The general contractor on Shintech’s $1.4 billion ethylene plant project in Plaquemine canceled two contracts with CB&I, citing hundreds of millions in cost overruns, according to financial and employment filings from the two companies.
As a result, CB&I laid off 370 contract workers it had on the project. Work was shifted to two other contractors.
Toyo Engineering, based in Japan, was awarded the contract for Shintech’s expansion project in 2015, part of an economic development announcement from former Gov. Bobby Jindal’s administration. Toyo in turn hired CB&I for much of the construction work. CB&I, which had acquired The Shaw Group in Baton Rouge in 2013, is now known as McDermott after a $6 billion merger with that company was completed this spring.
In 2015, Shintech had projected completion of the expansion during the first half of 2018.
Toyo’s financials show the ethylene project has been the source of hefty losses at the company over the past year. Costs associated with the plant, its only U.S. project, increased by 17.6 billion yen, or $159.2 million, in the fourth quarter, according to a filing made in May. In the fiscal year ending in March, the Japanese company reported the ethylene project had a gross loss of 48.5 billion yen, or $438 million.
“Our projects except Ethylene project in USA are going as planned,” Toyo wrote in its financial report.
Toyo pointed to CB&I’s “inadequate” capabilities, and said it shifted half of CB&I’s work scope to two other contractors.
CB&I sent required notices last month to the Louisiana Workforce Commission, informing the agency that the contracts had been canceled. As a result, the firm laid off 370 contract workers “without providing them prior notice” because of the “unforeseen business circumstances.”
“Toyo suddenly and unexpectedly notified CB&I of its intent to unilaterally change CB&I’s scope of work under the contract to cancel the remaining civil and dirt work on the project effective June 14, 2018,” CB&I’s project director wrote in a letter dated June 19.
“CB&I had no advance notice of Toyo’s plans and attempted to negotiate continuation of the work to no avail. Toyo insisted on terminating the work,” the letter states.
Asked about the letters, McDermott spokeswoman Sherri Scott said in an email, “This is normal course of construction, with reductions in headcount as various parts of the project are completed.”
She deferred further questions to Toyo or Shintech.
Richard Mason, secretary of Shintech Inc., declined to comment on questions about the cost overruns or contract disputes, deferring to Toyo Engineering, which could not be reached for comment.
Mason did say Shintech is “fully committed” to the project.
“We have already hired 60 of the estimated 100 new employees needed to staff the cracker,” Mason said. “Today these 60 employees are included in the 358 total employees at the Plaquemine site.”
Louisiana Economic Development Secretary Don Pierson said the state is providing $5 million in performance-based grants to Shintech, available in three allotments when the firm meets capital expenditure milestones. Shintech has not yet applied for the funding, so LED said it does not have any performance data. According to the original LED announcement, Shintech will create 100 new direct jobs at the site.
Once the ethane cracker is put into service, the agreement requires Shintech to meet employment and payroll levels for a 10-year period subject to clawbacks if it falls short.
With about 5,700 acres on the Mississippi River southwest of Baton Rouge, Shintech operates plants in Plaquemine and Addis that chiefly produce polyvinyl chloride, or PVC, and vinyl chloride monomer, or VCM — the key ingredient from which PVC plastics are made.
The $1.4 billion expansion includes installation of an ethane cracker at the Plaquemine complex and capital upgrades to connect the ethylene output to VCM and PVC production there.