BGR energy scraps power plant contract in Iraq

The Dollar Business Bureau

BGR Energy Systems has canceled a $246-million order to set up a 500 MW gas turbine power plant in Iraq for Al Nasiriya. 

The company in its BSE filing said, “The company has now struck off a carryover contract value of $246 million from its order book." It has entered into an Engineering Procurement Construction (EPC) contract on October 13, 2013 which was valued at $246 million for the Al Nasiriya 500 MW Gas Turbine Power Plant project with the Ministry of Electricity, Iraq(MoE).

According to the terms of the contract, the MoE has provided a Letter of Credit for 50 percent of the contract value in favor of BGR Energy. It has also issued a performance bond equal to 5 percent of the contract price i.e. $12.30 million. The company was not able to proceed with the contract due to the unforeseen Force majeure circumstances like the terrorist taking over various parts of Iraq.

Since Iraq is under emergency, the Indian government had issued an advisory against traveling to Iraq due to security threats. The MOE also suspended the LC without any reason.

There was also a threat to the invocation of the bank guarantee of $12.30 million issued to the MoE. Due to this, the company has obtained an injunction from the Madras high court restraining the bank to make any payments under the guarantee.

However, MoE has not contested any of the legal proceedings so far and issued a legal notice declaring their rights to terminate the contract and also disputed the force majeure conditions that were raised by the company. Through this notice it has given an option to the company for a mutual settlement and has demanded a 10 percent compensation of the contract price within 60 days of proposal acceptance.