Consolidated Water’s quarterly report stated that its subsidiary, Cayman Water, still has not reached a licensing deal with government to serve customers in the Seven Mile Beach and West Bay areas.
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, according to Consolidated Water’s second-quarter report, which was released last week.
The most recent license extension expired on Jan. 31 this year, 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 (OfReg) last July, the report states.
OfReg, for its part, stated in its 2018 annual plan that completing negotiations with Consolidated Water is a priority for the regulator.
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 stated 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 U.S. Securities and Exchange Commission filings by the company, which are listed on the Nasdaq stock exchange, have stated that the Cayman Islands 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.
Consolidated Water also stated in its Q2 report that its gross profit was up $6.6 million, which is a 2.2 percent increase from Q2 of 2017.
“Our core desalination business continued its steady performance year-to-date, and the outlook for this business is favorable for volume increases in the Caribbean, particularly in the Cayman Islands, which is experiencing positive tourism industry trends,” said Consolidated Water CEO Rick McTaggart. “Additionally, we continue to expect improved year-over-year results from our manufacturing operations for the full 2018 fiscal year.”