Gov’t weighs leasing Water Authority

Seeking cash to balance its
flagging revenues, the Cayman Islands government said Monday it may seek out
private companies that are interested in leasing the Water Authority, Cayman.

But first, West Bay MLA Cline
Glidden Jr. said, the government would review the idea to ensure it makes
financial sense.

According to Mr. Glidden, the
Cayman Islands Government has received multiple expressions of interest – and
at least one concrete proposal – for a private lease agreement involving the
water authority.

The water authority is one of two
entities that supply water to Cayman Islands residents; the other is a private
company,
Consolidated Water.

Although officials with the ruling
United Democratic Party did not specify who made the initial offer to lease the
water authority facilities, it is understood that Consolidated Water made the
initial move.

“We received an unsolicited offer,”
Mr. Glidden said Monday. “Since then, we’ve had interest expressed and been
told of other offers forthcoming, but we haven’t received those offers yet.”

The proposal, according to
information obtained by the Caymanian Compass, presents the government with
three options, one of which is leasing and another is for the private company
to buy the water authority. However, Mr. Glidden said the latter option would
not
be considered.

“The option that we saw is for a
lease,” Mr. Glidden said. “We don’t want to get into a situation where we used
to own it – like with the electricity company.”

Mr. Glidden said the arrangement
sought by government, generally speaking, would be for an up-front cash payment
followed by an annual payment for the rights to operate water authority facilities
and serve their customers. Consolidated Water provides service in the West Bay
and Seven Mile Beach areas of Grand Cayman and the water authority covers the
rest of the Island. Such a lease agreement would expand Consolidated Water’s
operations considerably.

Consolidated Water reported a
decline in revenues and net income for the second quarter – April through June
2010.

Total revenues for the company
dropped by 18 per cent to $12.7 million compared to the second quarter 2009.
Revenues declined in all three business segments. Retail water revenues fell by
3 per cent, bulk water by 4 per cent, and the services revenues decreased by 83
per cent to $500,000, which the company blamed on reduced construction
activity.

The Water Authority, Cayman
operates as a statutory authority – which means it is a separate entity that is
overseen by a government-appointed board. The WAC has consistently generated
revenues and ended its budget years in the black. However, that cash generally
stays within the authority financial system, unless there is a specific request
for a capital withdrawal with government’s budget. In other words, money generated
by the water authority does not go to support central government’s general fund
budget.

Mr. Glidden said the government has
not decided anything at the moment. He said officials have contracted the
services of a major accounting firm to study the initial proposal to see if it
makes financial sense.

Speaking hypothetically, Mr.
Glidden said if the proposal was for $30 million up front and an additional $5
million per year over a 25 year lease, but it was determined that the water
authority still had a significant amount of debt, government might not want
make a deal. 

If the finances do pencil out, he
said, government would open a request for a proposal process in which
interested parties could bid to lease the entity for a specified period.

This proposal document would be
separate from request for proposals government intends to issue for its sewer
system facilities, Mr. Glidden said.

In addition to making financial
sense, Mr. Glidden said government is keen to protect jobs at the Water
Authority, Cayman and in any case, some regulatory authority – such as the
Water Authority Board – would have to remain in place even if government decides
to lease the WAC to a private company.

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2 COMMENTS

  1. Funny how a government authority that actually operates in the black is being considered for private leasing. It seems to me Mr. Glidden makes no sense in assertion that this makes financial sense. No wonder he is a politician and not a financial genius!

    You have to wonder who is really making money off this deal. It is not the Caymanian people.

    Water and electricity should be government run monopolies that strive to provide these basic needs in the most cost efficient manner to the people of the Cayman Islands.

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