By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Water & Sewerage Corporation’s main supplier was warning of “immediate shortages” that could have “significant ramifications” for Baha Mar and the Government as early as July 2018.

Rick McTaggart, president and chief executive of Consolidated Water, warned the Corporation and two Cabinet ministers this summer that the BISX-listed company would be unable to supply the corporation unless the latter settled a debt that then stood at $14.632m.

Without resolution “in short order”, Mr McTaggart wrote in a July 23, 2018, letter that Consolidated Water would be unable to pay the fuel and electricity bills for its Blue Hills and Windsor reverse osmosis plants resulting in their shut down.

The two plants, which produce 12m gallons of water per day, supply the bulk of the corporation’s New Providence water supply - including the water provided to the $4.2bn Baha Mar resort - and “any cessation of production will result in immediate shortages of water”.

Mr McTaggart warned that the “reputation” of both the corporation and Bahamian government was at stake, suggesting that Consolidated Water may have little choice but to disclose the debts owed to it in its financial results filings with the Securities & Exchange Commission (SEC) as early as August 2018.

The BISX-listed water supplier made good on its threat three months later in its November 2018 results filings, the contents of which were exclusively revealed by Tribune Business last Friday.

Consolidated Water subsequently attempted to backtrack from its SEC filing, accusing Tribune Business of “misinterpreting” its results and producing an “inflammatory” report. However, Mr McTaggart’s letter validates this newspaper’s report as “bang on” in terms of the potential disruption to New Providence’s water supply unless its bills are paid in accordance with an agreed payment plan.

The letter, obtained by Tribune Business, warns that Consolidated Water’s Bahamian subsidiary is having to carry an “unsustainable burden” by financing renovations to the Windsor plant from its own resources at a time when its cash flow is impaired by the Corporation’s failure to pay its bills in full and on time.

Mr McTaggart, writing to the Corporation’s executive chairman, Adrian Gibson, said the company would have “difficulty meeting payroll” for its 20 employees “within weeks” unless the situation was rectified.

The letter, which was also sent to KP Turnquest, deputy prime minister, and Desmond Bannister, minister of works, said the accounts receivables owed by the Corporation to Consolidated Water had been “growing for months” and placed the state-owned agency in breach of the two parties’ contract,

“This directly contravenes Water & Sewerage Corporation’s obligations under its contracts with the company, and it is simply not a sustainable burden for the company to bear, especially in light of the company’s obligation to complete an overhaul of its Windsor plant within a matter of weeks,” Mr McTaggart said.

“Unless resolved in short order, Water & Sewerage Corporation’s extraordinary delinquencies in payment will have significant ramifications not only for Water & Sewerage Corporation but also potentially for the Government of The Bahamas.”

Mr McTaggart pointed to the Corporation’s obligation to pay Consolidated Water within 30 days of invoice receipt, and said: “Since November 2017, Water & Sewerage Corporation has consistently failed to make payments in accordance with these contractual terms and is therefore in default under both [plants] contracts.

“In addition to the contractual ramifications of Water & Sewerage Corporation’s consistent failure to settle invoices in a timely fashion since November 2017, this default has required the company to deplete its cash on hand to settle its expenses.

“The most substantial day-to-day expenses are in respect of the electricity and fuel required to keep the Blue Hills and Windsor plants in operation. Neither BPL nor Sol Petroleum Bahamas are prepared to provide supplies to the company unless their invoices are paid in full,” Mr McTaggart continued.

“Should the company be unable to pay either BPL or Sol Petroleum Bahamas, or both, both plants would immediately be unable to produce potable water for the island of New Providence. In as much as the plants collectively provide 12m imperial gallons of water per day to Water & Sewerage Corporation, which in turn supplies Baha Mar as well as thousands of residential and commercial consumers, any cessation of production will result in immediate shortages of water.”

This is exactly what Tribune Business reported on Friday, and Consolidated Water subsequently disputed. Mr McTaggart’s letter, besides warning about the payroll impact, said the BISX-listed provider was also unable to pay vendors working on the Windsor plant’s upgrade - a development that could impact the facility’s commissioning.

“The company will shortly be unable to pay other operational bills which permit us to maintain the plants in the condition required for the production of water,” he added. “We also anticipate difficulty with meeting payroll for our 20 employees within a matter of weeks under current circumstances.

“Finally, as the company is now endeavouring to complete the construction of the updated Windsor plant per the December 2016 agreement with Water & Sewerage Corporation, the continued cash shortfall requires the company to withhold payments to suppliers.

“Unless these overdue payments can be made in short order, the works required to complete the Windsor plant cannot be completed and its commissioning will be delayed.” Windsor was commissioned last month, but Tribune Business understands that another dispute may be brewing - this time over whether or not the completion date was hit, and who was responsible.

Mr McTaggart’s letter than forewarned the Corporation of the action Consolidated Water would ultimately take this month, suggesting it would soon have no choice - given its obligations to make timely disclosures of material events to shareholders and the capital markets - but to reveal the “extraordinarily high receivables”.

“In the event the company.... concludes that such provision must be made, not only will this negatively impact their financial circumstances, but it is possible that it will negatively impact the reputation of Water & Sewerage Corporation and that of the Government of The Bahamas as well,” Mr McTaggart said, which is understood to have not gone down well with the latter.

“We have endeavoured to discuss a payment programme to address the receivables with Water & Sewerage Corporation senior management, including yourself, in our recent meeting on June 28, 2018, as well as in communications from our general manager to the acting general manager of Water & Sewerage Corporation,” he told Mr Gibson.

“However, notwithstanding recent payments totaling $2m, Water & Sewerage Corporation has not informed us how it intends to bring down the sky-high receivables. In light of the gravity of the situation in which we now find ourselves, we are copying this letter to the minister responsible for Water & Sewerage Corporation and the minister of finance in order to ensure that they are fully apprised of the circumstances.”

Mr Gibson yesterday declined to comment on the contents of Mr McTaggart’s letter, other than to repeat his call for “good faith actors” on both sides to resolve the situation.

He added that the payment plan demanded by Consolidated Water was “in train” from that June 28 meeting, where he informed the BISX-listed water supplier that the Corporation would “make good” the debts owed once the 2018-2019 Budget was approved and its $25m subsidy released.

“They were informed in no uncertain terms that the Corporation was awaiting the Budget, and the arrears would be made good once the Budget cleared,” Mr Gibson told Tribune Business.

“The $2m payments from the overdraft accounts were good faith payments agreed by me after meeting with them, where this was brought to my attention. We formulated alternatives just to demonstrate good faith and understanding. I directed that payments from these accounts be made.”