Bloomberg

(Bloomberg) -- Turkish fertilizer producer Bagfas is accusing Thyssenkrupp Industrial Solutions AG of shoddy work on a 140 million-euro ($156 million) plant and will fight the German company’s court claim over non-payment, saying contractual standards weren’t met, Bagfas’s chief executive said.

Bagfas Bandirma Gubre Fabrikalari AS, as the fertilizer company is formally known, will submit its defense in a month to the International Court of Arbitration in Zurich, where Essen, Germany-based Thyssenkrupp filed the case, Bagfas Chairman Kemal Gencer said in an interview on May 26 in Istanbul.

“The longer this takes, the better our chances of winning,” Gencer said, referring to the dispute over a chemical fertilizer complex that was tendered to Thyssenkrupp’s unit Uhde GmbH in 2012 and was completed in August last year. Bagfas refused to take delivery of the plant, located in the western Turkish town of Bandirma, on grounds the facility’s quality failed to meet obligations in the contract.

Substandard quality of the end product, levels of dust emission and persistent mechanical issues were among reasons for the refusal, Gencer said. “They asked for tolerance on some specifications and full payment despite these. When we refused, they went to court,” he said.

2016 Outlook

Thyssenkrupp has an outstanding claim “amounting to 10 to 20 million euros” in relation to final installment of the project, Cosima Rauner, a spokeswoman for the company, said in an e-mail on May 30. “We are in talks with the customer and do not comment on further details.”

The dispute won’t impact Bagfas’s 2016 outlook, as it has already started to “fix” the issues itself, some with the assistance of Thyssenkrupp, Gencer said. The new facility will produce 600,000 tons of fertilizer per year and almost 60 percent of the first year’s output has already been contractually sold, he said. “My advice to Thyssenkrupp would be to prevent steel corrosion, prevent product coagulation and bring in process engineers to the plant,” Gencer, 62, said.

Bagfas reported net income of 14.7 million liras ($5 million) in the first quarter, following last year’s record 233.9 million liras in profit. Sales will surpass last year’s 460.7 million, Gencer said. The shares fell 1.8 percent this year, underperforming the Borsa Istanbul 100 Index’s 7.7 percent advance.

To contact the reporters on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net, Ercan Ersoy in Istanbul at eersoy@bloomberg.net. To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Benjamin Harvey

©2016 Bloomberg L.P.

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