The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Consolidated Water’s Bahamian rival for the Windsor water supply contract yesterday dismissed the BISX-listed company’s attempts to paint its offer as uncompetitive on price.

Don Demeritte, the former Water & Sewerage Corporation chairman who is part of the EPS Consultants’ consortium, told Tribune Business there was “no doubt” Consolidated Water was wrong to suggest its pricing could not be matched.

He was responding to Rick McTaggart, Consolidated Water’s chief executive, who yesterday suggested his company’s “economies of scale” - both within the Bahamas and wider Caribbean - would enable it to beat all-comers in the pricing offered to the Water & Sewerage Corporation.

The BISX-listed firm is seeking a five-year extension of the water supply agreement it currently holds with the Corporation for the Windsor reverse osmosis plant.

That deal is set to expire next month, but EPS Consultants - an all-Bahamian investor group - has emerged as a threat to Consolidated Water’s plans, having submitted a rival proposal to the Water & Sewerage Corporation and Christie administration.

Windsor is certainly valuable to Consolidated Water, the plant generating $1.8 million and $7.5 million in revenues during the three months ended March 31, 2013, and the year ended December 31, 2012, respectively

Mr McTaggart spent much of yesterday’s 2013 first quarter results conference with Wall Street analysts discussing the Windsor situation and the Water & Sewerage Corporation’s options.

In what became almost a sales pitch to the Water & Sewerage Corporation as to why Consolidated Water’s offer should be accepted, Mr McTaggart effectively suggested the state-owned agency had little choice but to renew his company’s contract because the clock was against it.

With the current contract expiring in June, Mr McTaggart implied that handing Windsor to a rival would be virtually impossible.

This was because the plant, and its equipment, is owned by Consolidated Water. While the existing contract allows the Corporation to acquire these assets, Mr McTaggart said negotiations over this would likely extend well beyond June.

Noting that the Water & Sewerage Corporation did not have the spare capacity coverage if Windsor was down for any length of time, Mr McTaggart also suggested that its financial position - subsidies and annual losses easily exceeding $20 million - also prevented it from purchasing the plant.

Addressing investment analysts, the Consolidated Water chief executive said the company’s first quarter results had “benefited from a reduction in depreciation costs at the Windsor plant in the Bahamas as we reach the end of that operating agreement next month”.

Looking to the future, Mr McTaggart then added: “In October last year, we submitted a proposal to the Bahamas’ Water & Sewerage Corporation to extend the terms of the Windsor contract for five years, along with a very attractive rate reduction and extended invoice payment terms to help with their cash flows.

“We have received confirmation that they are considering our proposal, but have not yet received a definitive reply.”

Then, in a hint to the Water & Sewerage Corporation that it needed to ‘get a move on’, Mr McTaggart said: “We respect the Water & Sewerage Corporation’s prerogative to thoroughly evaluate our proposal, and even consider other options, but hopefully they make a decision soon, as the contract is coming to an end next month and the plant urgently requires capital investment to maintain its reliability and efficiency beyond the current contract terms.”

Arguing that Consolidated Water remained best placed to do this, Mr McTaggart added: “We and our Bahamian customer, the Water & Sewerage Corporation, benefit from the economies of scale created by Consolidated Water’s Bahamas operations (also including the Blue Hills plant) and, in fact, our greater regional capacity.

“So we wonder whether a new player in the Bahamas will be able to close on more favourable financial terms than ours, with all things being equal.”

That was a not-so-subtle reference to EPS Consultants, and Mr Demeritte said of the pricing issue: “He’s [Mr McTaggart] wrong about that. There’s no doubt about that.

“The bottom line is they [Consolidated] still want to operate as a monopoly in the Bahamas, which is not good for business, and everyone knows monopoly pricing is not the same as competitive pricing.

“As such, our joint venture group welcomes any transparent competition. Why should this company come here and expect a monopoly position in the Bahamas?”

Mr Demeritte accused Consolidated Water of failing to give the Water & Sewerage Corporation a good price in the past, suggesting it “should be more competitive” given its existing economies of scale.

And, arguing that a $4 million investment was necessary to “modernise” Windsor, Mr Demeritte questioned why the company had failed to inject this capital previously.

Consolidated Water is understood to have held off due to the uncertainty over whether its contract will be renewed, but Mr Demeritte added: “One must question the fact that the plant was allowed to deteriorate to the level it is at now.

“Because, at the end of the day, these guys are making sufficiently high margins to keep the plant in good working order.”

Meanwhile, Mr McTaggart, noting that the Water & Sewerage Corporation does not own the Windsor plant and its assets - just the land it sits on - said it would have to negotiate with Consolidated Water to acquire it, if the contract was not renewed.

“Given the current financial subsidy the Corporation currently receives from government, they would probably have to increase that or rely on third party financing to buy that plant,” Mr McTaggart said.

“This is a very important contract to Consolidated Water, the Bahamas, its Bahamian investors, and all investors in the company.

“We stand ready to meet with the Corporation to agree mutually satisfactory terms to extend for another five years.”

Going through the options available to the Water & Sewerage Corporation, Mr McTaggart said a five-year renewal would give Consolidated Water enough time to recover the capital invested to upgrade Windsor.

Unable to “give any sort of timeframe” for potential negotiations over the Water & Sewerage Corporation acquiring the plant, Mr McTaggart said a third option was for it to order Consolidated Water to remove the facility from its land.

“Practically, I don’t think they have replacement capacity there to meet their needs, so that’s probably at the bottom of the list,” Mr McTaggart said of the final option.

In response, Mr Demeritte suggested it was inappropriate for Consolidated Water to discuss these details in public, arguing that it should negotiate in the Bahamas - and not with Wall Street.