PUB to take over Tuaspring to safeguard water security

PUB issued a notice to Hyflux yesterday to terminate their water purchase agreement, and will take over its Tuaspring plant next month.
PUB issued a notice to Hyflux yesterday to terminate their water purchase agreement, and will take over its Tuaspring plant next month.ST FILE PHOTO

National water agency PUB is taking over debt-ridden Hyflux's Tuaspring desalination plant to safeguard Singapore's water security.

It issued a notice to the troubled water treatment company yesterday to terminate their water purchase agreement, PUB said in a statement yesterday.

After a 30-day notice period, PUB will take over the desalination plant next month.

The notice is the latest development in the ongoing saga surrounding Hyflux as the company struggles to restructure its debts. Its liabilities stood at $2.95 billion as at March 31 last year, and its 34,000 retail investors stand to lose all of the $900 million they have invested if the firm is liquidated.

PUB had said earlier that it would take over the Tuaspring plant for zero dollars, waiving any compensations payable by the company, as it strove to ensure that Singapore's water security was not compromised.

It had noted a current valuation showed that the desalination plant's price is negative.

The final price, however, will be determined later by an independent valuer, according to the agreement's terms.

A PUB spokesman said in response to media queries that the agency's focus is to put in place the necessary measures and upgrading works to ensure that the desalination plant is able to produce desalinated water reliably.

"The extent of the measures and upgrading works will be determined after PUB conducts a more in-depth engineering assessment," the spokesman added.

PUB will keep employees with the relevant operational capabilities to run the desalination plant.

"We will work out the implementation details and timeline with Tuaspring to facilitate a smooth transition," the spokesman said.

Associate Professor Lawrence Loh of the National University of Singapore said PUB's takeover move shows that the agency will move decisively to ensure the continuity of Singapore's water supply.

"What is also implied is that Hyflux is in no condition to cure the defaults operationally and does not have the finances to do so in good time," added Prof Loh, who is also the director of the Centre for Governance, Institutions and Organisations.

PUB had previously extended its deadline for Tuaspring to fix its defaults to April 30, subject to conditions. But Hyflux decided earlier this month to walk away from a $530 million restructuring deal by SM Investments, an Indonesian consortium formed by Salim Group and Medco Group.

Hyflux and SM Investments could not agree on how much to allocate between paying Hyflux's debtors and boosting the firm's ability to operate, and they are blaming each other for the deal's collapse. The PUB deadline thus reverted to the original date, April 5.

Tuaspring is at the heart of Hyflux's financial problems. The integrated water and power plant was meant to enable profits from the power plant to be used to subsidise the desalination plant's operation costs. But the weak electricity market, coupled with operating losses from the desalination plant, caused Hyflux to sink into debt.

Things worsened to the point where Hyflux failed to replace poorly performing membranes in 2017, which affected the quantity and quality of Tuaspring water.

Environment and Water Resources Minister Masagos Zulkifli said in Parliament earlier this month that the water supplied to consumers is safe to use and drink, and that PUB conducts many tests to ensure water safety.

More recently, Hyflux failed to produce financial evidence to show its ability to keep the plant running for the next six months.

PUB's takeover was included as a safeguard in the water purchase agreement to ensure Singapore's water security. The deal contracted Tuaspring to deliver up to 70 million gallons of desalinated water per day to PUB for a 25-year period from 2013 to 2038.

A version of this article appeared in the print edition of The Straits Times on April 18, 2019, with the headline 'PUB to take over Tuaspring to safeguard water security'. Print Edition | Subscribe