Wednesday, 11 October 2017

Petronas bars TH Heavy Engineering unit from various job scopes

Loss-making TH Heavy Engineering Bhd, which is 30.08%-owned by Lembaga Tabung Haji, says its oil and gas fabrication unit has once again been barred by Petronas from various job scopes due to its “non-performance” in a Sabah project, this time without a specified timeline.

Its wholly-owned THHE Fabricators Sdn Bhd (TFSB) received the letter on the exclusion from Petronas, which stands for Petroliam Nasional Bhd, on Monday.

In a filing today, THHE said the latest exclusion was in relation to TFSB’s “non-performance in relation to a contract known as “Procurement, Construction and Commissioning (PCC) of KNPG-B Topside PH II, Kinabalu Non-Associated Gas (NAG) Development Project” (PH II Kinabalu Project).

The letter is another blow to TFSB, which is currently facing a two-year ban from participating in tenders by Petronas Carigali since April 4, 2016, due to what Petronas Carigali described as “non-performance” on TFSB’s part under the same contract.

Now, the national oil company has excluded TFSB from being a main contractor, conducting major fabrication works, as well as any engineering, procurement, construction, installation, and/or commissioning works, not just for all its subsidiaries, but also for any Petroleum Arrangement Contractors (PACs). The exclusion takes effect from the date of the letter, THHE said.

“Petronas, including its subsidiaries and PACs, shall not award any new contract to TFSB for the above scopes and TFSB shall not be allowed to participate in any tender related to the above scopes,” THHE added.

“The letter also states that the upliftment of the exclusion will be subject to TFSB satisfactorily meeting Petronas’ requirements, which were not mentioned in the letter,” it added.

THHE said it will seek clarification from Petronas, as the contract mentioned had been novated to a third party on Oct 24, 2016, with the consent of Petronas Carigali — and that the third party had assumed all rights, interests and responsibilities under the contract.

“The contract’s performance now rests with the third party. The novation also released and discharged TFSB from all liabilities under the contract, in accordance with the terms and conditions of the novation agreement,” the filing added.

THHE said it will take appropriate measures to mitigate the matter, including appealing to Petronas — but added it does not anticipate participating in Petronas’ upstream tenders this year.

“Nevertheless, TFSB is still able to bid for other scopes under Petronas licence,” THHE said. “In addition, any impact is further mitigated by diversification by TFSB into onshore fabrication, fabrication of specialised equipment, offshore fabrication opportunities regionally, and shipbuilding and ship repairs,” the filing added.

Petronas Carigali first awarded the PH II Kinabalu contract to TFSB on Jan 28, 2014. When it received the two-year exclusion from Petronas Carigali, THHE argued at that time, saying the project had achieved an onshore construction completion of approximately 91%, but to no avail.

THHE shares closed 2 sen or 28.57% higher at 9 sen today, giving it a market capitalisation of RM100.9 million. Year to date, the stock has fallen 33.33%.