The Utilities Regulation and Competition Office, known as OfReg, has rejected Cayman Water’s most recent proposal for a licensing deal to serve customers in the Seven Mile Beach and West Bay areas, according to the third-quarter financial report from Cayman Water’s parent company, Consolidated Water.
Cayman Water’s 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.
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 OfReg in July last year, the report states.
OfReg has stated that one of its priorities was to reach a new deal with Cayman Water, but the regulator has rejected the company’s most recent proposal.
“The Company began license negotiations with OfReg in July 2017 and such negotiations are continuing. On Nov. 2, 2018, the Company received a letter from OfReg in which OfReg rejected the Company’s most recent commercial proposal,” Consolidated Water stated in its financial report. “Further, OfReg indicated that if the Company is unwilling to submit a new proposal offering certain additional concessions, then OfReg will have to consider its other available options.”
The financial report does not elaborate on what OfReg’s “other available options” are. Consolidated Water stated that it has not yet determined how it will respond to OfReg.
“The Company cannot make any assurances that it will be able to reach an agreement with OfReg for a new license or that the terms of any license agreed to will be on terms as favorable to the Company as the terms of the license that expired Jan. 31, 2018,” Consolidated Water stated.
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 Consolidated Water’s annual report.
Consolidated Water’s financial reports do not go into detail about the negotiations, but state 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 a previous 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.
According to a 2010 filing, 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.