PUB takes over troubled Tuaspring desalination plant
This follows termination of Water Purchase Agreement with Hyflux subsidiary; move safeguards Singapore's water security, says PUB.
National water agency PUB has taken over the Tuaspring desalination plant with effect from Saturday, following the termination of the Water Purchase Agreement (WPA) with Hyflux subsidiary Tuaspring Pte Ltd.
The move safeguards Singapore's water security, PUB said.
For many, the Tuaspring project has come to symbolise Hyflux's downfall. In March 2011, Hyflux won a government tender to build a desalination plant at Tuas by offering to supply water to PUB at a loss-making price that none of its rivals could match.
Hyflux's plan was to use electricity revenue to subsidise the desalination process, and it got PUB's approval to build a co-generation power plant on the same site. Hyflux founder Olivia Lum wrote in a court affidavit earlier this year: "The technical and financial viability of this proposed model was validated and approved by various parties, including regulators, professional advisors and project finance lenders."
But in November 2011, industry observers were already warning that Hyflux would be fighting in a highly competitive and over-supplied electricity market. Eventually, Hyflux's losses led to operational defaults under the WPA. It took a S$824 million impairment on Tuaspring for the period ended Sept 30 last year, mainly to adjust for crucial electricity price assumptions used in 2016 that now seem unrealistic.
Asked by The Business Times why no concern was raised in 2011 over the possibility that a tough electricity market might compromise Singapore's water security down the road, a PUB spokesman replied: "PUB called an open tender for Singapore's second desalination plant in 2010.
"In its tender bid, Hyflux proposed an integrated desalination plant. Its business decision then was to build a power plant that has capacity significantly more than what the desalination plant needed, with the intention to sell excess power to the national power grid. Hyflux's bid met PUB's requirements for constructing and operating a desalination plant and was the most competitive bid among the submissions.
"When evaluating, PUB also took into account Hyflux's expertise and track record, and input from relevant authorities/agencies. The tender was awarded to Hyflux in 2011.
"As with all Public-Private Partnership models, PUB built in safeguards in the Water Purchase Agreement, signed with Tuaspring Pte Ltd to ensure our water security."
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