Extension of validity of the warranty relating to the contract "Construction of the pipeline DN700 Szczecin-Gdańsk"

The Board of Stalprofil on July 15, 2015 was notified about signing on 9 July 2015 by Towarzystwo Ubezpieczeń Euler Hermes S.A., at the request of the consortium composed of: ZRUG Zabrze S.A. (a subsidiary of the Issuer) and Stalprofil, annexes to the contract guarantees that extend the expiration dates of guarantees of proper removal of defects and faults of the contract "Construction of the pipeline DN700 Szczecin- dańsk" granted to OPG Gaz-System S.A. with its registered seat in Warsaw for Stage II Karlino-Koszalin, Stage III Koszalin-Słupsk and for Stage IV Słupsk-Wiczlino respectively to 30 August 2015 in terms of claims for non-performance or improper performance of the contract and until 30 August 2018 in terms of warranty claims.
The total value of performance guarantees and guarantees for the proper removal of defects granted by Towarzystwo Ubezpieczeń Euler Hermes S.A. for Stage II, III and IV has not changed and amounts to PLN 27,537,510.60 in connection with claims for non-performance or improper performance of the contract and 8.261.253,19 PLN in terms of warranty claims.
At the same time on Stalprofil's order was extended the period of validity of advance payment guarantees, the PKO Polish Bank S.A. with its registered seat in Warsaw has granted to the beneficiary - OGP Gaz-System S.A. According to the annexes to the advance payment guarantees issued by PKO Bank Polski SA, guarantees entered into force on the date of issue, ie. 30 June 2015 and remain valid until the date falling 60 days after the date of final acceptance, no later than 29 October 2015. Total advance payments received by the Consortium Leader - ZRUG Zabrze S.A. - from OGP Gaz-System S.A., and used to finance the execution of the contract, amounted to PLN 51.5 million (gross).
The financial terms on which the guarantees were granted do not differ from market terms used for this type of agreement. The remuneration of the issuer of the warranty is 0.5% pa of the value of the issued guarantees. The value of guarantees issued in favor of Gaz-System S.A. exceeds 10% of the equity of the issuer.
The term of validity of the above guarantees was extended at the request of Gaz-System S.A. in connection with the subsequent postponement of execution of the contract, signed on 10 May 2012, between the consortium of companies comprising: ZRUG Zabrze S.A. (consortium leader) and Stalprofil S.A. (consortium member) and OPG Gaz-System S.A. with its registered seat in Warsaw, for general contracting of investment under the name "Construction of the pipeline DN700 Szczecin-Gdańsk: Stage II Karlino-Koszalin, Stage III Koszalin-Słupsk and Stage IV Słupsk-Wiczlino".
Originally established at the 26 June 2015, the final acceptance of Stages II and III did not take place, and the main reason for not coming to the effective final acceptance of the two Stages of the project was incompatible documentation prepared by the contractor (ZRUG Zabrze SA), missing the Employer expectations. The next deadline for receipt of Stage II and III was appointed on July 24. The Board of ZRUG Zabrze S.A. will seek to immediately fix the date of final acceptance of Stage IV. It may take place only after the receipt of Stage II and III and in accordance with the predictions of the board of ZRUG will be established within the period 25-31 July.
The pipeline Szczecin-Gdańsk is the entire length of chip and filled with gas and subjected to technical acceptance by the Purchaser. They are currently procedures related to final acceptance of Stage II and III and troubleshooting of isolation and commissioning of cathodic protection (corrosion), section IV Stage. Lengthening procedures related to final acceptance of the pipeline cause that there is a risk associated with delayed execution of the contract, including the risk of further deterioration estimated by ZRUG Zabrze S.A. at the end of the first quarter of 2015 negative profitability of the contract. The blame for the delay and the formation of defects in construction are largely borne by subcontractors of ZRUG, therefore the costs of their removal are successively transferred to them. In view of the foregoing accurately determine the result on the contract in relation to the expected costs and revenues of the budget and determine its effect on the Group's results will be made after the end of the contract. The Management Board of ZRUG Zabrze S.A. take any action on compliance with the planned deadlines of final acceptance of the pipeline Szczecin-Gdańsk and reduce the negative effects of delays in the execution of the contract on the company's result.