Photo of TuasSpring power plant from Hyflux's website

Salim should not use possible seizure of Tuaspring to justify terminating its deal with Hyflux: PUB

Indonesian conglomerate Salim Group should not use the possible seizure of the Tuaspring plant to justify terminating its bailout agreement with local water treatment firm Hyflux, said the Public Utilities Board (PUB) on Fri (21 Mar).

PUB’s statement was made in response to Salim’s recent announcement to potentially withdraw from its agreement to bail out Hyflux from its massive debts through the company’s restructuring plan, according to a Nikkei Asian Review report on Tue (19 Mar).

Salim, leader of Hyflux’s bailout consortium, has given the company a notice regarding their possible withdrawal from the process.

Hyflux told Nikkei on Monday that the Notice to Remedy issued by Salim was in tandem with a clause stipulated in their bailout deal, “which gives the consortium right to terminate the restructuring agreement” by Apr 1 “on the basis that a prescribed occurrence has arisen”, reportedly referring to PUB’s announcement regarding its intention to seize the Tuaspring plant.

In its press release on Fri, however, PUB claimed that Hyflux has “noted that PUB’s actions … would be favourable to” Tuaspring.

This is because, according to PUB, Hyflux suggested that the Board’s actions will lift “the pressure on the rest of the Hyflux Group”.

Consequently, the value of Hyflux and its shares will most likely observe a positive change as a result of PUB’s actions, according to the statutory board.

The Board added that its takeover of Tuaspring “will also increase the chances of Hyflux being successfully restructured”.

“PUB’s actions should therefore not be used as the basis for SM Investments’s decision to withdraw from the Restructuring Agreement”, stressed PUB.

SM Investments Pte Ltd is the consortium comprising Salim and energy giant Medco Group.

PUB may not receive compensation sum contrary to WPA due to “negative” value of Tuaspring, willing to purchase desalination plant for “zero dollars”

PUB also revealed that Tuaspring Pte Ltd had sought the former’s “clarification on whether PUB will purchase the entire Tuaspring integrated water and power project, or only the Tuaspring Desalination Plant” upon terminating the Water Plant Agreement (WPA).

It explained that Tuaspring observed great financial losses resulting from the desalination plant, and predicted that it will continue to undergo such losses “for the next few years”, in addition to prolonged poor market conditions.

As a consequence, there is “a high likelihood” that Tuaspring is required to pay “a compensation sum under the WPA” should PUB decide to buy over only its desalination plant.

However, given Tuaspring’s current value, which has greatly plummeted since its opening in 2013, PUB told Tuaspring that it is “willing” to purchase its desalination plant for “zero dollars”, and will include a waiver of “the compensation sum” stated in the WPA.

“For some time now, PUB has been concerned about Tuaspring Pte Ltd’s inability to keep the desalination plant reliably operational”, said the Board.

PUB added: “If Tuaspring Pte Ltd is unable to fully resolve all defaults within the default notice period, PUB will terminate the WPA and purchase only the Tuaspring desalination plant”.

Touching on the purchase price for the desalination plant, PUB said that it will be determined by “an independent valuer” in accordance with the WPA.

PUB confident in its “operational capabilities, experience and manpower” to run Tuaspring desalination plant

PUB also assured in its press release on Fri that it has “the operational capabilities, experience and manpower to run” the Tuaspring desalination plant.

As Singapore’s national water agency, PUB is responsible for managing the Republic’s water supply via the Four National Taps, namely local catchment water, imported water, NEWater, and desalinated water.

Independent energy consultant Martin van der Lugt told The Business Times that while “PUB taking over the desalination plant makes sense”, Tuaspring in itself “is still worth very little”.

“I can’t see the margins improving before 2023, and after 2023 it is yet to be seen that the situation improves.

“The fact remains that there is too much CCGT (combined cycle gas turbine) generation capacity competing for market share,” stressed Mr van der Lugt.

Hyflux, drowning in S$2.7 billion in liabilities as of the end of Sep, stands to lose out on a “$380 million rescue package” from Salim, which was offered “in exchange for a 60% stake” in the water treatment company.

Should Salim proceed with cancelling the agreement, Hyflux may end up being liquidated, unless it is able to secure a new sponsor “before the end of a debt moratorium granted by the court” at the end of next month.

Currently, the fate of the company’s debt restructuring plan partially rests in the hands of its creditors as they await the voting process, which will take place in a meeting on 5 Apr.