Snowy 2.0 hit by new billion-dollar cost claims

Federally owned Snowy Hydro is facing fresh claims that its multibillion-dollar budget has ballooned further, as signs emerge of a “difference in interpretation” of the contract between Snowy Hydro and the group hired to build the Snowy Hydro project. massive pumping. .

A report in The Australian on Monday says that Future Generation, a joint venture of Italy’s Webuild (formerly Salini Impregilo), Australia’s Clough and US-based Lane Construction, has filed a number of cost variance claims with Snowy Hydro.

According to the report, Snowy 2.0 is facing more than $2.2 billion in additional payment claims, additional costs that engineering, procurement and construction teams have attributed to a combination of the Covid-19 pandemic and inflation.

RenewEconomy was unable to independently verify this claim, but in a report published in June by Australia’s National Audit Office, a sample of 15 individual payment claims shows a recurring and not insignificant gap between the amounts claimed by contractors and those claimed by contractors. amounts paid by Snowy. .

The total discrepancy between the amounts claimed and the money paid during this period alone amounts to approximately $1.7 billion, which, as the ANAO report points out, means that the actual amount paid by Snowy Hydro was on average 57% lower. than the amount claimed by the EPC contractor. .

However, according to the ANAO report, Snowy Hydro has acted adequately in monitoring the EPC contractor’s performance and making payments in accordance with the credit rules of the contract.

The report says that on those occasions where payment claims were not fully met, it was because Snowy Hydro assessed that EPC was not entitled to receive payment for the claimed items or found that the information presented on the claim sheets claim did not contain the most recent information. performance data.

Ultimately, the ANAO report finds that Snowy’s contract management arrangements have provided an effective framework for managing the payment process with the contractor.

“The complexity of the project and the steady decline in payments made compared to the amount claimed highlights the importance of Snowy Hydro Limited continuing to effectively implement the monthly payment claim assessment and approval process,” it says.

But in a letter provided to the auditor following a review of the report, Future Generation JV project manager Massimo Franceschi says FGJV disagrees with this observation.

Franceschi says that some of the underpayments documented in the report “are related to different evaluations of the works, variations and claims in which the parties had and/or have different positions with respect to FGJV’s rights under the EPC contract” .

And he underlines that “the FGJV is concerned that the different interpretation of the contract continues to generate a difference in actual payments compared to the amounts claimed.”

This apparent difference in interpretation of the contract, and the possibility that it will result in further cost increases for Snowy 2.0, are just the latest bumps in the road for the controversial project, which was confirmed in June to be almost two years behind schedule.

Then-new federal energy minister Chris Bowen delivered the long-suspected revelation that the project is significantly delayed, confirming fears that it would not only cost more, but take longer than stated by the previous government of Morrison and Snowy Hydro.

It is a massive project. Snowy 2.0 involves the construction of a new hydroelectric energy storage facility by excavating 27 km of new underground tunnels that will be used to transfer water between the Tantangara and Talbingo dams.

A new 2,000 MW power plant will also be built between the two dams to provide up to 350,000 megawatt-hours of pumped hydro storage capacity.

When the Snowy 2.0 project was announced in 2017, by then Prime Minister Malcolm Turnbull, the estimated cost was just $2 billion. She was a widely seen figure at the time for being underdone.

The official estimated cost was ultimately $5.1 billion, which would cover the cost of building the new tunnels and power plant, but would not include the cost of necessary transmission network upgrades, which will also run into the billions. of dollars.

The total cost of construction and new network infrastructure is likely to exceed $10 billion.

As RenewEconomy has reported, the fact that Snowy 2.0 does not start delivering power until 2028 could have a serious impact on an energy market undergoing an unprecedented transition, and could have knock-on effects for other key decisions, such as the closing dates of the coal and the market. policy design.

For its part, Snowy Hydro told the Australian on Monday that it “rejects the reported claim” of a $2.2bn cost blowout, repeating its claim made in April that the Future Generation joint venture has been significantly affected. by Covid-19. 19 and supply chain challenges.

A statement from FGJV reportedly said that it would continue to work closely with Snowy Hydro for the successful delivery of this project.

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