Singapore’s water agency to take over Hyflux’s Tuaspring plant if defaults not resolved

Singapore’s national water agency PUB on Tuesday issued a default notice to embattled water treatment firm Hyflux's wholly-owned Tuaspring for failing to keep its desalination plant in a ‘reliably operational’ mode as required under the Water Purchase Agreement. PUB warned that it would take control of Tuaspring if defaults are not resolved in about a month’s time.

Hyflux’s Tuaspring will now have a 30-day deadline from March 6th to remedy any defaults from the agreement between the firm and the government.

The national water agency said on Tuesday Tuaspring has been unable to fulfil various contractual obligations under the agreement. ‘In particular, by failing to keep the plant reliably operational as required,’ it said.

‘In addition, Tuaspring has not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months,’ PUB commented in the statement.

‘Given Tuaspring's current financial position, Tuaspring'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.’

PUB said it will exercise its right to terminate the agreement and ‘take control of the plant’ if the defaults are not fixed in the 30 days. The Water Purchase Agreement allows the government agency to take over the integrated plant as a whole, or the desalination plant alone.

‘PUB has provided sufficient time for Tuaspring to resolve its operational and financial defaults,’ the water agency added.

Hyflux and Tuaspring said on Tuesday they are seeking legal advice on the matter, and will commence immediate consultations with PUB.

Tuaspring water and power plant an asset

The Water Purchase Agreement was signed between the PUB and Hyflux in 2011. The 25-year agreement requires Tuaspring to deliver desalinated water to PUB over the period from 2013 till 2038. The initiative was conducted to meet the increasing demand for water in Singapore.

In the agreement, Tuaspring is expected to add 70 million gallons of desalinated water per day to PUB.

Tuaspring is the largest of the three desalination plants in Singapore and is a strategic asset as it is supposed to add to creating a sustainable water supply for the country. In the event if Hyflux faces liquidation, the treatment plant will be retained to be kept in continued operation.

Restructuring plans underway

Owner of Tuaspring, Hyflux, has been working on its restructuring plans to keep its business afloat as it deals with its debt problems.

On Saturday, in a financial statement submitted to the High Court of the Republic of Singapore while it is undergoing a court-supervised reorganisation, Hyflux said it has taken a S$916 million impairment for the nine months ended September 30th, 2018, to adjust to the fall in carrying value of Tuaspring and other write-downs.

The termination of the water contract may cause the firm’s white knight investors SM Investments to call off the restructuring deal of S$530 million.

In addition, the firm also has to get an agreement from the majority of its creditors and another court approval by mid-April on its restructuring plans before the lifeline from SM Investments expires.