The ongoing strike by workers at Thai Oil’s facility has garnered significant attention in both local and global news outlets over the past few weeks. The dispute stems from a lack of financial support from contractors, some of which are prestigious international firms. This labor unrest poses a serious threat to Thai Oil’s timelines for the launch of its Clean Fuel Project and could have far-reaching implications on Thailand’s energy stability.
Thai Oil published a statement to address the on-going issue and further clarify about the situation on October 30, 2024.
Thai Oil wrote that back in 2021, the company had approved the amendment of the EPC contract that included an additional budget of $550 million. Meanwhile, the EPC contract also includes performance bonds made by UJV amounting to 10% of the total contract value as security to secure its performance of the EPC contract and as security for potential damages.
Additionally, Thai Oil stated that the gathering affected its operations in that certain area, but did not cause an indefinite postponement of the CFP project’s commencement of commercial operation as reported by some media.
Below is the full statement from Thai Oil disclosed to the Stock Exchange of Thailand.
In relation to the case of the Federation of Subcontractors of TOP Refinery, CFP Project, Sriracha, which consists of subcontractors of the Unincorporated Joint Venture of Samsung E&A (Thailand) Co., Ltd. (“Samsung”), Petrofac South East Asia Pte. Ltd. (“Petrofac”), and Saipem Singapore Pte. Ltd. (“Saipem”) (collectively, the “UJV – Samsung, Petrofac, and Saipem”), has demanded overdue payments from the UJV – Samsung, Petrofac, and Saipem, which is the main contractor for the Clean Fuel Project (CFP) for Thai Oil Public Company Limited (“the Company”).
The Company wishes to clarify that it has duly and fully paid the UJV – Samsung, Petrofac and Saipem, which is the main contractor for the construction of the Clean Fuel Project (CFP), in accordance with the terms of the Engineering, Procurement, and Construction (EPC) contract for the Clean Fuel Project (CFP), executed between the Company and the Consortium of PSS Netherlands B.V. (Offshore Contractor) and the UJV – Samsung, Petrofac and Saipem (Onshore Contractor).
However, the UJV – Samsung, Petrofac, and Saipem have not paid overdue amounts to the subcontractors, when such obligation lies with the UJV – Samsung, Petrofac, and Saipem as per the subcontracts. Nonetheless, the Company is well aware of the Federation’s grievances due to the non-payment by the UJV – Samsung, Petrofac, and Saipem, and has consistently been urging the UJV – Samsung, Petrofac, and Saipem to settle the overdue payments with the subcontractors.
The Company has consistently sent letters to UJV – Samsung, Petrofac, and Saipem, as well as their parent companies, which issued parent company guarantees to secure the performance of the EPC contractual obligations, to inquire about the measures to address the unpaid subcontractors and plans for making the overdue payments. In case that UJV – Samsung, Petrofac, and Saipem was experiencing liquidity issues preventing them from making the outstanding payments, their parent companies should provide financial assistance to the UJV – Samsung, Petrofac, and Saipem. The UJV – Samsung, Petrofac and Saipem has assured the Company that it will be fulfilling its payment obligations to the subcontractors in accordance with the terms of the relevant subcontracts.
Furthermore, the UJV – Samsung, Petrofac and Saipem also informed the Company that the Company should not intervene in matters relating to the subcontractors, as the Company is not a party to the subcontracts. Therefore, the obligation to pay the overdue amounts to the subcontractors in accordance with the subcontractors rests directly with the UJV – Samsung, Petrofac and Saipem.
The Company reviewed the qualifications of the bidders using a transparent procurement process for the CFP project, in line with corporate governance principles and with clear, standardized criteria, e.g., analysis of the bidders’ financial statements, financial ratios, and experiences. In addition to the evaluation of bidder qualifications, the Company provided comprehensive project information and detailed scope requirements to the bidders, as well as opportunities for each bidder to conduct thorough site inspections to enable them to make assessments of their work plan and investment costs prior to the bid submissions. Each bidder is reputable and specialized, possessing extensive experience in managing large-scale projects.
The bidding was for a lumpsum contract, whereby the bidders are believed to propose prices which would ensure the successful completion of the Clean Fuel Project (CFP). Through this selection process, the successful bidders were 1. Petrofac International (UAE) LLC, 2. Samsung Engineering Co., Ltd., and 3. Saipem S.P.A., and the EPC contract was awarded in 2018 to the Consortium, consisting of PSS Netherlands B.V. (Offshore Contractor) and the UJV – Samsung, Petrofac, and Saipem (Onshore Contractor).
In entering into the EPC contract, the parent companies of the Consortium (PSS Netherlands B.V. and the UJV – Samsung, Petrofac, and Saipem (Onshore Contractor)), including 1. Petrofac Limited, 2. Samsung E&A Co., Ltd. (formerly, Samsung Engineering Co., Ltd.), and 3. Saipem S.P.A. (“Parent Companies”), provided parent company guarantees to secure the Consortium’s compliance with the EPC contract.
Additionally, the Consortium provided performance bonds amounting to 10% of the total contract value as security to secure its performance of the EPC contract and as security for potential damages. Furthermore, the EPC contract was carefully considered and specified key terms to prevent issues which may arise during project execution. The Company considered and included several key terms in the EPC contract, such as procedures for testing and project delivery, project quality assurances, terms concerning liability, and rights to claim damages. In the event of a breach or termination of the EPC contract, the Company has the right to claim for damages incurred in accordance with the terms specified in the EPC contract.
Consequently, assertions made by the media indicating that Saipem, as a contracting party, may withdraw from the EPC contract are inaccurate. The Company hereby reaffirms its commitment to strictly perform and reserve its rights under the EPC contract.
However, following the commencement of the construction of the CFP project, the global COVID-19 pandemic emerged in 2019, significantly impacting the management and construction efforts of the UJV – Samsung, Petrofac, and Saipem from 2020 to 2022. In 2021, the UJV – Samsung, Petrofac, and Saipem initiated negotiations with the Company regarding an increased budget under the EPC contract and an extension of time for delivery of the Clean Fuel Project (CFP). The Company carefully considered these requests in accordance with the terms of the EPC contract and in the best interest of the Company and approved the amendment of the EPC contract that included an additional budget of $550 million.
Regarding the Federation’s gathering in front of the Company’s Refinery in Sriracha, Chonburi on 18 October 2024 which affected the Company’s operations in that area, but did not cause an indefinite postponement of the CFP project’s commencement of commercial operation as reported by some media, the Company is currently assessing the impact of this incident and is taking prompt measures to mitigate potential impacts on the Clean Fuel Project (CFP), with the interests of shareholders being a primary concern. The Company will ensure that shareholders are kept informed, as appropriate, of any updates relating to the situation.
The Company reaffirms its commitment to conducting business with adherence to corporate governance principles and aims to complete the Clean Fuel Project (CFP) as soon as possible, emphasizing the importance of all stakeholders and acknowledging the challenges faced by the subcontractors. The Company will exert its full efforts to encourage the UJV – Samsung, Petrofac, and Saipem to promptly settle outstanding payments with each subcontractor.
About CFP
The CFP is an oil refinery upgrading and expansion project using advanced technology (Complex Refinery) to enhance its oil refining competitiveness and country energy security. This is a large-scale investment requiring substantial capital expenditure. Therefore, the Company places significant importance on conducting transparently, especially regarding procurement processes, ensuring clarity at every step and careful screening processes. Moreover, the Company emphasizes internal observers by appointing independent auditors who apply the Integrity Pact framework, allowing them to oversee all steps of the bidding process independently and report performance results, including their observations directly to the Board of Directors.
