Page last updated at 15:18 GMT, Friday, 6 March 2009

True cost of power station delay

Neil Gallacher
BBC Business & Industry Correspondent, South West

Langage power station
Langage will help fill an energy gap as older power stations wind down

It is Britain's biggest new power station for five years, and someone somewhere in the chain of contractors has made a desperately expensive mistake.

Pipe work has gone wrong deep within the complex, and is having to be replaced.

The local MPs been told that the metal was found to have corroded.

No details of the problem have been released, but clearly it is enough to mean up to a year's delay in completion of the biggest construction project the region has seen for a decade.

When I rang to let them know we were going to report what had happened, Centrica and their main contractor Alstom were careful to sing from the same hymn sheet.

Each gave me a statement containing the same sentence: "As is the nature of large, complex projects, revisions of the program are not unusual."

It's a given that behind the scenes there'll be a huge amount of wrangling going on.

Centrica have told analysts that they have a fixed price contract for Langage.

In other words, the risk of something going wrong isn't borne by them.

In fact as far as they are concerned, this project is quite simply on budget.

Huge bill

That leaves one of the businesses further down the chain picking up the tab, not necessarily Alstom themselves.

Whoever ends up taking this on the chin, the bill will be huge.

Even before this delay was factored in, Langage power station was looking like the second most costly thing ever built in the region, with an official price tab of 400m.

And what was meant to take about two years is now going to take about three.

And for Centrica themselves, there remains the opportunity cost of having to sit back and lose probably nine or 12 months of earnings from electricity generation.

At a recent conference call with city analysts, Centrica's Group Finance Director Nick Luff admitted that the performance of their power generation business would be affected by the delay at Langage.

The company would not discuss whether the fixed-price arrangement shielded them in any way from this impact.

Of course both Centrica and Alstom are right about revisions to the programme, as we have often been reminded.

What would the most expensive thing ever built in the region be?

Probably the Trident submarine docks at Devonport.

The original government estimate of costs on that project was 300-350m.

It ended up costing around 1,000m.

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