16.3 billion won claim! Hyundai Heavy Industries is also "in big trouble"
2018-03-19 09:00
Topside module of offshore natural gas facility delivered by Hyundai Heavy Industries
The contract was for $860 million, but the claim is for $2.6 billion! This follows the recent cancellation of orders for four drillships by Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering, totaling approximately $2.2 billion. Orders worth over 10 billion yuan canceled! South Korea's two major shipbuilding giants hit hard Hyundai Heavy Industries is now facing a huge arbitration claim for repairs. All three major South Korean shipbuilding giants are facing major problems, all caused by offshore engineering equipment!
On March 26, Hyundai Heavy Industries stated that Barzan Gas Company, a subsidiary of Qatar Petroleum, has filed an arbitration lawsuit with the International Chamber of Commerce (ICC), demanding that Hyundai Heavy Industries carry out $2.6 billion (approximately 16.3 billion RMB) worth of maintenance work.
In January 2011, Hyundai Heavy Industries received a contract from Barzan Gas Company to build and install the topside module, deckhouse, and pipelines for an offshore natural gas facility. The contract was worth approximately $860 million. Hyundai Heavy Industries delivered the facilities in April 2015; however, Barzan Gas Company later claimed that some parts of the pipeline were defective, with a gas leak occurring in an upstream pipeline, and demanded that Hyundai Heavy Industries replace all pipelines with stronger ones.
Hyundai Heavy Industries stated that Barzan Gas Company's maintenance requirements are more than three times the price of its project contract and that it is unlikely to win the lawsuit. Hyundai Heavy Industries has assembled a team of legal and engineering consultants and will attempt to reach a "reasonable" out-of-court settlement with Barzan Gas Company within its repair cost reserve of 220 billion won (approximately $233 million).
Hyundai Heavy Industries stated that the upstream pipeline material had previously been deemed unsuitable for the surrounding environment, but Barzan Gas Company insisted on using it; secondly, it is unreasonable to demand the replacement of all pipelines simply because of a gas leak in a portion of them.
Hyundai Heavy Industries pointed out that Barzan Gas Company partially admitted to problems in the original design and ordering of the pipelines, and the company demanded that Hyundai Heavy Industries replace all pipelines with a stronger type, at a price five times higher than the existing pipelines.
An industry insider revealed that Barzan Gas Company originally required Hyundai Heavy Industries to use carbon steel to build the upstream pipelines, but after the gas leak, the company now wants to replace all pipelines with corrosion-resistant alloys.
Regarding the recent difficulties faced by the three major South Korean giants, an industry insider said that offshore engineering equipment is not just about construction, but a systematic project. The lessons learned by the South Korean shipbuilding industry are profound, and this serves as a warning to the Chinese shipbuilding industry. Offshore engineering equipment is a "pitfall," and one should not easily venture into it without sufficient preparation.
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