Hyflux EMA probably caused the huge losses suffered by Hyflux
With the help of information provided by two retail investors, I now get a clearer picture of what caused the huge losses suffered by Hyflux.

It appears to me that their problem is largely caused by the actions of the Energy Market Authority.

This is what happened.

Hyflux won a tender for the development of the integrated water desalination and power plant in 2011. They signed a contract, lasting several years, to buy the LNG gas for the power plant, probably at the then prevailing price. 

At that time, the wholesale price of electricity was at a level that allowed the Hyflux power plant to be viable.

During 2012 to 2014, EMA gave vesting contracts to several new power generating companies to build new capacity amounting to 3,000 MW. This increased the capacity by over 40% of the power demand at a time when the existing capacity was already more than adequate to meet the demand. Read here. 

An industry expert said that the additional capacity of 3,000 MW was totally unnecessary. If this increase did not occur, the wholesale electricity price would not have crashed. 

As a result of this new capacity, the wholesale electricity price crashed from $215 in 2011 to $63 in 2016. 

The new generating companies were given LNG vesting contracts from EMA that paid them a price of about $136 (or thereabouts) instead of $63. This vesting contract was not given to Hyflux.

In their website, EMA said that the generating companies had to make a commercial decision before deciding to enter into the energy market. While this statement can be applied to the new generating companies, it cannot be applied to the existing generating companies. 

The existing generating companies had no control over subsequent actions taken by EMA to increase the generating capacity (to an disastrous level) but had to suffer the humongous losses from the consequent drop in wholesale electricity price.  

Furthermore, it is most unfair that the new generating companies are protected (to a large extent) by the price offered by the vesting contract when Hyflux, is not. Clearly, Hyflux is a victim of actions and decisions taken by EMA.

To be fair to the 34,000 retail investors of Hyflux who may see their total investment of $900 million almost wiped out, the government should study this issue immediately and take the immediate correction actions.

Tan Kin Lian

 

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