Snowy Hydro has finally confirmed that the budget for the massive pumped hydro Snowy 2.0 project has blown out to just under $6 billion and is running around 12 months behind schedule.
In a Senate Estimates hearing on Monday, the federal government-owned gentailer’s interim CEO, Roger Whitby, said the overall budget for Snowy 2.0 was sitting at “approximately $5.9 billion.”
This amount is notably higher than previous estimates of the project’s cost blowout, which had been put at around $5.1 billion, or $5.4 billion if including already agreed contingencies, according to the contractors.
The $5.9 billion figure does not appear to factor in recent reports that the Snowy 2.0 budget has been hit by another $2.2 billion cost blowout from additional claims being made by its contractors.
According the reports, the $2.2 billion in extra costs, attributed to a mix of supply-chain issues and inflation, was being claimed Snowy contractor Future Generation, a joint venture of Italy’s Webuild, Australian-based Clough and US-based Lane Construction.
Working through contractual claims
In comments to the Senate Estimates Committee on Monday, Whitby said Snowy was “working through” any valid contractual claims that the contractor might have, while others were expected not to be valid.
“You would be wise to expect that there is some pressure on the major contractor, any professional contractor will obviously try and make up for any pressure or shortfalls that they may see,” Whitby said.
“Some of those claims will be valid and to the extent we have valid contractual claims, we’ll happily pay them – and it’s predicted some of them will not be valid.
Still, Whitby says Snowy 2.0 is “at this point in time… still within the approved envelope,” of costs.
Asked by the Committee to clarify what that “envelope” was, Whitby said: “The overall budget for for Snowy 2 is, I think, it’s approximately $5.9 billion.”
Snowy’s bloated budget is just one of the major concerns plaguing the project, since it was announced in 2017 by former prime minister Malcolm Turnbull at an estimated cost of just $2 billion.
The other key concern has been that the project will take much longer than first stated by previous Coalition governments and by Snowy Hydro.
Snowy 2.0 involves the construction of a new pumped hydro energy storage facility, through the digging of 27km of new underground tunnels that will be used to transfer water between the Tantangara and Talbingo dams.
A new 2,000MW power station will also be built between the two dams to provide up to 350,000 megawatt-hours of pumped hydro energy storage capacity.
Speaking at the hearing on Monday, Whitby said that, give or take a number of key uncertainties with the next major development stage, completion of Snowy 2.0 was running roughly 12 months behind schedule.
This is actually a more optimistic timeline than was recently suggested by federal energy minister Chris Bowen, who put the delay at 18 months. But Whitby did repeatedly stress on Monday that there were a number of known unknowns that may yet affect progress.
Several key challenges ahead
“We’re more than 40% into the project at the moment. Our principle contractor, FGJV has a number of pressures on it …so we are proactively working with the contractor at the moment,” Whitby said.
“In terms of the overall program, the key challenges ahead are several,” he added. “Firstly, the excavation of the major cabin complex … it’s enormous, and it’s 800 meters underground.
“So the key uncertainty in the program is the excavation rate in the cabin, and frankly, we won’t have a high degree of confidence of that excavation rate until [we’re] about 30% in, so that’s the key uncertainty.
“If you had to snap a chalk line at the moment, my personal opinion is [the contractor is] about 12 months behind program, but they are required to accelerate – and we’re working with [them] to see how best that can be achieved.”
Whitby, who is also the COO of Snowy Hydro, took up the role of interim CEO following the sudden departure of Paul Broad in late August, after nearly a decade in the role.
At the time, there was speculation that Broad – who had built a close relationship with the Coalition government and former energy minister Angus Taylor – had been sacked at the urging of current energy minister, Chris Bowen.
Snowy Hydro chair David Knox told Senate Estimates on Monday that at a meeting with state and federal energy ministers on August 23 – just three days before Broad’s resignation – Snowy’s board had been warned to lift its game on communication.
“The minister [Bowen] was very clear that he needed to see those communications improve that they were unsatisfactory,” Knox said.
“And that was one of the core bits of feedback we had from that meeting. And I took that away and, obviously, fed that back to my chief executive.
And later, Knox clarified: “[Broad] wasn’t giving them a heads up before saying things in in the public forum.”
From the government’s side, the secretary of the department of climate and energy, David Fredericks, confirmed that this was also his view.
“I spoke to Mr Broad about that on at least a couple of occasions,” Fredericks told the hearing on Monday.
“And I had those [conversations] off my own back… because, I’ll be really frank with you, this was a … communication issue for the department. So I, personally, was worried about it,” he said.