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ICGB reaches agreement with the gas pipeline EPC contractor avoiding future litigation issues

The independent transmission operator ICGB reached an agreement with the EPC contractor for the Greece-Bulgaria gas interconnector construction, within the framework of which the indexation of the value of part of the construction and installation activities under the project was granted and due penalties (delay liquidated damages) in favour of ICGB for delays in the construction of the pipeline as of 1 January 2022, were accepted.

In the framework of a lengthy negotiation process between the two parties and with the support of the Ministry of Energy of the Republic of Bulgaria, an agreement was reached to set off the full amount due by the EPC Contractor Liquidated Damages for delay from the total value of a counterclaim for indexation due to the inflation of some of the accepted and completed after 30 June 2021 construction and installation activities on the project.

According to the methodology adopted by the Bulgarian Council of Ministers in September 2022 regarding cost indexations of public procurement contracts because of inflation, contractors under contracts for construction awarded under public procurement procedures have the right to claim cost indexation due to increased prices of basic goods and materials forming the final cost of the construction contracts.

The contractor for the engineering, procurement and construction (EPC) contract of the IGB pipeline presented the right to claim indexation of the contract under the provisions of the Public Procurement Act. In turn, the transmission operator ICGB, which is responsible for the operation of the facility, will deduct the full amount of due Liquidated Damages from the EPC contractor. In addition, the construction company will withdraw all pending claims for additional costs.

The agreement reached ensures that the accrued penalties are collected in favour of ICGB, prevents future disputes and possible arbitration proceedings, and lays a solid foundation for the conclusion of the contractual commitments by both parties without significant costs, resources, and contractual complications. It also saves resources for both parties, avoiding potential litigation risks and allowing them to focus on their core activities.

ICGB highly appreciates the agreement reached, which directly reflects the interests of the company. Withholding of penalties imposed on the EPC contractor, the agreed indexation is significantly below the real inflation for the period, and avoiding future disputes is entirely in favour of the transmission system operator. Despite the indexation, ICGB remains for its scale one of the cheapest energy projects implemented in the region. The total price per kilometre, including the cost of all above-ground installations – two gas metering stations, seven block valve stations and a dispatching centre – remains in the order of 1.3 million euros.

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