Execution of a contract for engineering, procurement and construction of the main units of the EFRA Programme – Significant agreement
Report no. 24/20152015-07-14

The Management Board of Grupa LOTOS S.A. (“Grupa LOTOS”) announces that, as part of the EFRA (“Effective Refining”) Programme, on July 14th 2015, LOTOS Asfalt Sp. z o.o. (“LOTOS Asfalt”), controlled by Grupa LOTOS, and Rome-based Kinetics Technology S.p.A., subsidiary of Maire Tecnimont Group of  Italy, signed a lump-sum turn key contract for engineering, procurement and construction of the Programme’s main units: 

1. Delayed Coking Unit (DCU),
2. Hydrogen Generation Unit (HGU) and
3. Coker Naphtha Hydrotreating Unit (CNHT).

Pursuant to the contract, the work is to commence after certain preconditions have been fulfilled, including fulfilment or waiver of the conditions precedent to acquiring the Programme financing, and the employer’s receipt of a prepayment bond, a performance bond and the owner’s guarantee.

The contract provides for contractual penalties. The maximum amount of contractual penalties provided for in the contract exceeds 10% of the contract value. The contractor will be charged with contractual penalty for i) a delay in DCU’s or HGU’s readiness for start-up or ii) DCU’s or HGU’s failure to achieve the guaranteed specifications. 

The contract does not state that the parties may seek additional compensation in excess of the contractual penalties. The other terms and conditions of the contract do not differ from the terms and conditions commonly applied in agreements of such type.

The contract is deemed significant because its estimated value (over the effective period) is EUR 304m, or PLN 1.26bn(1), and thus exceeds 10% of the equity of Grupa LOTOS S.A. The contract is scheduled for completion in 2018.

After signing the Programme financing agreement (see Current Report No. 20/2015), the contract reported herein is another key element of the EFRA Programme, that is construction of a Delayed Coking Unit (DCU) together with ancillary infrastructure at the refinery in Gdańsk. 

The Programme is designed to increase the yield of high-margin middle distillates with a simultaneous decrease in the volume of heavy products. Thanks to synergies with the existing units, this will push up Grupa LOTOS’ refining margin by an estimated USD 2/bbl. 

Total capital expenditure on the EFRA Programme is estimated at EUR 517m, or PLN 2.15bn(1). Of that amount, EUR 407m (PLN 1.7bn(1)) is to be incurred by LOTOS Asfalt, and EUR 110m (PLN 457m(1)) by Grupa LOTOS.

The legal basis for the publication of this Current Report is Art. 56.1.2 of the Public Offering Act (inside information) and Par. 5.1.3 of the Minister of Finance’s Regulation on current and periodic information to be published by issuers of securities and conditions for recognition as equivalent of information whose disclosure is required under the laws of a non-member state, dated October 19th 2005.

 (1) As translated at the mid rate quoted by the NBP for July 14th 2015.