About Consolidated Water

Consolidated Water Co. Ltd. supplies potable water, treat wastewater and water for reuse; and provides water-related products and services to customers in the Cayman Islands, The Bahamas, the United States, and the British Virgin Islands. Through the company’s subsidiaries and affiliate, the company provides the following services to the company’s customers in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands: Retail Water Operations. The company produces potable water from seawater utilizing reverse osmosis technology and supply this water to end-users, including residential, commercial and government customers in the Cayman Islands under an exclusive retail license issued by the Cayman Islands government to provide water in two of the three most populated areas on Grand Cayman. In 2022, the company’s retail water operations generated approximately 27% of the company’s consolidated revenue. Bulk Water Operations. The company produces potable water from seawater utilizing reverse osmosis technology and supply this water to government-owned distributors in the Cayman Islands and The Bahamas. In 2022, the company’s bulk water operations generated approximately 35% of the company’s consolidated revenue. Services Operations. The company designs, constructs and sells water production and water treatment plants; and the company manages and operates water production plants, and water treatment and reuse infrastructure for third parties. The company also provides water related consulting services. In 2022, the company’s services operations generated approximately 31% of the company’s consolidated revenue. Manufacturing Operations. The company manufactures and services a wide range of specialized and custom water-related products and systems applicable to commercial, municipal and industrial water production, supply and treatment. In 2022, the company’s manufacturing operations generated approximately 7% of the company’s consolidated revenue. Affiliate Operations. The company owns 50% of the voting rights and 43.53% of the equity rights of Ocean Conversion (BVI) Ltd., which produces and supplies bulk water to the British Virgin Islands Water and Sewerage Department. Strategy The company is a comprehensive water solutions company that serves a variety of customers through multiple product and service offerings. Presently, the company produces and sells potable water through the development and operation of water infrastructure that employs reverse osmosis technology to produce potable water from seawater; develops, sells and manages water treatment and water reuse system infrastructure that meets regulatory, environmental and commercial needs and requirements; fabricates/manufactures specialized and custom equipment and products employed in the production and treatment of water for municipal, commercial and industrial purposes; and provides water-related management and consulting services. The key elements of the company’s strategy include: Market Expansion: The company continues to seek to expand its existing operations in the markets the company have significant unfulfilled demands for desalinated potable water, water treatment and reuse systems and the company’s other products and services. These markets include the United States and the Caribbean. The company may also pursue business in other markets where the company can be successful. Complementary products, services and businesses. The company continues to pursue acquisitions or joint ventures that complement and enhance the company’s existing businesses; expand the company’s product and service offerings and markets; and support the company’s objective to be a comprehensive water solutions provider. Retail Segment Cayman Water Company Limited (‘Cayman Water’). Cayman Water operates under an exclusive retail license granted by the Cayman Islands government to provide water to customers within a prescribed service area on Grand Cayman that includes the Seven Mile Beach and West Bay areas, two of the three most populated areas in the Cayman Islands. Cayman Water owns and operates four seawater reverse osmosis desalination plants. Cayman Water and the Water Authority-Cayman (‘WAC’), a government-owned utility and regulatory agency, are Grand Cayman’s only water utilities. Aquilex, Inc. (‘Aquilex’). Aquilex, a U.S. company located in Coral Springs, Florida, provides financial, engineering, information technology, administrative and supply chain management support services to the company’s subsidiaries and affiliate. The company includes Aquilex in its Retail segment for financial segment reporting purposes; however, it provides services to all four of the company’s business segments. Bulk Segment Consolidated Water (Bahamas) Limited (‘CW-Bahamas’). The company owns 90.9% of CW-Bahamas, which provides bulk water under long-term contracts to the Water and Sewerage Corporation of The Bahamas (‘WSC’), a government agency. CW-Bahamas owns and operates the company’s largest desalination plant and one other desalination plant. Ocean Conversion (Cayman) Limited (‘OC-Cayman’). OC-Cayman provides bulk water under long-term contracts to the WAC, which distributes the water to properties located outside the company’s exclusive retail license service area on Grand Cayman. OC-Cayman built, sold and operates three seawater reverse osmosis desalination plants owned by the WAC. Services Segment DesalCo Limited (‘DesalCo’). A Cayman Islands company, DesalCo provides design, management, engineering and construction services for desalination projects, as well as management and engineering services relating to municipal water distribution and treatment. PERC Water Corporation (‘PERC’). On October 24, 2019, the company purchased, through the company’s wholly-owned U.S. subsidiary, Consolidated Water U.S. Holdings, Inc. (‘CW-Holdings’), 51% of the equity in PERC, a U.S. company headquartered in Fountain Valley, California. PERC develops, builds, sells, operates and manages water, wastewater and water reuse infrastructure. In August 2020, the company purchased an additional 10% ownership interest of PERC, increasing the company’s ownership of this subsidiary to 61%. In January 2023, the company acquired the remaining 39% ownership interest in PERC. Manufacturing Segment Aerex Industries, Inc. (‘Aerex’). Aerex, a U.S. company located in Fort Pierce, Florida, is an original equipment manufacturer of a wide range of specialized and custom products and systems applicable to desalination, municipal water treatment and industrial water and wastewater treatment. Aerex’s products include reverse osmosis desalination equipment, membrane separation equipment, filtration equipment, piping systems, vessels and custom fabricated components. Aerex also offers engineering, design, consulting, inspection, training and equipment maintenance services to its customers. Affiliate Ocean Conversion (BVI) Ltd. (‘OC-BVI’). The company owns 50% of the voting stock of OC-BVI, a British Virgin Islands company, which sells bulk water to the Government of the British Virgin Islands Water and Sewerage Department. The company owns an overall 43.53% equity interest in OC-BVI’s profits and certain profit-sharing rights that raise the company’s effective interest in OC-BVI’s profits to approximately 45%. OC-BVI also pays the company’s subsidiary, DesalCo, fees for certain engineering and administrative services. The company accounts for its investment in OC-BVI under the equity method of accounting. Operations Retail Water Operations This business produces and supplies potable water to end-users, including residential, commercial and government customers in the Cayman Islands. The company sells water through the company’s retail operations under a license issued in July 1990 by the Cayman Islands government (the ‘1990 license’) that granted Cayman Water the exclusive right to provide potable water to customers within its licensed service area. Although the 1990 license was not expressly extended after January 2018, the company continue to supply water under the terms of the 1990 license, as discussed in the following paragraphs. Pursuant to the 1990 license, Cayman Water has the exclusive right to produce potable water and distribute it by pipeline to its licensed service area, which consists of two of the three most populated areas of Grand Cayman: Seven Mile Beach and West Bay. The 1990 license was originally scheduled to expire in July 2010 but was extended several times by the Cayman Islands government in order to provide the parties with additional time to negotiate the terms of a new license agreement. The most recent express extension of the license expired on January 31, 2018. The company continues to operate under the terms of the 1990 license, providing water services to the level and quality specified in the 1990 license and in accordance with the company’s understanding of its legal obligations, treating those obligations set forth in the 1990 license as operative notwithstanding the expiration of the express extension. The company continues to pay the royalty of 7.5% of revenue the company collect required under the 1990 license. In October 2016, the Government of the Cayman Islands passed legislation which created a new utilities regulation and competition office (‘OfReg’). OfReg is an independent and accountable regulatory body with a view of protecting the rights of consumers, encouraging affordable utility services and promoting competition. OfReg, which began operations in January 2017, has the ability to supervise, monitor and regulate multiple utility undertakings and markets. Supplemental legislation was passed by the Government of the Cayman Islands in April 2017, which transferred responsibility for economic regulation of the water utility sector and the negotiations with the company for a new retail license from the WAC to OfReg in May 2017. The company began license negotiations with OfReg in July 2017 and such negotiations are ongoing. The company’s retail operations in the Cayman Islands produce potable water at four seawater reverse osmosis desalination plants in Grand Cayman located at the company’s Abel Castillo Water Works (‘ACWW’), Britannia and West Bay sites. The company owns the land for its ACWW and West Bay plants and have entered into a lease for the land for the company’s Britannia plant that expires January 1, 2027. The aggregate production capacity of the two plants located at ACWW is 3.0 million gallons of water per day. The production capacity of the Britannia plant is 715,000 gallons of water per day. The production capacity of the West Bay plant is 885,000 gallons of water per day. Electricity to the company’s plants is supplied by Caribbean Utilities Co. Ltd., a publicly traded utility company. The company maintains diesel engine-driven standby generators at all three retail plant sites with sufficient capacity to operate the company’s distribution pumps and other essential equipment during any temporary interruptions in electricity supply. Standby generation capacity is available at the company’s ACWW plants and West Bay plant to operate a portion of the water production capacity as well. The company’s distribution system is connected to the distribution system of the WAC. In prior years, during emergencies, the company have purchased water from the WAC for brief periods of time and have also sold potable water to the WAC from the company’s retail plants. The company’s pipeline system on Grand Cayman covers the Seven Mile Beach and West Bay areas and consists of approximately 100 miles of potable water pipeline. The company extends its distribution system periodically as demand warrants. The company has a main pipe loop covering the Seven Mile Beach and West Bay areas. The company places the extensions of smaller diameter pipe off the company’s main pipe to service new developments in the company’s service area. This system of building branches from the main pipe keeps construction costs low and allows the company to provide service to new areas in a timely manner. Developers are responsible for laying the pipeline within their developments at their own cost, but in accordance with the company’s specifications. When a development is completed, the developer then transfers operation and maintenance of the pipeline to the company. Bulk Water Operations These operations produce potable water from seawater and sell this water to government-owned utilities in the Cayman Islands and The Bahamas, which then distribute the water to end users. Bulk Water Operations in the Cayman Islands Through the company’s wholly-owned subsidiary OC-Cayman the company provides bulk water to the WAC, a government-owned utility and regulatory agency, under two agreements. The WAC in turn distributes that water to properties in Grand Cayman outside of the company’s retail license area. The water the company provides to the WAC is produced at three seawater reverse osmosis desalination plants in Grand Cayman owned by the WAC but designed, built and operated by OC-Cayman: the North Sound, Red Gate and North Side Water Works (‘NSWW’) plants, which have production capacities of approximately 1.6 million, 1.3 million and 2.4 million gallons of water per day, respectively. The plants the company operates for the WAC are located on land owned by the WAC. The company’s agreement with the WAC for the North Sound and Red Gate plants expires in 2024. The company’s agreement with the WAC for the NSWW plant expires in 2026. Bulk Water Operations in The Bahamas The company sells bulk water in The Bahamas through the company’s majority-owned subsidiary, CW-Bahamas, to the WSC, which distributes the water through its own pipeline system to residential, commercial and tourist properties on the Island of New Providence. The company supplies bulk water in The Bahamas from the company’s Windsor and Blue Hills plants. The company’s water supply agreement with the WSC for the company’s Windsor plant, which has a capacity of 2.8 million gallons per day, expires in August 2033 and requires the company to deliver and requires the WSC to purchase a minimum of 16.8 million gallons per week. The company supplies water from the Blue Hills plant, the company’s largest seawater reverse osmosis desalination facility with a capacity of 12.0 million gallons per day, under the terms of a water supply agreement with the WSC that expires in March 2032 that requires the company to deliver and requires the WSC to purchase a minimum of 63.0 million gallons of water each week. The high-pressure pumps at the company’s Windsor and Blue Hills plants in The Bahamas are diesel engine-driven. Electricity for the remainder of the company’s plant operations is supplied by Bahamas Power and Light Company (‘BPL’). The company maintains a standby generator with sufficient capacity to operate essential equipment at the company’s Windsor and Blue Hills plants and are able to produce 100% of the production capacity with these plants during temporary interruptions in the electricity supply from BPL. Services Operations The company provides design, engineering and construction services for desalination infrastructure projects through DesalCo, an original equipment manufacturer of seawater reverse osmosis desalination plants. DesalCo also provides management and procurement services for desalination plants and engineering services relating to municipal water production, distribution and treatment. DesalCo also conducts research and development. DesalCo sometimes tests new components and technology offered by suppliers in the company’s business and, at times, collaborates with suppliers in the development of their products. Presently, DesalCo is providing management and purchasing services to the company’s affiliate OC-BVI in the British Virgin Islands. In the past, DesalCo has provided consulting services to the WSC and constructed and sold desalination plants to the WAC, and is presently constructing the Red Gate desalination plant for the WAC. On October 24, 2019, the company acquired 51% of the common stock of PERC, a U.S. company headquartered in Fountain Valley, California, which commenced operations in 1998. In August 2020, the company acquired an additional 10% of PERC, increasing the company’s ownership of this subsidiary to 61%. PERC develops, builds, and sells wastewater and water reuse infrastructure. PERC also provides management services for wastewater and water reuse infrastructure under long-term operations and maintenance contracts. PERC’s primary markets are California and the Southwest U.S., but it conducts business in other areas of the U.S. In January 2023, the company acquired the remaining 39% ownership interest in PERC. Manufacturing Operations The company’s manufacturing operations consist of Aerex, an original equipment manufacturer and service provider of a wide range of specialized and custom products applicable to desalination, municipal water treatment and industrial water and wastewater treatment. Aerex’s products include reverse osmosis desalination equipment, membrane separation equipment, filtration equipment, piping systems, vessels and custom fabricated components. Aerex’s manufacturing facility and headquarters are located in Fort Pierce, Florida and substantially all of its customers are the U.S. companies. Affiliate Operations The company’s affiliate, OC-BVI, sells water to the Government of the British Virgin Islands Water and Sewerage Department (‘BVIW&S’). The company owns 50% of the voting shares of OC-BVI and has an overall 43.53% equity interest in the profits of OC-BVI. The company also owns separate profit-sharing rights in OC-BVI that raise the company’s effective interest in OC-BVI’s profits from 43.53% to approximately 45%. Sage Water Holdings (BVI) Limited (‘Sage’) owns the remaining 50% of the voting shares of OC-BVI and the remaining 55% interest in its profits. Through DesalCo, the company provides certain engineering and administrative services to OC-BVI for a monthly fee and a bonus arrangement, which provides for payment of 4% of the net operating income of OC-BVI. OC-BVI sells bulk water to BVIW&S, which distributes the water through its own pipeline system to residential, commercial and tourist properties on the islands of Tortola and Jost Van Dyke in the British Virgin Islands. OC-BVI owns and operates a desalination plant located at Bar Bay, Tortola with a capacity of 720,000 gallons per day. Pursuant to a water supply agreement with the BVI government, OC-BVI is required to supply up to 600,000 gallons per day to the BVI government. This water supply agreement expires March 2031. OC-BVI purchases electrical power to operate this plant from BVI Electric Co. and operates diesel engine-driven emergency power generators which can produce 100% of the plant’s production capacity when BVI Electric Co. is unable to provide power to the plant. OC-BVI’s plant on the island of Jost Van Dyke has a capacity of 60,000 gallons per day. This plant operates under a 10-year contract with the BVI government that expired July 8, 2013. Pursuant to the contract, OC-BVI is operating the plant on a year-to-year basis until the BVI government informs OC-BVI of its intention to extend the existing contract or enter into a new agreement. The company purchases electrical power to operate this plant from BVI Electric Co. Seasonality Demand for the company’s water in the Cayman Islands, The Bahamas and the British Virgin Islands is affected by variations in the level of tourism and rainfall. Tourism in the company’s service areas is affected by the economies of the tourists’ home countries, primarily the United States and Europe, terrorist activity and perceived threats thereof, global health concerns, such as COVID-19, and increased costs of fuel and airfare. In the Cayman Islands, the company normally sells more water during the first and second quarters of the year (year ended December 2022), when the number of tourists is greater and local rainfall is less than in the third and fourth quarters. The COVID-19 pandemic and the resulting cessation of tourism to the Cayman Islands significantly reduced demand for the company’s water in 2021. Markets and Service Areas The company operates in the Cayman Islands, The Bahamas, the United States and the British Virgin Islands. Competition Cayman Islands: The company has competed with such companies as SUEZ/Veolia and IDE Technologies. The Bahamas. The company has competed with companies, such as SUEZ/Veolia, IDE Technologies, and TSG. Environmental and Health Regulatory Matters Cayman Islands. With respect to the company’s Cayman Islands operations, the company operates its water plants in accordance with Cayman Islands laws and regulations. The company is licensed by the WAC to extract seawater from wells and discharge concentrated seawater, which is a byproduct of the company’s desalination process, into deep disposal wells. The Bahamas and British Virgin Islands. With respect to the company’s Bahamian operations and OC-BVI’s British Virgin Islands operations, the company and OC-BVI are required by the company’s water supply contracts to take all reasonable measures to prevent pollution of the environment. The United States. Consistent with other U.S. companies, Aerex and PERC must comply with various federal laws and regulations, such as those administered by the U.S. Environmental Protection Agency and the Occupational Safety and Health Administration, as well as state and local laws and regulations. History Consolidated Water Co. Ltd. was founded in 1973. The company was incorporated in 1973.