THE Energy Market Authority (EMA) of Singapore said on Tuesday that Hyflux's present financial situation was the "result of its own commercial decisions".
The gas industry regulator was responding to a reader's letter "Time for a close look into why Hyflux tanked. This was no typical business failure", published in The Business Times on March 26.
Hmm ... like that then ..
Retail investors's present financial situation was the "result of their own investing (or lending) decisions.
Well! Every thing is covered!
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Suppose to leverage higher margin electricity to subsidize loss making water to win the water plant.
ReplyDeleteLeverage is a double edged sword. Die liao
Bid at sucide water rate to win tender. Blame CEO?
ReplyDelete1. Desalination is very electricity intensive -- for high electricity countries like SG & Oz, the water produced will be quite expensive unless you can innovate & streamline the desalination process.
ReplyDelete2. Hyflux quoted a very low bid to win the 2011 PUB tender. 33% cheaper than the 2nd lowest bid from Keppel. Even with this low bid, the desalinated water is still many times more expensive than JB water.
3. In order to balance the very low water price bid, Hyflux planned to build electricity plant together with desalination plant. Using own electricity will be slightly cheaper, and can sell excess electricity for high prices to cover the low water pricing. At that time oil had recovered to US$100 & electricity consumers were sweating.
4. But the high oil & electricity prices in 2011 so soon after the GFC likely alarmed both industry & govt. Govt subsequently opened up wholesale electricity market for more competitive pricing & also help industries. EMA started to award genco licences. We retails are now benefiting from this govt action. :)
5. The large supply of gencos & electricity, as well as collapse of oil prices from 2012-2015 ... cratered the electricity market. Hyflux no longer can sell high margin electricity to cover the low water pricing. In fact cannot even cover its own electricity plant operating costs. So now LL ... forced to sell water at below cost, and electricity at low pricing too.
6. Did people at PUB realised that Hyflux was quoting below cost desalination water pricing back in 2011?? Probably. But then S'pore operates on willing buyer & willing seller, legal contracts, caveat emptor basis. Hyflux at that time kept on boasting that it had developed new cost effective desalination techniques, and world's first in combined concurrent water processing cum electricity generating plant. The figures & projected profits all seemed workable. Banks & auditors double confirmed. Analysts triple confirmed.
7. At the end of the day, those investors who forgot about diversification & position sizing kena terok. Similar to 2007/2008 minibonds ... retirees or near-retirees think of 1-shot-1-kill method to secure long-term income stream. Best also as principal not touched.
8. Minister: "The Government cannot use taxpayers’ money to help investors recoup their investment losses. Investors in search of returns must understand that returns come with some risk." At least this time around nobody saying "eyes open big big" and "see monthly CPF so happy". LOL