BILLION$ DOWN THE DRAIN

A Parliament committee heard that while $3.3 billion has already been lost through expenditure on the litigious issue of the World Gas-to-Liquids (GTL) project, a further $3.2 billion has gone down the drain in relation to a separate project involving an ultra low sulphur diesel (USD) plant constructed by South Korean firm Samsung Engineering and Construction Limited.

Petrotrin officials told the Joint Select Committee on State Enterprises that the USD facility – which was meant to handle highly toxic materials such as hydrogen sulphur – was built with 200 design flaws, did not comply with required earthquake specifications and featured a beam which was bent out of shape. As in the case of the World GTL project, the USD project was entered into during the tenure of the Malcolm Jones-led board, back in 2009.

The Parliament committee also heard of a $5.3B bond — in relation to a separate project — looming on the company’s books; an expenditure of $200M on a new company headquarters which stands unfinished; problems with asset integrity; routine delays on projects and the crippling effect of the ongoing oil revenue downfall on capital development and operations.

In relation to the USD project, the committee heard how Petrotrin entered into an agreement back in 2009. Committee chairman Independent Senator David Small said the project cost was the single largest capital expenditure in Petrotrin’s history. Yet, he said, the project lay incomplete for four years due to structural, steel and seismic design issues, according to 2016 budget documents.

Petrotrin’s vice president - refining, Jonathan Barden, gave a detailed report. “The USD project has, indeed, a very unhappy history,” Barden said. “Originally the project was started in 2009 with an anticipated completion date of 2012. A fixed-price contract was (awarded) to Samsung Engineering Construction Limited for US$220 million. There were amendments to that contract and that contract paid, essentially, US$260M to Samsung.” But problems emerged.

“There was an extensive delay caused by industrial relations,” Barden said. He said this delayed the project to 2013, when the plant was close to completion. However, during pre-commissioning activities a structural flaw was discovered.

“One of the beams on the plant actually bent,” Barden said. “Which was a very serious issue. When that was investigated, it was determined that that structural member had been inadequately designed. And some subsequent investigation indicated that it was not the only structural member that had been badly designed.” A review, furthermore, indicated that in the original invitation to bid document – issued in 2009 – the wrong earthquake resistance had been specified. A value of 0.3g was stated, though the correct specification should have been 0.75g.

By September 2014, Petrotrin sought to have joint remediation done with the same firm. Samsung proposed an unorthodox method to fix the problems, called base isolation. Controversial firm SNC Lavalin served as a consultant in relation to possible repair. But by August 2015, it was clear Samsung was not going to complete the plant. The contract was terminated in December 2015, two years after the flaws first emerged.

Said Small, “the short version of this is that 3,000 million has been spent on a project that was badly designed in the beginning. As it stands now we are not even sure if it is going to work, going forward.

We have spent $3B and because of design imperfections. It looks complete but it has not been able to work.” Jones served on the board from January 7, 2002, to October 11, 2010. The Committee heard of a US$35M sale of assets – with conditional board approval – in relation to the World GTL project to NiQuan Energy.

Petrotrin President Fitzroy Harewood said the total expenditure on the GTL project was about $3.3B.

Chief Financial Officer Ronald Huff said a US$850M bond due in 2019 (placed in 2009) looms over the company’s operations in relation to a separate project, understood to be what is called the Gasoline Optimisation Project.

“It is never far from the back of our minds,” Huff said. Harewood said the company has deferred some capital projects and reduced costs and is only spending on things needed to keep the refinery operations – the main source of revenue – going.