Firm part-owned by Russian oligarch remains part of HS2 consortium, Costain boss confirms

Costain boss Alex Vaughan has said Strabag remains part of a consortium carrying out £2bn worth of tunnelling contracts near London on the HS2 railway.

Last week Building revealed the Austrian civil engineer, part of the SCS joint venture which also includes Costain and Skanska, is 28% owned by Rasperia Trading Ltd, a business itself owned by Russian industrialist Oleg Deripaska.

The industrialist is on a list of oligarchs seen as close to Russia’s president Vladimir Putin, and which was compiled by Russian dissident Alexei Navalny and read out by Liberal Democrat MP Layla Moran in parliament last month.

Vaughan told Building: “We are working with HS2 and have made them aware of the situation. We’re working with them and the UK government to find a solution.”

Deripaska has not been sanctioned by the UK government following Russia’s decision to invade Ukraine last month.

But news of his involvement with Strabag has thrown the spotlight on the tunneller, which had a turnover of £12.2bn and a pre-tax profit of £507m in 2020.

Vaughan added: “Strabag is still part of the consortium, there are no plans at the moment to stand them down. HS2 are working with us on it. We’ve not been asked to take any action at this stage.”

Costain does not work in Ukraine or Russia, which has seen a number of firms in the construction sector pull out of the country in recent days, but Vaughan said the war in Ukraine would see energy costs go up meaning the price of materials such as concrete and steel will rise too.

He said in the future firms would need to design out materials with higher costs, adding he was not planning to take a hardline stance with clients about passing on rising project costs caused by increased energy prices.

“We’re sitting down more collaboratively and working out how we’re going to deliver best value solutions, how we change the delivery and phasing. We need to drive innovation and new ideas to unlock savings elsewhere.”

Vaughan said Costain, which is looking for a new chairman after current chair Paul Golby said he would be stepping down in the next 12 months after six years in the role, had finally drawn a line under two problem contracts which have dogged the firm for more than five years.

The A465 Heads of the Valley road, which opened at the end of last year, was won for the Welsh government in 2015, while a year later it won a scheme to build a gas compressor complex in Cambridgeshire for National Grid.

The firm settled its dispute with the Welsh government last year and last month paid out more than £43m to the utility giant to close off that job. “They have dragged on a long time but they’re behind us now,” Vaughan added.

Costain ended last year with a net cash position of £120m with an order book of £3.4bn, down from £4.3bn. Its preferred bidder order book stood at £900m from £1.2bn in 2020.

Group revenue last year was up 9% to £1.1bn with the firm narrowing pre-tax losses to £13.3m from £96m last time. Adjusted operating profit, before the impact of provisions, was up to £30m from £18m. Analysts are expecting operating profit this year to be around £35m on revenue flat at £1.1bn.