Panda said that the action was approved by its board of directors in addition to the project’s senior and subordinated lenders, as the company had lost confidence in Lurgi’s ability to finish the facility due to continued construction delays.
Panda Ethanol will assume responsibility for managing the remaining construction at the facility, which is in the latter stages of completion.
Under the terms of a comprehensive engineering, procurement and construction (EPC) contract, Panda has the right to terminate the contract if final acceptance is not achieved within 180 days of the guaranteed substantial completion date.
The refinery was expected to be constructed in 17 months and was initially due for substantial completion by December 2007. Due in large part to faulty foundation work, which is currently in the late stages of remediation, the facility has been under construction for approximately 26 months and is not yet finished. The most recent Lurgi construction schedule shows substantial completion to occur in February 2009.
Prior to terminating Lurgi, Panda Ethanol also drew upon the full amount of a $16.2 million irrevocable letter of credit, issued as part of the EPC contract, as a guarantee of certain Lurgi payment obligations. Funds from the letter of credit will be used to pay liquidated damages owed to the Panda Hereford project, amounts owed to sub contractors and expenses incurred as a part of the remediation effort.
