EY report wrong, says Cayman Water boss

| 22/09/2014

(CNS): Although Cayman Water is supportive of government’s plans for rationalization and the recommendation that it should sell the Water Authority, the private sector firm has taken Ernst and Young to task over the recommendations in its report on the subject released earlier this month. The water company boss criticised the consultant’s lack of factual support or analysis on its finding that government should privatize the authority but should not sell it to Cayman Water. Rick McTaggart, President and CEO of Cayman Water, said the firm objected to the E&Y’s comment on page 91 of the report regarding the company, as he believes it is the ideal purchaser for the Authority.

“Through this comment E&Y has opined, without providing any factual support or analysis, that our company, a Cayman Islands business that has provided exemplary water utility services to the people of Grand Cayman for more than 40 years, should be excluded from potentially bidding for the Water Authority’s assets,” McTaggart said in a statement released Monday. “We feel a more thorough analysis of the facts support a different conclusion.”

McTaggart claimed the acquisition by Cayman Water would be a very low risk transaction offering the highest potential financial return to government and best value proposition for the Cayman Islands.

Although Cayman Water customers in West Bay pay around 15% more, according to government officials, for the exact same product as Water Authority customers on the rest of Grand Cayman, the company pressed its credentials as a long time close partner of the Water Authority. McTagga,rt who was once a director at the Water Authority before joining Cayman Water, said he knew both organisations well and the government consultants on the rationalization report got it wrong. He said the sale would result in a smooth transition and savings as a result of economies of scale

“E&Y’s reference to competition issues is inaccurate since the two utilities are not competitors,” the water boss said. “Each serves separate geographical areas of Grand Cayman and entirely separate customer bases. In fact, Cayman Water and Water Authority customers would significantly benefit from a combination of the two, as economies of scale would enable this combined utility to lower the cost of service to all customers, and the combined entity would have access to additional capital to fund the maintenance and enhancement of the Water Authority’s infrastructure."

He pointed to a government-regulated single water provider as the model employed by the majority of comparable communities and noted that not many were aware of the extent of the partnership that already exists between the water companies.

“Cayman Water’s sister company, Ocean Conversion Cayman, designed, built and financed all of the Water Authority’s desalination plants and has most importantly operated these plants on behalf of the Water Authority for more than 20 years,” McTaggart said. “We have a long and successful history of working with the Water Authority, so it is easy to envision asmooth transition to a combined organization, fully staffed by Caymanians, reliably supplying wholesome drinking water to the public as a fully (government) regulated service provider.”

McTaggart said the size of Cayman Water’s parent company would offer new career opportunities for the Caymanians currently working at the Water Authority and they would enjoy stock ownership and other benefits.

“We believe the government should provide an open and fair opportunity for all qualified entities, especially Cayman Water, to tender a proposal in any privatization process for the Water Authority, if and when it happens,” said McTaggart.

However, although the water company boss may have a point about the EY report's lack of real analysis, the government may not be too keen on selling the authority at all.

The premier has said very little about the report so far but he did say caucus would begin examining the report in more detail this week. Government had been focused on the Legislative Assembly over the past few weeks since the report was released.

What Alden McLaughlin did say at a press briefing announcing the report's publication was that government would not sell off valuable assets for some short term cash. During the previous UDP government McLaughlin had also noted that selling the Water Authority, which was one of the few government companies that made money and has a more than 90% Caymanian workforce, would be a short-sighted exercise.

See EY report below.

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  1. Anonymous says:

    Both water companies should of gotten their water from East End. There is a huge Aquifer miles across length and wide and 800 ft deep. Which is about 250 ft of fresh water. Gov't did a survey on all the aquifers on island. Why don't we cut the cost of water bills by using a natural source? Why don't we produce water as far away as possible from the landfill and industrial areas? 

    Water companies should be offered as a IPO to the people who live on the island. The future for water is that many places in the world won't have it. The cost of water will be going up . It is a win-win situation to only sell water companies to many people otherwise it will up for abuse in future.

    • Anonymous says:

      Listen man, I don't need to cut down on my water bill, I need to cut down on my CUC bill!

      Anyone else?

  2. Anonymous says:

    Interesting story CNS, agree that E&Y shouldn't exclude CWC from being possible bidders but have to wonder why that is. XXXX

    CNS, pleaseask Mr CEO of Cwc to release auditted financial statements for cayman Water (not consolidated water) for the last 20-25 years. We the peoples of West Bay would like see how much CWC made off of us for all those years.

    • Anonymous says:

      The reason they want to exclude CWC is because OTHER PEOPLE want to buy. If you look at CWC annual report you will see most of their money is made right here in Cayman

  3. Anonymous says:

    If we do not want further monopolies in Cayman then the Dart group of business should not be allowed to purchase anything Gov decides to sell.  They already own too much of Cayman.

    • Anonymous says:

      Ye, cuz everything DART has touched has gone to shit aye? NOPE, he provides opportunity.

       

  4. Anonymous says:

    Why would the CEO of Cayman Water say that they and Water Authority are not competitors when he says they are in his most recent 10-Q filed with the Securities and Exchange Commission?

    In July 2012, in an effort to resolve several issues relating to the retail license renewal negotiations, the Company filed an Application for Leave to Apply for Judicial Review (the “Application”) with the Grand Court of the Cayman Islands (the “Court”), seeking: (i) a declaration that certain provisions of the Water Authority Law, 2011 and the Water (Production and Supply) Law, 2011, appear to be incompatible and a determination as to how those provisions should be interpreted, (ii) a declaration that the WAC’s roles as the principal license negotiator, statutory regulator and our competitor put the WAC in a position of hopeless conflict, and (iii) a declaration that the WAC’s decision to replace the rate structure under our current exclusive license with RCAM was predetermined and unreasonable.

    http://www.sec.gov/Archives/edgar/data/928340/000114420414048494/v384991_10q.htm

     

    • Anonymous says:

      Looks like he was asking the Grand Court to declare them a competitor. lol. Maybe Smellie said "No" so he had to change his mind.

  5. Anonymous says:

    It should be obvious that Government cannot be both the regulator and supplier of water. There is effectively no one to complain to if there is a dispute concerning your water supply. However, I don't know what motivated E&Y to say that the CWC should be excluded from the bidding. That just does not make any sense, andit is not justified by their report. At the minimum it would cause any other bidders to sharpen their pencils and so we would get a better deal.    

  6. Nicholas Robson says:
    I append below an abstract from and a link to a report from the University of Greenwich
    suggesting alternatives to privatization. It is in my opinion, a move that has to to closely studied prior to implamentation, and this holds true for whoever may purchase it.
     
    Nicholas B Robson
    Director-General
    The Cayman Institute.
     
    ======= 
     
     
    Public Sector Alternatives To Water Supply And Sewerage Privatisation: Case Studies
     
    PSIRU​ Public Services International Research Unit ​www.psiru.org University of Greenwich
     
     
     
    Abstract
    The paper presents a consideration of public sector operations as an alternative to the privatisation of water and sewerage services.  Cross-country case studies of publicly-owned enterprises which have succeeded in reconciling efficiency and social purposes and carrying out structural and managerial changes, are compared with some experiences of privatised concessions. Overall, public enterprises appear no less efficient that private companies, while being capable of development-oriented consideration of public interests.
    1.  Introduction
    Since the Dublin International Conference on Water in 1992, the management of water as an economic good has been promoted as a solution to the challenges facing urban water management in transition economies and developing countries (Nickson, 1996: 2).
    The spread of this new approach has been associated with pressure in favour of private sector participation. For example, the World Bank is particularly active in promoting privatisation (Nickson, 1998: 10-11). As a consequence, transnational corporations are enjoying significant opportunities for expansion.
    However, the assumption that private sector participation is the only possible catalyst for investment and rationalisation can be challenged. Especially in transition and developing countries, private sector involvement in urban water supply often conflicts with public interest, and publicly-owned enterprises (POEs) active in water supply and sewerage are not necessarily less efficient and cost-effective than private companies (Hall, 1998b: 127).
    The paper is intended to contribute to the debate by presenting a number of case studies. The first section presents empirical evidence of the economic and social impact of water privatisation, mainly in Central and Eastern Europe and Latin America. The second section looks at examples of successful public operation of water utilities, ranging from arm’s-length companies to co-operatives, in Western Europe as well as Central and Eastern Europe and Latin America.
    • Anonymous says:

      Thank you, Mr. Robson.  Excellent contribution.  There is a bias operating here that if it is private it is automatically better — that is not necessarily so.

       

      and when the private owners mess up and walk away, as one poster noted, government  have to pick up the pieces.

      water is too essential a commodity to gamble with.

  7. Anonymous says:

    I somehow don't believe a merger between the two companies will result in lowering of water bills.

  8. Diogenes says:

    Now if you said the boss of Cayman Water was opposed to being given a complete monopoly over water supply on Cayman, THAT would be a headline.  

  9. Anon.....(and on and on) says:

    Well, water is an excellent consumer product for the private sector.  Don’t buy and consume the product for three days in a row and you, well…, die.  Certainly cuts down on your marketing outlays.  So let’s make water in Cayman a private sector monopoly.  If it all goes horribly wrong, then the government is hardly likely to respond to cholera and dying Caymanians with a cry of “Welcome to the harsh realities of the market place…  Don’t worry, the market will compensate…..”.  C$C may disagree, but we all learnt after Ivan that clean water is more important than electricity and almost as important as Facebook access.  Perhaps an IPO?  I, for one, am very keen to buy an expensive, but  small part of something I already own…….  May I suggest that some things are best left in public control, despite the inefficiencies?

  10. Anonymous says:

    Not everything written in the EY report is gospel 

  11. Anonymous says:

    Dont worry Rick. Alden this morning told that tedious loudmouth from the Brac-Number 1- who is always shouting down the radio about things that "Radio Cayman is safe from being sold" so already it is becoming obvious what many of us have said from the start that the EY report is going NOWHERE…….like all the other reports of the last 30 years calling for divestment of this or that entity.

  12. Anonymous says:

    Thanks for the comment, CNS, that the fact that EY made the recommendation does not mean that it is the best idea or that it will be done at all.

    i agree with Rick McTaggart's reasoning that the sale won't bring extra competition, as the two companies serve two different areas.  And I do agree it could bring economies of scale if the two current water companies combine resources. 

    However, I think it is a little disingenuous to suggest that he agrees it should be sold, but sell it to his company — the old what's in it for me.

    from the stand point of a customer of the Water Authority, I get to enjoy a clean and healthy as possible product of the cheapest of all utilities in the Cayman Islands.  If it ain't broke don't fix it.  The authority is run as a business — when I don't pay my bill it gets cut off — and that is fine by me — and that applies to all customers, as far as I know. And I can drink the water with confidence.  What more could you ask for. 

    as a corporate citizen, the authority gets involved and supports what it can as best as it can.

    And i am sure they are constantly looking to see how they can become more efficient.

    kudos to an all-Caymanian company that is functioning at a premium.  Let them continue to do the job and see how they can become even more efficient. 

    Which is one of the concerns I have — the $155,000 might have been better spent having the government identify internally by some of the skilled professionals they have — and investing in fixing some of the problems.

    not that I am suggesting that some may not need to be privatized — but I don't think the major sell off the Compass is hoping for will work.  I think it will spell disaster.

    And by the way, I did not see the Water Authority listed among the authorities whose CEOs have those gargantuan salaries.  I am pretty sure that those salaries can stand up to the most meticulous examination.

    • Anonymous says:

      You are very correct in your analysis.

      One issue with the report  and something most people seem to forget is that selling off the government assets may help "Government" but how will it help the "people" of this country in the long run. the reason Governemnt makes no profit is becasue it provides a service, not just to the elite who can afford it but to those who can't. Government previously owned CUC, it was sold and you see where that has us now!!

      The reality of it is that salaries aren't that great in cayman and in Government more that 70% of those employed in core governemnt make less than $3500 per month. That includes some very qualifed people.

      Because of the size of the population and the lack of funds for any local competition to enter the market we will have three things

      1. either a very profitable monopoly that the general public will be crying about for prices and will end up going to social service (the rich gest richer and the poor poorer)

      2. a failed private company that governemnt will have to buy back at a price much higher than what they sold it for

      With a country the physical size and population size in Cayman there is a lack of competition which is costly to the every day consumer.

      The report makes some recommendation that the Civil Service has made years ago such as go back to centralised HR, Finance and procurment. They got that advice for free from the Civil Service Association and from their own internal review.

      Truth be told, the operational staff within government generally get their jobs done, however inefficiency begins at the top and the Chief Officers are never held account able. Let face it, the same thing happens in the private sector. If you want good workers reward them when a good job is done and discipline when needed. None of this is done in government! This may be a good start for reform and saving money

      the E&Y report make other recommendations to inprove internal performance of various departments, all recommendations made internall before are well.

      Last but not least, it would appear to me that the writers of report may have some buyers/bidders lined up for government already.

      Reminder, what you may not think is an essential service, is an essential service. Government inevitable must provide certain services in order to regulate and to assist the most vunerable.

  13. 4Cayman says:

    If cayman water company bids and win, wouldn't they have the monopoly similar to CUC? 

  14. Anonymous says:

    The EY report was motivated by how it could benefit as an accounting firm in the world's 5th largest financial centre.

  15. Chris Johnson says:

    I think Rick is correct. A merger of the two entities would bring about some reduction in overheads as the same meter readers, repair team, accounts team auditor, etc could be used  with some reduction in costs. Plus a possible reduction in rent etc. The downside would be a reduction in staff  but an upside could be a reduction in water bills to the consumer. 

    I have no idea why EY would veto the sale. The sale or merger makes good economic sense. All that is required is a proper valuation. Let's do it. Governments should not be in business such as selling water.

    • Anonymous says:

      I do not think that Government should sell off any of its assets. Every company that Government owns and operates should be re -evaluated with a view of better service and management but selling off is not an option.  All of you screaming about sell this/ sell that are lining up to buy these business so that you can get richer by jacking up the prices of everything.  Government has a mandate to make life as smooth for its people as possible and you private sector out there just want to get your hands on these companies so you can double the price and terminate Caymanians. Once it is sold the labour law will not be able to help us. Government needs to look carefully at reducing its employees by amalgamating where possible, by not hiring retirement age employees who are still in positions that the younger qualified persons should be moved up into and by ensuring that those in positions are doing their share of the work load but definitely not by selling off Hospital, Water Authority, Port, Airport, Public Works, NRA etc. The Compass and their posse should  remember that they were not elected to run this country and the EY Report should be thrown in  the round file. Their suggestions are only to help themselves.  Folks if you believe that things are hard, then please don't ever get the notion that selling off all the assets will help you.    

    • Anonymous says:

       Governments should not be in business such as selling water.

      Mr. Johnson, not everyone lives in a mansion on the beach. Many of us are worried that unless government strongly regulates the market, including setting a price ceiling, (don't wait for it) then the rest of Cayman will be paying 15% higher prices to match the West Bay road corridor.  Electricity prices crept up under the CUC regime and now electricity costs are sky high. We ordinary, non-beach dwellers that live in Cayman, simply can't take on this additional burden right now…

      • Anonymous says:

        Thank you 15;29. the views of people like Mr Johnson (who I believe lives on the beach) and those others living in gated communities ( eg Vista del Mar, Yacht Club) where the lot of land costs a million or more are important and worth assessing but let us remember they are the 1%  among us and have a totally different perspective on things from the rest of us. BTW,that is a concern I have about the EY report coming as it does from that 1% backgound. Sorry Mr Legge if  have offended you.

        • Hancock says:

          Would you mind giving Mr Johnson a logicistical argument rather than criticizing him for living on the beach. His views make considerable sense whilst your points of view add nothing of logic and are deemed tobe nothing more than a personal attack on someone whose views are frequently upheld by many. In future may I suggest that you and others, rather than making personal attacks on readers, make constructive suggestions. By the way have the balls to mention your name, something Mr Johnson has the decency to do in his articles.

        • Anonymous says:

          Did you understand the EY report I imagine the ontent was rather over your head

          • Anonymous says:

            Typical patronising comment from someone in the 1% I would bet, 10:14. And the word is "content' and question sentences, called interrogative sentences, should end with a question mark.

            • Anonymous says:



              You just have to be a civil servant. Have you thought of getting a real job?

      • Anonymous says:

        ….and your point is?

    • Anonymous says:

      Another perspective is that water should not be solf because it is an essential of life.  Its a public utility that should stay in oublic hands else you will have share holders taking profits out of the company rather than reinvesting in the water authority for thr public good.  That of course does not mean it workings should not be scrutinized and savings made where possible.