Consolidated Water affiliate in BVI government dispute

Consolidated Water’s British Virgin Islands affiliate Ocean Conversion (BVI) Ltd remains embroiled in a law suit with the BVI government and may be marginalised by a new 25-year water contract the government aims to award to a competitor.

Ocean Conversion has been producing potable water in the islands since 1990. The company operates two seawater reverse osmosis desalination plants on Tortola and one plant on Jost van Dyke, which supply water to the government.

Ocean Conversion has been in a dispute with the BVI government over its desalination plant at Baughers Bay, Tortola, after the government filed a law suit in November 2007, in which it sought ownership and possession of the plant.

The dispute stems from a contract concluded 17 years ago to construct the plant on government-owned land and produce and deliver water to the government. The contract was structured initially for seven years and provided the government with the option of purchasing the plant for $1.125 million before the contract expired. As the government did not elect to purchase the plant the contract was automatically renewed for another seven years, at the end of which the plant would become the property of the government without further payment.

At the end of the second seven-year term Ocean Conversion wrote to the government asking for a meeting to discuss future arrangements. The government argued that it now owned the production plant and issued a notice of vesting.

Ocean Conversion, however, asserted it still had ownership in the plant, because of investments it had made, in response to government pressure, to increase production capacity beyond what was contractually agreed.

As a result the company maintained it had the right to continue owning and operating the plant until it was reimbursed for its ownership share, which it estimated at $4.7 million. In the meantime the company continued to supply water to the government.

The government however notified Ocean Conversion that from 1 January 2007 it was going to pay a lower rate for the water. The government maintained that, as it owned the plant, it should not pay more for the water than what it believed represented its production cost.

Accordingly, the government has since paid significantly less than what has been invoiced by the water supplier. Ocean Conversion filed a claim over funds owed to the company for the discrepancy. By 31 March 2009 Ocean Conversion’s claim had been amended and increased to nearly $13.8 million for amounts owed and accrued interest.

The Eastern Caribbean Supreme Court issued a preliminary ruling on 17 September and determined that the BVI government was entitled to immediate possession of the Baughers Bay plant.

The court also ordered the government to make an interim payment of $5 million to Ocean Conversion for amounts owed, before the actual cost of producing water could be assessed in a hearing at a later date.

The amount owed to Ocean Conversion may or may not be amended after the hearing. No date for the hearing has been set.

Ocean Conversion’s Cayman-based shareholder Consolidated Water reported a loss of US$1.2 million on its 43.5 per cent equity interest in Ocean Conversion for the first six months of 2009. Depending on whether Ocean Conversion and the BVI government will come to an agreement over the operation of Baughers Bay, Consolidated Water may have to record impairment charges in its balance to reflect the reduced carrying value of Ocean Conversion’s assets.

Meanwhile, the Minister for Communication and Works Julian Fraser announced on 8 September that the BVI government is planning to sign a 25-year contract with utility company BiWater to produce 2.3 million imperial gallons of water per day at a new facility at Paraquita Bay, claiming it will save the government nearly $273 million over the life of the agreement.

The length of the contract and the planned volume of water production threaten to marginalise existing water facilities in BVI and drive competitors like Ocean Conversion out of business. In a letter to the editor of online service BVI News Ocean Conversion refuted the potential savings and stated: ‘By specifically arguing that savings will be made by purchasing water from the Biwater plant instead of Baughers Bay it is perfectly clear that Biwater intends to put Ocean Conversion out of business.’

Ocean Conversion also criticised that the contract had been awarded without a proper tender process and that its attempts to negotiate a new contract with government had been unsuccessful even after offering reduced prices. The Contractors Association of the Virgin Islands supported Ocean Conversion in its criticism stating in a letter that, ‘In the BVI, we have allowed the largest single contract ever signed in the history of the territory be given away to outsiders with conditions that locals could not even dream of receiving.’

In response to Ocean Conversion, BiWater claimed in a press release that its proposed price was only 45 per cent of Ocean Conversion’s price at Baughers Bay and only 58 per cent of its price at Bar Bay saving households $1,720 per year. The press statement concluded that ‘by proceeding with the BiWater contract the government of the BVI will realise immediate annual savings of $3.2 million while increasing the water supply by 550.000 gallons per day and resolving the sewage treatment problem.’

Mr Fraser said that the signing of the contract with BiWater was imminent.