Mega-project planning and economic welfare : a case study of British Columbia's North East Coal Project
Creators: name: Knight, Nancy
Publisher: name: University of British Columbia
Year: 2011

description: This research investigates the characteristics of natural resource mega-project planning processes. The implications of staple theory and selected characteristics of natural resource mega-projects are used to construct eleven characteristics of such planning processes. Staple theory suggests that optimistic expectations will be a fundamental characteristic of resource development planning in Canada, and that the state's role will be to facilitate, rather than evaluate, staple production. The size, complexity, visibility, and meaning of mega-projects may create momentum around them that weakens rational analysis and stampedes the planning process. Overall, the planning process may focus on narrow, technical issues concerned with constraints facing the mega-project. Alternatives may not be considered, overly optimistic expectations may not be checked, and risk and uncertainty may be inadequately addressed. These proposed planning process characteristics are investigated in a case study of British Columbia's North East Coal Project (NECP). The institutional structure of the planning and implementing organizations are investigated, and the major planning issues are identified. The expectations generated within the planning process regarding the mega-project's contribution to regional economic growth and development, and its economic viability are reviewed, and then evaluated by comparing them to information available at the time from sources within the planning process and from sources outside the planning process, and to actual outcomes. The case study findings support many of the eleven proposed characteristics of natural resource mega-project planning processes. The NECP's public planning process focused on identifying and overcoming constraints that would prevent the mega-project proceeding, and on minimizing the costs of the public sector's infrastructure responsibilities in the mega-project. The terms of reference for the various Sub-Committees requested analyses of constraints in most cases. The absence of a Regional Development Sub-Committee in the organization of the planning task force suggests that longer term planning issues were not perceived to be as important as the infrastructure issues. Sixty percent of the official public planning budget was allocated to transportation and townsite studies. The mandate, structure and operations of the government's implementing organization focused on controlling project costs. Finally, the benefit-cost analysis of the mega-project did not consider any alternatives to the NECP. The expectations regarding the NECP's contribution to regional economic growth and development were overly optimistic given the information available at the time, and far exceed the actual outcomes to date. The NECP stabilized the South Peace region during the recession of the early 1980s, and produced some growth in employment, population, and income levels. Also, education levels increased and some entrepreneurial development occurred. However, the mega-project did not alleviate the unemployment situation in the region, did not improve the distribution of income, and it did not diversify the regional economic structure. Despite the early planning emphasis given to the opportunities that the NECP could provide to members of regional target groups such as Natives and women, few individuals from these groups obtained mining employment. In 1986, most of the direct economic benefits associated with the NECP, such as the new employment opportunities, high incomes, and training opportunities, had been captured by in-migrants to the region. The expectations regarding the NECP's economic viability were also overly optimistic given information available at the time. The possibility of capital cost overruns were not considered despite ample indication that they were highly probable. Continuing high prices were assumed despite historical evidence that periods of high prices had been consistently followed by sustained periods of low prices, and expert advice that structural forces would contribute to a continual decline in the Japanese demand for metallurgical coal. The pre-project analysis projected that the NECP's net present value would be $464 million (1980$C), but the ex post analysis suggests that the NECP will generate $955 million (1980$C) in net economic losses for the Canadian economy. The overly optimistic expectations regarding the NECP's economic viability were formed early in the planning process and were based on a period of enormous increases in metallurgical coal prices. As market conditions changed, the group within the planning task force responsible for the NECP's economic evaluation lowered their expectations, but their concerns were apparently insufficient to counter the momentum that had been established around the NECP. This momentum was reinforced by the meaning attached to the NECP, which was portrayed as a fundamental component of BC's economic development strategy. Risk and uncertainty were inadequately addressed within the planning process and within the technical analyses of this mega-project's regional economic impacts and economic viability. No sensitivity analyses were completed in the analysis of the NECP's regional economic impacts. The sensitivity analyses in the pre-project benefit-cost analysis all considered positive adjustments to the base case scenario, save one. Problems of geological uncertainty, and the lack of experience of the project proponents in coal mining were ignored. Mega-project planning processes must be carefully designed to counter the characteristics suggested by this research. At a minimum, a full public review of the mega-project should be conducted before the decision to proceed is taken. Consideration should be given to developing a formal, required mega-project planning process based on the two-tiered structure. The first tier would include a policy assessment addressing broad questions such as alternative regional development strategies. If the outcome of the first tier was a decision to proceed with a mega-project, the second tier would address mega-project planning and regulatory issues such as infrastructure options and impact management strategies.