Bowen admits concerns about budget blow out for Snowy 2.0, confirms big delay

Federal energy minister Chris Bowen has confirmed there is a massive claim against Snowy Hydro for the extra costs of the troubled Snowy 2.0 pumped hydro project, the Coalition’s signature energy investment that is already well over budget.

Bowen, in an interview with Sky News mostly focused on the anticipated passage of Labor’s climate bill, also confirmed something the Snowy Hydro board is yet to admit – that the Snowy 2.0 project is running well over time and faces a delay of 18 months.

Asked about the sudden resignation of Snowy Hydro CEO Paul Broad just over a week ago – a departure later  blamed by Broad on disagreements with Bowen over the hydrogen component of the controversial Kurri Kurri gas-fired power station – Bowen said:

“He resigned and I thank him for his service to Snowy Hydro,” Bowen said. “He resigned.

“And I (have) worked closely with my fellow shareholder Minister Katy Gallagher on dealing with a whole range of the issues that the previous government left us in relation to Snowy Hydro, including the fact that the previous government’s signature commitment Snowy 2.0 is running 18 months late.”

Asked if the project is running $2.2 billion over its already inflated cost of $5.1 billion (or $5.4 billion including already agreed contingencies, according to the contractors), Bowen said he was working with the company board on the issue.

“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 $2 billion claim just like that, we will work to minimise the cost blowout.”

Bowen’s comments come as South Africa-based Murray & Roberts admitted late last week that its Clough engineering subsidiary has no working capital facilities, a situation it described as “ludicrous”, and which raises questions about the ongoing liquidity of the company.

The Snowy 2.0 project has been hit by multiple delays, some of them due to the Covid restrictions which Clough said had made it difficult to find people trained to use the giant tunnel boring machines, and supply constraints and price pressures that have caused delays and price hikes.

The depth of the Snowy 2.0 blowout was first reported by The Australian newspaper and at least partially confirmed by an audit report that showed significant claims over and above the payments made by the governments-owned utility.

Murray & Roberts and Clough have confirmed in analyst briefings that discussions with Snowy Hydro are still ongoing about payments to cover the delays and extra costs.

Snowy Hydro has been tight lipped about the situation. It has failed to even advise the Australian Energy Market Operator of the 18-month delays to Snowy 2.0, despite those delays being confirmed on multiple occasions by Bowen and Clough.

The failure to advise AEMO is despite pleas from market operators and regulators for more clarity from project owners about the status of their developments, to help authorities plan for any potential supply shortfalls.

Despite the failure of Snowy Hydro to advise AEMO of any delays, the market operator said it had noted media reports about the delays and decided to model a delay in any case.

It found it would have little impact on supply in the years modelled because the chances were that the main transmission link would not be completed anyway, and if it was there was plenty other generation and storage that would use that new link to fill the gaps in major load centres.

On the issue about Kurri Kurri and its hydrogen component, which Broad had rubbished as fanciful, Bowen pointed to what he said was Snowy Hydro’s own business case for the project.

“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,” Bowen said.