Japanese contractor Chiyoda has secured funding of 180 billion yen ($1.6 billion) from a pair of compatriot companies after it posted a large loss due to cost blowouts on liquefied natural gas projects, writes Russell Searancke.

Mitsubishi Corporation and Mitsubishi UFJ Financial Group (MUFJ) are lending the support and have also committed to supply top management personnel and frontline project managers as part of the rescue effort.

Mitsubishi executive Kazushi Okawa has been appointed as Chiyoda's chief executive and chairman, with fellow Mitsubishi executive Kouji Tarutani named chief financial officer.

Mitsubishi will purchase 70 billion yen in preferred shares and lend another 90 billion yen. MUFG Bank will provide an additional 20 billion yen.

Chiyoda's troubles stem from huge losses at the Cameron LNG project as well as cost troubles at the Freeport LNG project — both of which are in the US — and the Tangguh LNG development in Indonesia.

In addition, the company has revised its risk evaluations for a range of arbitration cases and disputes, some of which apply to the Ichthys LNG project in Australia.

The losses on the LNG projects were caused by a range of factors that "exceeded our reasonable expectations", Chiyoda said.

These included the effect of construction works outside of Chiyoda's scope, a shortage of skilled labour, decreased site productivity and increased site worker costs, and the effects of natural disasters and weather.

The Cameron LNG project has been particularly challenging, and Tangguh damages are increasing. Cameron is in the final stages but "substantial unanticipated additional works have occurred in the final phase of train one".

At Tangguh, the project schedule is being affected by several factors "and requires a significant amount of additional works and costs to complete".

Chiyoda added that negotiations with its clients — Cameron LNG and BP — on recouping the extra costs are ongoing.

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Chiyoda arranges funding