Some nine years after it expired, Cayman Water has still not reached a new licensing deal to serve customers in the Seven Mile Beach and West Bay areas, according to the first-quarter financial report from Cayman Water’s parent company, Consolidated Water.
The reason for the long delay is likely because government wants to negotiate lower rates for customers – something that could “significantly reduce” Cayman Water’s income, according to its financial reports.
Cayman Water’s retail licence 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 licence extension expired on 31 Jan. 2018, but Consolidated Water stated in its report that it continues to provide water on the assumption that the licence 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, known as OfReg, in July 2017, the report states.
Cayman Water proposed a deal to OfReg last year, but the regulator rejected that deal in November.
“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 November 2018 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.”
Cayman Water stated in its latest financial report that it proposed in January to adjust its rates consistent with the terms of the company’s previous licence.
“However OfReg has communicated that they have deferred any such adjustment until further notice,” states the report, which was published on Friday.
Under its current licence regime, Cayman Water pays a 7.5% 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 licence 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 licence. Under the existing licence agreement, Consolidated Water does not pay duty on supplies imported into the Cayman Islands.
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.