Alexey Mordashov cries from US sanctions in Vietnam

Power Machines disrupted the construction schedule of the power plant and companies are facing serious fines. The reason was the withdrawal from the project of Western subcontractors due to the American sanctions imposed on Power Machines.
22.10.2018
Kommersant
Origin source
It has become known what difficulties Power Machines of Alexei Mordashov face in international contracts due to sanctions. Thus, in the construction project of the Long Fu-1 TPP in Vietnam, mutual settlements were frozen, contractors are running, and Power Machines are threatened with fines due to the breakdown of the deadlines. The company asks to submit to the Russian-Vietnamese intergovernmental commission at the end of October the issue of revising the project budget and postponing the commissioning of power units by a year and a half. But lawyers doubt that even the implementation of the measures proposed by Power Machines will help solve all the problems.

According to Kommersant’s sources, Power Machines Alexei Mordashov was asked by Deputy Prime Minister Maxim Akimov to put on the agenda of the Russian-Vietnamese intergovernmental commission (Mr. Akimov heads it) the issue of revising the conditions for building the Long Fu-1 TPP in Vietnam. The company refers to the fact that because of the US sanctions imposed on it, more than a dozen large counterparties, including the American GE, left the project. This can increase the cost of contracts and move the construction time. “Power Machines” in January were blacklisted (SDN List) by the US Treasury, and now US citizens and companies are not allowed to make deals with them.

The office of Mr. Akimov “Kommersant” confirmed that the meeting of the intergovernmental commission is scheduled for the end of October, refusing to discuss his agenda. In Power Machines, no comments were made on the subject matter. The company is building Long Fu-1 TPP (two 600 MW power units) under an EPC contract worth $ 930.6 million, under which it is responsible for designing and supplying the main equipment, and arranging financing. Vietnamese PTSC is engaged in civil works worth $ 204 million. The customer of the project is the state-owned PetroVietnam (PVN). The first unit on the "Long Fu-1" should be introduced in late October, the second - by the end of February 2019.

But in Power Machines they admit that they are lagging behind: the delay in the first block may be 18 months, in the second - 15 months. The maximum amount of fines for being late reaches 10% of the contract value, for each day of delay the company will pay about $ 200 thousand for one power unit. At the same time, Power Machines has already paid contractors more than $ 505 million, but received only $ 253 million from the customer and so far cannot receive export earnings in the amount of $ 95 million.

The main problem now is the impossibility of mutual settlements, since the Vietnamese banks do not have a worked-out scheme of transactions with sanctions companies. In “Power Machines” they propose, having signed an additional agreement, to convert the cost of the EPC contract between the company and the customer from dollar to euro, and to make the ruble instead of dollar in the contract payment currency. The company also had difficulties in obtaining bank guarantees under the EPC contract, and she asks to replace them with guarantee or insurance coverage of the Russian Export Center. In Power Machines, they also insist that Vietnam issue a state guarantee as security for Russian creditors or withdraw from the company obligations to arrange for the financing of the project. Also, according to Power Machines, it is necessary to finalize the transfer schemes to a third party (PVN, PTSC) of suspended contracts for the supply of equipment.

The question has already been submitted to the intergovernmental level several times, but decision-making must be accelerated, according to Kommersant’s interlocutors. Earlier this year, Dmitry Medvedev sent a letter about the difficulties of building a thermal power plant to the Vietnamese Prime Minister Nguyen Suan Fuku. The problem was discussed at the talks of Vladimir Putin with the General Secretary of the Communist Party of Vietnam Nguyen Phu Chong on September 6, while the Vietnamese side reported that the time lag was a year. On October 9–10, Power Machines held talks with Vietnamese banks and a PVN on a project financing scheme.

Managing partner of BMS Law Firm Alim Bishenov notes that currency conversion in this case will not help, since “this attempt will definitely be interpreted as a circumvention of sanctions with all the ensuing consequences.” Usually, the lawyer continues, in the agreement they make a reservation on sanctions as force majeure circumstances. However, Anton Patkin, a BGP Litigation lawyer, believes that the currency conversion of the transaction will reduce the risk that payments will be frozen, since all dollar payments are made through the US reserve system and can be blocked by US authorities. Mr. Patkin also believes that in negotiations the company’s management may refer to a significant change in circumstances or force majeure.

Business

Previous Article
Next article