Dear Mr Ng Zhu Wei,

I’m Nigel Tan, and I’m a shareholder of Cypark Resources Berhad and a long-time small businessman.

I invest in the Cypark Resources Berhad since 2015 as I thought the WTE Concession is a good one, and stayed despite the share price only dropping for last few years.

This is because the management always said that the WTE is very profitable, and the auditors always signed off on the accounts, despite the project delays. I also thought LSS2 and LSS3 will be good.

However, there is an article going around called “The Mystery of Cypark Resources”, and after I finish reading it, I am now very worried and have a lot of questions about the WTE and LSS2 projects.

I have also finished reading the 29 June 2022 Management letter and I have my own question for the auditors.

SMART WTE PROJECT at Ladang Tanah Merah

I study the last few years annual reports of the company. The construction work on the WTE start on 2013 and they said in the 2013 annual report that it will be completed by 2017.

Management say delay due to COVID 19. But COVID 19 occurred in 2020, how can 2017 to 2020 delay in the WTE project be related?

On 29 June 2022 management letter, they said CA was signed on November 2015 and effective from June 2016.

But from 2013 – 2015, the management spend RM350 million to build the WTE.

Does this mean they start building the WTE BEFORE signing the CA? This mean management willing to spend RM350m building something before any black and white? This is very weird.

Also, management now say that COD Date is now December 2022, almost 5 years after the initial completion date, and this new COD Date is government approved.

This is big extension from the government, what documents from the government did the management provide to the auditors as proof

Also, what audit work is performed by auditors to this new government document? Did auditors check with the government officials whether this COD extension is real or fake?

And, if COD is extended, why remaining period of the concession in the “Intangible Asset” part of audited annual reports drop every year?

Lastly, as the project is delayed from 2017, did government issue letter delay the COD every year?

Or did government issue one letter in 2017 saying, COD date is whenever you finish the project?

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From the video by management on 29 June 2022, the WTE plant looks like they start testing already.

But in the article, the important question is whether WTE plant will make money or no

Based on the article and the profit/loss I see, unless government increase the electric of tipping rates alot, the WTE will lose RM46m per year.

But, in the management letter, they say,

·         The cash inflow streams consist of tipping fees and sale of renewable energy. Like many other CA, the project enjoys the right of periodical fee review.

·         The tipping fee of the project is subject to fee review every 3 years as a result of our dynamic cashflow modeling.

·         The fee review will allow for project viability and reasonable IRR to be maintained.

From what i understand, this basically means that government agree adjust the tipping fee to any amount necessary to make sure Cypark WTE project is profitable for Cypark.

This basically mean the WTE Project is super profitable project, as Cypark should make sure the project is very over budget, to ensure higher tipping fee, and the profit/return % will count using a much bigger project value.

In this case, there is no need for the project owner to finish on time or within budget.

I’ve been in business many years, and this is a very weird contract. Is this kind of contract with the government normal?

Even if it’s such a nice contract, must have limit, right? Otherwise, can over budget to infinity. If there is a limit, the project being 3x over budget should exceed the limit?

Did government give this term in the original contract, or did government give it afterwards?

Lastly, In the previous year annual reports, Cypark management said that the tipping fee is based on a fixed schedule. Why did this suddenly change? What work have been done by the auditors to verify this?

Did auditors check with the government to confirm these terms?

LSS2 Contracts

In the management’s letter, I did not see any explanations on the claim from the writer, on

1. Why corporate structure so weird? Why are ex-employees who invest basically nothing are the majority shareholders of the company, when Cypark is paying for everything? And why the ex-employees also hold the water rights all this?
   
   
2. Why is the Contract Asset amount in current quarter report much higher than the project cost in the Sukuk document? No need write off anything?
   
   
3. Why is interest cost included in the Contract Assets if Cypark is not the owner of the LSS2 assets?
   
   And why is Cypark not seen as the owner of the project if they are paying for almost all the project, and when in 2013 they show before how they will include these companies in the group accounts in the future.
   
   
4. Lastly, the LSS2 project is supposed to be in Empangan Kelinchi and Terip in Negeri Sembilan, but in this article, it says that its moved to Danau Tok Iban, Kelantan.

Why is there no update to investors or sukuk holders about this? No need to get approval.

Such a big change so late will surely have a huge impact on construction cost, potential power generation, require a new contract signed with TNB etc.

What is the audit work performed by the auditors in relation to this?

Thank you for reading and I look forward to your reply