Published On:Friday, March 19, 2010

By NEIL HARTNELL

Tribune Business Editor

THE Water & Sewerage Corporation's inability to make timely payments to its existing reverse osmosis suppliers will impact project financing costs for the proposed new plant at Perpall Tract, an opposition Senator has argued, with the ultimate effect of increasing prices paid by consumes.

Jerome Fitzgerald, who headed the BK Water group that bid on the Perpall Tract reverse osmosis plant tender under the former Christie government, a process that was ultimately abandoned, told Tribune Business that the Water & Sewerage Corporation's multi-million dollar arrears owed to Consolidated Water and other suppliers would make debt financiers wary of providing funds to construct the new plant.

"It's really going to be a difficult project to finance," Senator Fitzgerald told this newspaper. If the Corporation is in arrears, as it is my understanding that it is, when they look at financing they're going to have to look at cash flow."

The Water & Sewerage Corporation's current inability to pay Consolidated Water on time has, in turn, impacted that company's cash flow/liquidity position, and Senator Fitzgerald said this history would likely cause concern for any lenders/financial institutions intending to finance the private sector's construction of the proposed Perpall Tract facility.

These lenders were likely to perceive an increased risk when it came to the private owner of the reverse osmosis plant making timely interest payments on the loan, prompting them to charge a higher interest rate than might otherwise have been the case.

"The cost of financing is going to go up, the interest rate is going to be high," Senator Fitzgerald told Tribune Business. "The bid is going to be higher, the cost of water will be higher, and the public will end up paying a higher price for the water. It will just be a ripple effect."

In its form 10-K, filed with the US Securities & Exchange Commission (SEC) on Wednesday, BISX-listed Consolidated Water said the Water & Sewerage Corporation was still failing to make timely payments on the water it purchased from the company's Blue Hills and Windsor reverse osmosis plants.

Consolidated Water said: "As of December 31, 2009, Consolidated Water-Bahamas was due approximately $5.4 million from the Water & Sewerage Corporation. We have been informed previously by representatives of the Bahamas government that the delay in paying our accounts receivables is due to operating issues within the Water & Sewerage Corporation, that the delay does not reflect any type of dispute with us with respect to the amounts owed, and that the amounts will ultimately be paid in full.

"We have been informed by these representatives that monthly payments to Consolidated Water-Bahamas will continue from April 2010 through June 2010 in sufficient amounts to meet current invoices and reduce the amount of the delinquent receivables."

The issue does appear to be impacting cash flow and liquidity for Consolidated Water's Bahamian operations, the company stating that it will be unable to replace the $1.911 million peformance bond it had previously obtained from Royal Bank of Canada - and which had expired on August 1, 2009 - until Water & Sewerage Corporation paid the sums owed.

"We expect to obtain performance bonds for the Windsor and Blue Hills plants once Consolidated Water-Bahamas has received payment of its delinquent accounts receivable from the Water & Sewerage Corporation," the company said.

Consolidated Water's contract with the Water & Sewerage Corporation accounts for the largest proportion of its revenues from any one customer, 26 per cent.

Phenton Neymour, minister of state for the environment, said in his contribution to the Mid-Term Budget debate that the Water & Sewerage Corporation had received government approval to proceed with the construction of a new desalination plant in the Perpall Tract area.

Senator Fitzgerald said he found this ironic, given that he had been accused of opposing the relocation of the shipping companies from downtown Nassau to Arawak Cay because of his group's interest in a reverse osmosis plant at that location.

He told Tribune Business that the tender upon which his BK Water group bid was abandoned after the former PLP government decided Arawak Cay would be a cultural, residential and tourism centre, as opposed to industrial usage.