SINGAPORE: National water agency PUB has issued a default notice to Hyflux subsidiary Tuaspring Pte Ltd (TPL), which owns Singapore’s second and largest desalination plant, to remedy defaults arising under a 25-year water purchase agreement between them.
The move was made to ensure Singapore's water security is safeguarded, PUB said in a release on Tuesday (Mar 5), adding that Tuaspring has been unable to fulfil various contractual obligations.
PUB also said that it will exercise its right to terminate their water purchase agreement and take control of the desalination plan if Tuaspring is unable to resolve all defaults within the notice period.
READ: Hyflux’s Tuaspring plant - The ‘noose around the neck’ that needs to be sold, but can it be done
SAFEGUARDING SINGAPORE'S WATER SECURITY
Under the deal signed with PUB in 2011, Tuaspring has to deliver up to 70 million gallons of desalinated water per day to PUB for a 25-year period from 2013 to 2038.
Desalinated water is one of Singapore’s four national taps, to ensure a diversified and sustainable water supply. Singapore’s desalination plants are integral to its water security.
Tuaspring, however, has failed to keep the plant reliably operational as required, said PUB.
In response to queries from Channel NewsAsia, PUB said that Tuaspring "failed to provide plant capacity as required on multiple occasions".
It has also not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months, PUB added.
"PUB has provided sufficient time for TPL to resolve its operational and financial defaults. Given TPL’s current financial position, TPL’s inability to fulfil its contractual obligations is unlikely to change in the immediate to longer term," the national water agency said.
"PUB is taking steps to ensure that our water security is safeguarded."
With the issuance of the default notice, PUB said, TPL will be required to resolve all defaults within the default notice period - which is 30 days from Wednesday.
"Failing which, upon the expiry of the default notice period, PUB will exercise its right to terminate the WPA and take control of the plant," it said.
RESTRUCTURING IN JEOPARDY
Termination of the WPA may jeopardise Hyflux's restructuring, the company said in a Singapore Exchange announcement on Tuesday.
Under the restructuring agreement between Hyflux and SM Investments, a termination of the WPA may entitle the investor to withdraw from the restructuring arrangement.
SM Investments had proposed to invest S$530 million in exchange for a 60 per cent stake of Hyflux in October 2018.
Acknowledging receipt of PUB's default notice, Hyflux said that it will consult with PUB on addressing any alleged defaults.
Tuaspring has until Apr 5 to consult with PUB on the steps that need to be taken to mitigate the consequences of, and to cure any defaults.
If breaches are not corrected after this period, PUB has the right to terminate the WPA by giving written notice of at least 30 days to Tuaspring.
"The Company and Tuaspring are presently seeking legal advice on the matters asserted in the default notice, and will commence consultations with PUB immediately, as envisaged in the Water Purchase Agreement," Hyflux said.
"NOOSE" AROUND HYFLUX'S NECK
Costing more than S$1 billion to build, the Tuaspring Integrated Water and Power Plant was the landmark project that marked water treatment icon Hyflux’s foray into the energy business.
But for all the ambitions that it embodied, the Tuaspring project struggled to turn a profit and according to some market observers, eventually became the “noose” around Hyflux’s neck.
Bogged down by the losses, Hyflux has spent the last few months trying to restructure itself.
According to a Mar 1 affidavit, Hyflux chalked up a net loss of S$1.1 billion for the nine months ended Sep 30, 2018, after taking a S$916 million impairment on the carrying value of Tuaspring and other projects.
Hyflux’s do-or-die restructuring plan will be voted on by investors on Apr 5 and 8. It has proposed a rescue plan that will see some of its debt being slashed by almost 90 per cent, but retail investors told Channel NewsAsia that this will see them suffering massive losses.
Additional reporting by Tang See Kit.
This story has been updated with Hyflux's response to PUB's default notice