The Tribune

By NEIL HARTNELL Tribune Business Editor THE Water & Sewerage Corporation's cash flow woes were highlighted again last night after BISX-listed Consolidated Water revealed that was owed $8.3 million for water supplies as at end-February 2012, almost $4 million of that sum run-up during that month alone. Consolidated Water, in its form 10-K filed with the US Securities Exchange Commission (SEC), revealed that the quantity of water its Blue Hills and Windsor reverse osmosis plants supplied to the Water & Sewerage Corporation in 2011 increased by 6.7 per cent, from three billion gallons to 3.2 billion. The BISX-listed company also received a $770,000 2011 revenue boost as a result of expanding its Blue Hills plant from a 7.2 million gallon per day capacity to 12 million, and revealed it planned to redeem the outstanding $8.5 million worth of bonds issued by it Bahamian subsidiary to local investors on March 31, 2012. Despite the debts owed to Consolidated Water by the Water & Sewerage Corporation increasing from $4.4 million at year-end 2011 to $6.1 million at end-January 2012, and to $8.3 million at end-February 2012, the BISX-listed company is taking comfort from the fact that the Government, as the Corporation's 100 per cent owner, has effectively guaranteed its repayments. This is important, given that the Water & Sewerage Corporation business accounts for 36 per cent of Consolidated Water's total revenues. The BISX-listed company, in its form 10-K, said: "Consolidated Water Bahamas was due approximately $4.4 million and $8.3 million from the Water & Sewerage Corporation as of December 31, 2011 and February 29, 2012, respectively. "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 believe that the accounts receivable from the Water & Sewerage Corporation are fully collectible and therefore have not provided any allowance for possible non-payment of these receivables as of December 31, 2011." Elsewhere, Consolidated Water said it planned to redeem the remaining $8.5 million from its $10 million bond issue, placed in June 2005, by end-March 2012, although it did not explain why. The bonds, which carry a 7.5 per cent interest coupon, were used to finance construction on the initial Blue Hills plant. Some $1.5 million were redeemed in September 2010, and the remaining investors will be repaid their principal more than three years' early, the maturity date being June 30, 2015. "We redeemed $1.5 million of these bonds in September 2010," Consolidated Water confirmed. "As of December 31, 2011, $8.5 million of the Series A bonds were outstanding. We have elected to redeem the remaining $8.5 million of these bonds outstanding on March 31, 2012." Rick McTaggart, Consolidated Water's chief executive, said of the Bahamas' performance: "Margins in the Bahamas increased because of a strict cost-control programme, efficiency gains resulting from various operational improvement programmes that we have implemented over the past four years, and increased water production. "In November, we commissioned a 67 per cent expansion in the capacity of our Blue Hills plant in Nassau. This expansion contributed $770,000 to our revenue during the fourth quarter of 2011, while allowing the island of New Providence to eliminate its dependence upon the expensive barging of fresh water from Andros Island. "We expect the increased revenue resulting from higher production at the Blue Hills plant to have a positive impact upon the performance of our Bahamas subsidiary in 2012 and future years." Adding that it expected to complete the Blue Hills expansion during the 2012 first quarter, Consolidated Water said: "We were required to provide the Water & Sewerage Corporation with at least 33.6 million US gallons per week of potable water from the Blue Hills plant, and the Water & Sewerage Corporation had contracted to purchase at least that amount from us on a take-or-pay basis. This water supply agreement expired on the later of July 26, 2026 or after the plant had produced 35 billion U.S. gallons of water. "The Blue Hills plant water supply agreement was amended effective January 31, 2011. Under the terms of the amended agreement we increased the production capacity of the Blue Hills plant to 12 million U.S. gallons per day With this expansion, we are required to deliver, and the Water & Sewerage Corporation is required to purchase, a minimum of 63 million US gallons per week. "The term of the water supply agreement will be extended at the date that the expansion is deemed substantially complete for a period of 20 years, or until the plant has delivered approximately 65.7 billion US gallons of water, whichever occurs later." Consolidated Water said it was required to pay the Water & Sewerage Corporation the per gallon difference between the actual and minimum gallons delivered if it missed the weekly supply targets of 14 million and 52.5 million gallons, respectively, from its Windsor and Blue Hills plants. Yet it does not have a performance bond in place for Windsor. "We are required to provide the Water & Sewerage Corporation with performance and operating guarantees, in the form of bank-issued letters of credit, to secure any payments we may be required to make under the minimum delivery requirements of the Windsor contract," Consolidated Water said. "A performance bond in the amount of $1.91 million for the Windsor plant has expired and was not subsequently replaced. We expect to obtain a performance bond for the Windsor plant once Consolidated Water-Bahamas has received payment of its delinquent accounts receivable from the Water & Sewerage Corporation."