Consolidated Water seeks exit from Mexican water project

Consolidated Water has offered its share in Mexican affiliate NSC Agua to a third party related to its joint venture partner NSC due to the inability of NSC to secure additional development funding and other uncertainties, the company said in its third quarter results presentation. 

The project encompasses the construction, ownership and operation of a 100 million gallon per day seawater reverse osmosis desalination plant based in northern Baja California, Mexico that would deliver water to the area as well as via an accompanying pipeline to the US border. 

In return for a 50 per cent stake in NSC Agua, Consolidated Water has provided $4 million of initial funding.  

“Regarding our venture in Baja California, Mexico, NSC, the joint venture company carrying out the development of the Rosarito project, has been unable to secure additional funding for the project and to address the remaining uncertainties associated with this project in a timely manner,” said Rick McTaggart, chief executive officer of Consolidated Water Co. Ltd. “As a result, we have given a third-party related to our NSC partner an option to purchase our interest in NSC. If this option is not exercised, we will evaluate other alternatives, which may include seeking other buyers, restructuring NSC or ceasing operations related to the Rosarito project.“ 

Despite the setback, Mr. McTaggart said he thinks the investment has not been futile.  

“Although we are very disappointed that this particular opportunity has not developed as planned, we have acquired a great deal of knowledge and expertise regarding the water markets in Mexico and the southwestern United States and expect to explore other opportunities in these regions in the future,” he said. 


Uncertainty over Cayman licence 

In Grand Cayman, Consolidated Water’s water services to the Seven Mile Beach and West Bay areas generate 41 per cent of the company’s consolidated revenues and 46 per cent of consolidated profits. The company’s licence in Cayman, initially granted in 1990, expired in July 2010. During the past 16 months, Consolidated Water was granted several short-term extensions, but has so far been unsuccessful in negotiating a new licence. 

The Cayman Islands government aims to restructure the terms of the licence and adopt a rate of return on invested capital model as it is employed by many US municipalities. Consolidated Water objects to this change, saying it would make it difficult to operate the water utility efficiently and increase the costs for customers.  

“We believe such a model, if ultimately implemented, could significantly reduce the operating income and cash flows we have historically generated from our retail license and require us to record an impairment loss to reduce or write off the $1.2 million carrying value of our retail segment’s goodwill. Such impairment loss could be material to our results of operations,“ the company wrote in its latest SEC filing. 

Consolidated Water retains a right of first refusal to renew the license terms that are no less favourable than those that the government might offer to a competitor. 

If no new licence agreement can be agreed upon, the company said it expects to be permitted to continue to supply water to the present service, but potentially under less favourable terms.. 



In the third quarter of 2011, Consolidated Water’s total revenues increased 9 per cent to approximately $12.8 million, compared with total revenues of approximately $11.7 million in the third quarter of 2010.  

Retail water revenues increased 14 per cent to about $5.3 million during the most recent quarter due to an increase of 7 per cent in the number of gallons of water sold, a 2 per cent inflation-related increase to base rates effective 1 January, 2011, and higher energy prices in 2011 that resulted in an increase in energy pass-through charges to the company’s retail customers.  

Third quarter bulk water revenues increased by 18 per cent to about $7.5 million compared with same period one year ago, reflecting an increase of 8 per cent in the volume of water sold and increased energy pass-through charges to the company’s customers due to higher energy prices.  

Net income attributable to stockholders increased approximately 2 per cent to $1,286,068, or $0.09 per diluted share, in the third quarter of 2011, relatively unchanged compared with the previous year. 

Operating income increased 122 per cent, from $440,241 in the third quarter of 2010 to $976,899 in the most recent quarter. The increase in net income for the third quarter of 2011 primarily reflected higher revenues, an increase in gross profit margins in the bulk water business segment, and lower general and administrative expenses due to a reduction in project development expenses for the company’s Mexico affiliate. 


Mr. McTaggart

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