Petronas bars THHE unit from major jobs

PETALING JAYA: TH Heavy Engineering Bhd (THHE) today announced that its unit THHE Fabricators Sdn Bhd (TFSB) was informed in July this year, that Petroliam Nasional Bhd (Petronas) has disallowed it from bidding for main contractor, major fabricator and engineering procurement, construction and commissioning (EPCC) jobs due to non-performance in the Kinabalu Non-Associated Gas (NAG) project.

The financially troubled group, which has another seven months to come up with a regularisation plan, however made the announcement four months later.

The action follows an outright ban by Petronas Carigali Sdn Bhd in 2016, from participating in their tenders for a period of two years, for non-performance in the same project.

TFSB is the procurement, construction and commissioning (PCC) contractor for KNPG-B Topside PH II, NAG development project, which was awarded in Jan 28, 2014.

THHE said TFSB had received a letter on July 9, 2017 from Petronas in relation to its vendor performance report, which highlighted TFSB’s non-performance for its scope of work for the project.

Due to the non-performance, Petronas has excluded TFSB from several scopes namely main contractor; major fabrication works; PCC works; EPCC works; engineering, procurement, construction, installation and commission (EPCIC) works; and procurement, construction, installation and commissioning (PCIC) works.

Following the exclusion, Petronas and its subsidiaries and Petroleum Arrangement Contractors (PACs) will not award any new contract to TFSB for the above scopes, and not allowed to participate in any tender related to the above scopes.

“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,” said THHE.

The group said it will seek clarification from Petronas on the matter, explaining that the contract for the Kinabalu NAG project was novated to a third party on Oct 24, 2016 with Petronas Carigali’s consent.

It claimed that the third party had assumed all of TFSB’s rights, interests and responsibilities under the contract, and 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. In addition, the company will take appropriate measures to mitigate the matter including appealing to Petronas,” said THHE.

Due to the recent cut in capital expenditure by oil majors, TFSB anticipates substantially lower number of capital projects in the upstream oil and gas sector in the near future.

It said the letter will not have any material impact on the company and TFSB is not expecting to participate in Petronas upstream tenders in the present year. However, it is still able to bid for other scopes under Petronas licence.

TFSB’s exclusion is not expected to have material impact on THHE’s financial results. In addition, any impact is further mitigated by TFSB’s diversification into onshore fabrication, fabrication of specialised equipment, offshore fabrication opportunities regionally as well as shipbuilding and ship repairs.

THHE’s share price rose 28.57% to close at 9 sen today with a total of 12.16 million shares traded. Its market capitalisation stood at RM100.90 million.