English translation of the original Korean report. Images and source documents may contain Korean text.

Regarding the approximately 1.4 trillion won ‘Polimery Police’ petrochemical plant construction project in Poland, undertaken by Hyundai Engineering, the client raised issues of construction delays and equipment defects. While both sides agreed to resolve the dispute this year, the Polish government recently announced the preparation of a public report that will address allegations of irregularities in the client’s investment decisions and project management process.

According to Hyundai Engineering’s semi-annual report on the 2nd and a report by Poland’s PAP news agency on the 29th of last month, Wojciech Balczun, the Polish Minister of State Assets, stated in an interview with local radio station RMF FM that new information related to the Polyce project is emerging, and announced the preparation of a public report.

This project was commissioned by Grupa Azoty Polyolefins, an affiliate of the Polish chemical company Grupa Azoty. Hyundai Engineering was responsible for everything from plant design to material and equipment procurement and construction. It is a project to equip production facilities and ancillary facilities such as a port, and the total contract amount recorded in the company’s semi-annual report is 1.37852 trillion won.

In an official announcement on December 30 last year, the client claimed that Hyundai Engineering failed to complete the construction within the stipulated deadline due to non-fulfillment of contractual obligations. Accordingly, they demanded penalties and damages for construction delays, etc., and also initiated arbitration demanding repair or replacement for defects in the constructed facilities, supplied materials, equipment, and documents.

The dispute between the two sides is a contractual disagreement concerning responsibility for construction delays, the existence of defects in facilities and equipment, and the scope of damages. The client’s claims have not been definitively recognized in the arbitration process.

Hyundai Engineering also initiated arbitration against the client. In its semi-annual report this year, the company explained that it paid the performance bond claimed by the client in August last year, and subsequently signed a restructuring agreement.

Hyundai Engineering is an unlisted affiliate of Hyundai Motor Group. As of the end of June, the largest shareholder recorded in this year’s semi-annual report is Hyundai E&C, holding a 38.62% stake, and Chung Eui-sun, Chairman of Hyundai Motor Group, is the second-largest shareholder, holding 11.72%.

■ Construction Responsibility Dispute and Client’s Investment/Management Allegations are Separate

The report announced by the Polish government this time will address allegations of irregularities in the project implementation process. Minister Balczun explained that there were advisory analyses from the early stages of the project warning of deteriorating profitability and future prospects, and mentioned both management and politicians in connection with accountability.

PAP reported that Grupa Azoty’s management submitted a report to the prosecutor’s office in early September, alleging that the company incurred losses due to improper expenditures during the project implementation process. The report also included claims that executive and marketing personnel were unnecessarily expanded between 2021 and 2023, disproportionate to the project’s progress or operational capacity. These allegations of investment and management irregularities on the client’s part cannot be transferred to Hyundai Engineering as corruption charges.

The response submitted by the Polish Ministry of State Assets to parliament on the 1st of last month also addressed the issue of plant normalization. The Ministry of State Assets, citing Grupa Azoty’s explanation, stated that the ability to generate profits was impaired due to equipment failures and prolonged operational shutdowns, and that additional funds were needed for repairs and recommissioning. This was the situation at the time the response was prepared.

According to the response, financial institutions did not agree to use the funds secured as a performance bond for repairs, but instead used them for debt repayment. It was also explained that Grupa Azoty was unable to provide the necessary financial support.

The dispute between the two sides moved to a conciliation process through agreement. Grupa Azoty announced on April 1 that it had reached an agreement with Hyundai Engineering to withdraw the mutual claims filed with the international arbitration institution in Vienna, Austria. The agreement is linked to the process of selling the project company to the Polish energy company ORLEN.

Hyundai Engineering stated in its semi-annual report that the arbitration process has been effectively suspended following an agreement between both parties. It also stated that the relevant details have been reflected in the financial statements, and explained that the related amounts could change depending on the restructuring process and the outcome of discussions between the parties.