The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation’s main supplier yesterday warned it expects a “significant improvement” in the state-owned utility’s repayment of $16.1m owing to it at end-February 2019.

Consolidated Water, the BISX-listed reverse osmosis plant operator, revealed in financial disclosures that the government and Water & Sewerage Corporation have made virtually no progress in paying down the latter’s debt - some 75 percent of which was branded “delinquent”, or more than 90 days past due, at year-end 2018.

The company, which supplies all the water that the Water & Sewerage Corporation distributes to its commercial and residential customers on New Providence, reiterated previous warnings that it “may have insufficient liquidity to continue operations” unless the state-owned enterprise (SOE) undergoes a rapid turnaround when it comes to paying its bills in full and on time.

David Sasnett, Consolidated Water’s chief financial officer, yesterday blamed the sums owed to it by the Water & Sewerage Corporation for the near-65 percent increase in the group’s total accounts receivables, which rose by almost $10m year-over-year to $24.228m

He added that the situation in The Bahamas was also partially responsible for the 31 percent year-over-year decline in Consolidated Water’s cash position, which fell from $45.483m at end-December 2017 to $31.337m some 12 months later.

Still, Mr Sasnett said Consolidated Water, whose shares are held by local investors and traded on BISX via Bahamian Depository Receipts (BDRs), had received recent written assurances from the Ministry of Finance that the Government (meaning the Bahamian taxpayer) will pay what is owed.

“With respect to our increase in accounts receivables, it’s important to note that based on our recent correspondence with the Ministry of Finance we expect collection of our accounts receivables in The Bahamas to improve significantly in the coming quarters,” the chief financial officer told investment analysts.

Consolidated Water’s form 10-K, filed yesterday with the US Securities & Exchange Commission (SEC), gave a further insight into the cash flow and liquidity difficulties created for the Nasdaq-listed company as a result of the Water & Sewerage Corporation’s inability to pay its bills without drawing on substantial Bahamian taxpayer support.

Revealing that the sums owed had nearly doubled year-over-year, increasing by 93.4 percent, the BISX-listed reverse osmosis supplier said: “Consolidated Water (Bahamas) accounts receivable balances due from the Water & Sewerage Corporation amounted to $17.6m as of December 31, 2018, as compared to $9.1m as of December 31, 2017.

“Approximately 75 percent of the December 31, 2018, accounts receivable balance was delinquent as of that date. The increase in these accounts receivable has adversely impacted the liquidity of this subsidiary.”

Consolidated Water acknowledged that such delays were nothing, as the Water & Sewerage Corporation has a long track record of late, partial payments, and that the total sums owed to it in the past have at times been as high as the present bill.

Expressing confidence that the Bahamian taxpayer will again come through to bail-out the Water & Sewerage Corporation, it added: “During these periods, we arranged meetings and held discussions with representatives of the Water & Sewerage Corporation and the government to formulate a payment schedule for Water & Sewerage Corporation’s delinquent accounts receivable, and such amounts were subsequently paid in full.

“Based upon this payment history, we have never been required to provide an allowance for doubtful accounts for any of Consolidated Water (Bahamas) accounts receivable, even though Consolidated Water (Bahamas) periodically has been owed substantial delinquent balances. We believe Consolidated Water (Bahamas) accounts receivables will ultimately be collected in full based upon our history with The Bahamas’ government.”

Providing evidence to support its conclusion, Consolidated Water confirmed that the Government has stepped in to pay down the multi-million dollar debt mountain. It said: “Consolidated Water (Bahamas) received approximately $5.6m in payments on its accounts receivable in January 2019, and as of February 28, 2019, its accounts receivable balance from the Water & Sewerage Corporation was approximately $16.1m.

“On March 12, 2019, Consolidated Water (Bahamas) received approximately $1.4m in payments on its accounts receivable along with correspondence from the Ministry of Finance which acknowledged the receivable balance and stated that payment in full of all outstanding amounts is anticipated in due course.”

The figures, though, suggest that the Government has to-date merely been nibbling at what is owed, and that it - and the Bahamian taxpayer - are having to sprint just to stay in the same spot. For the $16.1m owed to Consolidated Water is exactly the same amount that was due at end-September 2018, when the issue of the outstanding debt first emerged.

This is despite the fact that, in addition to the $7m paid to Consolidated Water for 2019 to-date, the Government’s “snapshot” for the first half of the fiscal year shows a further $6m being paid to the BISX-listed operator of the Blue Hills and Windsor plants as part of the wider pay-off of $6m in unfunded arrears.

In other words, the payment of $13m to Consolidated Water over the past nine months appears to have made little dent in the Water & Sewerage Corporation’s debt to it. It thus appears that Bahamian taxpayers face an ever-increasing burden to settle this bill, with the payments in effect representing a wealth transfer from all taxpayers for the benefit of the Water & Sewerage Corporation’s customers.

Consolidated Water’s 10-K filing also now lists its relationship with the Water & Sewerage Corporation as a “material risk factor” that shareholders and the global capital markets need to be aware of, given the ongoing problems in collecting on an eight-figure debt. This issue is compounded by the fact that its long-term deal with the SOE accounts for more than one-third of annual revenues.

“Our Bahamas subsidiary is experiencing substantial delays in the collection of its accounts receivable,” Consolidated Water said. “If these collections do not improve significantly, our Bahamas subsidiary may have insufficient liquidity to continue operations, and our consolidated results of operations could be materially adversely affected.

“If 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. Consolidated Water (Bahamas) may not have sufficient liquidity to meet its obligations without new funding from its shareholders; we may be required to cease the recognition of revenues on Consolidated Water (Bahamas) water supply agreements with the Water & Sewerage Corporation; and we may be required to provide an allowance for doubtful accounts 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.”

It is unclear what would happen if Consolidated Water reaches the point where it would have “insufficient liquidity” to continue operations or meet its obligations, although its sole business is producing water for its only customer - the Water & Sewerage Corporation

“A significant portion of our consolidated revenues are derived from our water supply agreements with the Water & Sewerage Corporation,” Consolidated Water added. “The loss of, or a less favourable relationship with, the Water & Sewerage Corporation could adversely affect us.

“One bulk water customer, the Water & Sewerage Corporation, accounted for approximately 35 percent of our consolidated revenues for the year ended December 31, 2018. If, for financial or other reasons, the Water & Sewerage Corporation does not comply with the terms of our water supply agreements, our results of operations, cash flows and financial condition could be adversely affected.”

Adrian Gibson, the Water & Sewerage Corporation’s executive chairman, did not directly address Tribune Business’s request for comment yesterday. This newspaper contacted him in a bid to determine the utility’s strategy for getting back on track with its bill payments, how its bid to collect $45m said to be owed by its own delinquent customers was going, and whether any of these monies collected were being used to repay Consolidated Water.

It instead received a message from Mr Gibson detailing how the tenders for the Caribbean Development Bank (CDB) financed water supply improvement project in Long Island, and “scope of works” for Crooked Island, closed yesterday.

“This is all part of the Government’s strategy to improve our country’s infrastructure and, in this case, to provide potable water supply to the southern/southeastern islands of The Bahamas,” Mr Gibson enthused. “

“This is the first time that such a comprehensive plan has been rolled out and executed, and is part of a larger strategy to provide water throughout the entire Bahamas..... Water & Sewerage Corporation will leave no stone unturned to improve both its coverage and operating efficiency, including the introduction of renewable energy at our production plants/offices to reduce electricity costs.

“We have advanced plans to purchase an asphalt recycler and other machinery to improve the quality and timeliness of our road reinstatement efforts.”