|The Bahamas Investor Magazine
January 4, 2008
January 4, 2008
NASDAQ-listed Consolidated Water (CWCO) has been good for The Bahamas. One clear indication: Water shortages, which used to occur routinely when barges carrying potable water in from nearby Andros were unable to make the passage to the other islands, are now a thing of the past. The company has also managed to put an end to the routine loss of millions of gallons of the precious commodity through the country’s distribution system.
Consolidated Water, a Grand Cayman-based corporation, has been under contract by the Water & Sewerage Corporation of The Bahamas to provide as much as 11.3 million US gallons of desalinated water each day for the past decade. Although the company holds the bulk of freshwater production and provision contracts in its home base, Grand Cayman, and operates in Bermuda, Belize and the British Virgin Islands, The Bahamas still represents its single biggest market.
In 1997, Consolidated Water won its first contract from the Bahamian government to provide potable water to the capital, and entered the Bahamian market utilizing the Bacardi-owned Waterfields desalination plant. By 2003, the group had bought out Bacardi’s interest and, through a series of private transactions and a tender offer, acquired approximately 91 per cent of Consolidated Water (Bahamas) Ltd. Building on the success of its first endeavour in The Bahamas, in 2006, Consolidated Water bid on and was awarded a 20-year contract to construct Blue Hills, the largest seawater reverse osmosis desalination facility operated by the company and also the largest operating within the country.
Initially, Blue Hills was intended to replace the older Windsor plant, but with The Bahamas’ population rate increasing steadily, the decision was made to retain the smaller plant to supplement Blue Hills, which is now providing the bulk of supply. Already bids have been taken for another plant to provide three million gallons of water per day to the eastern part of New Providence.
Consolidated Water chairman Jeffrey Parker is hopeful that their impressive track record in The Bahamas and Caribbean region will carry weight when it comes to bidding for future projects. “We understand the culture, we understand the laws, and for us it was a natural extension to be in The Bahamas and to expand our business in The Bahamas,” he says, pointing out that in the 33 years the company has been operating in Grand Cayman, there has never been a time that potable water has not been available.
It remains, however, a competitive industry. As potable water becomes an increasingly scarce commodity locally and globally, some of the biggest companies in the world are lobbying to get their foot in the door. In The Bahamas, for instance, Consolidated Water has had to face off against global powerhouses such as General Electric and Veolia Water.
The company has already proven its mettle by putting an end to millions of gallons of water loss in The Bahamas each year—a key part of its mandate with the Blue Hills project. Millions of gallons of water are generated by the high-tech machinery built and operated by Consolidated Water and then pumped out to the Water & Sewerage Corporation, where it is then sent to end consumers through an elaborate underwater distribution line.
As part of its contract, Consolidated Water was required to help the Water & Sewerage Corporation reduce the amount of water lost by the New Providence distribution system. The non-revenue water component of the agreement called for the company to reduce loss by 438 million US gallons over the course of a single year. To ensure Consolidated Water made this a priority, until they accomplished this goal, the company had to provide 1.2 million US gallons of water each day at no cost.
The water losses for New Providence exceeded 50 per cent at the time, a situation Parker says is common across the region for a variety of reasons. In its first year of operation, Consolidated Water worked to identify leaks, pressure management problems and issues with metres. The Water & Sewerage Corporation made the appropriate repairs and, within the first 10 months, the company felt it had achieved its goals.
In addition to water conservation, Consolidated Water’s efforts have resulted in significant and lasting cost savings. “The savings, so long as they maintain it, are perpetual,” says Parker. “They’re saving a million gallons a day and what that means in very real terms is they are saving about $5 million in additional capital expenditure because they won’t require an additional plant to make up the loss.”
Setting a standard
In 1990, the Cayman government passed legislation preventing individual properties from installing and operating their own reverse osmosis plants. Parker says they were not involved in it, but certainly applaud the decision. “That has a number of benefits. One is public health. It means the government doesn’t have to monitor multiple sources of water. More particularly, from a tourism point of view, Grand Cayman puts out a consistent tourist product,” he explains. “The way things are here in The Bahamas now, if the water tastes bad, a tourist leaves with the impression that The Bahamas has really bad water. They don’t associate it with the individual hotel.”
Playing the market
Consolidated Water is listed on the NASDAQ, and investors have taken notice. Swiss-based Pictet Bank & Trust Limited, which has an office in Nassau, is one of the group’s largest corporate investors. The stock price has fluctuated “all over the map,” Parker notes, reaching a 52-week high of US$37.49 at the end of September.
Parker attributes the run on the stock to a number of factors, including the company’s solid performance record and promising prospects going forward. “There are not a lot of stocks in which to invest within the water sector and we are one of the pure water players,” he says. “One thing that largely prompted the increase recently is we were included in the Russell indices and there are a lot of ETFs [Exchange Traded Funds] that mirror these indices. I think that’s what primarily drove the stock to this high level.”
Consolidated Water is touted as a Caribbean success story and Parker has no reason to fear a slowdown in the company’s steady growth. Caribbean-region countries, like other nations globally, are in desperate need of potable water as they continue to grow and develop. Over the past 30 years, Consolidated Water has proven its ability in meeting the region’s needs.