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The Utilities business delivered a healthy
operational performance in 2010. Turnover from
the business was S$4.0 billion compared to S$3.7 billion
while net profit attributable to shareholders (net
profit) was S$231.3 million, up 2% compared to
S$226.7 million in the previous year. Profit from
operations (PFO) increased 2% from S$307.4 million to
S$313.5 million with all regions except the UK showing
growth. Singapore operations performed well,
contributing 61% of the business’ PFO and growing
11% over the previous year. Outside Singapore,
operations in China and Middle East & Africa also
registered strong growth in PFO, increasing 229% and
96% respectively. The business’ performance in the UK
was affected by lower operational volume as a result
of the previously announced closure of some of its
customers’ facilities, low market spreads for power as
well as the write-down of certain ageing assets at its
Teesside operations. Our energy business contributed
67% of the Utilities unit’s PFO while our water business
accounted for 24% of Utilities PFO, with on-site
logistics and solid waste management accounting
for the remainder. Total contracts secured from
the industrial sector during the year amounted to
S$3.9 billion, up from S$624 million in 2009. This
comprised S$3.0 billion worth of contracts secured
in Singapore, S$358 million from the UK and
S$494 million of new contracts secured in China.
2010 saw significant progress in our efforts to
grow our energy and water businesses. During the
year, we grew our asset portfolio and extended our
global reach through organic growth and strategic
investments. We increased our gross power capacity
installed and under development by more than 40%
to 5,600 megawatts and grew our water capacity in
operation and under development by around 50%
to six million cubic metres per day.
In July, we acquired Cascal, a leading provider of
water and wastewater services to the municipal sector,
through a voluntary tender offer. At US$6.75 per share,
the total consideration for our 97.66% shareholding
amounted to US$203 million. Following Cascal’s
successful delisting from the New York Stock Exchange
and deregistration with the Securities and Exchange
Commission in the latter half of 2010, squeeze-out
proceedings under the Dutch Civil Code for Sembcorp
to achieve full ownership of the company are currently ongoing. With this acquisition, Sembcorp is now a
global water service provider with enhanced capabilities
to serve the total water and wastewater needs of
both industrial and municipal customers. Cascal was
consolidated as a subsidiary under our Utilities business
with effect from July 2010, and its operations are now
fully integrated into the Sembcorp Group.
During the year, we integrated our solid waste
management business (formerly known as the
Environment unit) with the Utilities business for
greater management efficiency and to better leverage
synergies in the waste-to-energy sector.
Sembcorp’s Singapore operations posted a healthy
PFO for 2010. Our Singapore operations’ 11% growth
in PFO to S$197.2 million was mainly driven by higher
contributions from our natural gas importation business
and electricity sales from our cogeneration plant.
In addition to our existing operations on Jurong
Island performing well, in 2010, we announced steps
to position ourselves to grow with the new wave
of investments coming into the petrochemical and
chemical hub. During the year, we secured contracts to
supply utilities services to Jurong Aromatics Corporation
(JAC) and LANXESS, our first anchor customers located
in Jurong Island’s new growth area covering the
Tembusu, Angsana and Banyan districts. To support the
energy and water requirements of these customers as
well as other companies in the new growth area, we are
developing a new 400 megawatt gas-fired combined
cycle gas turbine cogeneration plant as well as new
facilities to provide the integrated supply of steam,
water and industrial wastewater treatment services.
Representing a total investment of approximately
S$840 million, our new industrial wastewater treatment
plant is expected to begin operations in 2012, while
the cogeneration plant and remaining multi-utilities
facilities are expected to be completed by the second
half of 2013. Having secured an additional generation
licence of 900 megawatts, we will be developing the
new cogeneration plant in phases. With an eventual
intended capacity of 800 megawatts of power, the
facility is set to double our existing power capacity in
Singapore. As a provider of third-party open access
service corridor networks across the island, we also
extended our infrastructure coverage to the new
growth area on the island during the year.
Outside of Jurong Island, 2010 also marked the
full completion and official opening of our Sembcorp
NEWater Plant in Changi. With a capacity of 50 million
imperial gallons (or 228,000 cubic metres) per day,
the plant is Singapore’s fifth and biggest NEWater
plant and one of the world’s largest water reuse
facilities. During the year, it was awarded the 2010
Global Water Awards’ Water Reuse Project of the
Year by Global Water Intelligence as well as the 2010
WateReuse International Award organised by the
US-based WateReuse Association, in recognition of its
contribution to the global water reclamation industry.
Operations in China delivered strong growth in
2010, with PFO contribution from the country
increasing 229% over 2009 to S$27.0 million. This
growth was primarily driven by higher customer
demand, improved tariffs and capacity ramp-ups. In
Shanghai, our cogeneration plant continued to
perform well, although the plant saw an increase in
the natural gas price from July 2010. In Zhangjiagang,
we completed a 7,200 cubic metres per day wastewater
pre-treatment plant, while in Nanjing, we completed
a 12,500 cubic metres per day wastewater treatment
facility. Signifying the successful implementation of our
high concentration industrial wastewater treatment
model in China, this Nanjing facility is our second plant
in China able to treat high concentration industrial
wastewater directly from source, eliminating the
need for our customers to invest in and run their own
wastewater pre-treatment facilities. Our Zhangjiagang
facilities, which pioneered this concept in China, won
Honour Awards in both the East Asian and Global
International Water Association Project Innovation
Awards in 2010, in recognition of their effective and
sustainable approach to water management.
During the year, we also commenced construction
of a 15,000 cubic metres per day industrial wastewater
treatment plant in Guangxi province. Expected to
commence commercial operations in the second
half of 2011, the facility marks our first industrial
wastewater treatment facility in southern China. It
will serve the Qinzhou Port Economic & Technological
Development Zone, which hosts a newly opened 10
million tonnes per annum PetroChina oil refinery and
has been earmarked by the central government for
development into a significant petrochemical hub.
As a result of the Cascal acquisition, 2010 also saw
nearly half a year’s contribution from municipal water
operations in Fuzhou, Qitaihe, Xinmin,Yancheng,
Yanjiao and Zhumadian, held through the China Water
Company (CWC). In October, Sembcorp consolidated
its stake in CWC by purchasing all remaining shares
in it which were not already owned through Cascal.
Amounting to 13% of CWC, these shares were purchased
from Waterloo Industrial, which is under the Kadoorie
Group, for a consideration of US$12.8 million, paid for
with 3,630,192 Sembcorp shares.
With the acquisition of Cascal, we added six
municipal water operations in the country to our
business. Together with our new beachhead in
Qinzhou, we now have energy and water operations
in 12 locations across nine provinces in China and are
strategically located in key industrial sites and cities
in the country.
PFO from Asia and Australia, excluding Singapore
and China, improved by 13% in 2010 to S$44.8 million.
In Vietnam, our 33%-owned Phu My 3 power plant
delivered another year of consistent performance
underpinned by its long-term power purchase
agreement. In Australia, our solid waste management
associate SembSITA Australia, which markets its
services under the SITA Environmental Solutions
brand, continued to perform well, backed by sound
operations and a strong Australian dollar. In December
2010, SembSITA Australia was named the successful
bidder to acquire WSN Environmental Solutions
(WSN), the waste management firm of the federal
government of New South Wales. WSN’s portfolio
of assets, which includes advanced resource recovery
facilities, engineered landfills, transfer stations and
material recovery facilities, is expected to strengthen
SembSITA Australia’s long term positioning in the
state of New South Wales as well as nationally. The
A$235 million acquisition was completed in February 2011.
The region’s performance in 2010 also included
almost six months’ contribution from water operations
previously under Cascal in Indonesia and the Philippines.
In Indonesia, these consist of a 49%-owned associate
with a 25-year concession in Batam Island for the
supply and distribution of municipal water, as well as a
39%-owned associate with a 20-year concession in the
district of Talang Kelapa in Palembang City. Meanwhile in the Philippines, our 29%-owned associate has a
30-year concession for municipal water supply and
wastewater treatment services for Subic Bay Freeport
Zone, an economic trade zone north of Manila, as
well as for the adjacent city of Olongapo.
In May, we entered into a joint venture with Gayatri
Energy Ventures for a 49% stake in a 1,320 megawatt
coal-fired power plant to be located in Krishnapatnam,
Andhra Pradesh. The joint venture became effective
as of February 2011 and commercial operations of
the new facility are expected to commence in 2014.
The project is our first investment in the fast-growing
Indian energy market. The S$1.9 billion power plant
will utilise supercritical technology, a more efficient
and environmentally-friendly technology compared to
conventional coal-fired power generation. It will be
well-positioned to meet the growing power demand in
the southern, western and northern regions of India,
which is expected to increase at a compounded annual
growth rate of 9% over the next 10 years. 75% of the
project cost will be funded through project financing
and the remaining 25% through shareholders’ equity.
PFO from Middle East & Africa grew 96% from
S$11.1 million to S$21.7 million.
In the UAE, our Fujairah 1 Independent Water and
Power Plant continued to deliver strong operating
performance. In June 2010, we signed a memorandum
of understanding with our partner, the Abu Dhabi
Water and Electricity Authority (ADWEA), for the
development of a new seawater reverse osmosis plant
on the existing site which will be capable of producing
around 30 million imperial gallons (or 136,800 cubic
metres) per day of desalinated water. Targeted for
completion end 2013, the expansion will increase our
desalination capacity on the site by 30% to 130 million
imperial gallons (or 591,800 cubic metres) per day. The
increased output is expected to be sold to the Abu
Dhabi Water and Electricity Company (ADWEC) under
a long-term water purchase agreement.
Meanwhile in Oman, we commenced construction
of the US$1 billion power and desalination plant
in Salalah. The facility’s 65 megawatts first phase is
expected to complete in the second half of 2011. 60%
owned by Sembcorp, the Salalah Independent Water and Power Plant is set to be the largest and most
efficient power and water plant in the Governorate
of Dhofar and will play a major role in meeting the
region’s growing power and water needs. The project
is expected to begin full commercial operations in the
first half of 2012.
With our acquisition of Cascal, contribution from
the region also included contribution from South
Africa, our first beachhead in the African continent.
Our South African operations provide the cities of
Ballito and Mbombela, formerly known as Nelspruit,
with municipal water supply and wastewater
treatment services. Our company in Mbombela,
Sembcorp Silulumanzi, was awarded the prestigious
Blue Drop certification for the second consecutive year
by the Department of Water Affairs and Forestry for
the Nelspruit water treatment plant.
PFO from the UK declined from S$78.1 million to
S$30.8 million due to weak performance from our
Teesside operations.
As we had guided the market, as at the end of
January 2010, three customers on the Wilton
International site in Teesside who had earlier
announced closures ceased operations on the site.
The associated production areas are being demolished
and cleared, freeing up significant heavy industrial
development land. The regional development agency,
One North East, has invested almost £7 million to
acquire and develop the former Invista land on the site,
through which it can support future inward investment.
2010 saw the arrival of Lotte Chemicals UK (Lotte),
which took over and successfully restarted the purified
terephthalic acid (PTA) and polyethylene terephthalate
(PET) production plants that closed down when
previous owner Artenius entered administration
in 2009. Sembcorp concluded new utilities supply
agreements with Lotte in May 2010.
In 2010, our Teesside operations also faced a
challenging operating environment which saw power
spreads at their lowest since 2003-2004, as well as
reliability and efficiency issues including with some
of the ageing assets on the site. During the year, we
saw failures of some ageing but critical plant items.
Although repaired, these assets were written down
through accelerated depreciation and an after-tax
charge of S$14.3 million was taken in the fourth quarter of the year. With cost management remaining
a priority, we also ceased a defined benefit pension
scheme for employees on the site during the year.
Converting the scheme to a future accrual scheme
resulted in a one-off gain of approximately S$8 million.
Despite these challenges, the business continued
to make progress on a number of value-adding
initiatives. During the year, we completed modification
works to our biomass power plant to convert it into a
combined heat-and-power plant so as to enhance our
green income from renewable obligation certificates.
To secure more off-site income, a 52 megawatt steam
condensing turbine project is currently under
construction and is expected to be completed by
mid-2011. When completed, this will provide the
flexibility of generating power for export to the pool
or distributing process steam on-site.
With the acquisition of Cascal, our UK assets now
also include municipal water operations in Bournemouth.
Located in southern England, Sembcorp Bournemouth
Water provides municipal water to Dorset, West Hampshire
and part of Wiltshire under a 25-year rolling contract.
It was rated the top performing water company for
service delivery in England and Wales for the second
year running by water industry regulator Ofwat.
The acquisition of Cascal has given us our first
Utilities footprint in the American continent with
the addition of municipal water operations in Chile,
Panama and the Caribbean to the business. In Chile,
we operate to the north of the capital city of Santiago,
as well as in Antofagasta, a city near the Atacama
Desert from which we also supply treated effluent
to Xstrata’s copper mine in La Negra. In Panama, we
supply bulk treated water under a 30-year contract
with Panama’s national water agency, while operations
in the Caribbean islands of Antigua, Bonaire and
Curaçao provide desalinated water to our customers.
Overall, the global economy is expected to
improve, but growth is expected to remain uneven.
The International Monetary Fund is forecasting
an overall growth of 4.4% in 2011. Growth in the
advanced economies is expected to remain subdued at
2.5%, while developing economies in Asia, including
China, India, Indonesia, Philippines and Vietnam, are expected to grow at a faster pace of 8.3%. However,
recent events in the Middle East and North Africa
could create uncertainties and threaten global
economic recovery. Although our utilities projects in
Oman and the UAE are not affected by the current
unrest, nonetheless, we continue to closely monitor
the situation in the region.
Singapore’s Economic Development Board reported
that total fixed asset investment commitments
increased from S$11.8 billion in 2009 to S$12.9 billion
in 2010. Investment commitments from the chemical
sector accounted for the second largest proportion of
total fixed asset investment commitments in 2010 and
amounted to S$1.7 billion.
Further investments by downstream chemical
players are expected going forward with the addition
of two new world-class chemical crackers by Shell
and ExxonMobil on Jurong Island. The Shell Eastern
Petrochemicals Complex opened in May 2010, while
ExxonMobil’s integrated chemical and refining site
is expected to start up in 2011. Chemical companies
which have announced plans to invest in new facilities
or expansions to existing operations on Jurong Island
in 2009 and 2010 include Asahi Kasei Chemicals,
Chang Chun Group and Dairen Chemical Corporation,
Evonik Degussa, JAC, LANXESS, Stolthaven Terminals,
Sumitomo Chemical and Zeon Chemicals. In addition,
Shell has announced that it is studying the feasibility
of using Singapore as a base for the production of
world-scale high-purity ethylene oxide (HPEO), which
is used as a feedstock for detergent and soaps. If this
development materialises, it is expected to spur a
new HPEO corridor on Jurong Island to cater to soap
and detergent makers. There is also the possibility of
a fourth oil refinery with an expected value of
between US$6 million to US$8 million and a capacity of
300,000 to 500,000 barrels per day, which is reportedly
being studied by a consortium involving Singapore,
Chinese and European investors.
To cater to the expected increase in demand
stemming from these additional investments, our new
multi-utilities facilities located in the vicinity of the
Tembusu, Banyan and Angsana districts where most
of the new investors will be located, will commence
operations in 2012 and 2013. Our new 9,600 cubic
metres per day integrated wastewater treatment facility is expected to begin operations in 2012, while
our new 400 megawatt cogeneration plant, as well
as the remaining multi-utilities facilities to serve the
area are expected to be completed in the second half
of 2013. In addition, our importation of an additional
90 billion British thermal units per day of natural gas
from the West Natuna Sea, Indonesia remains on track
for delivery in the second half of 2011. This will boost
our current natural gas supply capacity by 26% to
431 billion British thermal units per day.
In China, to serve increasing customer demand,
several new facilities are expected to begin
operations in 2011. A 24,000 cubic metres per day
water reclamation plant in the Zhangjiagang Free
Trade Port Zone, which will supply industrial water
and demineralised water from recycled effluent to
customers, is targeted to come onstream in mid-2011. A 20,000 cubic metres per day expansion to
our industrial water facilities in the Nanjing Chemical
Industrial Park and our 15,000 cubic metres per day
industrial wastewater treatment plant in Qinzhou Port
Economic & Technological Development Zone are also
expected to start commercial operations in 2011.
In Australia, SembSITA Australia will focus on
integrating WSN and strengthening its positioning in the
alternative waste treatment sector. In Vietnam, our Phu
My 3 power plant is expected to deliver satisfactory
operational results. However, tariffs are expected to
decline from 2010 onwards as stipulated in the power
purchase agreement.
Our Fujairah 1 Independent Water and Power
Plant in the UAE is expected to continue performing
well, supported by its long-term purchase agreement
with ADWEA. Following the memorandum of
understanding for the development of a new
seawater reverse osmosis plant on the site, a long-term
water purchase agreement with ADWEC for
this additional output is expected to be signed in
2011. Meanwhile in Oman, construction of our
combined power and desalination facility in Salalah
continues, progressing towards the facility’s planned
commencement of its 65 megawatt first phase in the second half of 2011 and its expected full commercial
operations in the first half of 2012.
The UK economy is expected to remain weak, with
GDP growth for 2011 forecasted at 2.1% by the
Office of Budget Responsibility.
Low power spreads in the UK are expected to
continue to impact the performance of our Teesside
operations in 2011. However, in the long term, we
expect power spreads to improve given the impending
power capacity gap from the retirement of old assets
in 2015 and the need to encourage new power
investments in the country. In 2011, our 52 megawatt
steam condensing turbine is expected to come
onstream and this will provide flexibility between
steam and power production for our operations.
In addition, the business continues its efforts to
re-position the site by targeting new opportunities
outside the traditional chemical industries.
Our regulated municipal water business in
Bournemouth, UK is expected to continue performing
well in 2011. The business completed its tariff review
with the UK water services regulator Ofwat, and
tariffs have now been set for the five-year period
commencing April 2010. Underpinned by this and its
25-year rolling contract for the provision of water
to its municipal customers, it is expected to continue
to deliver a steady performance going forward.
Meanwhile operations in the Americas are expected
to experience continued organic growth, underpinned
by long-term concession agreements. |
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