Clough disputes claims Snowy 2.0 is 18 months behind schedule

The contractor building the giant Snowy 2.0 hydro project has defended expected cost overruns and disputed a potential 18 month delay.

The contractor building the country’s largest electricity project, Snowy 2.0, has defended cost overruns and disagreed with the Federal Government’s forecast of a 18-month delay, saying it was working to fast-track elements of the giant hydro development.

The Australian revealed in August that the scheme had been hit with $2.2bn in cost overrun claims by its lead construction joint venture. Snowy Hydro chief executive Paul Broad quit four days later.

Perth-based Clough – part of the Future Generation venture building the scheme with Italy’s WeBuild – disputed the budget increase and said both project variations had been submitted in addition to a set of cost claims connected with Covid-19 snags.

“We’re a long way from being panicked about it,” Clough chief executive Peter Bennett said.

“The costs are about 60 per cent variations versus 40 per cent claims and the claims relate to the Covid impact. Part of the challenge commercially that this project has is that it was a contract that was entered into well before the pandemic.

Clough chief executive Peter Bennett.

“And part of the work that is being done collectively is how best to respond to these impacts with a commercial framework that didn’t necessarily contemplate it.

“Snowy is not the only project that didn’t contemplate it, so it just makes it more challenging.”

Mr Broad’s abrupt departure was unexpected, according to the Clough chief executive.

“I was surprised. Paul is a pretty charismatic guy and he was obviously very close to the project, and he built a really good team down there,” he said.

“We’ll miss Paul for sure, but none of us are indispensable unfortunately. And so we’ll move on.”

Energy Minister Chris Bowen this month said he was working with the board of Snowy Hydro, owned by the government, to limit any cost damage, noting a claim had not yet been worked through.

Clough, which is also building the delayed NSW EnergyConnect transmission line, revealed as part of its results that 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.

The Snowy 2.0 tunnel boring machine, the Lady Eileen Hudson.

Mr Bennett said there had been lengthy discussions between Snowy Hydro and the joint venture, which he described as a normal part of any contract.

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

“There’s been things between us that they have had to drive a little bit and things we have had to drive, but it’s always been very aligned,” Mr Bennett said.

“Despite all the controversy around the value of the project from a public perspective, from an engineering perspective it’s a great project.”

While negotiations between the builders and Snowy are believed to be continuing, sources have previously 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.

Mr Bowen has confirmed the project faces an 18-month delay, further crimping shortages in the power grid, but Clough said that holdup was incorrect, while declining to issue a new timeline.

Clough has defended expected cost overruns and disputed a potential 18-month delay.

“That is not the number we are working to,” Mr Bennett said. “I don’t know what source Mr Bowen has for that information. It’s not the number we have.”

The initial power generated by Snowy 2.0 was originally scheduled for mid-2025 and the facility online from early 2026. However, first supplies may now be delayed until at least the end of 2026, The Australian reported in June.

The setback has been blamed on a series of issues including bushfires, and Covid-19 hitting both supply chains and restricting the availability of workers.

Mr Bennett said some potential timing setbacks might still be clawed back – comments similar to those made by Snowy Hydro chairman David Knox, who said progress excavating a vast power station cavern underground later this year would play a big part in determining the final deadline.

“We’re working constantly to see what things that we can do to manage that better. There are large elements of this project – like the underground cavern – that hasn’t yet commenced. So that’s a big chunk of the critical path and if you look at the opportunity for schedule mitigation now, there’s a lot of areas that we’re looking at,” Mr Bennett said.

“We need to get some runs on the board but there’s many opportunities to get there.”