Snowy 2.0. A snow-job costing taxpayers twenty times its budget

The newly revealed $40 billion boom in Snowy 2.0 is shocking but not surprising. former senator Rex Patrick About management and oversight failures.

First announced in 2017, Snowy 2.0 is a mega-pumped hydroelectric renewable energy project that acts as a massive “giant battery” for the national grid. The basic concept behind Snowy 2.0 is simple, albeit flawed due to its scale; Off-peak electricity will be used to pump water ‘uphill’ from Talbingo Reservoir, 27km east, to Tantangara Reservoir, allowing water to flow back ‘downhill’ through 2.2 gigawatt turbines during periods of peak demand, contributing power to the national electricity grid.

It can be compared to a 350 gigawatt hour battery.

A cluster fiasco

The project is a taxpayer-funded financial disaster.

Claims that Snowy Hydro Limited bears its own costs are deceptive; Snowy Hydro is a wholly owned Commonwealth company. While the cost of Snowy 2.0 is not a direct cost to taxpayers through government capital injections, it is money taken from the company’s income and not paid to the taxpayer through dividends or other capital investments.

Transmission line connection to the grid will also cost taxpayers billions of dollars (but is not included in this cost).

The project was announced by then Prime Minister Malcolm Turnbull in March 2017. The original cost estimate was $2 billion and the completion time was four years; electricity would flow in 2021.

Snowy Hydro was jointly owned by the Commonwealth, NSW and Victoria at the time of the announcement. In June 2018, Snowy Hydro became a Commonwealth Company following the taxpayer’s acquisition of shares in NSW ($4.154 billion) and Victoria ($2.077 billion). PGPA Act. The acquisition was based on an agreed-upon valuation of $7.8 billion; this was double Snowy Hydro’s previous valuation of $2.2 billion to $4 billion.

In other words, a year after it was announced that the cost of the project would be 2 billion dollars, the taxpayer paid an additional 6 billion dollars.

Engineering and project due diligence was carried out from March 2017 and by February 2019 the cost had increased from a ‘political’ $2 Billion (again ignoring the company’s purchase price and transmission line costs) to $3.8 Billion to $4.5 Billion; taxpayers received $1.38 Billion through equity investment. The completion date of the project had by then been moved to 2025.

Just six weeks later, a major works contract worth $5.1 billion was signed, $600 million more than the cap price worked for.

Legal costs of Snowy 2.0 snowball – more public money spent to silence more public information

Project reporting

MWM He is trying to access the (now historical) project reports in the Federal Court. To date, this fight for transparency has led to Snowy Hydro reporting requirements to the Government.

It states that the government has been updated on “material differences in the budget and the projected cost for Completion of the Project”. The government is also provided with “earned value costing and program performance metrics.” This happens monthly.

So it is impossible for Shareholder Ministers Chris Bowen MP and Senator Katy Gallagher not to know that the project is headed for meltdown. Unless, of course, Snowy Hydro does not report the cost and schedule variance to the Minister, or the Ministry does not report the cost and schedule variance to the Minister.

MWM He used Freedom of Information laws to request access to both Snowy Hydro’s reports to the Department and the Department’s reports to ministers.

Snowy Hydro and Minister spent more than $600K

We are collectively trying to prevent these reports from being made public.

You’re paying for the project, but you’re not learning (and you’re also paying the legal teams to make sure you don’t).

The Snowy Hydro performance is shrouded in secrecy. Three step trick.

cost explosion

In August 2023, Snowy Hydro announced the project had been ‘reset’, revealing that the total project cost had risen to $12 billion. The ‘reset’ involved a $2.6 billion taxpayer equity injection and a $4.5 billion taxpayer loan. The end date has been shifted to 2028.

The project had until then been the project of the Liberal National Party. Bowen and Gallagher could have gotten the job done then, but they are both professional politicians with no project management experience.

And now we realize what a bad decision it was to continue.

Last week it was reported that the Project has now reached $42 Billion. This is a cost that will ultimately be borne by taxpayers (as the Government cannot spend the money it has committed to other important purposes) and/or energy users in the National Energy Market (Queensland, NSW, ACT, Victoria, SA and Tasmania).

The project is in the meltdown phase.

Profitable 2.0. Will it snow again in the Court of Accounts?

Expensive irresponsibility

There are three very well-paid players who must shoulder the blame for this meltdown.

The first of these is Dennis Barnes, CEO of Snowy Hydro. When he was appointed CEO of Snowy in January 2023, his background and experience made his $2 million compensation package seem appropriate. When he took over the project he made a commitment that Snowy would be transparent.

Barnes is directly in charge of the project, has full visibility into the earned value management reports, and somehow hasn’t kept us updated. The whole point of earned value management reports is to summarize how a project is performing against schedule and budget, so you can instantly see when something is going off track.

Sure, he inherited a flawed project from his predecessor, Paul Broad (he had increased his compensation package from $2 million in FY 2020 to $2.7 million in FY 2022 as the project faltered), but Barnes promised public transparency and then proceeded to betray the public for which Mr. Broad could not be held accountable.

Second, there is Mike Kaiser, secretary of the Department of Climate Change, Energy, Environment and Water, and his predecessor, David Fredericks. They earn high salaries of $920,000 per year and are responsible for oversight; both disappointed public opinion over Snowy Hydro. Fredericks had been there from the early days of the project and was the real accomplice in the disaster, but he managed to get onto the Snowy Hydro Board of Directors.

And finally, there are stakeholder ministers, Energy Minister Chris Bowen and Finance Minister Kathy Gallagher.

He clearly knew about the train accident but did not deign to tell the Parliament.

Resort

Snowy 2.0 is not value for money. The taxpayer could fund many baseload projects for half the money currently wasted. The project is a double failure.

The first failure is the project itself, which will ultimately deliver something, but at the cost of many other projects and services that would be publicly available are unavailable.

The second is the failure of responsibility. In one case, this failure led to a ‘promotion’ within the project itself. Some of the players are supposedly experienced project people. How did they get it so wrong? How does it happen that there is a gap in responsibility?

New entrants may plausibly claim that they have been issued a hospital pass, but they have no excuse for burying the situation under a blanket of secrecy.

We need to have a general disclosure requirement to report all cost and schedule variances for taxpayer-funded projects. This way the public can be the adults in the room.

Fish that can permanently stop Snowy Hydro

This story was first published in Energy Newsletter, original Here.

Rex Patrick is a former South Australian Senator and formerly a submariner in the armed forces. Known as an anti-corruption and transparency warrior, Rex is also known as “Transparency Warrior“