SINGAPORE: The Government cannot use taxpayers’ money to help investors recoup their investment losses, Minister for the Environment and Water Resources Masagos Zulkifli said in Parliament on Monday (Apr 1), in relation to the current situation with embattled water treatment firm Hyflux.
He was responding to a supplementary question from MP Seah Kian Peng, who had asked if the Government would bail out the investors in the firm.
“Investors in search of returns must understand that returns come with some risk,” he said, adding that he can understand the concerns and anxiety of retail investors, and is “saddened by their plight”.
He added that even if there were any proceeds from the takeover of the Tuaspring desalination plant, there is an order as to “who would get what first”. In this case, he said, Maybank, which is Tuaspring’s sole secured lender, will receive payments from TPL before all other general creditors – including national water agency PUB.
In response to another supplementary question from MP Lee Bee Wah, Mr Masagos added that the Government has also decided that it would not claim compensation for taking over the Tuaspring desalination plant from Hyflux.
“We have two options,” he said. “One is to assert our rights ... stress Hyflux even further by asserting that right, and in that whole process, may not get anything at the end of the process.”
“Therefore, we have made the decision that because we are likely not going to get anything from claiming the compensation, we have decided not to claim for that compensation.”
Tuaspring Pte Ltd (TPL), which is a wholly-owned subsidiary of Hyflux, owns the Tuaspring Integrated Water and Power Plant, Singapore's second and largest desalination plant.
In his Parliamentary response, Mr Masagos explained that TPL has been experiencing difficulties fulfilling its contractual obligations since 2017, including a failure to keep the plant reliably operational as required.
It has also failed to produce financial evidence to demonstrate its ability to keep the plant running for the next six months.
“PUB gave time to TPL to try to sort out its problems but PUB’s concerns have been growing over time,” he said. “To safeguard our water security, PUB issued TPL with a default notice on 5 March 2019 to require TPL to remedy the defaults within the default notice period.”
If they failed to do so, PUB will terminate its Water Purchase Agreement and take over the desalination plant, he said.
“This is to ensure that a critical asset remains in safe hands, and avoids uncertainty over the operations of the desalination plant,” he said. “Ultimately, PUB’s actions are based on our overriding objective of ensuring Singapore’s water security and that water continues to be reliably produced at the plant to meet the needs of Singapore and Singaporeans.”
However, Mr Masagos noted that the desalination plant has been and will likely continue to lose money for the next few years. PUB would also have to incur costs to make good the plant and ensure that it operates reliably for its remaining lifespan.
“Given TPL’s current financial position, PUB is unlikely to recover the compensation sum from TPL,” he said. “PUB has therefore indicated that it is willing to waive the compensation sum and purchase the desalination plant at zero dollars.”
He said that PUB’s actions do not weaken either TPL or Hyflux, and do not disadvantage those who have invested in Hyflux. Indeed, he said, it is quite favourable to TPL, and TPL has in fact noted in its letter to PUB that if PUB terminates the Water Purchase Agreement, it would alleviate the pressure on the rest of the Hyflux Group.
It positively impacts Hyflux’s value and hence the value of the Hyflux shares being offered.
SINGAPORE SHOULD NOT DISMISS EXISTING PUBLIC-PRIVATE PARTNERSHIP MODEL
Mr Masagos also added that the current situation with Hyflux does not mean that Singapore should dismiss the existing Public-Private Partnership model (PPP) altogether.
Under the PPP model, Mr Masagos explained that the Government partners the private sector to design, build, own and operate some of Singapore’s desalination and NEWater plants. Currently Singapore has five NEWater plants and three desalination plants. Out of these, three NEWater plants and two desalination plants are based on the PPP model.
Mr Masagos stressed that Singapore’s other PPP projects are working well, and national water agency PUB has built safeguards into the PPP contracts, to ensure that water security is never compromised.
READ: PUB issues default notice to Hyflux's Tuaspring, says will take over plant if defaults not resolved
Mr Masagos added that the PPP model has been useful in allowing Singapore to tap on private sector innovations and cost efficiencies to deliver water services more effectively.
“Even though PUB does not interfere with the business decisions made by the concession companies, PUB monitors the performance of the plants under the PPP model to ensure that the concession companies can meet their contractual obligations to PUB,” he said.
“Where there are issues, PUB will require the concession companies to rectify them, failing which, PUB may exercise its rights to terminate the PPP contracts and take control of the plants.
“We do not exercise these termination rights lightly but will not hesitate to do so when it becomes necessary to safeguard our water security,” the minister added.