The client, state energy company Sonatrach, selected the Italian/Japanese consortium of Snamprogetti and Chiyoda Corporation for the contract on 26 July, just three days after it disqualified the lowest bid, from a joint venture of UAE-based Petrofac International and Indonesia’s IKPT (MEED.com 27:7:08).
The Snamprogetti/Chiyoda team won the contract with a higher cost, albeit with a greater LNG production capacity.
“I would argue that the fact Sonatrach didn’t go for the lowest price would be taken positively, especially by the contracting community,” says Craig McMahon, a North Africa analyst at UK oil and gas consultancy Wood Mackenzie. “The fact they are prepared to pay more should encourage them [contractors], especially given the history of the project.”
However, it is still unclear why Sonatrach changed its mind on the contract award.
The Petrofac group had submitted a price of AD241.1bn ($3.92bn) when prices were opened on 12 July, some 16 per cent lower than the price of AD281.8bn offered by Snamprogetti. A third, higher bid was submitted by Paris-based Technip.
The offers were due to be evaluated on the basis of the engineering, procurement and construction (EPC) cost per tonne of LNG produced.
On that measure, the Petrofac/IKPT offer of AD55,000-a-tonne was far lower than the AD61,000-a-tonne cost from the Snamprogetti group.
When it reversed its original decision, Sonatrach said that the low bid did not comply with the terms of the tender and did not provide the necessary performance guarantees from the main equipment providers, the US’ Air Products & Chemicals and Florence-based GE Oil & Gas, which will work with the successful bidder.
In a public statement, Petrofac insisted that its bid did comply with the tender and said it was seeking clarifications from Sonatrach (MEED.com 23:7:08).
The original tender procedure called for a minimum plant capacity of 4 million t/y, which Petrofac had allowed for, but when the bids were opened Sonatrach increased the minimum size to 4.3 million t/y, which had to be guaranteed by the equipment providers.
Petrofac and IKPT responded by increasing the cost of the EPC work in their bid, to take account of the extract capacity, which Sonatrach raised as one of the reasons for cancelling the award. However, this should not have affected the validity of their bid as the AD55,000 cost per tonne, which the bids were to be judged on, had not changed.
The Snamprogetti group’s original offer of AD281bn and AD61,000 a tonne implies an storage capacity of 4.6 million t/y or just over 14,000 tonnes a day (t/d) based on 330 days a year of operation as stipulated by the tender.
However, by the time the contract was signed, Sonatrach said the group had increased the capacity to just more than 5 million t/y, equivalent to 15,240 t/d, for a price of AD277bn and a cost per tonne of just more than AD55,000.
In other words, it had increased capacity but lowered the overall cost in only three days.
It is unclear how the Snamprogetti /Chiyoda consortium could increase the daily rate of LNG production by almost 10 per cent and have it guaranteed by APCI and GE Oil & Gas in the time available.
All parties involved in the bidding process as well as the equipment and technology providers declined to comment to MEED on the issue.
The project has already had a troubled history. Spanish giants Repsol and Gas Natural are in arbitration with Sonatrach after being ejected last year from the Gassi Touil integrated LNG project, of which the Arzew LNG train was a key component (MEED 28:9:06).