Samsung’s financial crisis and matters arising
In December 2017, the Chief Executive of Samsung Heavy Industries, SHI, Park Dae-young resigned from the world third largest shipbuilder. Dae-young threw in the towel following financial losses that cost the company about a third of its market capitalization. The CEO appeared left with no choice as SHI under his watch according to Financial Times, forecasted losses, not only in 2017 but 2018.
In reaction, shares of the Korea giant dropped a staggering 27%, the lowest since December 2016. But the trouble of the Korea based corporate giant did not start in 2017. It indeed dates back to the 2008 global financial crisis. Since then, Samsung has struggled.
Between 2010 and 2013 however, hope came the way of Samsung. This was when Total Upstream Nigeria Limited, TUPNI, in joint venture with the NNPC, called for tender for the US$3.1 billion contract for the construction of the Floating Production Storage Offloading, FPSO for the Egina deep water oil field.
Perhaps haunted by its dwindling fortune, Samsung seemed, from the start, to be driven by quest for profit. Take for instance its first issue with LADOL. The partners had agreed that if their tender was successful, a joint venture to be known as SHI Mega Construction and Integration Free Zone, SHI MCI- FZE would be set up. The well applauded vision was for this company to construct and own the upgraded fabrication and integration facilities at LADOL with 80% ownership by LADOL and 20% by Samsung.
This ownership structure was based on the fact that the upgrade of the fabrication and integration yard at LADOL was one of the local content facilities approved by the Nigerian Content Development and Monitoring Board, NCDMB, and committed to by Total for the Egina FPSO contract.
For this reason, the Egina FPSO contract set forth a provision for Total to pay Samsung US$214 million for the upgrade of the fabrication and integration facility, as a contractor to Total, in fulfilment of Total’s Local Content obligations and commitment to the Nigerian regulators. It was simply like a sub-contract to which Samsung was simply paid to actualize as a contractor. The US$3.1 million Egina FPSO contract therefore included the US$214 million for the upgrade of the facilities at LADOL.
The deadlock that followed the partners’ disagreement led to Samsung purportedly terminating the partnership with LADOL. LADOL went to court to seek redress. And so LADOL bore its pain as it lost almost 80% of its shares in the facility after a resolution of its dispute with Samsung outside the court.
But by 2018, justice came to prevail. At the public hearing of the Nigerian Senate AD hoc Committee investigating the local content elements of the Egina project, it emerged for the first time that Total had paid Samsung about US$214 million for the upgrade of the facilities. Total, in fact, accepted that the US$214 million was included in the US$3.1 billion Egina FPSO contract.
On April 30, 2018 precisely, Samsung issued Notice of Dispute against Total, requesting a confounding variation of US$1.6 billion. By July 12, 2018, Samsung had served Total Notice of Pre-Suspension of Work, stressing its intention to stop work unless Total paid, pronto, a variation of US$500 million.
Although an Arbitration has been planned for London and Total, had agreed to consider payment of US$800 million, Samsung appeared desperate to get at least US$500 million even before the arbitration. Exactly six days after its case was thrown out, Samsung returned to the Federal Court once again. This was on August 6. It was seeking the same injunction to stop Total from terminating its contract and moving the Egina FPSO from LADOL until the conclusion of the arbitration over its variation demand.
On August 29, the Federal High Court again ruled against Samsung and threw its case out. And this deep legal laceration was coming after their case at NAPIMS had ended in a fiasco. NAPIMS in a terse statement had given Samsung until Friday, July 24, 2018, to launch the FPSO from LADOL or face termination of their contract and 10 year ban from working in Nigeria.
But Samsung is tenacious. They are hoping that 2019 elections may usher in a new and more friendly leadership, where their ‘connection to the seat of power’ is assured and where they would indeed be in a solid stead to call some shots. This government to come, they eerily believe would then compel NNPC/Total to pay them their purported variation of US$1.6 billion. Can Samsung count on this?