September 28, 2020

Concerns over Cayman Islands Consolidated Water deal with Npdevco

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BISX-listed Consolidated Water yesterday said its $14 million joint venture water supply deal with New Providence Development Company (NPDevCo) would ultimately supply “everything bar Albany” west of Lynden Pindling International Airport (LPIA), although not everyone is happy with their 25-year exclusive water franchise.

For Don Demeritte, the former Water & Sewerage Corporation chairman under the 2002-2007 Christie administration, slammed the joint venture and water franchise deal as “a travesty of justice”, and added that it would give Consolidated Water an effective water supply monopoly on New Providence.

Telling Tribune Business he and the then-Corporation Board had fought against the NPDevCo water franchise proposal when in office, Mr Demeritte said he had been told the 25-year agreement had been signed with the Government on May 7, 2012 – the general election date.

That could not be confirmed yesterday, with various parties involved in the deal unable to give Tribune Business a precise date for when it was signed.

However, Mr Demeritte pointed to various consultants’ reports that emphasised the Corporation should be the one supplying water to the communities developed by NPDevCo and others in western New Providence, given that it represented a significant revenue opportunity for Water & Sewerage that could stabilise its financial situation. Under the former PLP administration, the Corporation had been negotiating such an arrangement with NPDevCo.

However, BISX-listed Consolidated Water yesterday unveiled its 50/50 retail water supply joint venture with NPDevCo, adding that it was investing $7 million for its stake in a utility that currently supplies 1,000 customers in communities such as Lyford Cay and Old Fort Bay.

NPDevCo is contributing the existing water utility business for its 50 per cent equity stake, and the release confirmed a 25-year exclusive water franchise agreement had been signed with the Government for the western end of New Providence.

Rick McTaggart, Consolidated Water’s chief executive, told Tribune Business that the joint venture would marry NPDevCo’s expertise in western New Providence, and knowledge of the existing water utility business, with his company’s retail water expertise in Grand Cayman.

Describing this as “a big positive for customers in the area”, Mr McTaggart confirmed that the joint venture partners were eyeing the future growth potential stemming from their 25-year exclusive licence and western New Providence’s increasing real estate development.

Apart from Lyford Cay and Old Fort Bay, the water supply joint venture will also be able to supply high-end communities such as Lyford Hills, Serenity, Charlotteville and the Old Fort Bay Town Centre – all major revenue and profit earners that could massively expand the existing 1,000 customer base.

“We see a lot of potential,” Mr McTaggart confirmed. “Most of the area is undeveloped. We’re not going to provide to Albany, as they have their own system there. It will be pretty much everyone else bar Albany up to the airport. There’s a lot o undeveloped land, and hopefully there will be more subdivisions going in, and we will be able to supply a more wholesome product there.”

Declining to disclose the likely annual, and 25-year, revenues and profits the joint venture would earn, Mr McTaggart said the construction of the proposed wastewater treatment plant for western New Providence still had to be negotiated with the Corporation and the Government.

As a result, he was unable to give a construction start date, although Consolidated Water’s statement said it was supposed to be completed by end-2012. The joint venture itself is supposed to be concluded by end-June 2012.

Meanwhile, Mr McTaggart said he was unable to recall when the 25-year franchise agreement with the Corporation and the Government was signed. He initially said “earlier this month”, meaning May 2012, saying NPDevCo had taken the lead – given that it was crucial to the joint venture – and that Consolidated Water had assisted in the negotiations.

But Mr McTaggart later called back and said the franchise agreement was signed “earlier this year”, as he could not remember the exact date. Neither could former minister of state for utilities, Phenton Neymour, who said he was not a signatory. Philip Davis, Deputy Prime Minister and minister of works, who now has responsibility for water, did not return Tribune Business calls seeking comment.

However, Mr Demeritte, the former Corporation chairman, said he had been informed the franchise agreement was signed on the general election date.

“It’s a travesty of justice,” he blasted yesterday. “I was told yesterday that it was signed on the election date. That is a potential source of significant revenue for the Water & Sewerage Corporation. Those guys [the Corporation] are already challenged with money, and here they go about giving away a significant revenue stream.”

A 2008 report for the Corporation and the Government, produced by Chesters Engineering, recommended that Water & Sewerage should be the water supplier in western New Providence – not NPDevCo or Consolidated Water.

“The New Providence Development Company’s proposed residential and commercial developments represent a significant revenue opportunity for Water & Sewerage Corporation. Water & Sewerage Corporation should capture this market to provide for economies of scale for required facilities to serve western New Providence Island and establish a sound technical and economic framework with which to provide for the future needs of the area,” the Chesters report said.

Mr Demeritte said that given the $7.75-$10 per thousand gallons water supply price that the Corporation was discussing under his watch, and the potential 100 million gallons per year supply, the NPDevCo/Consolidated Water joint venture was likely to earn in excess of $5 million per year – and more than $100 million, possibly up to $125 million – from the 25-year franchise agreement, depending on what it charged. And revenues would also rise as the customer base expanded.

This, he suggested, would be monies lost to the Corporation. However, Mr Neymour yesterday said the agreement provided for a royalty payment to be made to the Corporation by the joint venture – something he thought was around $1.50 per one thousand gallons.

“This is a fee the Water & Sewerage Corporation never received before from a private supplier of water. All of this was with the intent of beginning to regulate the water sector,” Mr Neymour added.

He told Tribune Business that the franchise agreement talks with NPDevCo had been ongoing for many years, and the deal was intended to “formalise” the arrangement where the latter had supplied water to the Corporation and its own real estate developments.

Mr Demeritte, though, said the joint venture and water franchise was giving Consolidated Water “a monopoly” on New Providence’s water supply, especially as its Blue Hills plant expansion had taken over from the Andros barging arrangement.

The previous PLP government had sought to prevent that,” he added. “That’s why we were not intending to give them [Consolidated Water] another contract. With the full support of the Minister and the Board, which voted on it, we did everything in our power to prevent it.”

 

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