The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

BISX-listed Consolidated Water yesterday said that extending assets at the Windsor reverse osmosis plant “beyond their useful life” had helped boost its 2013 bulk water supply margins by seven percentage points, while acknowledging it would be “doing some work” at the Nassau-based facility if its operating contract was renewed.

Rick McTaggart, the company’s chief executive, told investment analysts in a conference call that gross profits from its bulk water operations, which include the New Providence-based Blue Hills and Windsor plants, increased by 29 per cent or $2.6 million year-over-year in 2013.

This was despite a 2 per cent or $800,000 drop in the segment’s gross revenues to $40 million, with Mr McTaggart attributing the gross profit improvement to a combination of improved operating margins and $2.2 million reduction in depreciation expenses.

The depreciation expenses, he added, fell because Consolidated Water had extended assets at the Windsor plant, and two reverse osmosis plants on Grand Cayman, beyond “the end of their useful lives”.

Providing a more detailed explanation, David Sasnett, Consolidated Water’s chief financial officer, said: “Basically, we’ve stretched out the lives of those assets, and we still contained maintenance and replacement costs at the same time.

“Some of this stuff is quite old and has to be replaced, and we will incur some capital expenditure from that. The Windsor plant in the Bahamas, if we get an extension to that contract, we will be doing some work there.”

Tribune Business revealed last year how Consolidated Water had warned the Government that the Windsor plant requires an “urgent investment” of $3.328 million to maintain its operational efficiency, with any delay potentially creating “an unsafe working environment” for its Bahamian staff.

“As you are aware from our meeting and our previous meetings on the subject, the Windsor plant requires immediate and significant capital investment to keep it operating reliably and efficiently,” Mr McTaggart had then told Deputy Prime Minister Philip Davis.

“Consolidated Water (Bahamas) main objective in this negotiation is to ensure that it is able to continue meeting its obligations to Water & Sewerage Corporation during the extension period, consequently protecting its reputation in the Bahamas and abroad.

“We believe that any extension of the current agreement must therefor allow Consolidated Water to invest capital to rehabilitate and maintain the plant, and fully recover this additional investment by the end of the extended agreement,” Mr McTaggart added.

“We have estimated and will, subject to executing an extension of the agreement on mutually acceptable terms, immediately invest up to $3.328 million to carry our urgent refurbishment work on the Windsor plant.”

He made it clear that any delay in upgrading the Windsor plant could jeopardise the health of its staff. He did not, though, indicate whether this would impact the quality of water delivered to the Water & Sewerage Corporation and its customers.

“We hope that our very quick response to your request for options demonstrates our commitment to resolving the present uncertainty, and underscores the urgency of the situation,” Mr McTaggart told Mr Davis.

“We are carefully monitoring the operating conditions at the plant to ensure that our staff continue to work in a safe environment.

“However, we are concerned that any further delays in carrying out the rehabilitation work could create an unsafe working environment for our staff, in which case the operation of the plant would be adversely affected.”

Meanwhile, explaining how the accounting treatment worked, Mr Sasnett said Consolidated Water always estimated the ‘useful life’ of plant assets when they were placed on its balance sheet.

“What’s happening to some of our plants is that the people who operate them and maintain the equipment have done an excellent job in extending the lives of those assets beyond what we originally thought best,” he added.

“At some point in time, we will have to replace those assets and take a depreciation charge to amortise the capital expenditure we make for those replacements.”

While Consolidated Water will eventually have to take that charge, Mr Sasnett - emphasising that he did not want to downplay this - added that even with it, bulk water margins and operating efficiencies would still be much improved because the company was running its plants better.

Mr McTaggart added that Consolidated Water was “currently awaiting” the Government’s decision over Windsor, in terms of whether it would renew its contract or seek a new operator.