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Firm in PUB project fails to pay S$1.2 million to sub-contractors

Clean energy firm Anaergia Pte Ltd failed to pay over S$1.2 million to sub-contractors involved in a project at a Public Utilities Board (PUB) water reclamation plant, raising concerns about corporate responsibility in such government research projects.

The project, carried out at PUB’s Ulu Pandan water reclamation plant, aimed to use food waste to generate electricity. In order to do so, food waste would be added to used water sludge in a co-digestion plant, which was being built by Anaergia Pte Ltd.

While initial plans expected the project to reach completion by last September, it is now expected to be completed only by the end of this year.

Currently, about two-thirds of the project has been completed and PUB has paid Anaergia Pte Ltd S$3.3 million.

However, sub-contractors Structura Construction and Brilliant Engineering have only been paid about S$638,000.

Brilliant Engineering project director Philip Sheng said that his company issued an invoice of about S$223,000 to Anaergia Pte Ltd last year in order for Anaergia Pte Ltd to claim the amount from PUB. However, Brilliant Engineering has yet to receive the payment.

Anaergia Pte Ltd was formerly an affiliate of multi-national firm Anaergia. Last December, however, Anaergia Pte Ltd was sold and is no longer affiliated with Anaergia. Despite owing money to its sub-contractors, PUB has also said that there was no clause in its contract with Anaergia Pte Ltd prohibiting the selling of its shares or the change of its ownership throughout the course of the project.

Nevertheless, PUB stated that this is an isolated case, and that out of its 500 research and development projects undertaken since 2002, Anaergia Pte Ltd is the only contractor failing to pay its sub-contractors.

The financial requirement for Anaergia Pte Ltd to take part in the PUB project was a paid-up capital of S$100. According to the Economic Development Board (EDB), for government construction projects, the required paid-up capital for contractors can amount to millions of dollars. However, for research projects, there is no minimum financial requirement.

The EDB highlighted that grant recipients have to meet various “economic deliverables” to ensure accountability and to safeguard public interest as taxpayers’ money are used to fund such projects.

For instance, the government can hold back disbursements and can call for the returning of funds should the deliverables not be met.

Following the non-payment to its sub-contractors, numerous experts have called for the raising of the minimum requirements for obtaining grants for such research projects.

National University of Singapore (NUS) corporate governance expert Lan Luh Luh noted that for a multi-million dollar grant, Anaergia Pte Ltd’s paid-up capital of S$100 was far to little. The EDB and PUB had said that the aim of such research grants were to demonstrate the effectiveness of a technology offered by the receiving company, and to provide start-ups with an opportunity to commercialise their new technology. Nevertheless, Professor Lan called for a balance to be established between nurturing tech start-ups and ensuring companies’ commitment.

Strategic management expert Tan Wee Liang from Singapore Management University (SMU) proposed methods to manage the risks of issuing grants. Research sponsors can be involved with the appointment of sub-contractors and can also form a committee tasked with overseeing payment to the sub-contractors involved.

However, corporate governance expert Mak Yuen Teen of NUS argued that the issue was one of ethics and corporate responsibility.

“I found it odd that (Anaergia) would incorporate S$100 subsidiary here, sell it off without either making sure that the subsidiary’s debts are settled or that the buyer would settle the debt, incorporate another company with almost the same name, and then continue the project with PUB,” he said.

PUB is now in talks with another subsidiary of Anaergia, Anaergia Singapore Pte Ltd, for the completion of the project.

Professor Mak nevertheless warned of the possibility of another such situation occurring with Anaergia Singapore Pte Ltd, stating that Anaergia “washing its hands of the obligations of its S$100 paid-up capital subsidiary raises great doubt in my mind about the company” and that such a move was “not what a responsible multinational company would do.”