(Bloomberg) -- Behind Saipem SpA’s shock profit warning last week lurks a huge loss on a contract to supply wind-turbine foundations for an Electricite de France SA project off the east coast of Scotland.

Saipem is late in delivering so-called three-legged steel jackets for 54 wind turbines, exacerbating potential delays at the EDF project, people familiar with the matter said. Saipem’s losses could exceed the value of its contract worth about 550 million-euro ($630 million), said the people, asking not be named as the matter is private.

The ruinous wind farm contract is a key contributor to the loss that triggered a slump in Saipem’s shares to the lowest in three decades. Saipem said Jan. 31 there had been a “significant deterioration” in margins on some wind projects, a relatively new business for the specialist Italian oil drilling firm, amid increases in the cost of raw materials and logistics.

A representative for Milan-based Saipem declined to comment.

Covid-19 has hit the project’s supply chain, while technical problems have also caused delays, a spokeswoman for the renewable arm of Paris-based EDF told Bloomberg. She declined to elaborate on the issues, but said EDF, which jointly owns the Neart na Gaoithe project with Ireland’s Electricity Supply Board, is evaluating the impact of the delays. 

The possible slippage in the 1.8 billion-pound ($2.4 billion) wind farm comes as the pandemic continues to disrupt logistics chains and the supply and cost of both labor and raw materials. When complete, the project will generate enough electricity to meet 4% of Scotland’s demand.

Saipem said in October that “additional issues causing higher estimated costs” at the project was the main reason for the more than 600 million-euro drop in its nine-month operating profit. The company’s 2022 order backlog included 600 million-euro contribution from wind farms, it said. 

Turbine makers including Siemens Gamesa Renewable Energy, which is supplying the wind mills for the Neart na Gaoithe project, have also recently warned that they are grappling with rising energy and steel costs and pandemic-related disruptions to supply chains.

It’s not the only project weighing on Saipem’s balance sheet. The Italian company’s biggest contract relates to a Mozambican liquefied natural gas project led by TotalEnergies SE. Construction at the site in Cabo Delgado province was halted in early 2021 after a group linked to Islamic State attacked a nearby town.

In a capital markets day presentation on Oct. 28, Saipem said Mozambique was impacting on its profit margins, adding that the project had an order backlog of 3.6 billion euros. The outlook remains uncertain, after TotalEnergies Chief Executive Officer Patrick Pouyanne said last week that the security situation needs to improve further before the project restarts.

Total CEO Says More Progress Needed on Mozambique Security 

©2022 Bloomberg L.P.