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UFB cost blowout hits Enable Networks

[caption id="attachment_2777" align="aligncenter" width="700"]Christchurch-City-Holdings-Limited Enable Networks relationship with Christchurch City Holdings - click for larger version.[/caption]

Enable Networks faces a $64 million cost blowout as it struggles to meet Ultrafast Broadband deadlines.

The blowout shows up in a footnote to the Christchurch City Holdings Limited 2013 annual report. Under the heading Capital Commitments on page 36, the report notes:

As at 30 June 2013 the estimated cost of the UFB network including connections, central office construction and other components of the network, to December 2021 was $401m (2012: $337m).

The costs are against Enable Services Limited, which is contracted to build the network on behalf of Enable Networks.

Enable Networks is the Local Fibre Company selected to build the Ultrafast Broadband network in Christchurch, Rolleston and Rangiora.

Christchurch City Networks Limited and Crown Fibre Holdings are partners in the LFC. CCNL is is a subsidiary of Christchurch City Holdings Limited which is wholly-owned by the Christchurch City Council.

Further problems facing Enable show up in the glossy CCHL annual review. Most of the document is written jaunty, spin-doctored prose. However on page 11, it says:

The company’s biggest challenge in the past year has been deploying the network at the required rate against its agreed plan with Enable Networks Ltd and Crown Fibre Holdings Ltd. The civil construction labour market in Christchurch remains very tight – meaning Enable’s contractor, Transfield Services Ltd, has faced enormous challenges up-weighting civil construction resources in a timely manner.

Things don’t look quite so jolly when the subject is dealt with in the annual report.

Page 37 of the CCHL  annual report says Enable Services is currently in dispute over terms and conditions with Transfield Holdings. The two have had a rocky relationship, in November 1012 The Dominion Post reported problems between the two companies which says the pair may have overestimated the amount of existing infrastructure that could be re-used for the UFB project.

At the time of its appointment, Transfield valued the Enable Networks contract at $260 million.

The annual report says:

The Network Infrastructure Project Agreement signed between Enable Services Ltd, Enable Networks Ltd, Crown Fibre Holdings Ltd and CCHL provides that, if Enable Services Ltd fails to achieve any milestone to which liquidated damages (LDs) apply on or before the applicable milestone Date, Enable Networks Ltd will be entitled to claim the LDs applicable to that milestone for each day (or part thereof) that any such milestone is not met.

It is clear that LDs are potentially payable to Enable Networks Ltd, but to date this demand for LDs payment has not been made. Legal advice has confirmed that Transfield Services (NZ) Ltd would likely be subject to a general damages claim regardless of whether or not the LDs provisions in the TSL contract are enforceable. However, the timing and quantum of this would be subject to a legal process.

Crown Fibre Holdings announced Enable Networks as a partner in May 2011 at the same time as Telecom NZ, now Chorus, was selected as partner for 24 areas including Auckland and Wellington. At the announcement, Enable was described as a special case because of the recent earthquakes in Christchurch. Northpower and Ultrafast Fibre were appointed as LFCs for seven of the 33 candidate areas in December 2010.

In 2011 Crown Fibre Holdings said the Christchurch LFC partnership “is undertaking an initial 10 year spend of around $440M for UFB deployment in Canterbury”.

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