Suez Environnement Settles Legal Spat Over Melbourne Site

Suez Environnement, Europe’s second-biggest water company, resolved a dispute over construction delays at a Melbourne desalination plant and obtained A$3.7 billion ($3.5 billion) to refinance the project.

A “satisfactory resolution” to the legal wrangle will end all outstanding claims, the French utility said today in a statement, without elaborating. The refinancing will result in a “significant reduction in financial costs,” it said.

Development of the AquaSure plant, which removes salt from seawater and can produce 450,000 cubic meters of drinking water a day, was completed at the end of 2012 after a delay of about a year. Suez Environnement and its partners requested compensation from Victoria’s state government after storms and strikes pushed back construction and drove up costs.

The utility, which has a 21 percent stake in the AquaSure group, had set aside 58 million euros ($78 million) by the end of last year to cover the cost overruns. All remaining provisions will now be “reversed,” it said in today’s filing.

Suez Environnement, based outside Paris, rose as much as 1.4 percent to 12.63 euros in the city, the highest intraday price in four weeks. The stock was at 12.50 euros as of 3:09 p.m. local time.

The resolution announced today may push the utility’s earnings before interest, taxes, depreciation and amortization this year above its target of 2.55 billion euros to reach 2.58 billion euros, Julien Desmaretz, an analyst at Bryan, Garnier & Co., wrote in a note, keeping his neutral rating on the stock.

The AquaSure facility began a 27-year operating contract in December, which Suez Environnement expects to generate 800 million euros in sales over the period. The desalination plant, Australia’s largest, is located in Wonthaggi on the Bass coast near Melbourne. Suez Environnement is Europe’s biggest water company after Veolia Environnement.

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