Monday, February 25, 2019

The Failure of the much touted Public-Private-Partnership Model in Singapore - Hyflux

Disclaimer: I am not an investment advisor. Heck, i am not even working in the financial industry. Below are my interpretation and i am grateful if you will let me know if anything i say is wrong and i will correct it in a reasonable time. I am not an expert and don't wish to be assumed to be one. I make losses frequently.

In 2004, the Ministry of Finance undertook a public consultation to seek views about the Public-Private-Partnership model. This initiative took root based on the studies about the successes of the PPP model in countries including the United Kingdom, Ireland, Australia, Hong Kong and Canada.

And lo and behold, the poster girl to spearhead this PPP model was Ms Olivia Lum who was the "highlight of the Forum."

A list of FAQs about the PPP model was also crafted here.
In addition, a PPP handbook has been uploaded by MOF here.

In 2014, there was a drive to promote Singapore as Asia's Infrastructure Hub in a joint effort by the Monetary Authority of Singapore and the International Enterprise of Singapore.
The marketing materials for this is here.

My Thoughts

Tuaspring is meant to be a Public-Private- Partnership model between the government and Hyflux. Based on the PPP handbook released by the Ministry of Finance(MOF) in March 2012, the PPP model is structured as a Win-Win deal. It must deliver value for money to government and also present commercially attractive business opportunities for the private sector.
2.3.3 Similarly, for the private sector, there should be sufficient revenue, either from Government or directly from the users, to recover the initial investment and the costs incurred by the private sector.  - Quote from page 27 of the handbook
The problem with Tuaspring is that it is an integrated water and electricity project. Water comes under the Public Utility Board (PUB) while electricity comes under the Energy Market Authority (EMA). It is very strange indeed that Tuaspring is placed under the auspices of PUB when only 10% of Tuaspring's revenue comes from water while 90% comes from electricity, according to Olivia Lum in the first townhall. In addition, Tuaspring needed an electricity license given by EMA to run and so is governed by the Electricity Act. In my opinion, the demise of Tuaspring may be  symptomatic of  the lack of collaboration between the two agencies.

How then can it explain why Tuaspring, being a PPP project, meaning Hyflux should be able to recover the initial investment and costs , end up in this pitiful state?

How then did Singspring, the first PPP project, which deals solely with water, end up successful and as i understand is currently still profitable?

In my opinion, i think it was a mistake right from the start for PUB to award Tuaspring or to allow Tuaspring to be an integrated water and electricity project if it was to be it's baby. This is because its very difficult to envision sufficient revenue for Tuaspring ( based on the PPP handbook guideline 2.3.3) since a very large percentage of its revenue is dependent on the USEP price of electricity which is market driven and PUB has no control over. EMA would have been a better fit for the job.

How then did PUB, when it awarded Tuaspring,  justify that Tuaspring would have sufficient revenue to cover investment and cost according to 2.3.3 of the PPP handbook? 

Putting it another way, it was wrong of whoever that arrowed PUB instead of EMA to award this integrated, predominantly power project. Or at the very least that whoever should have placed the integrated Tuaspring as a baby of  both PUB and EMA to make sure they collaborated.

It seems to me that without EMA having any responsibilities for Tuaspring, the electricity market was allowed to go into excess, 80% of electricity reserve instead of the target 30% of electricity reserve. 
Contrary to what some people say that it is only due to management incompetence, i would beg to differ since the whole electricity industry are facing losses or very low profitability, so its an industry wide malaise that could only be caused by a regulatory failure.

This reminded me of the question asked during the MOF consultation process in 2004. It is currently enshrined under the list of FAQs on MOF website.

How did the Ministry of Finance ensure that the public agencies work closely together in this Tuaspring project? Your guess is a good as mine.

And by the way, MOF has modeled the PPP model after UK. 
Similar to the concept of UK PPP taskforce, there is a unit within MOF that creates awareness of PPP, handles PPP policy and provides guidance on PPP matters. 
                                                                                                  - point 17 on MOF FAQ
Guess what has happened in the UK PPP model now according to this article released in 2017.

It is indeed a blow to the reputation of Singapore in its quest to be Asia's Infrastructure Hub especially when 60% of Hyflux's revenue is from the Singapore government.

And another blow to the reputation of Singapore in another of its quest to be the regional Debt Restructuring Hub if the restructuring of Hyflux fails.

The stakes are too just too high.

Further reading
1) Considerations about Hyflux
2) The fate of Hyflux
3)Will Hyflux recover? The billion dollar question
4) Hyflux-Treatmeat of perpetual share holders- Ezion
5) Hyflux - loans and borrowings - Pacific Radiance
6)A happy ending for retail perpertual securities holders - Tiger Air and Hyflux
7) The Very Curious Case of Sharebuybacks- Hyflux
8)What did the founder/Chairwoman/CEO do to help hyflux throughout the years
9) Moving forwards at the Townhall meetings with Hyflux - Part 1
10) Moving forward at the Townhall meeting with Hyflux - Part 2
11)The Lucky Accredited Investors of Hyflux's Perpetual Securities - Part 3
12) The Peculiar Case of HyfluxShop - Question 12 
13)Uncovering the Real Motivations Behind the HyfluxShop 
14) High Level Staff Movement Indication of Red Flags -Hyflux
15)An industry comparison of Hyflux compared with its peers - Question 15
16)What other Water Companies did that Hyflux didn't - Question 16
17)Why a debt to equity option for retail investors is not right
18) Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux
19)Consolidated Questions For Hyflux Townhall Meeting on 19 and 20 July 2018 - Hyflux- continued
20)Informal Steering Committee for the Reorganisation Process - Hyflux
21) What happened to other Debt Restructuring Exercises - Ausgroup
22)What happened to other Debt Restructuring Exercises - Nam Cheong
23) My layman views of the so-called " White Knights of Hyflux"
24) The Unsecured Working Group (UWG) are against the retail investors - Hyflux
25)Where to find money to pay back retail investors? 
26)What happened at Hyflux's Second Townhall Meeting
27) Another bomb to the retail investors of Hyflux
28)The Underrated Importance of Regulatory Risk - Hyflux
29)The Overlooked Importance of Another Regulatory Risk - Hyflux
30)Why did so many Singaporeans invest in Hyflux - The positive image illusion
31)On Why The Rich Get Richer And Poor Gets Poorer - The Hyflux Proposal is Out!
32)The " not spoken much" dirty little thing about the Restructuring Proposal - the $33 million - Hyflux

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