SINGAPORE - To safeguard Singapore's water security, water agency PUB will terminate the water purchase agreement with Hyflux and start the process of taking over its Tuaspring plant if the beleaguered water treatment firm is not able to fix its defaults by April 5.

It has also agreed to waive any compensation it could have claimed from Hyflux and is willing to purchase the plant for zero dollars.

This comes after Tuaspring Pte Ltd (TPL), a wholly owned subsidiary of Hyflux, asked PUB on Wednesday (March 20) to clarify whether PUB will buy Hyflux's largest asset - the entire Tuaspring Integrated Water and Power Plant - or just the Tuaspring desalination plant, upon termination of the water purchase agreement.

The purchase price for the Tuaspring desalination plant will be determined by an independent valuer in accordance with the water purchase agreement. Current valuation is that the purchase price of the desalination plant is negative.

If PUB bought only the desalination plant, there is a high likelihood that TPL will have to pay PUB a compensation sum under the agreement.

When asked if it would claim the sum, PUB said it told TPL it is "willing to purchase the desalination plant for zero dollars and waive the compensation sum".

"This is because PUB is unlikely to recover the compensation sum from TPL, given TPL's current financial position," the water agency said.

The Straits Times understands that the plant's secured creditor, Maybank, will be paid first before other general creditors.

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TPL has spent the last 10 months trying to reorganise to keep itself going.

The PUB said in a statement that TPL has been unable to fulfil various contractual obligations under the water purchase agreement since 2017.

In response to queries from The Straits Times, a PUB spokesman said: "TPL has failed to provide the required plant capacity on multiple occasions.

"As much as possible, we have allowed TPL time to resolve its operational and financial defaults but our concerns have been growing."

In addition, TPL has not been able to produce financial evidence to demonstrate its ability to keep the plant running for the next six months, it said.

PUB has the operational capabilities, experience and manpower to run the Tuaspring desalination plant.

Separately, PUB noted from the Hyflux announcement on March 18 that SM Investments has issued a Notice to Remedy to Hyflux, stating PUB's default notice as an event that TPL will need to fix within two weeks under the restructuring agreement between Hyflux and SM Investments.

If not, SM Investments may assert rights to terminate the restructuring agreement.

However, Hyflux itself has noted that PUB's actions, in the event that the national water agency elects to terminate the water purchase agreement, would be favourable to TPL, as this alleviates the pressure on the rest of the Hyflux Group, and also positively impacts Hyflux's value and hence the value of the Hyflux shares being offered.

This will also increase the chances of Hyflux being successfully restructured. PUB's actions should therefore not be used as the basis for SM Investments' decision to withdraw from the restructuring agreement.