Snowy Hydro 2.0 faces cost claim: Energy Minister Chris Bowen
Lead Snowy Hydro 2.0 contractor Clough warns it is at the limit of its working capital but energy minister Chris Bowen says the $2bn cost overrun claim is concerning.
Energy Minister Chris Bowen has confirmed Snowy Hydro faces a contractor claim which could result in a cost blow out on its giant pumped hydro expansion.
The Australian revealed in August that the project – known as Snowy 2.0 – had been hit with $2.2bn in cost overrun claims by its lead builder with Snowy chief executive Paul Broad sensationally quitting four days later.
Mr Bowen said he was working with the board of Snowy Hydro, owned by the government, to limit any cost damage.
“There’s a claim against Snowy Hydro. I’m working very closely with my fellow shareholder Minister Katy Gallagher to reduce and minimise and with the Snowy board,” Mr Bowen told Sky News on Tuesday.
“There’s been a claim, which hasn’t been worked through. That’s not a matter of knowing or not knowing. It hasn’t been finalised. There’s been a claim. I am concerned about the budget for Snowy 2.0. I am. I agree with that point. It is concerning. But we are not about to agree to a $2bn claim just like that, we will work to minimise the cost blowout,” he said.
The Future Generation venture, comprising Italy’s WeBuild and Perth-based Clough, has demanded a more than 40 per cent budget increase due to spiralling costs. The project also faces an 18-month delay, further crimping shortages in the power grid.
Clough, which is building Snowy 2.0 and NSW’s EnergyConnect transmission line, revealed last week it was in the “ludicrous” position of holding no working capital facility and was locked in talks with Snowy Hydro over potential delays and cost blowouts at the expansion.
The West Australian contractor released an internal note to staff saying The Australian’s story could create uncertainty for employees, partners, clients and suppliers but said the need to increase its bonding capacity and working capital was to allow the company to keep delivering strong growth after several successful years.
“Clough has for the past few years, always delivered our growth utilising the capacity of our balance sheet, and we have not needed to access external credit facilities,” Clough told staff in the note. “Our success has been such that we are now at the limits of what our balance sheet can support in terms of further increase of our bonding lines, and one of the strategies to improve our capacity is indeed to secure a credit facility within the banking sector to add some additional strength to our balance sheet.”
Cash was tight but the contractor was managing the situation, the company said.
“There is no doubt that cash (working capital) is tight, but we have a solid plan, good discipline, and a clear line of sight. We are prudently managing our short-term cashflows as we work with our clients and vendors to correct impacts generated from the numerous events that have challenged the broader, global macroeconomic conditions,” the internal briefing reads.
Snowy locked in a $5.1bn budget for the expansion in 2019 under a contract which allows little room for major cost changes.
The abrupt departure of Mr Broad led to speculation he had been dumped from his role amid cost tensions and a spat between the pair over green hydrogen at the planned Kurri Kurri gas plant.
However, Mr Bowen said he had resigned. “He resigned, and I thank him for his service to Snowy Hydro. He resigned,” Mr Bowen said. “There are a whole range of issues we’re working through.
“The 18-month delay in Snowy 2.0, the significant issues around the budget,” he added.
Labor in January backflipped on its opposition to the Kurri Kurri gas plant, but promised to convert the facility to a green-hydrogen generator by the end of the decade. It committed a further $700m to ensure it is fully powered by green hydrogen “as soon as possible”, potentially by 2030.
Snowy has said the Hunter Valley gas plant in NSW will be able to run on 15 per cent hydrogen after it signed a supply deal with Mitsubishi Power.
“In relation to Kurri Kurri, the Snowy Hydro business case released pre-election says explicitly, and it’s still on the website, 30 per cent green hydrogen is possible with minimal investment,” Mr Bowen said.
Asked if there was a disagreement with the former Snowy chief, Mr Bowen said: “I didn’t write the Snowy Hydro business case. But look, I’m not here to prosecute any arguments. We are getting on with the job. Working in whatever way we can. I note that the chairman of Snowy David Knox has said the new government is working very constructively with him.”
