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MMG says Korean firm owes it $129mn

Contractor argues that SK E&C has not paid it for work on KAPSARC project; SK says it had to use other contractors to complete works

Terry Smith
Terry Smith

Embattled Saudi contractor Mohammad Al Mojil Group (MMG) has said that it is owed around $129mn from Korean EPC contractor SK Engineering & Construction (SK E&C), which could play a crucial role in ensuring its survival if paid.

The company’s recently-appointed chief operating officer Terry Smith said that the money is owed for work carried out on the King Abdullah Petroleum Studies and Research Centre in the Saudi capital, Riyadh, and that MMG understands that SK E&C has already been paid for the work by its client, state-owned oil firm Saudi Aramco.

“SK owes MMG on the KAPSARC project SR434mn ($115mn) that they have been paid for, plus SR50mn ($13.3mn) in final account measurement. That's very close to SR500mn that they have been paid… and not paid us,” he told Construction Week on the sidelines of last week’s Leaders in Construction KSA Summit.

Dammam-based MMG has been in a long restructuring process which began in 2012 following its signing of a series of lossmaking contracts in 2010.

Earlier this week, the company announced that its accumulated losses have now reached more than $737mn (SR2.77bn), or around 222% of its share capital.

The company said last month that it is to embark on a fresh restructuring plan, which will involve initially reducing its share capital by more than 90%, with the $333mn proceeds being used to write down some of its existing liabilities ahead of a potential rights issue to raise fresh funds.

Smith said that although it has several outstanding claims with other firms, the KAPSARC one “is the largest”. He added that if paid, it could make a significant difference to MMG’s survival prospects.

“If I have my money, I can operate, I can effect a plan, I can pay my people on time,” he said.

“I can then build a new team. I have customers asking us to quote work - big projects,” he added. “I can close out six legacy projects that have been detrimental to our current existence and [the] root cause for these continuous losses.

“We can no longer sustain these endemic losses and possibly we may be forced by outside external forces to walk off the jobs. And that would create havoc in the oil & gas industry because the skilled workforce would be sent home. We don't want that.

“Our goal is not to have a funeral. Our goal is [for MMG] to reinvent itself in a smaller capacity with effectiveness and strength. And to be able to pay our way forward, to pay our bills, to operate as a business should.”

When contacted by Construction Week, SK E&C’s general manager at the KAPSARC project, MoonJeong Yang, declined to say whether SK E&C had been paid by Saudi Aramco for the work, citing client confidentiality agreements.

However, he said that it had “fulfilled its obligations and has made all payments for properly completed/accepted works carried out by MMG”.

“The entire contract price has been paid. What MMG is claiming is additional costs which [it] believes it is entitled to on top of the contract price.

He added that the original scope of works agreed by SK E&C and MMG on the project had been reduced by agreement, which he argued was due to MMG’s poor performance.

“In reducing MMG’s scope of works, SK E&C incurred significant loss in engaging other subcontractors to complete the de-scoped work as well as remedying defects in works performed by MMG. SKEC is considering claiming [for] this damage against MMG.”

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