Senate Environment and Communications Legislation Committee, , 7:44:35 to 7:53:59
The CEO explains the chronology of the contract reset to an ITC model to improve productivity and outlines the project's value in ensuring grid reliability and lowering wholesale prices.
Topics: Renewable energy, Electricity grid, Energy storage
Speakers: Dennis Barnes, Hon Tim Ayres, Malcolm Roberts, Varun Ghosh, Hon Sarah Henderson
>> What work, Minister, has your government done since 2022 when it came into power and knew this was a dog? Knew it was very badly set up. very badly managed. It was a mess. What extra work did you do to satisfy yourselves that it was a good project? Because this is now your project. You've had four bloody years to do it and you you've just gone from mess to mess. What extra work did you do? What extra analysis? What did you do to correct the Liberals mistakes?
>> Well, I think uh Mr. Barnes will be able to uh talk to the engagement between the government and Snowy Hydro and make sure that the work that is done that is required to get this in an engineering and business and commercial sense through from one end to the other um that that that work is done in the most uh efficient and effective way Uh it it started in a pretty bad place with a with an unfunded uncosted uh uh project that had as Mr. Barnes has said and I think has been observed >> by experts um had a had um a weakness in terms of its uh engineering design.
>> Why didn't you cancel it when you first came to power? Why didn't you do your due diligence? You're telling us how bad these people were >> now? You just accepted it. you rubber stamped blindly
>> them and and and Mr. Joyce of course um who is engaged in this work too. Um this
>> why didn't you stop this project? Why didn't you review the project?
>> Well, because like so many things, we have to clean up the Liberals messes. That's what we
>> cleaning it up couldn't mean shutting it
>> Oh, no. This is this is an important project that the country requires and we spend a lot of our time cleaning up
liberal messes. What what due diligence did you do before you decided it was too important? What specifically? What did you do? Because this is on you. >> It started as a mess. That's true. But this is on you. You could have shut it down in 2022.
>> Well, we had a choice. >> Um stick with a broken contract or reset it and get the project moving. right decision. I'll let uh Mr. Barnes uh go to the detail of uh I if if possible of our you know very thorough engagement with Snowy Hydro about these questions. Are we happy with the cost increase? Absolutely not. Um the original contract didn't have the provisions that would normally be required for penalties for contractors missing cost and performance targets. The problem is this was an Angus Taylor Uh that's how this began. Now what's changed since we've taken government >> is progress in construction.
>> it's a fixed price contract and you've
contract no adequate penalties
>> completely openended contract. So you
just give
I've asked you a number of Senator Henderson you do not have the call at this point. It is with Senator Roberts and the minister. Please stop interrupting the line. It's a total
fabrication. Senator Henderson saying >> Senator Henderson, come to order. >> Senator Henderson, please stop
interjecting in this process. Senator Roberts and the minister are engaged in the questioning. We will come to you at the appropriate juncture. Minister, it
>> it's it's as Mr. Barnes was it pains to go through um characterizing this as a cost plus um contract is completely inaccurate and it's a phrase that's used for completely partisan purposes and deliberately misunderstands uh the nature of the contract and the that having that kind of oversight engaged in the contract is so important and why the way that Mr. Taylor set this up was so deficient. Uh and uh you know every time Mr. Taylor was taken to these issues he ignored the risks. Uh every time he became aware of the risks he covered them up. Uh and Australians did not know the true state of this project until we took government. It is an important project. We are going to get it done. We're very disappointed with the increase in costs. Uh and you have Mr. Barnes here in a position able to answer questions in detail about the work that is uh that is on for example the power station excavation which hadn't even started at the time of the reset is now almost 90% complete real progress tunneling and bricks and mortar and plant equipment real progress the way that I would measure it in the um is being made but it's hard work and it's hard work that 5,000 Australians are engaged in and I'm not going to talk down their efforts for a second.
>> Senator Roberts,
>> Mr. Barnes is going to answer, isn't he?
>> What was the question? Sorry.
>> Question is what uh Senator I put to Senator. What have you done?
>> So, if I give you a little bit of
>> why did you prove why did you continue
>> Just give you a little bit of the chronology in in in early 2022. So before my time where I was able to review the records the project was making in the order of 2% of progress per month the contractor was needing propped up with a cash flow support agreement and there were $4 billion of claims on the table. So fixed price contracts tend to drive an adversarial uh approach where you don't get progress. So the first question that is asked when one encounters a problem is how does this get paid for because it's not our fault. So the the project was not moving forward. In in 2023 we moved it to an incentivized target cost model which has rewards and penalties for performance. Those are very common across Australia and in fact in the last few years probably the dominant form of construction contract. What that does allow you to do is have an open conversation about making progress on the project. So in 2023, the advice of myself and the snowy board, so just to be clear, this myself and the snowy board that do the work uh was to reset this contract to an ITC model, get progress moving again, and we saw progress did double over that What we underestimated at the time and what we got wrong, you know, so there's, you know, I'm not shying away from that was that we relied on the contractor's estimate for the balance of the work. In middle of 2023, we were put $4.3 billion through the job of which on which the contractor received no margin. At that point, the contractor estimated the balance of the job and that was We saw that early and we were clear. I think it was October 2025 where we announced that we would not be able to complete this project for $12 billion. And we're making sure that the design immaturity that was enduring was corrected and that's what we've corrected in the last year and in the last year we've had great progress on all of the excavation work. I've explained what we got wrong in that estimation process and and I've explained where I think the project will to come to the value of uh Snowy 2. Uh clearly Snowy Hydro is a profitm organization. Uh this is a unique asset in a market that does not yet exist. So it's obviously dealing with a range of scenarios for this asset. But earlier in the year, we did release a report by Binga Associates which showed what the grid looked like with and without Snowy 2. And without Snowy 2, reliability is put at risk and prices are higher. And we did the counterfactual to 8 hour batteries which are the currently commercial largest alternative to Snowy 2. And one would have had to have had 42,000 megawatt of 8hour batteries. The current cost of that would be over $80 billion. So you know from my perspective, the Snowy Hydro board perspective, we've got the right contract model to make progress. This project is incredibly valuable to the grid and the risks of not doing it would actually risk reliability and higher prices in the electricity market. So we're committed to this project. The Snowy Hydro Board and myself provided the advice to government uh a few weeks ago of the new cost range and that the project should continue.