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Hyflux's situation result of its own commercial decisions

WE refer to Mr Leong Mun Wai's letter, Time for a close look into why Hyflux tanked. This was no typical business failure (BT, March 26).

He suggested that vesting contracts and policy changes led to lower electricity prices which in turn was a key contribution factor to Hyflux's current situation. Mr Leong has drawn the wrong conclusions.

In 2009, the Energy Market Authority (EMA) offered the Liquefied Natural Gas (LNG) vesting scheme to power generation companies (gencos) as a voluntary option to encourage the uptake of LNG. Gencos opted into the scheme based on their own commercial considerations.

While EMA only offered up to 1.2 million tonnes per annum of LNG under vesting contracts, the gencos decided to buy more than twice as much LNG and build additional generation capacity. At that time, wholesale electricity prices were high. The subsequent increase in generation capacity led to a decline in wholesale electricity prices in recent years.

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Hyflux does not have any LNG vesting contracts. Hyflux decided to build its power plant after the LNG vesting contracts were awarded to the other gencos.

When Hyflux made this decision, information on the plans by other gencos to increase their generation capacity was publicly available. Hyflux's present financial situation is a result of its own commercial decisions, with full knowledge of the gas supply situation and electricity generation market. It is incorrect for Mr Leong to claim that Hyflux's financial problems were caused by "an unexpected domestic policy change".

There is also no justification for EMA to "render relief" to Hyflux using public resources, as Mr Leong had suggested.

EMA will continue to promote economic efficiency and competition, and ensure a level playing field for stakeholders in the electricity market.

Dorcas Tan
Market Development and Surveillance
Energy Market Authority

READ MORE: Hyflux's problems due to its own commercial decisions: EMA