Orascom Construction Ltd., the big, Cairo-based engineering and construction company, says it lost almost $400 million (U.S) in 2015 and that problems, which include cost overruns and a contract dispute, on an Iowa fertilizer plant project weighed down the overall financial performance of its U.S. operations.
The nitrogen fertilizer plant project in Wever, Iowa, begun in late 2012, and losses under Orascom’s engineer, procure and construct contract were “overshadowing the success of other major parts of the business,” the company stated.
According to Orascom Construction's financial report for 2015, the company recorded a net loss of $334.4 million and a total comprehensive loss of $399.6 million on $3.9 billion in revenue. In 2014, Orascom Construction lost $79.5 million on $2.16 billion in revenue.
Operations at Orascom’s two big U.S. brands, The Weitz Co. and Contrack Watts, appear to be running smoothly. Those units “continue to expand in-line with our strategy to increase our U.S. presence,” the company reported.
“Weitz in particular signed $1.2 billion in new awards in 2015 compared to $626 million in 2014 as it capitalized on a rebounding U.S. market and targeted larger projects,” the company stated.
In an annual report, Orascom Construction CEO Osama Bishai stated that despite the growth and profitability of Weitz and Contrack Watts, U.S. operations together lost $615 million, much of it in the project for the Iowa Fertilizer Co. LLC.
“We have worked to mitigate the challenging issues to avoid further losses,” he said, and “our results thus reflect what we believe are appropriate accounting measures related to this project.”
The company, whose shares are listed on the NASDAQ Dubai and Egyptian Exchange, has experienced big swings in earnings in recent years. In 2012 and 2013, the Egyptian revolution and its repercussions, including inflation, higher labor costs and enforcement of summer curfews, contributed to roughly $534 million in losses.
Construction Contract Dispute
A major subcontractor to Orascom E&C USA Inc. in February filed a lien and a breach-of-contract lawsuit against Orascom and Iowa Fertilizer Co. in federal court in Davenport, Iowa. White Castle, La.-based Maintenance Enterprises LLC claimed in its complaint that it is owed $50 million. Much of its work, begun in April 2015, consists of industrial piping and mechanical equipment.
On April 29, Orascom filed a reply in which it denied many of the allegations in the lawsuit and countersued.
In it, Orascom claimed that Maintenance Enterprises' original budget estimate of $84.9 million for its downstream subcontract in May 2015 has grown to about $110 million in a year and that estimated cost-of-completion rose to $123 million by last October and to what Orascom termed an “astonishing” $140.8 million by December.
