.

Recent allegations against SNC-Lavalin are not without precedent.  In 2013, for instance, following a series of corrupt practices by SNC-Lavaling, the World Bank barred SNC-Lavalin from securing its contracts for a period of 10 years (Source), the longest period ever recorded in the books of the World Bank.  More recently, in February of 2019, another SNC-Lavalin bribery scheme, this time involving a $127 million contract to refurbish the Jacques Cartier Bridge in 2000, was uncovered from Court documents.  These new discoveries could potentially lead to four (4) new charges of fraud against SNC-Lavalin (Source).  Does SNC-Lavalin's corrupt practices affect Ontario energy market, and if so, how?

B. SNC-Lavalin and Ontario Nuclear Energy

1. Ontario's Electricity Resources: Historical Snapshot

Prior to WWII, Ontario's electricity supply mix was amply satisfied by what was then the largest hydro-electric plant in the world that is, Sir Adam Beck 1 (previously named Queenston-Chippawa).  Since the Post-WWII economic boom in the province, Ontario's sources of electricity supply have been overstretched.  Part of Ontario's electricity supply solution came in the early 1970s and 1990s with the construction of 20 CANDU (Canada Deuterium Uranium) nuclear power reactors; nuclear generating facilities were built in Pickering (8 reactors), Bruce (8 reactors), and Darlington (4 reactors).  Despite these near reactors, however, Ontario's electricity supply problem persisted.  Perhaps the most illustrious example of its overstretched energy resources was the 24,000 square kilometre blackout in Ontario in August 2003.

2. Ontario's Current Electricity Supply Mix

According to the latest data made available by the Ontario Energy Board, 60.1% of Ontario's electricity supply mix is sourced from nuclear energy, followed by 25.6% from water power, 9.8% from alternative power sources, 7.2% from wind, 4.0% in natural gas, 2.2% solar PV, 0.4% biomass, and 0.3% from "other sources" (Source: Ontario Energy Board).  In 2014, Ontario became the first jurisdiction in North America to completely phase-out coal-generated electricity, further emphasizing the high important and reliance of Ontario on nuclear energy.  Coal-generated electricity was discontinued due to rising environmental concerns over greenhouse gas emissions and acid downpours.

Prior to 2014, coal-fired electricity was Ontario's second (2nd) most important source of electricity, accounting for approximately 25% of Ontario's electricity supply mix.  During previous nuclear refurbishment programs in the province, Ontario would shift its reliance on nuclear-generators onto coal generators for the duration of the refurbishment program.

3. Ontario's "Nuclear Refurbishment Plan"

Ontario's nuclear generating facilities are once more due for refurbishment.  As of 2016 and up until or around 2033, the government of Ontario has decided to refurbish ten (10) nuclear reactors at the Bruce and Darlington Nuclear Generating Stations (BNGS and DNGS), and to extend the life of the Pickering Nuclear Generating Station (PNGS), collectively referred to as the "Nuclear Refurbishment Plan".  The nuclear refurbishment program is scheduled to take place until 2033.  The total capital cost to Ontario is estimated to be at $25 billion (calculated in 2017 dollars)(Source: Ontario Financial Accountability Office).  Of critical note, however, is that since coal-generators were completely phased out from Ontario's energy mix in 2014, the province cannot shift its reliance on nuclear-generated electricity onto coal-generators as it did during past nuclear refurbishment programs, thereby once more exposing  the province of Ontario to its long-standing electricity supply predicament.  How does the SNC-Lavalin scandal come into the picture?

4. Connecting the Dots

SNC-Lavalin was awarded the centrepiece of Bruce Power's major nuclear component replacement project in June of 2018 (source). In 2016, the Wynne liberal government of Ontario had also made the decision to refurbish four (4) reactors at the Darlington station.  Ontario Power Generation awarded the $2.75 billion contract to refurbish the main nuclear reactor to SNC-Lavalin Nuclear Inc. (and the Aecon Construction Group).

Leaked SNC-Lavalin documents that consisted of a portion of a presentation mailed anonymously to the Canadian Press (Source: The London Free Press) indicate that in the advent that SNC-Lavalin could not secure a "Deferred Prosecution Agreement" (an agreement with the government that would allow SNC-Lavalin to pay a fine and, ultimately, to continue bidding on government contracts), SNC-Lavalin's plan is to wind down its Canadian operations, moving its offices from Ontario and Quebec to the United States, cutting down its workforce from 8717 to 3,500 in the process.  As SNC-Lavalin's Chief Executive Neil Bruce confirmed in a public statement, this would leave Ontario's $13 billion plans to refurbish six (6) nuclear reactors at Bruce Power, up in the air, further extending the stretch on Ontario's energy supply mix.

C. SNC-Lavalin Affair and Federal Politics

Following the charges that were brought against SNC-Lavalin in 2015, SNC-Lavalin CEO sought to arrange a "deferred-prosecution agreement" with the Trudeau government in order to avoid prosecution that would jeopardize SNC-Lavalin's ability to bid on, and secure highly lucrative contracts from the federal government (2).  From 2016 to 2017, reliable (and public) sources of information indicate that more than 50 meetings were held between SNC-Lavalin lobbyists and federal officials and parliamentarians (3).  In 2017, Trudeau launched consultations to determine whether or not to introduce deferred-prosecution agreements (a.k.a. "Remediation Agreements"),  a process that would lead to SNC-Lavalin admitting its wrongdoing, cooperating with authorities, paying a fine, and ultimately enable it to continue bidding on future government contracts.

As so pointedly laid out by the Honourable Conservative MP for Carleton, Mr. Pierre Poilievre, the following offers a fact-based account of the developments that ensued in the federal political arena after the RCMP's charges against SNC-Lavalin back in 2015:

  • Prime Minister Justin Trudeau 'slipped' into an omnibus federal budget bill an amendment to the Criminal Code allowing large scale corporate giants, like SNC-Lavalin, to escape conviction and trial by signing a deal. 
  • That legislation was not introduced by the liberal Justice Minister, even though it amended the criminal code of Canada, which is within the purview of the Minister of Justice. The Finance Committee had no role in studying a legislation that seeks to amend white collar crimes in the Criminal Code of Canada.
  • After the legislation in question became law, the Director of Public Prosecutions decided NOT to offer a deal to SNC-Lavalin, which is charged with over $100 million of bribery and fraud.
  • While serving in her official capacity as Minister of Justice and Attorney General of Canada, Jody Wilson-Raybould is said to have come under increasing pressure from, and influence by Prime Minister Justin Trudeau to convince the Director of Public Prosecutions to offer a deferred prosecution Agreement to SNC-Lavalin; she resigned (or was otherwise fired) from her position on February 12, 2019; 
  • Jody Wilson-Raybould could not comment in detail on the events that transpired prior to her resignation from the position of Minister of Justice and Attorney General, citing "solicitor-client privilege" between herself as a lawyer and the government. 
  • Conservatives criticize Prime Minister Justin Trudeau for not waiving solicitor-client privilege to allow Jody Wilson-Raybould to provide a full testimony. 
  • Allegations are made that Prime Minister Justin Trudeau sought to convince or otherwise influence the Director of Public Prosecutions in its criminal investigation of the SNC-Lavalin affair.
  • According to the lobbyist registry the company changed its tune away from a legal approach to a political one, going to the PMO to seek political support to allow for a special side deal that would remove the possibility of conviction or trial for this $100 million worth of corruption. 14 meetings happened in the Prime Minister's Office, including with PMO boss Gerald Butts. Mr. Butts, in December, and the Prime Minister, at another occasion, spoke about such a special deal with the Minister of Justice and Attorney General.