SINGAPORE: The current situation with embattled water treatment firm Hyflux does not mean that Singapore should dismiss the existing Public-Private Partnership model (PPP) altogether, Minister for the Environment and Water Resources Masagos Zulkifli said on Monday (Apr 1).
He was responding in Parliament to a question filed by MP Seah Kian Peng, who had asked about the impact of the recent challenges facing Hyflux on Singapore’s water supply, and whether any review should be done in light of what has happened.
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, he said, 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.
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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.
(Photo: Jeremy Long)
PUB’S ACTIONS DO NOT DISADVANTAGE HYFLUX INVESTORS
Mr Masagos noted that safeguards have been built into the Water Purchase Agreement with Tuaspring Pte Ltd (TPL), which owns the Tuaspring Integrated Water and Power Project (TIWPP).
This is one of two PPP projects Hyflux is involved in, as TPL is a wholly-owned subsidiary of Hyflux. The other project – the SingSpring Desalination Plant – is owned by SingSpring Trust, which is majority owned by Keppel Infrastructure Trust, with Hyflux owning a minority stake.
Outlining the background of the Hyflux situation, Mr Masagos said that in 2010, national water agency PUB had 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, and made the 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.
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.
However, TPL has been experiencing difficulties fulfilling its contractual obligations since 2017, he said, adding that this includes 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, the minister explained.
“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.”
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If they failed to do so, PUB will terminate the 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.”
Mr Masagos stressed 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.
Mr Masagos said that TPL provides an example of how the safeguards built into the PPP contracts are “robust” and serve their purpose. Nonetheless, he said, the Government is always studying ways to strengthen the safeguards and enhance its operations, and will continue to do so.
He added that water is an existential issue for Singapore.
“Water security is integral to Singapore’s national security,” he said. “PUB’s recent actions reinforce that.”
“We will never allow Singapore’s national or water security to be compromised.”
