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ecoWise concludes years-long dispute in China
SINGAPORE environmental solutions provider ecoWise Holdings, which recently concluded an arbitration case in China against a state-owned giant, said the experience has shown them that the country's legal system is fair. It has also given the Catalist-listed firm confidence to invest more in the country.
"The arbitration (result) has increased the appetite and excitement in wanting to go into China," ecoWise's independent director Wong Joo Wan told The Business Times in an interview.
The arbitration case involved the construction of a biomass plant by state-owned power engineering firm China Huadian Engineering Co Ltd (CHEC).
ecoWise in May 2013 invested S$90,000 to acquire 99 per cent of Hivern Investments, which holds Changyi Enersave Biomass to Energy Co Ltd (CEBEC), with the aim of using its plant to showcase its environmental technology in China.
The 24-megawatt (MW) biomass cogeneration plant would turn farm waste such as crop straw generated by nearby farmers into steam and electricity for factories in the industrial park in Changyi Binhai (Lower) Economic Development Zone, in the province of Shandong.
ecoWise was, after all, operating two similar biomass plants in Singapore, one of them for Gardens by the Bay.
With the investment, however, it found itself embroiled in a long-running dispute with CHEC.
Before ecoWise entered the scene, CEBEC had in April 2007 given CHEC a 188 million yuan (S$39.2 million) engineering, procurement and construction (EPC) contract to build the plant.
The plant, commissioned in September 2009, was unable to perform to required standards during trial production, according to ecoWise. With multiple issues faced during trial production, along with a suspension in funding from CEBEC's then-shareholders, the plant stopped operating two years later.
After the acquisition, ecoWise had planned to start the plant's operations within a year. But the facility was again unable to achieve the targets set out under the EPC contract with CHEC: to produce 24 megawatt-hour of electrical power and 40 tonnes of steam in an hour.
Without such minimum output, the plant would operate at a loss, said Mr Wong, who joined ecoWise's board in 2015. ecoWise subsequently recorded an impairment loss of S$5.92 million on Hivern.
ecoWise asked CHEC to retrofit the plant to no avail; CHEC's position was that they had delivered the plant to CEBEC but it was not well maintained.
With few options available, ecoWise decided to enter into arbitration proceedings against CHEC in September 2016.
The firm estimates its total economic loss from the paralysed plant at 225 million yuan. This comprised 72 million yuan incurred in the cost of running the production trials and maintaining the plant, and 153 million yuan in expected net profit after tax.
The arbitration tribunal's verdict, announced on Dec 23 last year, gave an interim award of 18.8 million yuan to CEBEC. This can be set off against the remainder amount of the initial contract payment that CEBEC has not yet made to CHEC.
CHEC was also asked to deliver the plant according to the technical specifications set out in the contract, within six months.
Meanwhile, CHEC's counter claim for 31.7 million yuan for unpaid amounts under the EPC contract is set in abeyance until it delivers the plant again.
The result was extremely positive, said Mr Wong. "It shows that the legal system there is equitable, it's fair, and it looks at the merits of the claim."
Asked whether ecoWise had under-estimated the risks when it first made the investment in 2013, Mr Wong replied: "We didn't believe it's an area we can't overcome in terms of bringing it to operational readiness and to commence business there.
"Unfortunately we had a difference in view in terms of whose responsibility it was, and that lasted for many years."
The tribunal also allowed for ecoWise to apply for further claims for the 225 million yuan economic loss if it presents new additional evidence. But the firm will not be pursuing this until the plant has been delivered according to the technical specifications.
Only after that will it then sit down with CHEC to discuss further. "To try to flip it the other way round, we think it will strain the relationship further, and it might not be in the positive interest of both parties," said Mr Wong.
The experience has led to the firm's board being more open and receptive to more investments in China, he added.
Besides the two biomass plants it operates in Singapore, ecoWise also manufactures tyres and retreads old ones in two factories in Malaysia.
It is looking to sell these tyres to public bus companies in China. In time, it may move one of the factories to China, though Malaysia will remain an important market for the firm, said Mr Wong, who heads corporate advisory firm Alternative Advisors.
ecoWise, which has been in the red for three of the past five years, made a loss of S$239,000 in its 2017 financial year, compared to a loss of S$1.87 million in 2016. Revenue for the year slipped 1.6 per cent to S$56.1 million due to lower contribution from its rubber business.
The stock, which spiked at the start of the year before the arbitration results were announced on Jan 15, pared some of its gains in February to trade at 4.4 Singapore cents on Friday.