Hyflux played down Tuaspring’s power plant on Olivia Lum and CFO’s instructions, witness says
Winnifred Heap is former corporate communications head of company
[SINGAPORE] Hyflux’s former corporate communications head testified that she found out about the water treatment company’s power strategy for the Tuaspring integrated water and power project only after the bid had been put in.
Winnifred Heap was on the stand on Tuesday (Aug 19) as prosecution witness in the trial of Hyflux’s founder and former chief executive officer Olivia Lum and five others.
Heap said that she learnt of Hyflux’s strategy to sell excess power to the national grid only after the bid prices submitted by all tenderers for national water agency PUB’s project were revealed.
Hyflux had submitted the lowest bid among the nine bidders at a first-year price of S$0.45 per cubic metre of water. YTL Power International, in contrast, had made the highest bid, at almost four times Hyflux’s price, at S$1.67 per cubic metre.
Hyflux had intended to subsidise the loss-making desalination plant of the Tuaspring project with revenue from the sale of electricity generated from the power plant of the project, in the so-called “power strategy”.
But electricity price plummeted by more than 70 per cent between the time Hyflux was named the preferred bidder for the Tuaspring tender in March 2011 and when Hyflux began selling power in February 2016.
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The Tuaspring project not only led to Hyflux’s first loss, but was also the subject of the allegations against Lum, Hyflux’s former chief financial officer Cho Wee Peng and four independent directors Teo Kiang Kok, Christopher Murugasu, Gay Chee Cheong, and Lee Joo Hai in this trial.
They are contesting charges of non-disclosures of material information relating to the Tuaspring project in a regulatory announcement in March 2011 and in the information document for the issuance of preference shares in April 2011.
Except for Cho, who faces one charge, the other five are each standing trial for two charges.
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Hyflux was said to have intentionally omitted three pieces of material information in the two instances.
One was Hyflux’s entry into the new business of power generation with the Tuaspring project. The second was that the project would derive the significant majority of revenue from the sale of electricity from its power plant. Lastly, the profitability of the billion-dollar project was contingent on revenue from that sale of electricity.
Heap was taken through several drafts of the announcement her team made about Hyflux being named the preferred bidder for the Tuaspring project.
Following input from Lum and Cho, the reference to the sale of power was not present in the third and subsequent drafts, unlike the earlier drafts which mentioned it, she testified.
She added that the “significant” change of not mentioning the sale of power in the later drafts would have been directed by Lum and Cho.
“It’s one of the key points. We are not in the position to take that kind of information off the announcement. Mei Kiang (her subordinate) and myself did not have the authority to (do so),” elaborated the witness.
Heap joined Hyflux in 2009 and left in 2015. She is now an executive director with DBS.
She added that the sale of electricity was a key point because the investing public, including analysts, would have liked to know the price that Hyflux would be selling at, the way it would be doing it, and whether it would have the personnel to execute the strategy, as Hyflux did not have a track record in the power business.
She was also told by Lum and Cho to “play down” the power plant, and to highlight the bench strength and Hyflux’s core capabilities in water treatment for the February 2011 announcement draft.
Ahead of the analyst briefing for Hyflux’s announcement on Mar 7, 2011, about it being named the preferred bidder for the Tuaspring project, Heap and her colleagues produced a list of potential questions and prepared answers for the management in case the latter was asked about the power business.
Deputy Public Prosecutor Christopher Ong quoted some questions from the list, and pointed out to Heap that they were mostly about risks from the power plant of the Tuaspring project.
One of the questions Hyflux was expecting from the analysts was the impact of an oversupply of power on electricity prices, while the other was about Hyflux’s competence to manage the power business, given that it did not have any experience in doing so.
DPP Ong asked: “Was the management aware of these risks?” The witness said “yes”.
In the presentation to fund managers and analysts for the April 2011 offering of preference shares, Hyflux provided an overview of the Tuaspring desalination plant, including a diagram of the intended power plant. But there was no mention of the sale of power.
DPP Ong noted that Hyflux talked about its power business in its financial results released for the first half of 2015. In that news release dated Aug 6, 2015, it mentioned that its combined cycle gas turbine power plant co-located with the Tuaspring desalination plant had been connected to the national power grid.
Hyflux also said that the power plant was expected to be fully operational in early 2016, and that it was also one of the market-making participants in the electricity futures market initiated by the Energy Market Authority.
It described itself as “a leading fully integrated provider of water, power and innovative environment solutions” in the profile section of that release.
Heap testified that the mention of the power plant was made as its connection to the grid had been finalised.
Cross-examination of Heap by Lum’s lawyer has begun, with Senior Counsel Davinder Singh focusing on her failure to recall events in some of her earlier responses to DPP Ong’s questions.
He will continue questioning her on Wednesday.
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