Vilnius CHP settles with Poland’s Rafako

Vilnius Combined Heat and Power Plant (Vilnius CHP) and the former main contractor of the biomass unit, a Polish company Rafako have concluded a settlement agreement in the legal dispute brought before the SCC Arbitration Institute regarding the termination of the contract, Rafako’s failure to complete the project and indemnification. Under the settlement agreement, Rafako has committed to partially compensate damages and hand over important documents.

According to Vilnius CHP’s management, the agreement will allow the company to successfully complete the project while increasing the chances of subcontractors that worked for Rafako to recover any dues.

“Rafako’s financial position is complicated, so after long negotiations we reached a compromise regarding partial compensation and transfer of critically important technical documentation of the project. If we were to continue litigating at the SCC Arbitration Institute, Rafako probably would have had to declare bankruptcy, and we would not be compensated for damages at all. Additionally, considering that Rafako will be able to continue its operations and is under the restructuring process, there are more chances that Lithuanian subcontractors will be able to recover any dues from the Polish company,” said Mantas Burokas, General Manager at Vilnius CHP.

Among other things, lawyers estimate that the litigation process could take five years or more, and litigation costs in such cases usually reach up to EUR 10 million, so the most rational solution was to reach a settlement agreement.

The settlement agreement ensures that Vilnius CHP will receive a monetary compensation of nearly EUR 30 million. The company has already received a part of it, nearly EUR 15 million, and Rafako will pay the remaining EUR 15 million in instalments over five years. Vilnius CHP will also recover all the equipment and the documents necessary for the project that were in possession of Rafako. Considering the value of the equipment and the documents, Vilnius CHP will additionally recover nearly EUR 2 million. Recovering the documents and the equipment is especially important in order to successfully continue and complete the biomass project.

The settlement agreement is still pending for approval from the SCC Arbitration Institute.

Last August the SCC Arbitration Institute ruled that Rafako is at fault for the delayed construction of the Vilnius CHP biomass unit. It also ruled that Vilnius CHP had valid grounds to terminate the contract with Rafako and has the right to claim penalties and request indemnification. A mandatory settlement period has been set for the parties to the dispute according to the procedural timetable.

Lithuanian courts have already stated several times that subcontractors that worked with Rafako must refer for any dues to Rafako. Based on the information available to Vilnius CHP's management, subcontractors are participating in the restructuring process of the Polish company as creditors, and their dues are to be paid in instalments.

Even though the Vilnius CHP biomass unit is supplying heat to the Lithuanian capital, it is currently still in the commissioning stage. This means that the equipment for generating heat is being tested. Later on, the equipment for generating electricity will be tested as well.

Vilnius CHP's waste-to-energy unit has been generating heat and electricity since 2021. The waste-to-energy unit incinerates about 160,000 tonnes of municipal waste, turning it into energy, and the biomass unit will incinerate about 500,000 tonnes of biomass per year.

After Vilnius CHP’s biomass unit is complete, Vilnius CHP will be one of the most technologically advanced combined heat and power plants in Europe. It is estimated that the plant’s total electric capacity will reach 93 MW, and heating capacity – 239 MW.