A state-owned utility in the UAE owes troubled FAL Oil about AED2.3bn ($631m) for the fuel it bought from the trading company in 2008 and 2009, according to a report by consultancy Ernst & Young.
FAL, based in the emirate of Sharjah, filed a $750m claim against the Sharjah Electricity & Water Authority (SEWA) in the emirate’s federal court in early 2010, after private negotiations between the two parties failed. The suit alleged FAL had not received full payment for oil.
Ernst & Young was appointed by the court to carry out an independent study of FAL’s lawsuit against SEWA.
SEWA declined to comment on the report. “It is not fair to comment as the case is still in the court,” a SEWA official told Reuters by telephone, declining to be named.
Ernst & Young in Dubai declined to comment.
SEWA had counter claims against FAL, including alleged discrepancies between the contracted amount of oil and the amount delivered, and complaints about the quality of the oil supplied and its price.
But the Ernst & Young report, which has not yet been released publicly but was seen by Reuters, said there was no compelling evidence supporting SEWA’s claims.
“However SEWA provided no evidence in support of its claims other than information on incidents relating to two specific truck deliveries…” the 120-page report said.
“In conclusion with regard to the relationship between the parties from an accounting perspective, we did not discover any compelling evidence in support of SEWA’S claim that FAL failed to meet its obligations with regard to the supply of oil for SEWA’s power stations,” it said in its concluding section.
The consultancy said it calculated the amount due from SEWA to FAL on October 14, 2012 was AED2.318bn, and that additional interest of nearly half a million dirhams would be incurred for each additional day after October 14 until the bill was settled.
FAL used to be one of the largest fuel oil traders in the Middle East, but has struggled to keep its operations in full swing because of a lack of funds. It cut its fuel oil and bunkering business in the UAE by as much as 60 percent, and shut trading operations in Singapore and London.
Washington imposed sanctions on the company earlier this year for its past role in supplying refined petroleum to Iran.
The company is in debt restructuring talks with many creditors including Standard Chartered Bank, which heads the steering committee, Barclays Capital and Saudi Arabia’s SAMBA Financial.
A source close to the company said the Ernst & Young report was expected to be influential in speeding up the restructuring process.
“Banks had their doubts in their mind over this…All of this is laid to rest now,” the sources said, declining to be named because of the sensitivity of the issue.
He did not give a timeline for when the restructuring talks would be completed. “We’ve been in final stages for the last three months. They are waiting for the report – they’re waiting to see if there’s a better transaction or deal to be gotten.”
The next court hearing is due in November.
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