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Parliament Q&A

Oral reply by Masagos Zulkifli, Minister for the Environment and Water Resources, to Parliamentary Question on Hyflux on 1 April 2019

Question by Mr Seah Kian Peng: To ask the Minister for the Environment and Water Resources (a) what is the impact of the recent challenges facing Hyflux on our water supply; (b) what contingency plans are there in place, in particular whether PUB has the operational capacity to take over the desalinisation plant; (c) what is the extent of private sector involvement in our water provision; and (d) whether any review should be done in light of what has happened to Hyflux.

Answer by Minister:

1     I thank the Member for his question. I know that many Singaporeans are concerned about what the ongoing Hyflux restructuring means for our water supply.

2     Water is an existential issue for Singapore. PUB’s priority has been and will always be to ensure Singapore’s water security. Over many decades, we have diversified our water sources and built up our four national taps. NEWater and desalinated water are integral to our water security, as they are weather-resilient and can supply water even during dry spells.

3      As part of our plan to build up our desalination and NEWater capacities for our water security, the Government has partnered the private sector to design, build, own, and operate some of our desalination and NEWater plants. Today, we have five NEWater plants and three desalination plants; out of these, three of the NEWater plants and two of the desalination plants, including Tuaspring, are based on a Public-Private Partnership, or PPP, model. The remaining three plants, as well as all our other water supply assets, are owned and operated by PUB.

4     The PPP model has been useful in allowing us to tap on private sector innovations and cost efficiencies to deliver water services more effectively. To ensure that water security is never compromised, PUB has put in safeguards as part of the PPP contracts. 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. 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.

5     As PUB continues to operate its own desalination and NEWater plants, PUB has the operational capabilities, experience and manpower to take over and operate the private plants, should the need arise.

6     Hyflux is currently involved in two PPP projects with PUB: the SingSpring Desalination Plant (SSDP) and the Tuaspring Integrated Water and Power Project (TIWPP). SSDP is owned by SingSpring Trust, which is majority owned by Keppel Infrastructure Trust, with Hyflux owning a minority stake. The SSDP is not affected by Hyflux’s debt and business reorganisation, nor is it subject to the moratorium that has been imposed by the court.

7     As for the TIWPP, it is owned by Tuaspring Pte Ltd, or TPL, a wholly-owned subsidiary of Hyflux. Let me briefly recap the events leading up to today. In 2010, PUB called an open tender for a 70 million gallons per day desalination plant, to be completed by 2013. In its tender bid, Hyflux proposed a different business model – one of an integrated desalination and power plant. Hyflux made a business decision to build the power plant that has a capacity significantly more than what the desalination plant needed, with the intention of selling excess power to the national power grid.

8     Hyflux’s bid met PUB’s requirements for constructing and operating a desalination plant and was the most competitive bid among the submissions. PUB also took into account Hyflux’s expertise and track record. Thus, PUB awarded the tender to Hyflux in 2011. As with other such PPP projects, PUB built in safeguards in the Water Purchase Agreement, or WPA, signed with TPL.

9     Since 2017, TPL has been experiencing difficulties fulfilling its contractual obligations under the WPA. These include a failure to keep the plant reliably operational as required. More recently, 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. 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 the WPA and take over the desalination plant. This is to ensure that a critical asset remains in safe hands, and avoids uncertainty over the operations of the desalination plant. 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.

10     The purchase price for the desalination plant will be determined by an independent valuer in accordance with the WPA. Based on current valuation, the purchase price is negative and TPL will hence have to pay PUB a compensation sum. TPL itself has stated that there is a high likelihood for this. The desalination plant has been and will likely continue to lose money for the next few years. In addition, PUB would have to incur costs to make good the plant and ensure that it operates reliably for its remaining lifespan.

11     However, given TPL’s current financial position, PUB is unlikely to recover the compensation sum from TPL. PUB has therefore indicated that it is willing to waive the compensation sum and purchase the desalination plant at zero dollars.

12     Let me be quite clear therefore: PUB’s actions do not weaken either TPL or Hyflux, and do not disadvantage those who have invested in Hyflux. Indeed, it is quite favourable to TPL. TPL has in fact noted in its letter to PUB on 20 March 2019 that if PUB terminates the WPA, 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. In its announcement on 26 March 2019, Hyflux further stated that SM Investments Pte Ltd, the prospective investor of Hyflux, had concerns over working capital requirements post-investment and that PUB’s actions should alleviate such concerns.

13     The current situation with Hyflux does not mean that we should dismiss the PPP model altogether as our other PPP projects are working well. The safeguards that PUB has built into the PPP contracts have worked well to ensure our water security. In fact, TPL provides an example of how these safeguards are robust and have served their purpose. That said, we are always studying ways to strengthen the safeguards and enhance our operations, and we will continue to do so.

14     Let me assure members of the House and all Singaporeans that PUB will always act to ensure Singapore’s water security. Water is an existential issue for Singapore. Water security is integral to Singapore’s national security. PUB’s recent actions reinforce that. We will never allow Singapore’s national or water security to be compromised.

15     Thank you.

 

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