Snowy Hydro uh-oh: The infrastructure upstart with sharp elbows and sharper pricing

A little over a month ago, Federal Energy Minister Chris Bowen confirmed that Australia’s ambitious renewable energy infrastructure project – the Snowy 2.0 hydro energy – was woefully behind schedule and possibly as much as $2 billion over budget.

“There’s a claim against Snowy Hydro (Ltd, the government-owned entity commissioning the project),” Bowen told Sky News. “It hasn’t been finalised… We’re not about to commit to a $2 billion claim just like that, we will work to minimise the cost blowout.”

The claim was made by the consortium that won the tender to build the project, Future Generation JV, and followed concerns about the financial strength of the engineering firm working as part of the consortium, Perth-based, South African owned Clough, and whether the project was a white elephant.

The delays and cost blowout was another sign of how supply chain constraints and a tight labour market have left their mark on the industry, curbing the plans of state and the federal governments and pushing some builders to the brink.

But it was also another bad headline for the main shareholder in the Future Generation JV – Italy’s Webuild.

Webuild, which was until 2020 known as Salini Impregilo, has faced a series of cost blowouts on its Australian projects and allegations from two unions – the Electrical Trades Union and the construction arm of the CFMEU – of having a terrible safety record in Australia.

It also has led to questions about whether Webuild is bidding too low on projects and not building in enough of a buffer to absorb additional costs caused by global economic headwinds, or unexpected safety issues. Underbidding on government projects is not illegal in Australia, but the practice can cause headaches for state and federal governments which often, and as expected in the case of Snowy Hydro 2.0, have to pick up some of the additional costs incurred over the life of the project.

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Concerns about Webuild underbidding – something the company denies – could have a significant impact on taxpayers given the group has picked up several major projects in the past five years.

Along with its work on Snowy Hydro 2.0, Webuild is also part of the consortium that has been named the preferred partner for the contract to build the Gowrie-Kagaru section of the federal government’s Inland Rail link. It has also won the contract to deliver the primary package for the North East Link road project in Victoria. It has also been a part of consortiums building Forrestfield Airport Link in Perth (which opens on October 9) and the Sydney Metro Northwest Skytrain Bridge.

But the company’s growth in this market and its sharp pricing on bids to win contracts hasn’t been without complaint.

Industry sources who declined to be named because they are either working on projects involving the company or have business relationships with the group say there have been cost blowouts and other problems, notably serious safety issues, across a range of its Australian projects. They say the cost blowout at Snowy Hydro 2.0 is reflective of the company’s strategy to bid below its rivals to win contracts, even when those estimates seem overly rosy.

A spokesman for Webuild told this masthead this week the project was highly complex and involved the consortium doing things that have never been done before, such as excavating a chamber nearly a kilometre underground to house the turbines.

“Webuild is working closely with Snowy Hydro and the joint-venture partners (its subsidiary Lane and Clough) to overcome challenges that are typical of complex engineering projects.”

“The conditions have been made even more challenging by external factors such as the 2019-2020 bushfires in the Snowy Mountains, the COVID pandemic and subsequent lockdown, the war in Ukraine, and the effects on supply chains.”

Another industry source who was aware of issues on the project who declined to be named for business reasons said Webuild would be in for serious costs if Clough was unable to complete the project.

“If Clough goes under they [Webuild] are f—ed. Replacing a builder will add significant costs to the project, much of which the government would expect they would pick up.”

But the bad news about Snowy Hydro isn’t the only controversy the company has faced recently.

In Italy, the group’s chief executive, Pietro Salini, has been battling criminal charges for bid rigging over the awarding of contracts to a Webuild-led consortium for the €7 billion ($10.7 billion) rail link between Genoa and Milan.

Salini, who was facing a three-and-a-half year sentence if found guilty, was acquitted last week along with 20 other men charged as part of the same case.

Seven other people charged as part of the investigation were found guilty of receiving money or services – via escorts – to rig the bidding to favour the Webuild-led consortium and working on the project and companies linked to a family member of Salini.

Salini and Webuild had always claimed the charges were inappropriately laid.

“During the only telephone conversation that is at the basis of my indictment, I asked [after the closing of the tender] for the maximum attention be given to the industrial capabilities, the financial solvency, and the reliability of the entrusted companies in the development of the works,” Salini says.

“This was to be done no matter who they might be or who might be their owners – including members of my family – so as to guarantee, once again, the safety of the work sites and the workers, the success of the project and its usefulness to the community.”

The allegations have had no impact on Webuild’s abilities to win the contracts for huge projects in Italy, Australia and North America.

Webuild is a building behemoth in Italy, where it is listed on the Milan stock exchange and Italy’s Cassa Depositi e Prestiti Equity – the country’s nation-building fund similar to Australia’s Future Fund – holds a 16.67 per cent stake.

The group has also been the beneficiary and the key proponent of a national project to effectively consolidate the industry to create a globally competitive infrastructure group that would benefit the Italian economy and people by providing strong revenue streams for the country’s pension funds and its sovereign wealth investment arm.

This financial backing and its unbridled ability to grow through acquisition in its home country has helped Webuild grow into an infrastructure powerhouse with a construction backlog of €47.2 billion, of which €38 billion was construction, according to its most recent half-year results in June.

This includes major projects around the world including a high-speed railway between Dallas and Houston, America’s first project of that kind, and Grand Paris Express (Europe’s biggest rail and metro project).

In Australia, Webuild has been growing quickly. The group’s projects in Australia contributed 13 per cent of the group’s construction backlog for the first half, compared with 1 per cent in 2015.

The spokesman for Webuild says that Australia is among the group’s biggest core markets in terms of the combined value of future projects that are of interest to the company.

“The federal and state governments have a clear investment strategy combined with transparency and engagement with the market,” the spokesman said.

“There is also political stability and a skilled workforce – conditions that are essential to build large, civil infrastructure projects, which take many years to complete.”

While its contract haul in recent years has ramped up, the group has a long history in Australia. The group helped, via its predecessor entities, to build Melbourne’s City Loop in the 1970s and worked on the construction of Queensland’s Wivenhoe Dam in the 1980s.

Webuild is also looking to expand its business in this country, particularly its engineering capabilities. It has also been named as a potential buyer of Brookfield’s Multiplex business and missed out on buying Probuild’s engineering business after it was outbid by Roberts Co.

But its growth and aspirations have been beset with problems. The Sydney Morning Herald revealed in October 2016 that one of the 100-odd spans that made up the Skytrain section of the Northwest rail line had buckled because the contractor had used an inappropriate construction method.

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But it is the group’s Airport Link project in Perth that has garnered the most bad press, with dozens of newspaper and television reports on the project, which has been beset with delays and is opening this weekend two years after it was promised to come online.

According to a report seen by The Age and Sydney Morning Herald, the Airport Link was initially budgeted at $1.9 billion but awarded to the Webuild-NRW joint venture after they put in a knockdown bid of $1.3 billion – a move that led to its critics in the union movement suggesting the group was engaged in strategic underbidding.

The speculation of underbidding has been fuelled by a range of serious safety issues at the site including two separate incidents that led to the group being fined $350,000 for failing to provide a safe working environment on the site.

This included a horrific onsite accident where a rubber hose with compressed air detached from a pipe and struck a young worker, breaking every bone in his face. Another worker on the site suffered serious electrical burns to 38 per ent of his body in 2017 after a crane came too close to an overhead powerline.

The company has also reported two other later incidents at the site to WA authorities – the crushing of a worker’s arm by one of the tunnell boring machines in December 2018 and a June 2019 incident that left another worker with chemical burns.

Union sources who asked not to be named for legal reasons described Webuild as having “the worst” safety record in Australia. “They make Grocon look good,” the source said. The CFMEU’s (particularly militant) WA branch has also previously described the company as the worst builder to ever operate in Western Australia.

The Webuild spokesman said it maintained a positive relationship with all its partners and stakeholders, including the CFMEU.

“The successful completion of the Forrestfield-Airport Link is proof of the positive and proactive working relationships we develop on all our projects,” the spokesman said.

“Every civil infrastructure project is different, each with its own challenges. That is what engineers do: they take on a task and find solutions.”