Snowy Hydro in talks over contractor claims for Snowy 2.0 costs

The federal government-owned Snowy Hydro is in talks with its builders over contractor claims for the Snowy 2.0 expansion project.

The federal government-owned Snowy Hydro has confirmed it is in talks over contractor claims with the joint venture building its Snowy 2.0 expansion project, as the electricity operator delivered a drop in annual profit following the national energy crisis.

The Australian revealed in August the giant hydro development had been hit with more than $2.2bn of additional payment claims, with its lead builders Clough and Webuild blaming the Covid-19 pandemic and surge in material prices for the spike in costs.

Snowy acknowledged at the time its contractors were facing significant cost pressures, but had only paid what the builders were “contractually entitled to”.

However, Snowy said in its annual report the Future Generation joint venture has been “significantly impacted” by external events, comprising bushfires, the Covid-19 pandemic and supply chain challenges, and talks were underway.

“Given the complexity and scale of Snowy 2.0, Snowy Hydro and Future Generation are in ongoing discussions regarding the above impacts,” Snowy said in its 2022 annual report.

“It is not possible to determine what entitlement Future Generation may have as all current claims are at an early stage and not advanced beyond the submission of an interim (as opposed to a final) claims document. Claims resolution will follow the appropriate contractual and/or judicial process.”

Snowy chief executive Paul Broad sensationally quit in August following revelations of the cost crunch and tensions with Energy Minister Chris Bowen. Picture: Adam Yip

The cost issues has remained in the spotlight over the last few months after revelations over a cash crunch at Clough as it battles to deliver several large Australian energy projects including Snowy 2.0.

Clough has since put itself up for sale while its partner on Snowy 2.0 – Italy’s Webuild – has been among companies considering whether to buy the embattled contractor.

Snowy chief executive Paul Broad sensationally quit in August following revelations of the cost crunch and tensions with Energy Minister Chris Bowen over green hydrogen at the company’s proposed NSW Hunter gas plant.

Mr Broad boosted his pay by more than $500,000 to $2.77m in the 2021-22 financial year after being granted a short-term bonus boost, compared with his $2.24m pay packet in the previous year.

Snowy’s annual underlying profit after tax fell by 30 per cent to $189m from $271m in 2021, with the Sydney-based company blaming an extreme winter that featured price caps and the suspension of the national electricity market.

“During this time, Snowy Hydro played a pivotal role in keeping the system secure and keeping the lights on, often covering for baseload shortages in the national electricity market and breaking generation records along the way,” Snowy said.

“We did so even though generating at this heightened level was financially costly for the business; it was essential for avoiding blackouts. This extraordinary level of directed generation resulted in material adverse impacts for the business, with the generation division reporting a substantial loss in June, while using a major portion of our required annual release under the Snowy Water Licence.”

The generation unit’s underlying earnings dropped 26 per cent to $333m, while its retail earnings slid 15 per cent to $110m.

Snowy expects overall earnings to fall in the 2023 financial year after recording a 23 per cent slump in underlying earnings in the last financial year to $443m.

The company lifted its loan facilities by $225m in the 12-month period to $5.35bn and paid a special dividend of $25m, taking the total payout to $163m.

Snowy locked in a $5.1bn budget for the expansion in April 2019 under a turnkey contract that allows little room for major cost changes.

While negotiations between the builders and Snowy are believed to be continuing, sources said both Webuild and Clough faced substantial losses on the development should they fail to offset costs caused by the pandemic and supply chain issues, which had dramatically increased the price of raw materials such as steel.