A dispute between subcontractors and UJV joint ventures, including Samsung E&A (Thailand) Co. Ltd., Petrofac South East Asia Pte. Ltd., and Saipem Singapore Pte. Ltd., a prime contractor for the THB 160 billion clean fuel project (CFP) owned by Thai Oil Public Company Limited (SET: TOP), has resulted in an extended strike halting construction progress.
According to reports citing sources closed to PTT Public Company Limited (SET: PTT), Kongkrapan Intarajang, Director of PTT which holds a majority of TOP shares, is deeply concerned with the dispute and has established a special committee to investigate the issue and monitor the development of the CFP project in order to address the situation. The members of the committee include Bectel, Wood Group, and an experienced former executive from PTT.
Canceling the UJV Deal
The solutions that are expected to conclude shortly are as follows:
- Cancellation of the deal with UJV group, with TOP as the owner taking over the project since all construction has been halted as subcontractors did not get paid in a timely manner. Following this scenario, subcontractors would continue their work as planned, despite recent delays. Without any measures taken, the incident would cause widespread damage to the construction industry in the eastern part of Thailand.
- Imposing penalties on the UJV group for the delay would not resolve the situation, as the group has run out of funding to pay their subcontractors.
Meanwhile, if the situation continues to drag on, PTT, as the parent company, may have to inject additional funding into Thaioil or guarantee a new loan, which would certainly have a negative effect on PTT group.
Presently, Saipem has withdrawn from the UJV group, leaving behind only the name. Samsung and Petrofac are the only active members remaining, which suffered a lack of funding.
UJV’s lack of funding has been a constant issue for a long time, since the project was acquired at the price of only THB 100 billion, compared to the market prices of THB 200-300 billion. The initial group that has subcontracted the project has all withdrawn from the project, while the current subcontractors, on the other hand, stopped their work due to lack of payment.
The current UJV funding from Thaioil has far exceeded the progress that has been delivered, especially after Thaioil evaluation revealed that the project is not 97% complete as reported in the past, with much of the work still left unfinished.
Thaioil, as the owner of the project, needs to take a prompt action as the project owner. Further delay could lead to miss opportunity for recognizing revenue from this big project, while suffering with piling costs
