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Taxpayers can't bail out Hyflux investors, Masagos tells Parliament

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National water agency PUB’s actions over debt-hit Hyflux’s Tuaspring desalination plant have not weakened the public-private partnership (PPP) model for critical infrastructure assets.

NATIONAL water agency PUB’s actions over debt-hit Hyflux’s Tuaspring desalination plant have not weakened the public-private partnership (PPP) model for critical infrastructure assets.

Still, the government cannot use taxpayer money to help retail investors recoup their losses, said Minister for the Environment and Water Resources Masagos Zulkifli in Parliament on Monday.

Mr Masagos reiterated that PUB’s March 5 decision to serve a default notice on Hyflux subsidiary Tuaspring Pte Ltd (TPL) was taken to ensure Singapore’s water security, with the possible termination of its water purchase agreement on the table “to ensure that a critical asset remains in safe hands, and avoids uncertainty over the operations of the desalination plant”.

Although the purchase price of the Tuaspring plant is, based on current valuation, likely to be negative, the minister also reiterated that PUB is willing to waive the compensation it would be owed, and take over the plant at no extra cost to Hyflux.

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“Let me be clear, therefore. PUB’s action do not weaken either TPL or Hyflux, and do not disadvantage those who have invested in Hyflux. Indeed, it is quite favourable to TPL,” he said, adding that the arrangement “positively impacts Hyflux’s value and hence the value of the Hyflux shares being offered”.

“The current situation with Hyflux does not mean that we should dismiss the PPP model altogether as our other PPP projects are working well,” said Mr Masagos, who called the model “useful in allowing us to tap private sector innovations and cost efficiencies to deliver water services more effectively”.

“To ensure that water security is never compromised, PUB has put in safeguards as part of the PPP contracts. Even though PUB does not interfere with the business decisions made by the concession companies, PUB monitors the performance of the plants under the PPP model to ensure that the concession companies can meet their contractual obligations to PUB.

“Where there are issues, PUB will require the concession companies to rectify them, failing which, PUB may exercise its rights to terminate the PPP contracts and take control of the plants.

“We do not exercise these termination rights lightly, but will not hesitate to do so when it becomes necessary to safeguard our water security.”

Numerous MPs (members of Parliament) raised queries on Monday over the Hyflux issue, which took up roughly 20 minutes of question time.

Seah Kian Peng (Marine Parade GRC) had asked, among other related questions, about the impact of Hyflux’s struggles on the water supply and the extent of private-sector involvement in the industry.

Lee Bee Wah (Nee Soon GRC) asked how the minister justified using taxpayers’ money to take over Tuaspring, an asset with a negative valuation, from Hyflux.

Lim Wee Kiak (Sembawang GRC) added, in a follow-up question: “We do have critical assets, such as power and all this, that are operated privately. How do you monitor all these assets to make sure that they are financially okay, until this thing happens?

“Just wondering whether something could have been done, in hindsight, for this Hyflux case.”

Mr Masagos noted that the government had faced a choice between claiming a compensation sum from Hyflux and waiving its right to do so.

“We have two options. One is to assert our rights, stress Hyflux even further by asserting that right, and in the whole process, we don’t get anything at the end of the process,” he said.

“And therefore we have made the decision that, because we are likely not to get anything from claiming the compensation, we have decided to not claim the compensation.”

He added that, when difficulties crop up at Tuaspring or any other PPP project, “the responsible and fair thing to do is for PUB to require TPL to rectify it, and not to immediately issue a default notice - in fact to give them time to do so, when these things happen”.

“Now, PUB has been in talks with TPL regarding its defaults all this while, and has given TPL as much time as possible,” Mr Masagos said.

“Well, our duty is to ensure water security and to ensure that we take all the necessary steps within its contractual right primarily to protect Singapore’s water security. So we’ve done that.”

Holders of Hyflux preference shares and perpetual securities are claiming some S$970 million from the company, with medium-term noteholders asking for another S$277.7 million.

Mr Seah asked whether the government could ride to the rescue of these retail investors.

“Investors in search of returns must understand that returns come with some risks,” Mr Masagos told the House in reply. 

“We can understand the concerns and anxiety of the retail investors and we are saddened by their plight, but the government cannot use taxpayers’ money to help investors recoup their investment losses, even if there are any proceeds from the takeover of the Tuas plant.

“You must remember there is an order to who gets what first. In this case, Maybank will still receive payments from TPL before all other general creditors, including PUB.”

Hyflux still owes Maybank some S$518 million, which is secured by the Tuaspring plant.