Italian contractor Saipem has reduced its outlook for 2013 and now expects to report a full-year net loss of between €300 million and €350 million, compared to its previous net income forecast of €450 million.

It also now expects earnings before interest and tax to be down by between €650 million and €750 million this year, around 50% of which relates to the company’s operations in Algeria, where a corruption investigation by Italian prosecutors and Algerian authorities is currently underway.

The investigation relates to contracts awarded by Algerian state-owned energy company Sonatrach.

Saipem said it had enjoyed a constructive long-term relationship with Sonatrach but a significant change in attitude had occurred in recent weeks which it believed followed a step-up and widening in the investigation by the Algerian authorities. The company added that negotiations had broken down and Sonatrach has now launched legal action for damages.

The projects concerned are a gas gathering treatment and transport system at Menzel Ledjmet East, the contract for gas pipeline GK3 and a liquefied natural gas project in Arzew, which are all completed or close to completion.

Saipem previously warned that the situation in Algeria could result in losses of up to €500 million in payments due from Sonatrach.

“Saipem remains committed to fulfilling all its contractual obligations with Sonatrach to the best of its abilities as well as protecting its rights. It is also working towards the restoration of a constructive relationship,” the company said.

Issues on Mexican and Canadian contracts


In addition to its problems in Algeria, Saipem said the implementation of a new management structure earlier this year had also exposed “significant problems” in contracts in Mexico and Canada, resulting in delays and cost overruns. It said it expected these issues to reduce further full-year net income by €260 million.

Meanwhile, the company’s offshore engineering and construction business is also facing challenges, with reduced profitability from its pipelaying ships also contributing to reduced earnings this year.

Saipem CEO Umberto Vergine said, “The deteriorating situation in Algeria and these large scale contract losses are extremely bad news for Saipem. It is very disappointing that fresh issues have arisen over the last six weeks and have required us to reduce guidance for 2013 further.

"We now have in place a team in whose capabilities I have full confidence, and a far more accountable operating structure, which will drive performance. We have to manage the business much more tightly and prevent any recurrence of these shortcomings.”

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