Contractor confirms delays and cost overruns on Snowy 2.0, as CEO fires at government

One of the main contractors for the Snowy 2.0 pumped hydro project has confirmed delays of up to 18 months and even more cost overruns for Australia’s largest and most controversial renewable energy project.

The revelations were made at the end of June in a presentation to South African analysts at Murray and Roberts, the owner of engineering firm Clough, one of the key contractors on the huge project whose costs have already ballooned to more than $5bn.

“Unfortunately, everything has been affected by COVID, with the resources, with the supply chain. Therefore, we anticipate an impact of approximately 18 months to the project schedule,” Clough CEO Peter Bennett said at the analyst briefing, according to a transcript posted on the company’s website.

Bennett also said the “customer has communicated” the delay to the market. Which is only true for the client’s owner, the federal government (energy minister Chris Bowen disclosed the delay shortly after his appointment), but Snowy Hydro itself has tried to minimize delays.

On Friday, Snowy Hydro’s CEO of the past nine years, Paul Broad, abruptly resigned amid ongoing concern over the fate of Snowy 2.0 and its equally controversial Kurri Kurri gas generator in the Hunter Valley.

Some media reports suggested that the board may have pushed Broad at Bowen’s instruction. This was denied by Snowy Hydro chairman, former Santos boss David Knox, but Broad said separately that he had no choice but to resign due to differences with Bowen over certain issues.

One such difference is the Labor government’s push to convert the Kurri Kurri gas generator being built in the Hunter Valley to hydrogen. Broad said it “didn’t make sense” because “there is no chance of hydrogen being produced” in the region in the next 10 years.

“The last thing I really wanted to do was leave right now,” Broad told ABC Newcastle. “But these things cannot be controlled and the government owns us. The Board runs the company and when you get to that position the best thing you can do is resign and leave, which I did.”

Broad also questioned Labour’s target, and AEMO’s step change scenario, of getting to more than 80 per cent renewables by 2030, saying the system would need “six Snowy 2.0s” to “affirm these things”. He said the advice the government is receiving on energy is “false and misleading”.

Broad’s departure comes ahead of the imminent release of annual results from Snowy Hydro and Murray and Roberts later this week. Broad has suggested that the outcome will not look good with significant business losses.

The Snowy 2.0 project was originally supposed to cost just over $2.2 billion, which most energy analysts never believed for a moment.

Officially, it’s already been raised to $5.1 billion, Murray and Roberts’ presentation puts it at $5.4 billion, and media reports, and Murray and Roberts’ presentation, suggest it will be much more, thanks to Covid19 and inflation.

snowy 2.0
Source: Murray and Roberts presentation.

Bennett said the Covid19 lockdowns in Australia and the inability to adequately fund the Snowy 2.0 project according to the plan it had set out before the pandemic had had a significant impact.

“So hiring people without the experience levels we were looking for in hard rock tunneling machines, for example. That had an impact on the productivity of those who assembled the tunnel boring machine and later on the operation of the tunnel boring machine.

“So it is very difficult to draw a direct definition that says that COVID has had this impact. But it’s a little bit easier in terms of some of the areas where we’re seeing big increases in steel prices or some of those things, but it’s a very complex analysis.

“If you look at, for example, our Snowy Hydro project, which is our largest project and has probably seen the biggest impact, in fact that contract was signed before the pandemic was identified, so it doesn’t have specific language related to it. with the. .

“However, it does have change clauses, force majeure clauses…. and a client who is prepared to make a fair assessment. So we are working on the impacts of COVID in a number of parts.

“The first are what are the directly definable costs that we have incurred that we can document? We’re working with the client through that and working to get those costs incorporated into the project. Then we are looking at the future costs that we see coming.

“Are we going to incur that? Is there any mitigation or how can we address that in another way? We will agree on what that amount is and then incorporate it into the contract.

“Then there are some more obtuse impacts where we need to agree on what the amount of the impact has been and how best to assess it. So it’s a complex question.”

According to a report in The Australian last week, 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. 19 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 significant gap between the amounts claimed by contractors and the amounts claimed. paid for by Snowy.

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