A contract disagreement between Saudi Aramco and South Korea's SK Engineering & Construction is delaying construction of a 400,000-barrel-per-day oil refinery in Jizan in southwest Saudi Arabia, industry sources said.
Despite the disagreement, which focused on claims for compensation for change orders, the contract has not been terminated, the industry sources in Saudi Arabia said, denying reports in Gulf business media.
Other contractors on the project have had similar issues, requesting compensation for losses incurred for design changes and delays caused by the slow rate of work on related infrastructure, the sources said.
The refinery, valued at $6 billion to $7 billion, is the centrepiece of a wider plan to revive the economy in one of Saudi Arabia's poorest regions by developing an industrial city that produces and uses oil products for manufacturing.
The complex had been scheduled to be completed in late 2016, but industry sources in the kingdom said last year that it faced delays of six to 12 months because work on associated infrastructure was behind schedule.
A spokesman for SK E&C said on Tuesday the company was still in talks with state-run Saudi Aramco to carry out construction of the crude distillation and vacuum distillation units.
Saudi Aramco declined to comment when asked if the contract with SK had been terminated.
"If the contract gets terminated, who will take over? There will be a big impact then on schedule of the whole refinery, on all contractors, on Aramco," said a source who declined to be identified.
Little progress has been made on the construction of the refinery since contracts were awarded in 2012.
When complete, it will process heavy and medium crude oil into around 75,000 bpd of gasoline and 250,000 bpd of ultra-low-sulphur diesel. Products will also include liquefied petroleum gas, sulphur, asphalt, benzene and paraxylene.