Hyflux played down Tuaspring’s power plant on Olivia Lum and CFO’s instructions, witness says

[SINGAPORE] Former Hyflux’s corporate communications head testified that she only found out about the water treatment company’s power strategy for the Tuaspring integrated water and power project after it had put in the bid.

Winnifred Heap was on the stand on Tuesday (Aug 19) as prosecution witness in the trial of Hyflux’s founder and former chief executive officer Olivia Lum and five others.

Heap said that she learnt of the strategy of Hyflux to sell excess power to the national grid only after the bid had been put in.

Hyflux had submitted the lowest bid among the nine bidders at a first-year tariff price of S$0.45 per cubic metre of water. YTL Power International, in contrast, had made the highest bid, at almost four times Hyflux’s price, at S$1.67 per cubic metre.

Hyflux had intended to subsidise the loss-making desalination plant of the Tuaspring project with revenue from the sale of electricity generated from the power plant of the project, in the so-called “power strategy”.

But electricity price plummeted by over 70 per cent between the time Hyflux was named the preferred bidder for the Tuaspring tender from national water agency PUB in March 2011 and when Hyflux began selling power in February 2016.

The Tuaspring project not only led to Hyflux’s first loss, but also was the subject of the allegations against Lum, Hyflux’s former chief financial officer Cho Wee Peng and four independent directors Teo Kiang Kok, Christopher Murugasu, Gay Chee Cheong, and Lee Joo Hai in this trial.

They are contesting charges of non-disclosures of material information relating to the Tuaspring project in a regulatory announcement in March 2011 and in the information document for the issuance of preference shares in April 2011.

Except for Cho who faces one charge, the other five each are standing trial for two charges.

Hyflux was said to have intentionally omitted three pieces of material information in the two instances.

One was Hyflux’s entry into the new business of power generation with the Tuaspring project. The second was that the project would derive the significant majority of revenue from the sale of electricity from its power plant. Lastly, the profitability of the billion-dollar project was contingent on revenue from that sale of electricity.

Heap was taken through several drafts of the announcement her team made for Hyflux winning the Tuaspring project.

Following input from Lum and Cho, the reference to the sale of power was not present in the third draft, unlike a mention of it in the earlier drafts, she testified.

She added that the “significant” change of not mentioning the sale of power in the latter draft would have been directed by Lum and Cho.

“It’s one of the key points. We are not in the position to take that kind of information off the announcement. Mei Kiang (her subordinate) and myself did not have the authority to (do so),” elaborated the witness.

Heap joined Hyflux in 2009 and left in 2015. She is now an executive director with DBS.

She added that the sale of electricity was a key point because the investing public, including analysts, would like to know the price that Hyflux would be selling, the way it would be doing it and whether it would have the personnel to execute the strategy, as Hyflux did not have a track record in the power business.

She was also told by Lum and Cho to “play down” the power plant but to highlight the bench strength and Hyflux’s core capabilities in water treatment for the February 2011 announcement draft.

The trial continues after the lunch break.