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Jurong Shipyard (JSPL), a wholly-owned subsidiary of Seatrium, a Singapore-headquartered provider of offshore, marine, and energy solutions, has initiated arbitration proceedings against Petrobras Netherlands (PNBV), a subsidiary of Brazil’s energy giant Petrobras.
Seatrium’s Jurong Shipyard has begun arbitration proceedings against Petrobras over a legacy contract for the conversion of the FPSO P-54 , which was entered into between JSPL and PNBV in June 2004. Afterward, JSPL and PNBV agreed on various amendments to the P-54 contract in 2006 and 2007 to adjust the contract price to reflect cost increases arising from foreign exchange movements and market overheating conditions.
The Brazilian Federal Court of Accounts, the Tribunal de Contas da União (TCU), started an audit process in 2007 in relation to the P-54 contract and its amendments. The following year, the two players entered into a settlement agreement to fully resolve all issues under the deal and mutually release each other from all past claims.
As a result, PNBV agreed to pay JSPL a close-out sum of $152.3 million, but $55.7 million of the amount was withheld pending TCU’s final decision. Seatrium’s subsidiary expressly reserved its right to claim the withheld amount through arbitration under the settlement agreement.
As the TCU issued its final decision relating to the P-54 contract in November 2023, the company claims that the basis for withholding the withheld amount is no longer applicable, but PNBV has continued to retain it.
Petrobras, PNBV’s parent company, issued a demand letter to Jurong claiming $135.3 million in alleged overpayments under the P-54 contract. After deducting $55.7 million withheld under the settlement agreement, the Brazilian firm demanded a net payment of $79.6 million.
Seatrium highlighted: “JSPL is therefore commencing arbitration to claim payment of the withheld amount under the settlement agreement. JSPL is asserting that PNBV is in breach of the settlement agreement by failing to pay the close-out payment in full.
“The arbitration is also to prevent any further recovery attempts by PNBV in connection with the P-54 contract. The P-54 contract provides for London-seated arbitration under the UNCITRAL Rules and is governed by English law.”
The firm claims to have no balance sheet exposure to the $55.7 million withheld amount, and no provision has been made. The FPSO P-54 was selected for deployment at the Roncador field offshore Brazil.
As the arbitration proceedings and the recovery attempts by Petrobras/PNBV are at a preliminary stage, the company is unable to definitively ascertain the financial impact, if any, arising from these proceedings.
As the financial impact will be dependent on the final outcome of the arbitration proceedings, there is no financial impact on the firm that is expected at this juncture.