The Nyrstar smelter dominates the skyline of Port Pirie.
Source: News Limited
The Nyrstar lead smelter at Port Pirie. Picture: James Elsby
Source: News Corp Australia
THE upgrade of the Port Pirie lead smelter — a project the State Government underwrote as part of a deal to return to power — is forecast to exceed budget by more than $200 million.
An internal report obtained by The Advertiser forecasts the total cost of the upgrade to reach up to $750 million — considerably more than the $514 million budgeted for the plant’s overhaul.
In May, as part of its successful bid to secure the support of Member for Frome Geoff Brock and form government, Labor agreed to underwrite a $291 million third-party funding guarantee for the project.
The deal, sealed by Premier Jay Weatherill over a Hawaiian pizza in Port Pirie a week after last year’s State election, secured government for Labor and was seen as a political masterstroke at the time.
But it means taxpayers have effectively gone guarantor for the plant upgrade and the cost blowout increases the risk the Government will have to bail out Nyrstar, which owns the smelter.
The report shows that management at Nyrstar was warned last July that significantly higher costs linked mainly to major design changes presented “a serious risk to the project”.
It says the budget faces “very significant stresses” and figures show it has already blown out by $65 million. It also shows that a pool of contingency funds worth $87 million has already been allocated.
The report recommends that those in charge of the project work immediately to reduce its scope to ensure it comes back within budget.
The upgrade will both ensure the ongoing viability of the Port Pirie smelter as an advanced metal recovery and refining facility, and solve the lead pollution problems which have dogged the ageing operation.
Treasurer Tom Koutsantonis yesterday said the government was receiving comprehensive and detailed updates about the project from the Port Pirie Redevelopment Project steering committee chaired by Bruce Carter.
“Nyrstar has assured the committee and its shareholders that the project is on time and on budget,’’ Mr Koutsantonis said.
Molten metal is poured at the Nyrstar smelter. Picture: Nyrstar
Source: Supplied
“The committee has no reason to doubt those assurances.
“Demolition and piling work is well underway at the Port Pirie site and development approvals are progressing through the appropriate channels. The redevelopment project is funded by Nyrstar with the government providing a guarantee.
“Without the support of the local member, the State Government and the Port Pirie community, this project would not have gone ahead. Instead of a multimillion-dollar reinvestment we would have seen the decommissioning of the plant and the loss of thousands of jobs in Port Pirie.’’
The Treasurer also gave no indication of problems with the Nyrstar project on Thursday when asked in Parliament for an overview by Member for Napier Jon Gee.
Last month, Nyrstar senior vice-president Michael Morely said the $514 million project was on budget and on track, despite an internal report issued a day before his statement suggesting the forecast cost, including design changes which had either been committed to or were highly likely, was already at $579 million.
“Overall, work is progressing on budget and on schedule for commissioning as previously guided in 2016,” Mr Morely said.
“We’re very happy with how progress is ramping up.”
About $300 million would be spent this year on the project, the company said. A monthly progress report from January, obtained by The Advertiser, shows $240 million had already been committed to the project.
“We’ve made significant progress,” Mr Morley said. “We’ve now completed approximately 75 per cent of the engineering work with the rest to be completed progressively over the first half of this year.
“We’ve also awarded a significant number of key supply contracts.”
A change management summary in the January progress report, released on February 6, shows additional planned changes would cost at least another $57 million and up to $132 million, and a number of other changes under preparation would cost a further $15 million to $40 million.
The forecasting suggests the Nyrstar lead smelter upgrade could reach a total cost of $750 million.
The Advertiser understands there have been major changes in the original design of the plant and a key project planning stage, a Front End Engineering and Design study phase, was skipped, meaning the cost changes were not evident until they were being implemented. The most noticeable difference in the plant design will be the increased height of the waste heat boiler furnace from 53m to more than 80m.
The project is 20 per cent complete but key elements are forecast as being up to 11 weeks behind schedule. The plant upgrade could be completed and operational by May 2016, the report says.
Nyrstar smelter Labor backed to win power facing $200m blowout
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