EPC contractors must manage risk when supporting Qatar’s energy transition

Taking such action will help EPC contractors maximise the opportunities arising from the Qatari state’s investment in renewables generation and carbon capture and storage.

Qatar’s energy transition

Qatar is one of the world’s foremost exporters of liquid natural gas (LNG) and one of the largest producers of oil in the Middle East too. However, it is committed to “environmental development”, in tandem with economic, social and human development, via its National Vision 2030, and has recognised its need to reduce greenhouse gas emissions in line with this vision, which it first set out in 2008.

Earlier this year, Qatar published its third national development strategy, which covers the period 2024 to 2030 as it works towards delivering its vision by the end of this decade. In that paper, Qatar acknowledged that further action is needed to, among other things, reduce emissions across “high-impact sectors” and curtail “CO2-equivalent emissions imports”.

Substantial investment went into improving Qatari infrastructure to facilitate the country’s hosting of the FIFA World Cup in 2022 – from airport expansion and metro modernisation, to hotels, roads and stadia themselves. Since then, the state’s infrastructure focus has been on major new energy infrastructure projects – perhaps most notably the North Field Expansion project. The project is being delivered in phases and, when complete, will not only increase the country’s LNG production capacity but also ensure that carbon emitted from production is captured, stored, and in some cases put to other industrial uses rather than being released into the atmosphere.

Further investment by Qatar into carbon capture and storage also came in the form of a $1.06 billion blue ammonia project in 2022, the largest facility of its kind anywhere in the world.

Several other energy projects have also been taken forward and demonstrate how Qatar is taking action to reduce its CO2 emissions. The latest such project to be announced is a new solar power mega project – the Dukhan Solar Power Plant – which will be one of the world’s largest solar power plants when installed, with production capacity of 2,000 MW.

When operational, the Dukhan plant will double Qatar’s photovoltaic solar production capacity to 4,000 MW and add to QatarEnergy’s solar power portfolio, which already includes the Al Kharsaah solar power plant, which came online in 2022, and two solar power projects in Ras Laffan and Mesaieed industrial cities, which are due to become operational before the end of this year. It will also mean 30% of Qatar’s electrical power production capacity will come from solar power, and further help to ‘green’ the energy that goes towards powering the country via the national power grid – including the electricity needs of the North Field Expansion project.

Risks to EPC contractors

The various energy and clean tech projects that Qatar is investing in provide excellent opportunities for EPC contractors. However, as with any innovative construction project, they are not free of risk.

In our work in Qatar over the past 12 years, Pinsent Masons has observed various trends emerging from the operation of EPC contracts, which contracting parties should be aware of at the procurement stage. These include:

• late provision of design information;
• late approval of design submittals;
• design variations post-approval;
• construction variations after work has commenced;
• unforeseen ground conditions;
• lack of site access;
• suspension of works;
• failure to coordinate works;
• failure to properly administer the contract;
• financial distress and payment-related claims;
• acceleration;
• interface issues with other contractors;
• workmanship defects of other contractors;
• errors, mistakes or disagreements over how contracts should be interpreted.

These scenarios, coupled with globally unpredictable events such as Covid-19, the war in Ukraine, and the Red Sea shipping crisis, which have caused inflation and a material price escalation crisis, require careful management by EPC contractors’ legal and commercial teams.

Ways to manage those risks

Whilst EPC contractors will find it challenging to successfully negotiate over the general contract terms and conditions, successful EPC contractors will want to be aware of the risks that might arise in the context of energy and clean tech projects in Qatar – and have workflows, policies, teams and templates in place to manage them. A detailed handover should take place between the procurement team that works to win tenders and the team that will execute the works, to ensure the contract is well understood.

While delivering major energy and cleantech projects successfully requires all parties to work in a collegiate fashion and to accommodate reasonable requests from project partners, EPC contractors should also protect their own commercial interests – including, if necessary, make claims, such as where factors outside of their control have prevented them from carrying out scheduled works.

In this regard, contractors’ claims should be supported by contemporaneous evidence, so care should be taken to collate records that can help to demonstrate the impact of claim events on the project.

One particularly common issue which arises on large, complex energy projects where a claim from a contractor is disputed is the ability of the contractor to produce detailed manpower records which demonstrate not only the unexpected loss in productivity of manpower due to certain events at certain times, but specifically where the manpower was allocated. Typically, manpower records from daily and monthly reports contain ‘gate pass’ data which might identify the trade of a labourer but not where specifically that worker is allocated that day. Addressing such gaps in record-keeping and taking other such small measures can make a big difference to demonstrating loss.

Other challenges can arise around demonstrating the financial impact of a claim, including, for example, disagreements as to whether certain costs are fixed or time-related, and give rise to polarisation between parties, when the projects are so large scale and complex. In Qatar, contractors are held to strict standards of proof, driven by the State Audit Bureau’s careful monitoring of capital funded projects. Careful record keeping, and regular legal advice in relation to major claims, can help to manage the risk of dispute escalation.

Whilst working to avoid disputes, EPC contractors should also prepare for them to escalate. They need to be aware that Qatar’s Arbitration Law requires arbitration agreements contained in administrative contracts – i.e. ones involving a state entity, which are for a public purpose and contain onerous terms – to be approved by the prime minster or his delegate. 

Approval might be capable of being obtained retrospectively, but it is better for EPC contractors to insist on a letter from the prime minister’s office at the outset of projects to avoid the risk of the arbitration agreement in their contracts being invalid and having recourse only to the administrative circuits of the Qatari courts.