$200k per diem daily punitives?

Clough baulks at $200,000-a-day BassGas claim

MICHAEL WEIR

Engineering group Clough is facing a liquidated damages claim of $200,000 a day as the bitter dispute with energy giant Origin Energy over delays to the $400 million BassGas project in Victoria degenerates into a public blame game.

Clough's potential liability surfaced as Origin rejected suggestions by Clough last week that the gas for the development was substandard and had led to a blowout in the schedule.

Origin said analysis of the gas from the Yolla field, the key feed for the project, showed it was "within contractual specifications" despite traces of mercury.

"This eventuality was anticipated in the contractual arrangements with Clough and consequently the onshore plant was designed with the flexibility to deal with this issue," Origin said. "This has not impacted the delays experienced by Clough and is not expected to have any significant economic impact on the performance of the BassGas project."

Clough, which is contracted to build all offshore infrastructure as well as an onshore gas plant at Lang Lang, revealed on Friday it had been hit with liquidated damages. But chief executive David Singleton disputed the claim, saying in a statement Origin is largely at fault because it had not completed offshore drilling to provide gas into the development.

But Origin said yesterday drilling of the first development well had been finished on August 6 and it was in a position to deliver gas to the offshore platform from August 10.

"However, construction and pre-commissioning of the platform and the onshore processing facility has been delayed and it is this delay that is the subject of the liquidated damages claim in accordance with the terms and conditions of the construction contract," Origin said.

Origin investor relations manager Angus Guthrie said yesterday the project was originally supposed to be finished by June but was unlikely to be up and running before November.

"You do not move to this position lightly and you can imagine we have worked significantly with Clough to get around these problems but ultimately you get to a point that you feel the letter of the law of the contract needs to be invoked and that is the position we have now got to," he said.

Origin also said the project had been delayed by productivity issues and weather delays, which were both the responsibility of Clough.

After making its statement on Friday Clough refused to elaborate yesterday, but a spokesman said chairman Jock Clough was sending a letter to Origin chairman Kevin McCann, asking him to "substantiate some of the points in their release to the Australian Stock Exchange". The letter would not be made public, he said.

South African group Murray & Roberts, which has agreed to buy out the Clough family's controlling 54 per cent shareholding for about $90 million over the next few years, said yesterday it was aware of the BassGas dispute.

Managing director Brian Bruce told WestBusiness he thought Clough would be able to mitigate "a lot, if not all of the liquidated damages".

"The liquidated damages issue is a concern but we don't think it is a one-way story," he said.

Mr Bruce said the BassGas dispute would not disrupt Murray & Roberts' planned equity tie-up with Clough.

"We made the decision at the end of phase two (due diligence) to proceed knowing in fact what the potential downside was," he said.

"We've been in this contracting game for 100 years ourselves and we know that these types of problems arise on projects.

"The key thing is to try to get the parties to find a resolution."

Development of the BassGas project was considered a priority for Victoria in the wake of the Longford gas explosion in 1999.

BassGas, owned 37.5 per cent by Origin with Australian Worldwide Exploration (30 per cent), CalEnergy (20 per cent), and Wandoo Petroleum (12.5 per cent) holding the remainder, would provide a second source of supply independent of BHP-Esso's Bass Strait fields.

Clough shares closed 2¢ lower at 52¢ yesterday while Origin eased 2¢ to $6.06.