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NBN contractor Syntheo on its way out Featured

The game is up for troubled NBN contractor Syntheo. 50/50 partner Service Stream is now likely to sell its thalf share to the other partner Lend Lease.

Syntheo will simply cease to exist. Lend Lease has reached a ‘commercial arrangement’ with troubled joint venture partner Service Stream to ‘control the delivery’ of Syntheo’s remaining obligations under its agreements with NBN Co.

Lend Lease has announced to the ASX that it has agreed with NBN Co that Syntheo will complete construction work in progress under the existing contracts for Western Australia and South Australia. No word in the announcement of any involvement from Service Stream. The agreement says that ‘no further work will be instructed under these contracts’, which are scheduled to complete in early 2014. More importantly, Lend Lease will be in charge, not Syntheo.

NBN Co’s outgoing CEO Mike Quigley said the change is not expected to affect the overall cost of the project or the long-term completion of the build by 2021.

At the end of the existing contract the South Australian work will be taken over by SA Power Networks, and the Western Australian work by Downer EDI. NBN Co has said it is “scoping the prospect of bringing on additional construction capacity in the coming months in both states.”

Downer EDI has also been awarded a two year contract to roll out fibre to 300,000 premises in Melbourne and Brisbane, in addition to its existing contract in northern NSW. It has further contracts to connect multi dwelling units such as blocks of flats and office blocks to the NBN in Victoria and NSW (‘MDUs’) and to connect the fibre from the street to individual premises in northern NSW (‘build drops’).

The original Syntheo contract had options for two more years to a total value of $341 million, but under the new agreement with Lend Lease those options will not be exercised by NBN Co. Syntheo has already been kicked off the project in the Northern Territory after running way behind schedule.

Service Stream shares were suspended on 24 June, and only began trading again on Tuesday. They immediately fell to 12c, after closing at 15c before the trading halt. They had been trading as high as 45c in February before news of the troubles leaked out.

The continued extensions to the trading halt were granted because Service Stream asked for more time to “clarify a number of issues within its Fixed Communications segment, including examining the impact on its result of the performance of the Syntheo Joint Venture.” That ‘clarification’ took some time. Service Stream has now issued a statement to the ASX that it will take a $20 million loss from the joint venture for the last financial year. It must also repay NBN Co an unspecified amount for advances on overheads.

“The company anticipates that it will record an EBITDA loss from its fixed communications segment for FY13 in excess of $30m after the allocation of corporate costs,” it said in the ASX statement. “This result includes an EBITDA loss of $20m from the Syntheo Joint Venture before any corporate allocations."

Service Stream also said it will now refinance its bank loans, and was confident it could do so “on reasonable commercial terms. Syntheo’s NBN contracts represented around half of Service Stream’s total revenues, which were $592 million last year. The company borrowed $140 million from ANZ and Westpac in April 2012 to help fund Syntheo’s NBN construction.

The new arrangements almost certainly mean the end of Syntheo, which appears likely to be wound up after the completion of its current contracts. It is hard to see a reason for its continued existence.

The news comes less than a week after Leighton bought partner Siemens out of the Silcar joint venture.

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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire and editor of sister publication CommsWire. He is also founder and Research Director of Connection Research, a market research and analysis firm specialising in the convergence of sustainable, digital and environmental technologies. He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.

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