The giant Snowy 2.0 pumped hydro project – already steeped in controversy and facing significant cost overruns and delays – is facing further question marks over its future after the collapse of the one of its main contractors.
Clough Engineering has been placed in administration after its partner in the Snowy 2.0 contract, the Italian based We Build, pulled out of the deal to buy the company and inject some much needed cash.
The two companies announced the proposed purchase in November after Clough’s owners, the South Africa-based Murray & Roberts, had warned of delays, cost over-runs and the lack of a working capital facility threatened to impede its operations.
“It’s ludicrous,” the company’s chief financial officer said in September of the lack of a working capital facility, which would help bridge the gap between payments for supplies, and from its client, the federal government owned Snowy Hydro.
The deal with We Build involved an interim injection of $30 million in cash to enable Clough to continue operations, and the purchase of the company for a peppercorn sum of $500,000 and the forgiveness of a $350 million intracompany loan.
But after a close look at the books, We Build pulled out. “There is no reasonable prospect of that acquisition proceeding through to a successful completion,” it said in a statement.
“The parties have therefore unconditionally agreed to terminate the sale and purchase agreement with immediate effect.”
Murray & Roberts said late Monday it had no choice but to place Clough into administration given its urgent working capital needs.
A Deloitte Australia corporate rescue team comprising Sal Algeri, Jason Tracy, Glen Kanevsky and David Orr have been appointed administrators and will pursue options for sale, restructure or recapitalisation.
It is not immediately clear how this will impact the Snowy 2.0 project, which is running over its already inflated budget of $5 billion, and facing delays of up to 18 months – all due to a combined impact of Covid19 delays, cost rises and supply chain impacts.
Murray & Roberts warned in late October that it faced being put into voluntary administration itself because it has no ability to repay the inter-company loan, inherited from the buyout of Clough minority shareholders in 2013.
It also revealed at the time that Clough was facing deeper losses because “of a deterioration of estimated project margins.”
The Snowy 2.0 has been widely criticised for being a “vanity” project and over its economic and environment credentials, and its impact on the energy market. It has caused many smaller projects not to be built, and further delays could cause problems as the exit of coal continues apace.
Federal energy minister Chris Bowen in June announced that the project was running up to 18 months behind schedule, amid reports that it could be up to $2 billion over budget due to delays, logistics problems and supply constraints and costs.
Snowy Hydro in November finally confirmed that the budget for the Snowy 2.0 project had blown out to just under $6 billion and is running around 12 months behind schedule. Snowy executives still pocketed millions in bonuses, including for meeting cost and performance targets on the controversial project.
