I would be asking the dealer to give you an estimate in writing (they may be reluctant to do this bit) based on a timing chain/tensioner failure.
The reason they want to open it up is to see how much damage has been done and Skoda Aus will need a full diagnosis before any warranty/goodwill claim. However you'll be paying $1,500 for the diagnosis and basically committing to going with the dealer as they won't release the car back to you until you pay their bill regardless.
I know it's a bit of a catch 22 situation, however you really need to get a best/worse case from the dealer in terms of total out of pocket costs and yes we all know the dealer is going to have to go back to Skoda for goodwill repairs. And yes every case is going to be slightly different (yada yada) but they should be able to give you an estimate based on previous (similar) repairs.
If they can't do that then I'd be taking it elsewhere. Obviously other shops are able to give you a price estimate (or even fixed quote) based on replacing the engine. At least you know what you're up for before you start.
Also I would be talking to a VW specialist (independent) workshop. More than likely they have done a few of these already and should be able to give you a pretty accurate price based on past experience. I wouldn't be trusting a shop that gives you a low quote unless they have done these rebuilds before. It's a recipe for a spiraling repair bill (as more and more things are found).
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