Poland: LNG Terminal to Be Completed by End of 2014

The annex to the contract signed on September 10th with the consortium implementing the LNG terminal in Świnoujście project ensures that Polskie LNG S.A. meets all its contractual obligations assumed therein, providing the facility’s full operating capacity by the end of 2014. This agreement concludes the negotiations conducted with the EPC contractor and warrants completion of the project within the safe time limit.

The key terms of the Annex, which has been the preeminent subject of talks between the negotiating teams of Polskie LNG and GRI (the General Contractor) over a few recent months confirm the final date of project’s completion. The consortium agreed that the LNG terminal shall obtain its full operational capacity by 30^th December 2014, and this deadline guarantees that the investor shall fulfill all its contractual obligations including those resulting from the agreements concluded with PGNiG SA. It must be noted here that the provisions of the regasification contract assuming that the LNG terminal is to be handed over for operations by 30^th June 2014, were intended include also a six-month time reserve. This means that the actual deadline for project completion expires at the end of 2014, i.e. within a safe time limit, according to the updated schedule.

– The Annex is the first modification of the contract provisions, resulting in the change of terms of the agreement with the Contractor. In terms of project management, signing this Annex was necessary to reduce the risks associated with the investment process, as well as securing the business and legal position of the investor. This is an optimal solution which by means of imposing a rapid pace of works guarantees achievement of the planned progress of the Project – said Rafał Wardziński, President of Polskie LNG SA.

As a result of the departure from the original schedule, the investor company considered all available action scenarios. In view of the external causes for this deviation, mostly the impact of 2012 downturn in construction industry, the most constructive approach has been adopted, aiming at efficient management in the circumstances given. The costly and difficult to predict consequences of confrontational scenarios would result in several months’ delays.

– It should be noted that the construction of the LNG terminal, like any investment project is implemented with certain commercial background and deliberation of the benefits and disadvantages resulting from the concluded Annex must be founded on totality of the circumstances. The efficient and timely completion of construction of the LNG terminal to the highest quality standards is of strategic importance. The solution adopted, even if resulting in a longer implementation period, guarantees achievement of our objectives and lower costs in a longer time perspective, particularly with respect to any potential dispute, claims enforced, or the loss of future profits, Rafał Wardziński added.

The Annex to the contract, in parallel to the date of project completion, determines also the financial aspects of the ccontract as well as the scope of subsequent or additional works to be carried out by the contractor. It also provides for settlement of all claims arising during the implementation of the contract and secures the execution thereof by extending contractor’s liability for any defects resulting from implementation of contract provisions, as well as protracts contractor’s operational support following the completion of the project. Due to the increased scope of works and contractor’s responsibilities under the contract, and as a result of negotiation of the contract terms, the ultimate contract price has been increased to the amount of EUR 67,5 million. This amount was determined in the course of many rounds of negotiations, and is substantially lower than initially requested by the contractor. Polskie LNG company has the financial capacity enabling it to comply with its contractual obligations resulting from the provisions of the Annex signed.

The total remuneration for the contractor, pursuant to the signed Annex to the contract will amount to PLN 2,4 billion and shall depend on the progress of the project, which means that it will be paid in installments following each project key milestone accomplished by the contractor.

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LNG World News Staff, September 10, 2013; Image: Polskie LNG