Downer?s ?Waratah? contract making loss, Wannop resigns

Staff WriterJune 9, 2010, 12:00 amJune 9, 2010

Downer EDI stunned the market last week, with the news that its multibillion dollar Waratah train project is in a loss making position, and the shock resignation of Guy Wannop, chief executive of the companyâs rail division. By Jennifer PerryDowner EDI announced a $190m cost blowout in its $1.9bn Waratah train project on June 1st, along with $70m of other write-downs.The company has a 49% stake in the Reliance Rail consortium that is building 78 eight-car passenger trains for Sydney’s CityRail network. The New South Wales Rollingstock Public Private Partnership (PPP) is the largest PPP for rollingstock in Australia to date.The project is at 30% completion point, but is not currently profitable, chief executive Geoff Knox reportedly said.“… It is evident from the detailed review undertaken that the tendered estimates do not sufficiently provide for the full extent of the design development, review and approval processes and the consequential flow on cost and time impacts being incurred during the procurement and manufacturing phases of the contract,” Downer said in a statement.Key elements that account for the projected cost overruns include: &bull&nbspDesign development and approval &bull&nbspMaterial supply &bull&nbspTime-related project overhead costs and &bull&nbspProject delay costs.Knox reportedly referred to “19,000 engineering comments” – repeated design changes made&nbspby NSW Government-owned passenger operator RailCorp – in relation to the Waratah train sets.The first train set remains on target to be completed by late 2010 and the subsequent train sets are also on target to be delivered over 2013, Downer said.“The Pre-production Test Vehicle is performing well and was put on the tracks for dynamic testing in record time and its current performance augurs well for the safe and reliable performance of the Waratah fleet,” it said. The company has “mutually agreed” with Guy Wannop that he leave the business effective July 1st, with Peter Borden, group deputy chief operating officer, appointed acting chief executive of Downer Edi Rail, effective immediately.Knox reportedly said that it had “become apparent” during the review of the project that Wannop held a more “positive view” on the delivery of the trains than the company’s management, board and project review team who “did not share the views of Mr Wannop”.Knox reportedly said that he did not believe Downer’s experiences in NSW would undermine its bids for rail projects in other states. The company ran into problems with the last generation of RailCorp’s passenger trains in Sydney, the Millenium trains, which were delivered late and then abruptly pulled out of service during peak times because of a series of technical faults.Downers shares fell 27% on June 1st, reportedly wiping $564m off its market capitalisation.&nbsp