SINGAPORE – The PUB has issued a default notice to Hyflux’s Tuaspring, Singapore’s largest desalination plant, to remedy defaults arising under the water purchase agreement between them.

It said on Tuesday (March 5) that it will exercise its right to terminate the agreement and “take control of the plant” if the defaults are not resolved within the notice period.

Tuaspring Pte Ltd (TPL) is a wholly owned subsidiary of Hyflux, the troubled water treatment company that has spent the last few months trying to reorganise to keep itself going.

The Tuaspring Integrated Water and Power Plant is Hyflux’s single largest asset.

The PUB said in a statement that TPL has been unable to fulfil various contractual obligations under the water purchase agreement, in particular by failing to keep the plant reliably operational as required.

In addition, TPL has not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months, it said.

In 2011, the PUB signed a 25-year agreement with TPL for Singapore’s second and largest desalination plant, which is one of the three desalination plants currently in the Republic.

Desalinated water is one of Singapore’s four national taps to ensure a diversified and sustainable water supply. “Singapore’s desalination plants are integral to our water security,” said the PUB.

It noted that under the water purchase agreement, TPL has to deliver up to 70 million gallons of desalinated water per day to the PUB for a 25-year period from 2013 to 2038.

“PUB has provided sufficient time for TPL to resolve its operational and financial defaults,” it said.

“Given TPL’s current financial position, TPL’s inability to fulfil its contractual obligations is unlikely to change in the immediate to longer term. PUB is taking steps to ensure that our water security is safeguarded.”

It added that “with the issuance of the default notice, PUB requires TPL to fully resolve all defaults within the default notice period, failing which, upon the expiry of the default notice period, PUB will exercise its right to terminate the WPA (water purchase agreement) and take control of the plant”.

The statement did not say when the default notice period ends.

Hyflux has taken a $916 million impairment for the nine months ended Sept 30, to adjust for a fall in carrying value of the Tuaspring water and power plant and other write-downs.

This figure was released on March 2 after Hyflux submitted its latest statement of financial position to the High Court.

The impairment has put the Hyflux group in a net liability position of $136 million, indicating that the group is insolvent.

This comes after the company set out a restructuring plan last month, which will see heavy losses for its investors, and the bulk of Hyflux’s share capital, about 60 per cent, going to SM Investments, a consortium of Indonesian conglomerate Salim Group and energy giant Medco Group. 

Its fortunes today are a far cry from what they were in 2001, when it became the first water treatment company to be listed in Singapore. Its profile in the global water industry grew, winning it contracts in China, India and the Middle East, and its founder Olivia Lum was feted.

But analysts say Hyflux took on too many capital-intensive projects with long lead times, borrowed too much and was too optimistic with its projections. Its debts reached a tipping point when it was unable to divest Tuaspring and another plant in Tianjin.

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