Speakers: Dennis Barnes, Varun Ghosh

Transcript

Varun Ghosh

Hydro Limited. Uh welcome. Uh and I welcome uh Mr. Dennis Barnes, the chief executive officer. Um and if you'd like to give uh an opening statement and then I'll turn to questions.

Dennis Barnes

>> Thank you chair. Uh thank you for the opportunity today. I'd like to acknowledge the honorable people on whose land we are meeting. We've released the outcome of the cost reassessment for Snowy 2.0 which sets a target cost of 22.2 billion and a cost scenario of 25 billion. I understand this is extremely disappointed. I share that disappointment. Snowy 2 is an immensely complex project. There are more than 5,000 people working directly on the project. They are working hard and efficiently and making Amongst other things, it was underestimated how many people we needed and for how long. Snowy 2 costs are 80% people related. In 2023, Snowy 2 was effectively stalled. Local suppliers weren't being paid and 4 billion of contractor claims sat on the table. This was recognized by the previous management and a cash flow support agreement was in place to support our contractor. The original fixedpric contract for Snowy 2 had failed. It was not the right type of contract for this project's unique scale and complexity and the resultant risk. This list of claims was growing, inflamed by the unproductive and adversarial relationship between Snowy Hydro and our contractor. We would be in a worse position today if we did not reset the contract. At the reset, we moved to a more conventional contract type called an incentivized target cost model or ITC. At the reset, the contractor received received zero margin for their work to That reset gives Snowy open book visibility on risk and cost which prompted the cost reassessment. Under a fixed price contract, we would not have had the visibility to know we had a problem nor the ability to take corrective action. The new contract has been characterized as a cost plus contract. This is not an accurate way to describe the contract which is a very common contract for complex mega projects in Australia for good reason. ITC contracts incentifies efficient delivery. Our contractor stands to make more money if the delivery and efficiency targets are exceeded and conversely be penalized if But it also also allows unexpected additional costs to be accommodated so that delivery progress can can continue only when they are verified and agreed upon by both parties as well as by our independent cost auditors. Under the ITC model, productivity doubled within 12 months. We are discussing a very disappointing cost increase but in a context of a project that is making progress. We are 95% of the way through the drill and blast tunnels. That figure was around 15% at the reset. We are 65% of the way through the tunnel boring machine tunnels. We were 19% at the reset. We are 90% of the way through excavation of the power station caverns large enough to fit the Sydney Opera House and we were effectively at 0% at reset. Snowy 2 will be a national asset designed to operate for 150 years, providing more than half of the grid's In addition to the return Snowy Hydro will make on Snowy 2 and the enabling of 67,000 megawatts of renewables, it will underpin reliability, lower wholesale prices by 7 billion in the first few decades and contribute more than $18 billion to the economy through construction. We've largely overcome the design immaturity at the final investment decision. That is the root cause for most of the project's cost increases. At the point of the reset, only 44% of the construction design was complete. Today, that figure is 96% In a project of this nature, there will always be risk. However, we are now much further progressed than we were, and the risk exposure is reducing. So, thank you again for the opportunity to meet today and I welcome your questions.