REC ASA - Silicon expansion project - delay and cost overrun

Kjørbo, February 6, 2008: A project review by REC Silicon and its contracting partner Fluor Corp. has revealed that the cost estimate for the engineering, procurement and construction of the new plant for production of granulated polysilicon in Moses Lake, Washington will have to be increased by close to 20% from the USD 660 million communicated earlier. Mechanical completion of the plant will most likely be delayed by approximately two months and commercial production is now scheduled to start late fourth quarter 2008. REC will host a conference call later today at 9:30 CET.
 
REC started, in October 2005, a project to build a new polysilicon plant in Moses Lake, Washington, based on the proprietary FBR technology. An investment decision was made in May 2006 for a plant with a design production capacity of 6,500 MT of granular polysilicon and 9,000 MT of silane gas. Due to REC's limited project management capacity at that time, Fluor Corporation was chosen as Engineering, Procurement, Construction & Management Assistant contractor.
 
Throughout 2007, REC added additional resources to avoid possible negative consequences from the increasingly pressured global engineering, procurement and construction market. Tight market conditions have pushed the world's equipment vendor and fabrication shop capacity to the limit, and despite the additional efforts, REC has not been able to mitigate all negative impacts.
 
Delays in equipment deliveries have been the prime contributor to the expected cost increase and project schedule extension. Such delays impact both detailed engineering and construction and thus the entire project schedule and the project cost. Furthermore, additional costs have been included to mitigate the potential effects of further delays in completion. Both REC and Fluor have strengthened their project management, and Fluor's project management function has been reorganized with immediate effect.
 
The overall capital investment has consequently been revised to close to USD 800 millions, including the expected cost overrun, and mechanical completion of the plant will most likely be delayed by approximately two months. Commercial production is now scheduled to start late fourth quarter 2008.
 
"We are confident that the fluidized bed reactor technology will enable us to maintain and fortify our position as a cost leader in the production of polysilicon for the solar industry. However, the global market for engineering, construction, equipment, and installation is very tight, and the related consequences have been underestimated. We are very unhappy with this development and together with Fluor Corp. we are now taking measures to focus on completing the project and minimize the negative consequences for REC", says
Executive Vice President Gøran Bye of REC Silicon.
 
As a result of the expected delay, REC Silicon is unlikely to meet the previously communicated production target of approximately 8,000 MT of polysilicon in 2008. This estimate included up to 1,500 MT of granulated polysilicon from the new FBR-plant, mainly in the fourth quarter 2008. Given the revised later start-up date for commercial production, REC's current best estimate for the production of granulated polysilicon is now approximately 400 MT. The expected overall production of polysilicon is thus 7,000 MT in 2008.
 
The finalization of the Siemens reactor modifications, that are part of the REC Silicon debottlenecking project announced in September 2006, and scheduled to be finalized during the first quarter 2008, will be pushed out in time. This will contribute to maximize the production from the existing Siemens based facilities throughout 2008. The revised debottlenecking schedule will also coincide with the additional reactor modifications announced in April 2007 and expected to be on-stream late Q4 2009.
 
The lower availability of polysilicon could possibly also affect production in REC Wafer and REC Solar towards the end of 2008. These effects are now being assessed and REC is taking every possible measure to avoid material consequences. Given the relatively lower downstream production capacity, the effects further downstream will in any case be significantly lower than the polysilicon production loss could potentially indicate.
 
"During the last 12 months, REC Silicon has strengthened the project organization to count around 50 people and project office has been established in Houston, Texas to execute future REC Silicon projects. This will reduce our dependency on external project management contractors. Recently, REC has also started to build a new corporate project organization to enable best practices in project management across all REC expansion projects", says President and CEO Erik Thorsen of REC.
 
REC will host a conference call with possibilities for questions and answers today Wednesday February 6, at 9:30 Norwegian time/CET. Please make sure to dial inn slightly ahead of time to finalize your registration:
 
Norway free call: 800 80 119
International dial in: +47 23 00 04 00
 
Immediately after the call, a replay of the conference call will be made available. To access, please dial +47 67 89 40 91 and use the following procedure:
  1. Type account number 1512 followed by # (pound-sign) and press 1
  2. Continue by typing the conference number: 512 followed by # (pound-sign) and press 1 to play
 
 
About REC
REC is uniquely positioned as one of the most integrated company in the solar energy industry. REC Silicon and REC Wafer are the world's largest producers of polysilicon and wafers for solar applications. REC Solar produces solar cells and solar modules. REC Group had revenues in 2006 of NOK 4,334 million and an operating profit of NOK 1,574 million. Please also see www.recgroup.com
 
For further information please contact:
Erik Thorsen, President & CEO; +47 907 56 685
Jon André Løkke, SVP & Investor Relations Officer; +47 907 44 949