Polypropylene plant will be built by the Chinese, but not by Sinopec Engineering

By Laura Suleimenova

Kazakhstan Petrochemical Industries (KPI) and its general contractor Sinopec Engineering (Group) Co. Ltd. have terminated an engineering, procurement and construction contract for a the 1st phase of polypropylene production (PP) plant in Atyrau, according to information of Sinopec Engineering published on its corporate website.

“Ongoing clarifications and negotiations” with KPI have not resulted in an agreement on “key commercial conditions and other aspects” of the project, reads the report. “This resulted in the mutually agreed termination of the contract.

Having reviewed and considered available information, the Company’s board of directors does not currently anticipate that the termination of the Contract will create any material adverse impact on the Company’s existing operations, business plans or business development strategies.”

As the Contract has not been implemented yet, both parities had no outstanding liabilities in relation to the Contract.

However, Sinopec notified its shareholders and potential investors to exercise caution when dealing in the shares of the Company.

We approached Saduakas Meraliev, KPI Chairman of the Board, for the comments. Meraliev said that after Sinopec Engineering completed basic design the parties on a mutual consent decided to terminate the contract:

- As the construction of plant is secured with financing from Eximbank of China, we are currently holding a tender for the general contractor among the Chinese construction companies. After the selection of the general contractor (approx. in February of next year) and opening of project financing, we will enter into a construction phase that will take 38 months.

Let me recall the background of this contract. During the state visit of Nursultan Nazarbayev to Beijing in 2011, the Development Bank of Kazakhstan in the presence of state heads of two countries concluded an individual credit agreement with Export-Import Bank of China for allocation of $1,38 billion loan for the 1st phase of construction of a gas-chemical complex.

The project is implemented by Kazakhstan Petrochemical Industries Inc. LLP (KPI Inc.) -  51% of company shares belong to the Joint Chemical Corporation (100% “daughter” of Samruk-Kazyna NWF) and 49% to ALMEKS Plus LLP. The latter is part of Almeks Holding Group that is owned on a parity basis by Timur and Dinara Kulibaevs.

According to the project the first phase involves the construction of polypropylene with the capacity of 500 thousand tons per year. The raw material- gas will be delivered from Tengiz project. This project repeatedly underwent modifications. As the Swiss company LyondellBasell left the project, KPI Inc. purchased the technologies for production of polypropylene and polyethylene from the American Lummus Technology (the division of CB&I Group of Companies).

Under the terms of the Chinese Eximbank that is entirely controlled by the central government of the People's Republic of China, the general contractor should be the Chinese company. And it was "Sinopec Engineering …".

To recall, KPI Inc. and Sinopec entered into an EPC contract in 2010 that envisaged engineering design, procurement, construction, start-up and assessment of off-site infrastructure.