As part of its attempt to prevent further blackmail, the beleaguered Water and Sewerage Authority (WASA) is exploring an option to purchase the Desalination Company of T&T (Desalcott) as a way of writing off its multi-million-dollar debt.
The confirmation came from Public Utilities Minister Marvin Gonzales after the Cabinet Sub-committee appointed to look into the operations of WASA in its recent report advised cash-strapped WASA that the utility can extricate itself from the contractual agreement with Desalcott by exercising its right to purchase the Point Lisas plant.
Gonzales who chaired the committee admitted to Guardian Media that the initial 20-year contractual agreement between WASA and Desalcott was one of the worst decisions made under then prime minister Basdeo Panday.
He said the country was assured that water produced by Desalcott would not have entered the domestic grid but used specifically for the Point Lisas Industrial Estate.
“Today, 20 million gallons of water produced by Desalcott enter into the domestic grid. That arrangement alone brought WASA to its knees because the country has to pay Desalcott US$7 million every month for water. This is an albatross around the necks of taxpayers.”
He said these payments have “destroyed and sunk WASA.”
Gonzales said when the People’s Partnership came into office the contracted was extended to 2036.
He said there is a provision in the contract “that after a certain time” the state can purchase Desalcott’s plant.
“I intend to look at that option and see or not if it is financially feasible so I can go back to Cabinet and see what we can do to shorten the life span of that contract. If we have to invoke a provision in the contract to buy the plant... perhaps we might have to do it. That is the only option.”
The Government, Gonzales said, would have to get an independent evaluator to value the plant which would pave the way for negotiations and purchase it.
Gonzales said every week Desalcott threatens to ramp down production because the government has not been paying its bills.
As of January 31, Gonzales said WASA owed Desalcott US$30.5 million or (TT$210 million).
“Two days ago I got a message they ramping down to zero.”
The Government, he said has a revolving loan with banks to pay Desalcott.
“It is just unsustainable. “
When Desalcott decreases its volume of water, Gonzales said parts of Central and South Trinidad suffer for the essential commodity.
“Sometimes they have reduced the production of water because the State is not paying its bills on time. Most time we are late on payments.”
Gonzales agreed that these threats to ramp down production was one way of “holding the country to ransom. It is blackmail...perhaps whitemail. How much money the people of this country paid to Desalcott? I understand they (Desalcott) is running a business...they are owing T&TEC as well.”
In the report, it stated that WASA purchases desalinated water through two water sale agreements that are “take-or-pay contracts” with separate operators-Desalcott and Seven Seas Water Corporation (SSWC).
The agreements require WASA to pay the operators in US dollars and involve a system of measuring plant output by the operators and WASA which feeds into the invoicing system.
WASA has agreed to pay Desalcott US$1/cm for an output level of 40 million gallons of water daily.
This translates into an annual payment of US$84 million (over TT$500 million) to Desalcott.
SSWC’s 17-year contract with WASA ends on August 31, 2027.
They supply WASA with 5.6 million gallons of water daily and is paid US$16 million annually.
Government has been expending $2 billion annually to keep WASA afloat.
WASA produces 243 million gallons of water a day.
The report stated while the initial interest of desalinated water purchases was to supply the Point Lisas Industrial Estate which generates enough income at TT$12/m3 (water improvement rate) for full financial recovery, “the reality is that WASA has been exporting the majority of the desalinated water outside of the industrial estate.”
In the case of Point Lisas where WASA is significantly indebted to Desalcott only 30 per cent (12 million gallons daily) of desalinated water purchases are consumed in the estate.
“This is a significant decline caused by the shutdown of several major facilities from 2014 to present, where WASA previously supplied around 22 million gallons. Effectively the majority of expensive desalinated water is directed to domestic customers and WASA is unable to recover this cost because these customers do not pay based on volumetric consumption but on a rate structure that is premised on an outdated property value system,” the report revealed.
The committee noted the contract between WASA and Desalcott “is more burdensome for the Government than that of SSWC because of the higher bill from higher volume purchased, the requirement for full payment in US dollars and a long term arrangement.”
The report revealed that the committee sought legal opinions from independent counsel and WASA’s legal team on the options available to the Government.
“Both have advised that WASA can extricate itself from the contractual agreement with Desalcott by exercising its right to purchase the facility.”
The purchase price would be in US dollars and equal to the net value of the business at the time of applicable notice to purchase as determined by an independent appraiser, the report stated.
The net value of the business would include:
1) The residual value which as at September 2020 and applicable to the original operations of 24 million gallons daily in production achieved in 2004 is US$55 million.
2) Amounts due from Desalcott to its suppliers and contractors.
3) Equity interest in the facility provided that in no event shall the net value of the business be less than an amount equal to the sum of the residual value at the time of the determination plus the cost of the appraisal and expenses related to the transfer of the facility.
“There are other matters for consideration in this process of extrication which includes an irrevocable notice of purchase, selection of the independent appraiser, timeframes for appraisal, period to pay, and testing and guaranteeing of facility reliability and performance.”
With Respect to SSWC, there is no provision that gives WASA the right to purchase its system.
Desalcott responds
Yesterday, general manager of Desalcott John Thompson told Guardian Media he had no idea its company was mentioned in the report.
“Obviously, you have given me some details that I was not aware of. I don’t have any comment to make at this point.”
Thompson said he would look at the report once it is laid in Parliament “and we will be happy to coordinate with WASA on a way forward.”
Under his regime, Panday said WASA signed the contract with Desalcott.
“What happened was that WASA had complained that people are not getting water because they had to send water to Point Lisas. We had to find a way to provide water to Point Lisas so that WASA could provide water to the people.”
He said WASA has spent over $20 billion in the last decade while people continue to suffer for water.
“If you compare the money they are spending on Desalcott which provides water incidentally with the money they spent on WASA which provides no water I think they have an economic problem. The point about it is, if WASA can produce the water there is no need for Desalcott. While we are waiting for water I hope we do not die of thirst,” Panday said.
