Labour costs put big projects 'at risk'
THE head of one of the world's largest engineering companies, KBR, has for the second time in a year railed against the cost of labour in Australia and its destructive impact on setting up large projects, claiming the cost of employing a worker in Australia is double that of an American.
KBR chairman and chief executive William Utt said the future of large Australian energy projects in particular, such as Woodside Petroleum's $40 billion-plus Browse liquefied natural gas project and Gorgon, would rest heavily on these ballooning labour costs, with Australia now at a point of "reset".
"In terms of what we see changed in the last six months, I think we've seen a recognition across the space in Australia that the cost to build an LNG project has gotten very expensive," Mr Utt told American analysts during KBR's earnings update last week.
"And I think Australia is at a point of reset."
Last year, Mr Utt warned US investors of a "very high cost situation in Australia" when it came to liquefied natural gas projects and although Australia was blessed with natural resources, it faced a number of cost disadvantages that made other regions, such as east Africa, more attractive for doing business.
Last week he pushed home that argument, saying Australian workers cost double that of their US peers.
"As we look at the US market, we can get craft labour all-in at about $US50 an hour nominally, and that includes the burdens and benefits. And if you look at Australia, that cost is about $US108 an hour.
"So it's more than double what we're seeing for labor. And then when you factor an 85 per cent productivity inefficiency in Australia, the cost of building things gets very, very expensive very quickly relative to the US and relative to other areas."
KBR has about 27,000 employees working in more than 70 countries across five continents. One of the world's largest engineering, procurement and construction companies, its directors include the former chief of Telstra, Frank Blount.
The company has been involved in the giant North West Shelf project, Gorgon, and is seeking to work on Browse, along with further work on the $14.9 billion Pluto project.
But new project work in Australia would be heavily influenced by labour costs and productivity.
"So Australia, I think they're going to be really thoughtful about new projects going forward and you really have to find existing sites, expansions where you've got a very good and productive reservoir to go forward," Mr Utt said.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free