The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Nassau's main water provider yesterday sounded an alert over potential supply disruptions if the Government does not pay a $16.1m debt that has increased by 76.9 percent this year.

Consolidated Water, the BISX-listed entity that produces virtually all the Water & Sewerage Corporation's New Providence water supply, warned that it will lack the financing "to continue normal operations" unless the Ministry of Finance sticks to a proposed payment plan to settle what is owed.

The Blue Hills and Windsor reverse osmosis plant owner, in its 2018 third quarter results filings, said the $7m increase in the corporation's debts to it during the nine months to end-September 2018 had already "adversely impacted the liquidity" of its Bahamian subsidiary.

While conceding that successive governments had always made good on such outstanding bills, which have peaked at similar amounts in the past, Consolidated Water's latest filing with the US Securities & Exchange Commission (SEC) struck a more urgent tone - and effectively amounted to a warning to the Minnis administration.

It added that if the Ministry of Finance "does not adhere" to the proposed payment plan submitted to it, and/or the corporation continues to be "significantly delinquent" in paying its bills, its Bahamian subsidiary would suffer several adverse consequences that could impact water supply to thousands of New Providence homes and businesses.

"Consolidated Water (Bahamas) accounts receivable balances due from the Water & Sewerage Corporation amounted to $16.1m as of September 30, 2018, as compared to $9.1m as of December 31, 2017. The increase in these accounts receivables has adversely impacted the liquidity of this subsidiary," Consolidated Water warned in its SEC filings.

"Consolidated Water (Bahamas) has also experienced similar delays in collecting its accounts receivables from the Water & Sewerage Corporation in prior years, and at times has held accounts receivable balances from the Water & Sewerage Corporation in amounts comparable to the September 30, 2018, balance.

"During these periods we arranged meetings, and held discussions, with representatives of the Water & Sewerage Corporation and the Bahamas government to formulate a payment schedule for Water & Sewerage Corporation's delinquent accounts receivable, and such amounts were subsequently paid in full."

Consolidated Water added: "Based upon this payment history we have never been required to provide an allowance for doubtful accounts for any of Consolidated Water (Bahamas) accounts receivables, even though Consolidated Water (Bahamas) periodically has been owed substantial delinquent balances.

"In October 2018, the Ministry of Finance provided CW-Bahamas with a proposed payment schedule to pay Water & Sewerage Corporation's delinquent accounts receivable balance as of September 30, 2018, in full by June 2019."

Then came the warning: "If the Ministry of Finance does not adhere to this proposed payment schedule, or the Water & Sewerage Corporation continues to be significantly delinquent in paying Consolidated Water (Bahamas) invoices, then in the coming months one or more of the following events may occur.

"One, Consolidated Water (Bahamas) may not have sufficient liquidity to continue normal operations. Two, we may be required to cease the recognition of revenues on Consolidated Water (Bahamas) water supply agreements with the Water & Sewerage Corporation, and three, we may be required to provide an allowance for Consolidated Water (Bahamas) accounts receivable. Any of these events could have a material adverse impact on our results of operations, financial position and cash flows."

Adrian Gibson, the Corporation's chairman, who was thought to have been in Long Island at the Business Outlook conference, did not return Tribune Business's calls and messages seeking comment before press time last night.

However, it will not only be Water & Sewerage Corporation customers feeling the effects if this worst-case scenario comes to pass. Bahamian shareholders of Consolidated Water, who hold its shares through Bahamian Depository Receipts (BDRs) listed on BISX, may also see an impact on their investment's earnings and dividends.

The Consolidated Water filings may also shed new light on the reasons behind the Water & Sewerage Corporation's recent mass disconnection exercise across New Providence and the Family Islands, as its bids to recover up to $45m in accounts receivables owed to it by delinquent customers - a significant chunk of which will likely have to be written-off - to improve its financial position.

They also indicate that a further taxpayer 'bail out' of the cash-strapped Water & Sewerage Corporation may soon be forthcoming on top of the annual $20-$30m it typically receives in the annual Budget, which is a product of operational inefficiencies and the continued selling of water 'below cost'.

On a more positive note, Rick McTaggart, Consolidated Water's president and chief executive, hailed the recent re-commissioning of its Windsor facility, the smaller of its two New Providence reverse osmosis plants, the company having spent $13.7m between that and a similar upgrade in the Cayman Islands.

"Subsequent to the quarter end, we re-commissioned our Windsor plant in the Bahamas, which is our second largest facility in our plant portfolio. This facility, which provides 2.6 million US gallons per day to the government-owned Water and Sewerage Corporation, was refurbished with equipment manufactured by us and designed with embedded operating efficiencies," Mr McTaggart said.

The Bahamas remains a key revenue and earnings driver for Consolidated Water, with its two New Providence reverse osmosis plants generating a material amount of revenue for it.

Unveiling its results for the three months to end-September 2018, it said: "Bulk segment revenues were $8.577m and $7.881m for 2018 and 2017, respectively.

"The increase in bulk revenues from 2017 to 2018 is attributable primarily to Consolidated Water (Bahamas) and Consolidated Water (Cayman), which generated approximately $632,000 in incremental revenues primarily as a result of a significant increase in the prices of diesel fuel and electricity from 2017 to 2018, which increased the energy component of our bulk water rates in The Bahamas and Cayman Islands."

The water supplier added: "Gross profit for our bulk segment was $2.919m (34 percent of bulk revenues) and $2.299m (29 percent of bulk revenues) for 2018 and 2017, respectively.

"Gross profit as a percentage of revenues increased in 2018 as compared to 2017 due to a charge of approximately $430,000 recorded in 2017 relating to the refurbishment of a fixed asset used in our Bahamas operations."

As for the performance for the first nine months, Consolidated Water added: "Bulk segment revenues were $25.295m and $23.616m for 2018 and 2017, respectively. The increase in bulk revenues from 2017 to 2018 is attributable primarily to Consolidated Water (Bahamas) and Consolidated Water(Cayman), which generated approximately $1.5 million in incremental revenues due to a significant increase in the prices of diesel fuel and electricity from 2017 to 2018, which increased the energy component of our bulk water rates in The Bahamas and Cayman Islands.

"Gross profit for our bulk segment was $8.446m (33 percent of bulk revenues) and $7.865m (33 percent of bulk revenues) for 2018 and 2017, respectively. Bulk segment gross profit dollars increased due to the increase in revenues."

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Gross profit for our bulk segment was $2,919,083 (34% of bulk revenues) and $2,299,063 (29% of bulk revenues) for 2018 and 2017, respectively. Gross profit as a percentage of revenues increased in 2018 as compared to 2017 due to a charge of approximately $430,000 recorded in 2017 relating to the refurbishment of a fixed asset used in our Bahamas operations.