Nearly eight years after Consolidated Water’s license to sell residents water was scheduled to expire, the company and government still have not reached a new agreement, according to Consolidated Water’s 2017 annual report.
Consolidated Water is operating under an exclusive license to provide water to the West Bay and Seven Mile Beach areas. These retail water sales are made by Consolidated Water’s subsidiary, Cayman Water.
The retail license was originally set to expire in July 2010, but has been extended several times over the years so that government and the company could reach a new deal, states the annual report, which was filed with the U.S. Securities and Exchange Commission on March 19.
The most recent license extension expired on Jan. 31, but Consolidated Water stated in its report that it continues to provide water on the assumption that the license has been further extended to allow negotiations to continue without interrupting an essential service. The company began negotiating with the Utilities Regulation and Competition Office last July, the report states.
Under its current license regime, Cayman Water pays a 7.5-percent royalty to the government of its gross retail water sales revenues – excluding energy cost adjustments. The selling prices of water sold to its customers are determined by the license and vary depending upon the type and location of the customer and the monthly volume of water purchased, according to the annual report.
The report does not go into detail about the negotiations, but states that government is looking to restructure its water-supply deal with Consolidated Water in a manner that could significantly reduce the company’s income.
“The resolution of these license negotiations could result in a material reduction of the operating income and cash flows we have historically generated from our retail operations,” Consolidated Water states in its report.
The report added that one of the likely outcomes to the negotiations will be that Consolidated Water will no longer receive tax breaks on its imports related to the retail license. Under the existing license agreement, Consolidated Water does not pay duty on supplies imported into the Cayman Islands under its retail water license.
Previous SEC filings have stated that government is looking to lower water rates for residents.
“Depending upon the terms included in such new license, the company’s water rates to customers could be reduced, thereby resulting in a corresponding reduction in the company’s operating income as compared to operating income that the company has historically generated under the license,” Consolidated Water stated in a 2010 filing.
In addition to selling water straight to the customer, Consolidated Water also provides the Water Authority with water, which is produced at plants in North Sound, Red Gate and North Side. The plants are owned by the authority, but built and operated by Consolidated Water.
The operating agreements for the North Sound and Red Gate plants expire in July, and the operating agreement for the North Side plant expires in June 2019. The Water Authority intends to conduct a public bidding process for new agreements to operate the plants, according to Consolidated Water’s report.
Along with discussing the status of its license negotiations, the annual report also contained Consolidated Water’s 2017 financial results.
According to the report, the company saw its total revenue and gross profit increase by 7.7 percent and 4.9 percent, respectively, over 2016.
“2017 was a year of continued progress for us. We extended several water supply contracts, benefitted from a considerable improvement in our manufacturing operations and made substantial headway on our Rosarito project,” said Consolidated Water President Rick McTaggart, referring to his company’s project in Mexico, where it’s building a half-billion-dollar desalinization plant.