Question-and-Answer Session
Operator
(Operator Instructions) We will go first to Gabby Kalinsky - Goldman Sachs.
Gabby Kalinsky - Goldman Sachs
This is Gabby filling in for Albert Kabili. Just had a couple of quick questions. First you mentioned in the call that in September you provided us with some estimates on the cost associated with ACP, came into about $2.7 billion with contingencies, and now you are seeing these costs closer to $3.5 billion.
Could you run us through some of the key drivers and provide us with more color behind this big increase? Is it mainly the commodity cost pressures that you are seeing?
And secondly, are you thinking about any kind of contingencies to these estimates? I just want to figure out how big the difference will be when you give us another update in the second quarter?
John Welch
I will take a shot at that and I think you correctly surmise that in the fall we have said $2.3 billion, and that a 15% to 20% contingency was appropriate at that time, and that was really as I had mentioned, was what we were getting back as we were negotiating these contracts for certain parts of the project, and that was reflecting some of that commodity pressure that you talk about.
So, if you look at that, what you are really talking about from that point of $2.7 to $2.8 billion to where we are today is about $700 to $800 million worth of difference there, and let me address what’s driving costs higher in those areas.
More than half of the increase is driven by a significant increase in expected EPC cost both indirect and direct cost. That’s primarily the floor scope of work, as I mentioned earlier back when we did our target estimate last February, that was at a relatively low design completion of the plant.
We are seeing an increase in labor hours, rates, engineering, home office support, construction management and direct fuel costs. And as I said that’s about half of the increase.
We also see anticipated centrifuge machine manufacturing and assembling cost increasing in both direct and indirect cost related to project management, supervision, G&A fees, direct labor hour rates and materials.
And as we mentioned, we have not been able to achieve the full value engineering that we anticipated in that activity. So where we are in coming to that estimate with the supplier is a much more conservative position until we have demonstrated that value engineering.
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