Webuild’s Australian business saved by Snowy 2.0 restructure

afr.com:

Italian engineering group Webuild was facing losses of $4 billion-$5 billion on Snowy 2.0 before the contract was restructured, a move that pushed its price up to about $12 billion, according to Snowy Hydro chief executive Dennis Barnes.

The federal government-owned company last week confirmed that the budget for its mega storage project under construction in NSW’s Snowy Mountains had essentially doubled from the last official estimate of $5.9 billion.

Snowy 2.0’s cost is tipped to rise to around $12 billion. Jamila Toderas

Webuild, which has been trying to expand its business in Australia, was hired in early 2019 to build Snowy 2.0, signing a $5.1 billion fixed-price contract through its Future Generation joint venture with Clough.

But the collapse of Perth-headquartered Clough, which Webuild subsequently acquired, and extensive delays and inflation in the price of materials and labour, has more than doubled the total cost of the project, which is only 40 per cent complete.

If Snowy Hydro did not restructure the fixed-price Snowy 2.0 contract to a “costs-plus-margin” concept, the Italian group would have faced billions of dollars of losses, with the likelihood that work would have stopped while expense claims were disputed in the courts, Mr Barnes told The Australian Financial Review.

“Webuild put $4 billion of claims on the table,” Mr Barnes said. “They are looking down a project staring down a loss of $4 [billion]-$5 billion dollars, what do you think happens? You end up in litigation, they stop.”

Mr Barnes has advised that the revised $12 billion cost was only an estimate, using a bottom-up calculation based on a December 2028 date for the project coming online. Based on the system of penalties and incentives