Spain’s Tecnicas Reunidas (TR), one of the largest engineering, procurement and construction (EPC) contractors in Saudi Arabia, is locked in talks with the Saudi Arabian General Investment Authority (Sagia) after the government body revoked its licence to operate in the kingdom.
Such is the seriousness of the situation, Juan Lladó Arburúa, chief executive officer (CEO) of TR, flew into Riyadh with a team of advisers to negotiate an agreement with Sagia over what the company has said is an “administrative error”.
The talks come after Sagia carried out an investigation into TR’s current operating licence following a complaint from its former local partner. The review found that the licence was based on “false information” due to the non-disclosure of a previous Saudi Arabian partner and on 20 November Sagia issued a decree, seen by MEED, to cancel it.
The issue stems from a previous local partnership with the Al-Khobar-based Hazem Husseini, the owner of Hazem Husseini Industrial engineering office. The partnership was called Tecnicas Reunidas Gulf (TRG) and operated out of Al-Khobar in the Eastern Province. This licence was issued by Sagia on 28 May 2002.
On 2 March 2011, Sagia issued a new licence to TR for a local company called Tecnicas Reunidas Saudi Arabia (TRSA). However, according to Sagia, TR failed to disclose any details pertaining to TRG in their application, thus rendering the new licence illegal.
Despite this, a spokesperson for TR told MEED that the decree canceling its licence has been changed to a “suspension pending the submission of additional information” by the Spanish company.
“The issue is an administrative error and we are working closely with Sagia and other Saudi Arabian authorities to resolve this as quickly as possible,” says the spokesperson. “I want to stress that there have been no delays on any of our day-to-day operational activities on any projects in the kingdom and we are confident that this will continue to be the case.”
The spokesperson also claimed the former partnership known as TRG has been completely dissolved and all of the company’s 2012 projects are being executed under the new company TRSA.
“We believe that when all of the correct documentation is in place, we will be issued with a new licence to operate by Sagia and we can put this matter behind us,” says the spokesperson.
TR has enjoyed a very successful 2012 in the kingdom and has won packages on several multibillion-dollar projects. According to the Spanish contractor’s website, the company has so far won more than $2.5bn-worth of work in Saudi Arabia in 2012. All awards have been made by state-owned oil company Saudi Aramco and Saudi Basic Industries Corporation (Sabic).
Aramco has awarded TR packages on two of its largest projects. In June, the state-owned oil major and the US’ Dow Chemical awarded the company an $800m deal for to carry out the EPC for the Chem 3 package on the $20bn Sadara Chemical Company complex at Jubail in the Eastern Province. The company also picked up a $900m package at Aramco’s $7bn Jizan refinery for the hydrocracker and diesel hydrotreater in late October.
In the same month, Sabic and its partner ExxonMobil awarded work totalling more than $400m for two paces at the $3.4bn Saudi Elastomers Project also at Jubail. Sabic also awarded TR a $400m contract to carry out the EPC for a 140,000-tonne-a-year acrylonitrile butadiene styrene (ABS) plant in Jubail.
“This could have grave consequences for TR and the EPC market in the kingdom is watching developments,” says an oil and gas contracting source based in Saudi Arabia. “I am sure that all of the stakeholders will be looking for a quick resolution to this situation. If it is allowed to spiral out of control, then it could delay some of the kingdom’s largest [oil and gas] projects.”
An expedient resolution would likely involve a deal being negotiated with TR’s former local partner, Hazem Husseini.
“I would like to see this issue being resolved quickly and my company is willing to negotiate a settlement with TR,” said Husseini in a telephone interview with MEED. “All I have ever wanted is a fair resolution to this situation.”
MEED has also learned that the stand-off between TR and Husseini has been active for at least 12 months and attempts at a resolution have been attempted. A case is currently active in a Geneva-based court of arbitration.
“In a stand-off of this nature, it usually comes down to the size of the financial settlement,” says the oil and gas contracting source. “If a mutually agreeable figure can be agreed between the two parties, then you will probably see this being resolved quickly.”