An audit performed to examine the effectiveness of Snowy Hydro Limited’s governance arrangement for early implementation of the Snowy 2.0 pumped storage hydro project found that the company’s governance is effective.
In December 2018, Snowy Hydro Limited made a final investment decision to proceed with Snowy 2.0, a pumped hydro project designed to add 2 GW of on-demand generation and about 350,000 MWh of large-scale storage to the National Electricity Market in Australia.
Snowy 2.0 includes the construction of an underground power station and about 27 km of tunnels within the Kosciuszko National Park in the Snowy Mountains region of New South Wales. This is an expansion to the Snowy Hydro Scheme.
Snowy Hydro Limited is using an engineer, procure and construct (EPC) contract to complete most of the Snowy 2.0 project. The contracted sum under the EPC contract is A$5.11 billion ($3.52 billion). This makes up more than 85% of the total Snowy 2.0 project cost approved by Snowy Hydro Limited.
Snowy Hydro Limited is an unlisted company incorporated under the Corporations Act 2001, and the Commonwealth is Snowy Hydro Limited’s sole shareholder. Snowy Hydro Limited is subject to the Public Governance, Performance and Accountability Act 2013 (PGPA Act) frameworks for Commonwealth companies and government-owned business enterprises (GBE).
The audit was undertaken by the Australian National Audit Office (ANAO) because Snowy Hydro Limited has been provided an equity injection to a subscription cap of A$1.38 billion ($950 million) to proceed with the Snowy 2.0 project. Snowy Hydro Limited is financing the remainder of the project from debt funding. The audit provides assurance to Parliament that Snowy Hydro Limited has appropriate arrangements in place to effectively deliver Snowy 2.0.
The high-level audit criteria adopted were:
Have effective governance frameworks been established to deliver Snowy 2.0?
Are there appropriate arrangements to manage the Snowy 2.0 EPC contract?
Does Snowy Hydro Limited effectively monitor and report on the progress of Snowy 2.0?
ANAO concluded that Snowy Hydro Limited has established effective governance frameworks to deliver Snowy 2.0. These governance frameworks provide the Snowy Hydro Limited Board of Directors with appropriate oversight, including the information required to inform decision-making. The Snowy 2.0 risk management framework supports the ongoing oversight of risks. Procurement and contract management frameworks provide an appropriate basis for Snowy Hydro Limited’s delivery of Snowy 2.0.
In addition, Snowy Hydro Limited has established appropriate arrangements to manage the Snowy 2.0 EPC contract. The EPC contract management arrangements have provided Snowy Hydro Limited with a sound basis for managing the performance of the EPC contractor.
Finally, Snowy Hydro Limited has established appropriate monitoring and reporting arrangements for Snowy 2.0, to the board and the shareholder. The project is exposed to significant risks, in particular those related to transmission network upgrades required for Snowy 2.0. Snowy Hydro Limited manages transmission risk within the existing regulatory framework, which includes engagement with government and industry stakeholders. Snowy Hydro Limited has implemented actions within the areas it can control.
Upon receiving the proposed audit report, Snowy Hydro Limited provided a summary response: “Snowy Hydro welcomes the ANAO’s audit findings that the company’s governance of the early implementation of the project is effective with no recommendations raised. The audit concluded that the company has appropriate arrangements in place to govern, monitor and report on the project, including in relation to managing the contract with our Principal Contractor Future Generation JV. Snowy Hydro would like to acknowledge the highly rigorous yet constructive approach of the ANAO audit team at all times.”
