$3.3bn Egina FPSO: Samsung lied about $300m cost variation

Samsung Heavy IndustriesHector Igbikiowubo

27 October 2014, Sweetcrude, Lagos –
SAMSUNG Heavy Industries Nigeria, SHIN, the company awarded the $3.3 billion Egina Floating Production Sharing and Offloading, FPSO, project contract lied about having submitted a cost variation in excess of $300 million dollars to the National Petroleum Investment and Management Services, NAPIMS, and Total.

At a ground breaking ceremony in Lagos to signal commencement of the construction of the SHIN and Ladol yard where integration of the Egina FPSO is expected to take place, when asked about the company having submitted a ‘change order request’, both Mr Frank Ejizu, the general manager of Samsung Heavy Industries Nigeria, SHIN, and Chief Jadesimi, Chairman of Ladol said there had been no alterations to cost.

However, investigations reveal that the company has indeed submitted a change order request on ‘engineering and schedule/cost impact in project progress/completion for the Egina FPSO project’.

The SHIN Change Order Request signed by the project director, J.R. Chung is contained in a 98 page letter addressed to Total with reference number EGN-10-KSMG-AEMG-LET-00671, dated September 23, 2014.

The Change Order Request submitted by SHIN covers Detailed Engineering, Impact on Procurement and Construction, Expense for Fast Track and Cost Expense Due to schedule Impact.

Samsung raised the cost of the project in detailed engineering, which it subcontracted to WorleyParsons Consortium, claiming that under Article 22.1, the contractor should be compensated for engineering cost impact suffered due to Total’s initiated change orders.

Samsung also pointed out that Article 15.8 also provides that the contractor should be compensated “for additional cost incurred in trying to mitigate the effect of adverse actions on work time schedule.”

The company also demanded that Total pays for changing the engineering design of the project and other modifications.
Samsung also made claims on what it described as cost expense due to schedule impact, pointing out that it “brings this claim for cost of schedule impact pursuant to Article 15.5(a)(b)(i) as a result of Total’s default in complying with Article 6.4 and Article 14.4.2-3, which is the default in timely clarification by Total impacting on the cost and work schedule on the contract, in addition to other factors affecting the project delay.”

SweetcrudeReports gathered that NAPIMS has urged Total to evaluate the Change Order Request and initiate measures to forestall work stoppage on the engineering.

However, a ranking official at Total who did not want his name in print disclosed that the company would not entertain the Change Order Request because the premise for the cost variation submitted by SHIN does not entitle it to claims.

The Total official also noted that it has become obvious that Samsung and its local partners have to ‘get their act together’ if the delivery of Egina FPSO project on schedule and within budget is to be realized.

The Korean firm which did not have a presence in Nigeria prior to the award claimed they are going to employ 50,000 Nigerians for the Egina FPSO integration but investigations show 10% of this number cannot fit into the yard where a ground breaking exercise was conducted.

Further investigations reveal that SHIN is yet to secure a slot at its yard in Korea for construction of the hull of the Egina FPSO, further indication that the project may be delayed much longer than the management of the company is prepared to divulge.

Spirited efforts including phone calls and text messages to ranking officials of SHIN and Ladol, including Mr  Ejizu and Chief Jadesinmi for further clarification had not been returned at the time of filing this report.

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