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CONFIDENTIAL REPORT
INTRODUCTION............................................................................................................................ 5
SUMMARY OF FINDINGS/ISSUES/RECOMMENDATIONS ............................................. 6
General........................................................................................................................................... 6
Financial........................................................................................................................................ 8
Reporting Issues ......................................................................................................................... 8
Control System Issues ................................................................................................................ 9
Technical Issues.......................................................................................................................... 15
Power ........................................................................................................................................ 15
Water ........................................................................................................................................ 18
Recommendations ...................................................................................................................... 19
General and Financial Recommendations ................................................................................ 19
Technical Recommendations .................................................................................................... 22
DETAILED REPORT..................................................................................................................... 25
GENERAL ANALYSIS ................................................................................................................. 27
Tariff Structure Fixed and Fuel Portions ............................................................................ 27
Fuel Price Regulation - Impact on Tariff ................................................................................. 30
Energy fund and Regulatory account - Impact on Tariff ........................................................ 35
Comparative review of Aqualectra Tariffs ............................................................................... 36
Conclusion Power Tariffs ...................................................................................................... 43
Water Tariffs ............................................................................................................................ 45
Human Resources....................................................................................................................... 48
Management Compensation/Extraordinary Payments ........................................................... 48
General Personnel Levels.......................................................................................................... 51
2010 .......................................................................................................................................... 52
2009 .......................................................................................................................................... 53
2008 .......................................................................................................................................... 54
FINANCIAL REVIEW................................................................................................................... 56
Financial Reporting ................................................................................................................... 57
Consolidated Revenue & Expense 2006 - 2011 .................................................................. 58
Consolidated Revenue & Expense as Percentage of Revenue 2006 - 2011 .................... 59
Accounting and Financial Reporting Systems .................................................................. 60
Existing Accounting System Setup ..................................................................................... 61
Recommendations Regarding the Financial Department and Accounting Systems ....... 64
Current Legal Structure of Companies within the group ................................................ 64
Duplicative staffing .............................................................................................................. 64
KPMG audit ........................................................................................................................... 65
Operational Budgets ............................................................................................................. 65
BNA Bonds ............................................................................................................................. 67
BOO Investment .................................................................................................................... 68
Cash Reconciliations ............................................................................................................ 68
Deposits of Customers .......................................................................................................... 71
Leakages/Discrepancies-write offs ..................................................................................... 71
Page 2 of 164
Page 4 of 164
INTRODUCTION
FTI Consulting, Inc. (FTI) was retained by the supervisory board of Integrated Utility
Holding N.V. (Aqualectra or the Company,Client or the Board) to perform a
forensic analysis in order to detect any inefficiencies and or irregularities within the
operations of Aqualectra. FTIs work was performed by forensic accountants as well as
energy industry experts. In performing our services we followed guidance set by the
American Institute of Certified Accountant in Ethics interpretation No. 101-3,
Performance of non-attest services in their Code of Professional Conduct. Our
analysis consisted of the following tasks:
Phase 1 Forensic Analysis, Reporting, Recommendations and Corrective Actions
incorporated certain responses to Management in the main body of this report, due to
time constraints and for clarity.
SUMMARY OF FINDINGS/ISSUES/RECOMMENDATIONS
General
1. The Company is currently operating based on the information presented by
Management at an average negative cash flow of approximately NAF 10 million
on a monthly basis (after price adjustments of IFO and Gasoil by Curoil). Our
analysis shows the Company is operating at a negative cash flow but the amount
presented by management is overstated based on the current costs. This situation
is nevertheless not sustainable unless costs are reduced significantly or the
Page 6 of 164
Company increases its tariffs which already represent a significant burden on the
population due to the high level of the tariffs.
2. The Companys financial position is further worsened if we take into account
that some of the companys assets may be financially overstated on the balance
sheet as a result of the maintenance state and aging of the equipment.
3. The company consists of 6 separate legal entities that also seem to result in
differing control systems, etc. Therefore streamlining the legal framework may
be advantageous.
4. The directors receiving extraordinary payments or promotions while the
company is experiencing severe financial stress (especially when one includes
the very large transfers to the regulatory account which they expected the
Government to cover) is not prudent or responsible management.
5. Management appears to have ignored various expert comments and reports in
the past regarding the need to cut excessive/unwarranted costs Aqualectras
own experts KEMA and Vantage both have comments in their reports
concerning the need to cut expenditures. In fact costs have risen since these
warnings.
6. Management also appears not to have followed many of their own experts
recommendations for planning future generation capacity.
7. Based on managements response to recommendations in the past to cut costs,
their initial responses to the Boards requests for cost cutting measures, and the
continued expenditure, it appears that there is little initiative to reduce the costs
that are impacting the high tariffs.
8. Managements first responses to the requests for urgent cost cuts did not appear
to reflect any urgency. For example, it took a number of weeks to receive a
consolidated response from management on an issue that management should
have been considering many months before. A substantial portion of the first
suggested cost reduction, involved cutting the provision for bad debt which in
Page 7 of 164
fact was unrealistically high as it was based on a onetime event to write off a
number of years of accumulated bad debt.
9. Aqualectras tariffs have been and remain higher than most of the power and
water providers in the region. Aqualectra has been consistently in the top 3 in
terms of high cost since 2005. Additionally, Aqualectra has been benefitting from
a controlled fuel pricing on many of their fuel purchases from Curoil which if not
in place would actually have raised already high tariffs. As part of this pricing
control to the benefit of Aqualectra, Curoil was essentially selling fuel at a price
below the price sold by the refinery. However, it comes to our attention that
Curoil then increased the pricing on certain fuels sold to the public to crosssubsidize this discount. In effect then the public are paying high electricity and
water tariffs and higher than needed fuel prices for Aqualectra to generate
power and produce water on the Island.
10. During our examination of the manpower and staffing situation with respect to
other providers in the region we noted that a great deal of the overall budget is
spent on personnel as well as on outside sub-contractors that are performing
tasks that often are carried out internally by other utility companies.
It is
unusual to have internal staff and contractors being paid to cover many of the
same functions.
Financial
Reporting Issues
1. Audited Financial statements contain inaccuracies. Fuel purchases for example
do not reflect correct unit pricing, correct units purchased and funds spend
against actual invoices.
2. Detailed support documentation provided by management has been difficult
and cumbersome to tie in and reconcile to the financial statements.
Page 8 of 164
3. The financial reporting systems are disjointed with each department keeping
separate and different types of internal records.
4. There is a lack of adequate policies and procedures, or procedures may not be
being adhered to in terms of keeping standardized records thus making
reconciliations difficult and time consuming.
5. Overall, the reporting system is less than adequate for a company of this
magnitude and needs to be consolidated in order to facilitate the reporting
process.
system.
statements and actual data, an example is on fuel purchases where differing fuel
types, unit prices and units differ against the actual invoices/data this is a
concern as fuel forms a substantial part of the company costs.
Operational Budgets
The Board recommended that management urgently undertake cost reductions
when the cash flow was presented in May 2011. Management then delegated to
the different departments the task to review the established budgets in order to
identify possible cuts that could be implemented.
We walked through the proposed cuts to the budgets and noted that the
proposed cuts were primarily for items that were easily identifiable and minimal
compared to the expenses in the overall budget. We have also not seen a detailed
review of proposed expenditures in order to arrive at the minimum necessary
expenditures.
The regulatory account simply shows additional costs that have been incurred by
the Company and would have resulted in even higher losses if not accounted for
Page 11 of 164
under the regulatory account. This account makes it challenging to quantify the
actual operational loses of the company which would be higher since 2005.
Page 13 of 164
business of power and water supply should have placed these on hold and
focused on resolving the operation issues.
Inventory Discrepancies
The company currently has 6 stores (warehouses) in total (1 for distribution and
5 for Production). Only 3 of the 6 stores produce reports based on stock takes
discrepancies. For the stores that do produce reports, discrepancies under NAF
25,000 are not explained.
Expenses
We noted various expenses that should be analyzed further that could result in
reduced cost levels;
a. Incidental marketing expenses account for approximately 50% of the
total marketing expenses and management was not aware that the
budgeted expenses had been almost doubled for 2010.
b. Outsourcing expenses (amounting to NAF 9.2 million) should be
analyzed and compared to internal resources to determine any
duplicate services that can be performed without the outsourced
providers.
c. Consulting expenses of (Approximately NAF 12.5 million for 2010)
should be analyzed in detail and re-evaluated in order to determine
necessity of the services being provided and amounts being paid.
d. Main office expenses (Approximately NAF 4.5 million for 2010) such
as car leases, copiers and printing equipment should be reevaluated
closely to identify items that can be eliminated.
e. Phone expenses, should be limited for prepaid cell phones and a thorough
analysis of who should be receiving an allowance should be done.
Page 14 of 164
Policies
We noted various areas where policies should be implemented and strictly
enforced in order to improve operations:
a. Write-offs for leakages should be analyzed in detail and a policy
should be established and strictly followed to determine if any of
these leakages should be absorbed by the company.
b. Accounts receivable should be properly followed up to avoid any
accounts being written off improperly.
c. Infrastructure expenses should be consistently billed and followed
up for collection with all clients.
Technical Issues
Power
1. Other than the increase in generation capacity in 2003 and DW 7 and DW
8 in late 2009/early 2010 (adding approximately 10MW), it appears that
new generation projects have not kept pace with both the projected
increases in base demand, and to replace aging or out of service
equipment (this includes the BOO and the wind farms).
2. It should have been obvious to the management of any energy company
by the mid 2000s, both from internal data and outside expert reports
(KEMA) that the Company needed to invest in new generation, especially
considering the long expected closure of Mundu Nobo and the increasing
maintenance costs to keep this aged equipment operating.
3. It does not appear that any urgent corrective action was taken, and by
2006 through to 2008 there was a drop in generation from CUC with no in
Page 15 of 164
place or near term plan that took place to replace the deficit in generation.
These issues should have hastened projects to replace or supplement
generation capacity such as DW7 and DW8 plus others to increase
generation over the MW 10 that DW7 and DW8 brought.
4. Additionally, by 2007 and 2008 there was also then a drop in wind farms
generation, which should also have triggered immediate action on DW7
and DW8, and in fact additional projects to increase capacity. It would
appear that this reduction was known and measures planned in the
KEMA 2020/2030 plan. However, it appears though that no substantial
action took place.
5. Not only were new additional generation projects not instituted, but the
DW7 and DW8 project appears from production reports was postponed
from 2007, then in 2008 until 2009, eventually these generators only
started generation at the end of 2009/early 2010. By then it was too late
to prevent the need for other means of generation. So, instead then of
spending money on projects in the past, these were put off and led to a
large deficit in generation capacity that could only be filled in the short
term by temporary generators.
6. What aggravated this situation, was that while this drop in generation
was going on, and the first set of Aggrekos was on site, instead of actively
seeking projects to permanently replace generation management simply
resorted to adding to the Aggrekos.
7. Unfortunately, this temporary generation has incurred both extended
rental as well as increasing the companies cost of fuel as this equipment
use fuel that is more expensive generally than fuel used in larger
permanent generators. Overall, the rental of this equipment will have cost
around US$29 million (Approx. NAF 52 million) by the end of 2011
funds that might have been better utilized on repairing or upgrading
current equipment, or investing in the BOO repairs.
Page 16 of 164
8. In 2010 alone it would appear from production reports and fuel purchase
records that NAF 31 million was spend on fuel for this temporary
generation. Fuel for the larger generators costs on average NAF 145 per
metric ton of fuel less than that used in the Aggrekos.
9. In addition, non-revenue power and water has remained at a high level
which reduces income against power and water production, this impact
on all aspects of the company especially the amount of funds that could be
reinvested in new projects. Using the lowest available tariff this results in
NAF 54, 4 million in lost revenue in 2010.
10. Own power usage cost the company around NAF 36 million in 2010, this
seems rather high given that the bulk of power in theory should be
recovered through sales.
11. It appears from our review that overall inefficiencies, aging equipment etc.
(detailed in our report) including the above issues within the company
have resulted in rising Overhead, staff, contractor, maintenance and fuel
costs to produce and distribute power and water.
12. As a result of this and other general and financial issues - costs have risen;
while the consumer base has not risen to the same extent causing a rise in
tariffs to cover costs in the past. This trend will continue unless costs are
controlled and production is reconfigured to be more efficient.
13. Despite apparent comments and warnings from past expert reports from
KEMA and Vantage, as well as the companies own warnings that aging
equipment results in increasing maintenance costs, it seems considering
that costs have continued to rise that no real attempt appears to have been
made to deal with the high overhead and O&M costs.
14. In the time we have been present in the company we have not seen a
culture of cost reductions or savings to replace the current attitude that
issues can be resolved by raising the tariffs. An example is that the letters
of request for an increase in tariffs to cover the fuel increase do not first
Page 17 of 164
Water
1. Our research has confirmed that Aqualectra is one of the most expensive
water producers in the region in 2010/2011.
2. Water is produced (price at leaving the production plant) at around
$1.85/m3 -an average of 25% of the charged rate of the average at $
7.33/m3.
3. On the water distribution side, it appears that issues such as aging
infrastructure, metering issues etc. result in leaking that drives up
unaccounted for water this results in approximately 30% or $ 2.20/m3 of
all water being produced not being recovered.
Page 18 of 164
Recommendations
General and Financial Recommendations
Urgent action needs to be taken to turn the company around from the
current situation of losing money and generation issues.
nearly 10 years old and has not been updated. This database has reached
the end of its service life and should have been updated a number of times
over the past years. This is currently a large risk because any attempted
improvement in the main software systems (such as SAP type
implementation) would be at risk since the core database is old.
Due to the different software systems that data must currently go through
there is a higher than usual risk to have incorrect figures or missing or
corrupt data.
Page 20 of 164
The contracts for the new buildings should be analyzed in detail in order
to determine their priority and necessity under the circumstances and to
obtain clarification as to the reasoning behind the contracts.
Page 21 of 164
Technical Recommendations
Technically, Aqualectra has many major issues to deal with on the power
generation side and water distribution side. Our initial recommendations are;
General
Power
Page 22 of 164
Fuel Recommendations;
1. We suggest a petroleum expert examine all of the fuel
metering and unit methodologies to recommend if these are
effective and fair.
2. We suggest that a petroleum expert assist the technical
department to reach consensus on which are the most cost
effective fuels to purchases in the future vs. generation needs.
Page 23 of 164
Water
1. Non-revenue water could conceivably be reduced in the long term to a
more usual 16-17% rather than the current rate of approximately 30-32% this would result in a saving of around NAF 26,063,880 annually.
2. Additionally during the turnaround phase overhead and staffing costs
should be examined for optimization to reduce this impact on the overall
tariff.
3. Examine the option to place the Reverse Osmosis plant extension on hold
for a period of time while cash flow issues are being experienced.
4. Update the integration studies and consider a Large Scale Plant to supply
Potable and Industrial water for the Island and Refinery.
Page 24 of 164
DETAILED REPORT
As mentioned above, FTI Consulting, Inc. (FTI) was retained by the supervisory
Board to perform a forensic analysis in order to detect any inefficiencies and or
irregularities within the operations of Aqualectra.
forensic accountants as well as Energy Industry experts. Originally the matter was
expected to be split into the two phases discussed in the summary above.
In reality, many parts of both phases occurred in parallel, due to the urgency of many
issues, the problems that the company was facing, pressure from the regulator and
public etc. In addition, input on cash flows, letters, and other tasks were requested by
the board that led to the scope changing.
One of the major issues that we dealt with was the access to, organization of and quality
of the information we needed to complete our tasks. While we were contracted by the
Board and the company itself we very much found that we did not get unrestricted
access to data. In effect we were given less access than the general audit company as all
of the data we were provided was passed through a number of departments/managers
prior to release. We therefore must raise the concern that data may have been filtered
and we must make the point that we cannot be sure we have been granted access to all
documentation.
During managements response they asserted that we based parts of our report on
incomplete data; we can only presume that we then did not receive all of the data
pertinent.
The original budget was based on the information being easily accessible to the Board
and FTI. This has not been the case and many delays have been experienced by both
the Board and FTI in getting this information.
Another issue was the quality of the data as the budget was also based on the
information being in a well organized and easily analyzed position for the Board and
Page 25 of 164
FTI. This has not been the case and many delays have been experienced by both the
Board and FTI in receiving this information in a organized manner this has caused
delays and a great deal of work to organize this material ourselves for analysis.
It was of a real concern to us that it appeared that Aqualectras own accounting
personnel had to spend a great deal of time reconciling documentation prior to
providing it to us. This does raise questions as to the effectiveness of the internal
accounting system and controls when simple requests such as providing backup data to
reconcile to cell phone bills takes a great deal of effort to try and respond to.
We also see this report, along with other expert reports in the past (Kema and Vantage)
as part of the foundation for a turnaround effort to reduce costs, improve generation
capacity and streamline the company to move forward.
FTI looks forward to assisting the board in these efforts.
At the very heart of the issue, Aqualectra is charging a relatively high price for power
and water compared to other utility providers in the region and is facing increasing
challenges in the provision of power without resorting to temporary generation. The
impact of high tariffs have become a major issue on the Island which resulted in the
Government and the Board raising their concerns and requiring investigation and
action as to the core issues.
The report below deals in detail as to some of the issues facing the company along with
recommendations for action or further investigations.
As mentioned in the summary report, the detailed report is also split into General,
Financial and Technical. The persons that were utilized to compile this report have
expertise and experience in the financial and technical control of these types of
endeavors. The findings below are based on their review of the data, interviews with
various personnel and their own experience and expertise.
Page 26 of 164
This review is a dynamic process and we reserve the right to amend our findings based
on subsequent information.
GENERAL ANALYSIS
This section contains those issues or findings that are not specifically financial
nor technical review based.
Tariff Structure Fixed and Fuel Portions
The tariff structure for both power and water currently in effect in Aqualectra
consists of relatively standard divisions based on consumer type and size. The
basic categories are
Commercial
Most recently, the addition of new tariffs following the instruction to reduce the
tariffs across the board by 5c per Kwh. These are for two areas;
Within the Residential and Industrial main categories are a number of sub-tariffs
based on consumption levels. Additionally within the Industrial tariff and above
there is a high and low split with a high and low charge level.
Each individual tariff is also split into two separate types of charge that added
together makes up the total tariff price for that consumer. The first is the fixed
portion the second section is the fuel portion.
Page 27 of 164
In theory, the fixed portion of the tariff is supposed to cover those costs that do not
fluctuate to the extent that the fuel pricing portion would. These would include
among others items such as profit, coverage of debt and interest, head office
overheads, personnel costs, payments to suppliers and contractors that are not
directly linked to production (such as chemicals, lubricants and fuel).
Its our understanding that the fuel portion (although this is probably misnamed)
covers those costs such as production chemicals, lubricants, fuel but also in this
case the rental or purchase of power or water is included.
Certainly the past structure of the tariffs have somewhat hindered the ability of the
company to effectively manage and identify costs that are driven purely by fuel.
Another aspect that needs to be recognized is the restrictions that the Island
council of Government placed on the companys ability to adjust the tariffs.
It seems that both the company and the past governmental control system to some
extent have had a hand in preventing Aqualectra to manage the fuel portion of the
rates effectively. However, Aqualectra has a complex tariff structure that is not as
transparent as it could be which means the government has a more difficult time to
analyze and understand the tariff.
Page 28 of 164
An interesting trend that we noticed when we examined the tariffs in detail was
the actual reduction in the fixed portion of some of the tariffs. For example the
fixed portion of the lowest residential user dropped from NAF 0.297/Kwh in
January 2005 to NAF 0.22/Kwh in January 2011. Given the inflation impact
(discussed later), this is a real drop in monetary terms. Unfortunately however any
benefit to the consumer was more than offset by the increase in the fuel portion
from NAF 0.1584/Kwh to Naf 0.3738 a rise of 136%.
If one factors in the fuel price control and regulatory account discussed in more
detail below, then this increase in real terms is even higher than 136%.
It is possible that the current split between fixed and the fuel portions may mask
the true situation, the fixed portion has actually decreased over time despite year
on year inflation while the fuel portion has increased substantially. Because of
the quality and access to records, it may be that cost categories that in previous
years were in the fixed portion have been shifted to the fuel portion.
This would then in effect have the benefit to management in putting these costs
into the higher fuel portion, which against the restricted tariff structure may then
make it liable for inclusion in the regulatory account to be claimed back from the
government.
Also, if one examines the current published tariffs, while higher than many
others, they actually do not really reflect the true tariffs which are much higher
than billed to the consumer. In order to get the true price for electricity that in
effect the Island is paying for their power, one has to include the difference in fuel
prices that are currently partially subsidized due to the Curoil prices being lower
Page 29 of 164
than the refinery prices, as well as the so called regulatory account that
management insist is the account used to accrue the losses between the budgeted
fuel price, and the actual amounts paid.
For example (numbers used are for illustrative purposes only)
to this you have to add a 2c benefit for using cheaper fuel from Curoil
(which Curoil say causes them a loss on that product)
And also then take the amount Aqualectra insist they are covering for fuel
which is booked to the regulatory account for which they expect the
government to compensate them which would come from some source of
finance that impacts the Islands such as tax on residents.assume this is 3c
per kwh
So while the bill to the client says 70c per kwh, in effect its costing the resident
and/or Island 75c per kwh.
Aqualectra has received a benefit in the past on certain types of fuel by the
government fixing the price they pay to Curoil. There appears to be three types of
fuel that have their price determined by the government, they are Industrial fuel
oil (IFO), Gas Oil (GO and Marine Diesel Oil (MDO) all purchased from Curoil.
Page 30 of 164
Quantities Used
Amount by Types of Fuel
IFO
Mundu Nobo
GO
Mundu Nobo
MDO Dokweg
GO
Agrekko Dokweg
Unit
tons
m3
m3
tons
2009 Actual
invoices
96,639
58,743
1,689
2010 Actual
invoices
92,839
73,033
1,633
5,192
Unit
tons
m3
tones
m3
m3
tons
tones
2009
Actual
invoices
651
869
734
1,093
1,088
1,250
2010
Actual
invoices
860
954
867
1,220
1,302
1,017
844
2011
Budget
861
1,071
910
1,100
836
We found (for example) that the pricing of IFO did fluctuate slightly over time and
did not appear to be as fixed as we were made to understand. In 2009 the price
fluctuated a number of times going up to NAF 1.016 per liter in July 2009.
For example examining all of the purchases of IFO in 2009 and 2010, then taking
the average price paid (units purchased by NAF invoiced) we calculated that there
was a reduction of NAF 16, 7 million by using the controlled unit price. This is a
reduction (against using the Isla price) of 7.36% on IFO.
IFO
Year
Units
Source
Average
actual
Price
Paid
total (NAF)
Page 31 of 164
All at Isla
average
price
total (NAF)
2009
2009
28,750
96,640
2010
2010
39,000
92,000
Isla
Refinery
Curoil
Isla
Refinery
Curoil
930
861
26,737,500
83,207,040
930
930
26,737,500
89,875,200
970
861
37,830,000
79,212,000
226,986,540
970
970
37,830,000
89,240,000
243,682,700
7.36%
16,696,160
Year
2009
2010
Units
58,743
73,033
Source
Curoil
Curoil
Average
actual
Price Paid
869
1,016
total
(NAF)
51,045,008
74,201,203
125,246,211
All at
Market
average
1,069
1,233
22.04%
total
(NAF)
62,796,143
90,049,294
152,845,437
27,599,226
Similarly, for Gas oil purchased from Curoil in 2009 and 2010, using the average
price paid (units purchased by NAF invoiced) we calculated that there was a
reduction of NAF 27,6 million by using the controlled unit price against an average
market price. (as we do not have Isla invoices to use as a comparison). This is a
reduction of 22.046% for this fuel.
Management contends that our findings are not acceptable as they are based on
inaccurate data and wrongful conclusions. However, the data used was provided
by management (detailed invoices) and the average price is simply an average of
all quantities purchased of a particular type by the amount paid (on invoice value)
against those reported in the financial statements.
Page 32 of 164
The difference is simply a comparison against the full invoice price (sold by
Isla/market) against the controlled pricing. Our findings are a calculation of what
it actually cost against what would have been paid at market rates or if
purchased from Isla. The IFO fluctuation discussed is calculated into the number
and has no bearing on the issue.
Management also mentions that its not a true subsidy and that there is a recovery
factor where at times pricing is adjusted to recover the lower unit price. This is not
an argument that makes sense because when examining the actual data, there is no
apparent recovery factor.
For example if one examines the IFO purchases for 2009 and 2010, we examined
the ACTUAL invoices supplied by management for the SAME type of fuel (IFO)
purchases in the SAME months, we then converted both to the same unit (m3) and
both to Naf (using 1.8) to then compare the unit prices. As the table below shows,
there is clearly an annual saving between the same types of fuel in terms of unit
price. There is only a single month in the two years that show a price charged by
Curoil to be higher than the refinery.
Page 33 of 164
2009
Month
January
February
March
April
May
June
July
August
September
October
November
December
Saving (Naf)
65.60
40.17
64.67
23.87
117.79
81.62
(51.74)
53.37
22.36
12.27
91.63
68.75
2010
Month
January
February
March
April
May
June
July
August
September
October
November
December
Saving (Naf)
129.02
104.51
104.51
23.86
96.04
40.00
29.02
89.54
54.57
109.28
131.81
206.66
We therefore cannot see a recovery factor that makes sense of the argument used
by management to argue against our findings as other than a single month all
other months are below the price charged on the island for the same fuel.
Page 34 of 164
Year
Energy
fund
(NAF)
2005
16,740,000
2006
5,820,000
Regulatory
account
(NAF)
Total (NAF)
Annual Kwh
sales
Additional
(US$)
In
(NAF)
16,740,000
616,833,000
0.02
0.04
2,918,000
8,738,000
615,400,000
0.01
0.02
2007
11,395,440
11,395,440
626,580,000
0.01
0.02
2008
74,179,925
74,179,925
678,913,000
0.06
0.11
2009
7,118,084
7,118,084
654,390,000
0.01
0.02
2010
11,229,000
11,229,000
673,664,000
0.01
0.02
Totals
22,560,000
106,840,449 129,400,449
Page 35 of 164
The average rate in 2009 actually dropped substantially to $.29/Kwh against the
2008 rate of $ 0.37/Kwh, but then climbed back up again in 2010 to $ 0.35/Kwh
without any economical explanation.
In reality in that period NAF 74,179,925 was booked through to the regulatory
account which we believe was reflected in a drop in the 2009 tariff. In reality the
true tariff is closer to $0.29 + $0.06= $ 0.35/Kwh. This assumption is strengthened
by the fact that when the amount being shifted to the regulatory account was
reduced the average rate was again raised to $ 0.35/Kwh in 2010.
There have been many discussions on the use of other Carilec members data being
used as a comparison with Aqualectra. The objections tend to be along the lines
that member A or B isnt the same size as us, or doesnt have the same conditions
etc.
The point is that any company could argue that a comparison to others is not
justified as each member does have slightly different conditions to deal with,
however following this argument one could only compare a member with
another exact member with the same history, Island size, population size etc
which of course is impossible. However, we believe that there are legitimate
reasons to use other Carilec member data such as;
Page 36 of 164
Regionally many of the weather conditions are similar which impact site
conditions and consumption patterns
Within the group there are enough similarities geographically (Island, hills,
flats etc)
There is a good spread of company and population sizes both above and
below on the table
Therefore in compiling the data we used the Carilec surveys (to which Aqualectra
provided data). To get the average KWH price we used the same basic system as
Carilec, we took the same category of consumers, the same number of units and
then totaled up the US$ for each line item. This total amount in US$ was then
divided by 117 500 Kwh (the total of KWH per user) to get an average unit rate.
Type of User
Domestic user
100
Domestic
400
Commercial User
2,000
Commercial User
5,000
10,000
100,000
Page 37 of 164
The table below shows the trend of tariffs based on the Carilec surveys from 2005.
From the table below its clear that the trend was for Aqualectra to increase its
tariffs compared to others. The Carilec tables also show a fuel charge per KWH,
but it is not clear if this is included in the rate, we have therefore taken the average
rate reported without the fuel charge on the tables;
In US $
Area
2005
2006
2007
Aruba
0.19
0.00
0.23
Anguilla
0.24
0.26
0.32
Antigua
0.00
0.00
0.00
Barbados
0.20
0.19
0.23
Bahamas
0.14
0.23
0.00
Bermuda
0.25
0.28
0.33
Berlize
0.10
0.21
0.22
Caymans
Curacao (reported by
Carilec)
Curacao (from Tariff
tables)
0.32
0.34
0.30
0.26
0.27
0.24
0.23
0.23
0.28
Dominica
0.25
0.37
0.45**
Gernada
0.28
0.27
0.28
Jamaica
0.21
0.23
0.28
St Martin
0.24
0.13
0.28
St Vincent
2.41
0.28
0.33
Trinidad/Tobago
0.04
0.05
0.06
St Lucia
0.28
0.32
0.33
(note in some cases rates remain the same either due to members misreporting or zero rate
increase)**This reported number appears to include the fuel surcharge
Page 38 of 164
In 2005 there were two providers higher than Aqualectra , Barbados and Belize.
However in 2006 only Jamaica is showing a higher average rate per Kwh. This
pattern continues in 2007 but in 2008 there is a substantial increase in the
Aqualectra rates that put them higher than the others at $ 0.37/Kwh.
Ranking
Area
2008
2009
2010
Aruba
0.26
0.23
0.25
Anguilla
0.41
0.00
0.31
Antigua
0.00
0.38
0.40
Barbados
0.34
0.24
0.25
Bahamas
0.31
0.00
0.32
Bermuda
0.37
0.33
0.33
Berlize
0.22
0.22
0.22
Caymans
Curacao (reported by
Carilec)
0.36
0.31
0.35
0.38
0.35
0.34
0.37
0.37
Dominica
0.49**
0.40**
0.42**
Gernada
0.00
0.00
0.31
Jamaica
0.00
0.27
0.24
St Martin
0.00
0.26
0.32
St Vincent
0.39
0.30
0.34
Trinidad/Tobago
0.06
0.04
0.04
St Lucia
0.00
0.29
0.30
Even taking into account the options that Dominica rates are so expensive and the
Kwh rate they charge doesnt include the fuel charge Aqualectra is either the 2nd
or 3rd most expensive provider in the region.
Also, as can be seen below from a comparison report from the Jamaica Power
utility using the Carilec numbers, Aqualectra ranks 7th from most expensive for
small residential consumers, however they are ranked 2nd most expensive for
Commercial users using 2000Kwh/month and 3rd most expensive for Industrial
Consumers using 100 Kwh/month.
Page 40 of 164
http://www.myjpsco.com/news/000078.php
The tariffs tables are included in ANNEX 5 at the end of this report for reference
Page 41 of 164
New Tariffs
When management was instructed to reduce the overall tariffs by 5 cents, we noticed
that there were two new fixed portion tariffs that had not previously appeared on the
internal letters to the government requesting tariff changes, these were for Riffort and
the Santa Barbara areas. The tables below show these rates.
What we did find interesting was that these two areas were actually paying less than
the hospital and government which one would expect to be at a lower tariff as its an
institution that provides a national critical service. Even after the 5 cents drop Santa
Barbara is paying less for its power than the hospital.
If one considers that in effect Aqualectra are almost a quasi state company, receives
support from the government (example energy fund) one would expect that
preferential rates would be charged to these types of state institutions?
Base Tariff
31-Jan-05
31-Jan-06
7-Jul-07
5-Jun-08
5-Feb-09
7-Sep-09
1-Feb-10
11-Apr-11
Riffort High
Fixed
Fuel
0.1584 0.1584
0.1584 0.1584
0.196
0.196
0.296
0.296
0.2735 0.2735
0.3838 0.3838
0.3838 0.3838
0.0921
0.3738 0.4659
Riffort Low
Fixed
Fuel
0.1584
0.1584
0.196
0.296
0.2735
0.3838
0.3838
0.0872
0.3738
0.1584
0.1584
0.196
0.296
0.2735
0.3838
0.3838
0.461
Base Tariff
31-Jan-05
31-Jan-06
7-Jul-07
5-Jun-08
5-Feb-09
7-Sep-09
1-Feb-10
11-Apr-11
0.0665
0.3838
0.3738
0.3838
0.4403
0.063
0.3838
0.3738
0.3838
0.4368
o
board
o
board.
A SMALL fuel fluctuation surcharge which ONLY covers the fuel price
difference above the budget. example
Page 43 of 164
if Gas oil is projected for the year at NAF 1100 per ton and
the market price is NAF 1100 there is no impact, hence no
surcharge
if Gas oil is projected for the year at NAF 1100 per ton and the
market price is NAF 1200 then the surcharge assumes NAF
100/ton by tons purchased split per Kwh sold. This would then
result in a very small fluctuation in rates but would easily be
understood by the general public. This surcharge should be
allowed to be adjusted at least each billing cycle (month)
The adjustment should drop away if the price drops back to,
or below NAF 1100 once any deficit caused by the short time lag
between purchasing fuel at a higher price and the surcharge
coming into force has been cleared. Any positive balance (as the
surcharge may be charged for a short period while fuel is back to
budget price) should be used to offset the next fluctuation.
Page 44 of 164
3.
Water Tariffs
We also found that water price is expensive when compared to the actual production
cost of water. The KEMA report (November 2010 update of the 2030 plan) states that
the calculated cost of water is between US$ 1.80 and US$1.90, which is approximately
NAF 3.24 to NAF 3.42.
In addition, we have recent extensive data to show average prices for the production of
water using reverse osmosis. FTI carried out extensive research on Reverse Osmosis,
plant and operating pricing all over the world as well as in the region. We examined a
number of permanent plans that have been erected in recent years in order to compare
relative costs for water. It must be understood that the plants below often have very
different operating conditions; hence we took a broad range of RO plants to give a good
cross section.
Year
Location
Plant
$ per
Cubic
Meter
2003
Trinidad
Point Lisas
$0.73
2006
Singapore
Tuas
$0.49
Comments
High
Capex
costs
2006
Australia
Perth
$1.17
2007
Israel
Palmachim
$0.81
2008
USA
Carlsbad
$0.81
2009
Israel
Hadera
$0.73
2012
Israel
Ashod
$0.67
Projected
2013
Israel
Soreq
$0.59
Projected
Source
Trinidad Desalination Plant.
Waterindustry.org (2000-10-26). Retrieved on
2011-03-20
Environmental Data Interactive Exchange
Perth Seawater Desalination Plant, Seawater
Reverse Osmosis (SWRO), Kwinana. Water
Technology. Retrieved on 2011-03-20
Globes Business and Technology
News:"Palmachim desalination plant
inaugurates expansion", November 17, 2010
Kathryn Kranhold, Water, Water,
Everywhere..., The Wall Street Journal, January
17, 2008
Globes Business and Technology
News:"Funding agreed for expanding Hadera
desalination plant", November 6, 2009
Desalination & Water Reuse:"Spanish/Israeli
JV awarded Ashdod desalination contract", 24
November 2009
Desalination & Water Reuse:"IDE reported
winner of Soreq desalination contract", 15
Page 45 of 164
December 2009
In the case of Aqualectra, there are two RO plants with two distinctly different
contracts. The first is the RO plant at Mundo Nobo owned by Aqua Design, this plant
produced 5,695,219 m3. of Potable water in 2009 1 . The second plant is the relatively new
RO plant in operation in the Santa Barbara facility 2 . Potable water is simply the same
quality as industrial water as it exits the RO plant that has some minerals etc. put back
into the water. In other words Potable water has a further post-treatment that should
make the water slightly more expensive to produce.
The plant at Mundo Nobo is owned, and operated by Aqua design;
There is a sliding scale allowing Aqualectra to purchase the plant over time. This means
that the price for water includes a capital cost portion from Aqua Design to cover the
equipment
Aqualectra provide the staff to run and maintain (same pool as labor as the distillers)
Aqua Design has to pay Aqualectra US$ 0.08c/kwh for power used by the plant.
In the original agreement signed in 1995, water cost $1,40/ m3, an amendment that expanded
the plant considerably (from 3000 m3 per day to 10,200 m3 per day) entered into in 1999 raised
this price to
1
2
Therefore the pricing scale within the contracts is between $ 1.04 and $ 1.40 for the
raw price of water, add to this a labor component, chemicals etc. less the power
requirements and we estimate that the KEMA number is in the correct range. Also, this
KEMA range fall into the same range as our data from other engagements, they also fall
into the same range as worldwide research and actual produced data.
The entire reconciliation of water tariffs is included in ANNEX 6 at the rear of this
report.
New Tariff
When management was instructed to reduce the overall tariffs by 5cents we noticed
that a new tariff was introduced that had not previously appeared on the tables.
Base Tariff
Fixed
31-Jan-05
31-Jan-06
7-Jul-07
5-Jun-08
5-Feb-09
7-Sep-09
1-Feb-10
11-Apr-11
0.0665
Page 47 of 164
Sta. Barbara
Fuel
0
0
0
0
0
0
0
0.0665
Human Resources
Management Compensation/Extraordinary Payments
Unfortunately at this time we only have details for 2008, 2009 and 2010
however in that three year time frame we saw the following;
2008 (in NAF)
Name
Normal
Extraordinary Total
A Casperson
257,448
97,640
355,088
H. Gouverneur
255,282
39,580
294,862
W Pandt
257,808
39,580
297,388
T Statia
257,808
39,580
297,388
A Martina
165,568
26,848
192,416
Name
Normal
Extraordinary
Total
A Casperson
377,306
200,914
578,220
H Gouverneur
274,200
96,607
370,807
W Pandt
276,726
141,345
418,071
T Statia
276,726
96,607
373,333
A Martina
D van der Veen
177,239
137,271
45,195
130,762
222,434
268,033
Name
Normal
Extraordinary
Total
A Casperson
382,100
79,590
461,690
H Gouverneur
280,506
97,039
377,545
W Pandt
283,032
54,848
337,880
T Statia
283,032
85,205
368,237
A Martina
195,680
176,729
372,409
2009
2010
Page 48 of 164
% Increase
Since 2008
Name
A Casperson
23%
H Gouverneur
22%
W Pandt
12%
T Statia
19%
A Martina
48%
The increase compensation was then compared against the average inflation
rates for the Dutch Antilles.
Therefore, comparing the average increase in consumer inflation for the same
period we see that from 2008 until 2010, the CPI rose by 4.57% (109.3-114.3
divided by 109.3). However in the same time frame we see increases in excess of
Page 49 of 164
20% with one of 48%. Even assuming that promotions are taking place in this
time frame its still a considerable increase in compensation.
We also examined these numbers against the contracts. The directors are entitled
to a vacation payment of 8% of their salary and one additional month of payment
in December of each year. Additionally they are entitled to a bonus payment at
the Boards discretion as follows:
Page 50 of 164
Holding /
Bottling
6
6
6
6
7
7
7
7
7
7
Production
308
300
293
293
285
290
286
296
Distribution Total
429
743
423
729
438
737
427
726
416
708
410
707
391
684
388
691
691
0
If all of the staff reported include all company staff (including other
services and overhead staff);
However, for a first benchmark we have assumed that these numbers include all
staff of the companies, no contractors or temporary staff. These numbers may be
amended as some of the above questions are resolved. However for the sake of
this report the numbers appear to suggest that Aqualectra is not that efficient in
provision of services (per connection) against the number of staff.
We compared these numbers to other Utility companies in the Caribbean, both in
terms of similar sized companies in terms of number of connections, but also as a
ratio of connections to head count. The table below shows the ratio of consumers
against number of staff members from the CARILEC mid 2010 Survey.
2010
The table below shows that in 2010, Aqualectra is the 4th in terms how many staff
members (and by inference cost) it takes to service a set of consumers. We must
note that this is based on expected rather than actual numbers for Aqualectra.
Utility
St Martin
Anguilla
Bahamas
Aqualectra
Bermuda
St Vincent
Caymans
Dominica
Consumer
Count
19,000
7,695
122,131
70,000
36,303
39,896
26,322
29,790
Reported
Staffing
240
82
1237
691*
345
315
199
212
Page 52 of 164
Consumer per
staff member
79
94
99
102
105
127
132
141
Ranking
1
2
3
4
5
6
7
8
Antigua
Trinidad
Barbados
St. Lucia
Aruba
Belize
Jamaica
30,618
412,500
121,403
60,028
39,912
76,353
585,219
203
2649
531
241
155
285
1414
151
156
229
249
257
268
414
9
10
11
12
13
14
15
2009
The data for 2009 shows that Aqualectra was 2nd in the rankings as having the
highest ratio of staff to consumer with the Bahamas, Anguilla and Antigua not
providing data to CARILEC.
Utility
St Martin
Aqualectra
Bermuda
Caymans
St Vincent
Dominica
Trinidad
Barbados
St. Lucia
Aruba
Belize
Jamaica
Anguilla
Bahamas
Antigua
Consumer
Count
18,675
70,070
35,533
25,070
39,531
30,549
508,826
120,622
59,572
39,743
75,328
584,218
not provided
not provided
not provided
Reported
Staffing
240
691
336
196
309
192
2649
504
248
154
282
1804
not provided
not provided
not provided
Page 53 of 164
Consumer
per staff
member
78
101
106
128
128
159
192
239
240
258
267
324
Ranking
1
2
3
4
5
6
7
8
9
10
11
12
2008
The data for 2008 shows that Aqualectra was 3rd in the rankings as having the
highest ratio of staff to consumer with the Bahamas and Antigua not providing
data to CARILEC.
Utility
St Martin
Anguilla
Aqualectra
Bermuda
Caymans
St Vincent
Trinidad
Dominica
Barbados
St. Lucia
Aruba
Belize
Jamaica
Bahamas
Antigua
Consumer
Count
17,990
7,351
66,679
34,841
23,615
37,927
386,933
32,008
116,658
56,209
38,495
72,692
581,828
not provided
not provided
Reported
Staffing
197
77
684
336
196
301
2620
179
511
234
160
242
1907
not provided
not provided
Ratio
Consumer per
staff member
91
95
97
104
120
126
148
179
228
240
241
300
305
Ranking
1
2
3
4
5
6
7
8
9
10
11
12
13
Page 54 of 164
repair and other work 3 suggests that there is real scope to reduce costs either at
a staff level, or in terms of using outside Contractors.
FINANCIAL REVIEW
This portion of our analysis involved the application of special skills in accounting,
auditing, finance, quantitative methods, certain areas of the law, research and
investigative skills to collect, analyze and evaluate evidential matter and to interpret
and communicate findings. In performing our services we followed guidance set by the
American Institute of Certified Accountant in Ethics interpretation No. 101-3,
Performance of non-attest services in their Code of Professional Conduct.
Our procedures consisted of the following:
Page 56 of 164
In addition we performed a thorough forensic review of all costs and expenses in order
to determine unwarranted costs and expenses from the detailed records by analyzing
supporting documentation:
Receipts
Payment vouchers
We identified the most significant cost items and obtained details of all expenses in
order to subtest some of the expenses incurred over the last few years.
As part of our test work, we reviewed the operating and personnel expenses. From the
General Ledger we selected over 100 operating expenses accounts and over 50
selections from these accounts. (Please see annexed tables with our selections).
Analyzed Company budgets, costs and expenditures in order to identify non-necessary,
inefficiencies and or fraudulent line items
Financial Reporting
The tables below reflect the consolidated revenue and expenses for Aqualectra which
formed the basis of our review. These numbers were taken from the audited financial
reports from 2006 through 2009 and the un-audited financial report for 2010 along with
the budget for 2011 as presented to the Board.
Page 57 of 164
Item
(NAF x 1000)
Sales electric, water, &
Energy fund
Actual
2006
464,498
Actual
2007
446,072
Actual
2008
496,366
Sales water
Unaudite
d 2010
Budget
ed
2011
406,704
474,823
620,436
102,234
102,536
Actual
2009
(148,117)
(159,954)
(274,691)
(223,481)
(290,421)
(287,82
0)
(24,228)
(17,273)
(16,486)
(11,358)
(7,278)
(12,551
)
2,292
651
468
13,876
13,615
15,838
15,425
17,690
9,730
Gross profit
Operating expenses:
308,321
283,111
221,495
289,524
297,350
329,795
Personnel costs
75,629
75,917
84,592
86,689
99,052
100,855
Material usage
9,303
9,293
6,415
16,851
15,015
20,063
44,569
53,772
49,025
Hired services
31,327
29,610
27,198
14,079
17,403
6,000
General expenses
Depreciation on fixed
assets
Depreciation on other
assets
27,634
33,487
36,992
26,591
36,684
32,496
43,752
46,545
47,476
47,243
49,179
56,969
1,654
3,044
4,448
3,021
2,925
46,200
12,308
5,168
4,550
62,782
5,478
32,857
Page 58 of 164
10,419
74,031
55,971
57,892
(10,857)
2,664
5,919
(2,092)
(11,251)
(65,534)
(1,000)
Interest expense
(29,241)
(28,108)
(26,164)
(11,692)
(17,112)
(24,740
)
(12,913)
(7,673)
9,883
(15,416)
(5,784)
9,408
Net profit
16,481
28,030
(29,230)
24,423
(55,573)
38,883
When preparing the table above it was noted that the 2009 numbers do not tie into the
2009 realized numbers listed in the budget.
General Expenses in the 2010 Consolidated Financial Report the audited 2009 amount
for General Expenses is reported as 26,591. In the 2011 Budget, 2009 Realized General
Expenses is reported at 25,054.
Personnel Costs - In the 2010 Consolidated Financial Report the audited 2009 amount
for Personnel Costs is reported as being 86,689. However, on examining the 2011
Budget, we see that this report shows that the 2009 Realized Personnel Costs is now
reported as 91,352.
One issue is that from year to year we noticed that certain accounts within one
particular category are changed into another category which makes direct year to year
comparisons challenging. The same goes for the audited financial reports with items
being shifted (example repairs and maintenance) from year to year.
Actual
2006
Actual
2007
Actual
2008
Actual
2009
Unaudited
2010
Budgeted
2011
464,498
446,072
496,366
406,704
474,823
620,436
Page 59 of 164
Sales water
Direct cost
production
Other direct cost of
sales
Revenue wind
farm
Services and other
income
102,234
102,536
-31.89%
-35.86%
-55.34%
-43.91%
-50.30%
-46.39%
-5.22%
-3.87%
-3.32%
-2.23%
-1.26%
-2.02%
0.49%
0.15%
0.09%
2.99%
3.05%
3.19%
3.03%
3.06%
1.57%
Gross profit
Operating
expenses:
66.38%
63.47%
44.62%
56.89%
51.50%
53.16%
Personnel costs
16.28%
17.02%
17.04%
17.03%
17.16%
16.26%
Material usage
Repair &
maintenance
2.00%
2.08%
1.29%
3.63%
3.37%
4.04%
8.76%
9.31%
7.90%
Hired services
6.74%
6.64%
5.48%
2.77%
3.01%
0.97%
General expenses
Depreciation on
fixed assets
Depreciation on
other assets
Provision for bad
debts
5.95%
7.51%
7.45%
5.22%
6.35%
5.24%
9.42%
10.43%
9.56%
9.28%
8.52%
9.18%
0.36%
0.68%
0.90%
0.59%
0.51%
9.95%
2.76%
1.04%
0.89%
0.95%
1.68%
Operating profit
Income from
associates
12.05%
12.98%
-2.19%
12.3%
5.7%
11.9%
0.57%
1.33%
-0.42%
-2.21%
-11.35%
-0.16%
Interest expense
Profit tax
(exp.)/credit
-6.30%
-6.30%
-5.27%
-2.30%
-2.96%
-3.99%
-2.78%
-1.72%
1.99%
-3.03%
-1.00%
1.52%
Net profit
3.55%
6.28%
-5.89%
4.80%
-9.63%
6.27%
We noted that the significant drops in Hired services expenses are due to a regrouping
of these expenses under repairs and maintenance.
Accounting and Financial Reporting Systems
Page 60 of 164
In addition the Company also uses the VIS system in order to do their billing.
Page 61 of 164
As an example, the Purchase Department will submit a Purchase Order into the Infor
system with corresponding invoices. These invoices then need to be sent through the
Infor Interface and then into the Decade Interface before they reach the financial
accounting system (See Figure Below). The Finance Department oversees the Decade
accounting system and thus as they receive invoices from the Infor system they sit in
the Decade system until the Finance Department receives notice that the Purchase
Order has been received and/or executed.
Once this has happened the Finance Department knows that the invoice is now
authorized to be paid. Therefore, the communication between both systems is constant
and ongoing and there are several main channels in which information and transactions
are transferred in order for them to be received in the financial accounting system.
The Purchase/Procurement Department oversees the Infor System whereas the Finance
Department oversees the Decade system. Each main department has their own subdepartments and therefore due to the complexity of the way the system is arranged the
exchange of information and communication can cause errors between both systems.
The Decade system is what is used to create the financial statements and it might not
properly represent what is in the Infor system.
There is supposed to be a comparison of the entries within the Infor and Decade
systems to make sure they match on a monthly basis; however we were informed that
there are some months in which this is not done. By comparing the entries within the
Infor and Decade systems the management of Aqualectra should be able to find any
transactions that are sitting in one of the Interface accounts that did not fully make it
into the Decade system.
It is also common that the invoices originally sent from the Infor system that made it to
the Decade system get changed due to the products or services received and thus
Page 62 of 164
Additionally not all expenses go through the Infor system initially. Certain expenses
(salaries, travel, etc.) are entered directly into the Decade system since there are no
Purchase Orders necessary. As a result of the setup of this system, transactions that
should be in the financial accounting system occasionally do not make it in on a timely
manner and are incorrect. There are inefficiencies in the system in which invoices are
paid and the communication channels they have to go through in order for it to be
accounted for properly.
The transactions that get stuck in the Interface stay in suspense accounts until it is
analyzed by the Finance and Purchase Department as to why it never made it to the
financial accounting system.
Page 63 of 164
The system is currently set-up in a way that the financial reporting system may not
have the correct or current information from the Purchasing Department. Therefore the
financial statements might inaccurately represent the financial position of the company.
Recommendations Regarding the Financial Department and Accounting Systems
Implement a more integrative system in which the purchases are directly linked to the
financial system.
Therefore, due to the system flow of data between these software types, there is a
higher than usual risk to have incorrect figures and thus a manual comparison between
the actual physical entries in the two systems is a necessary frequent exercise which
basically means that a system is now being checked by a human this is obviously
inefficient.
Duplicative staffing
There is a component of additional labor and oversight in order to ensure the
figures in the Decade system are accurate.
Page 64 of 164
duplicative work, and hence a rationalization of staff will be needed, this could
reduce the staffing needs in the accounting department.
KPMG audit
KPMG required us to sign confidentiality and hold harmless letter which is
common practice. In addition, they requested that management also signed a
hold harmless letter to indemnify them of any findings that our analysis could
bring to light which is not a common request.
We met with KPMG and noted that their audit is controls based (which is an
appropriate approach).
based budget approach for all expense but the approach has yet to be
implemented.
Management delegated to the different departments to review the established
budgets in order to identify possible cuts that could be implemented.
We
walked through the proposed cuts to the budgets and noted that the proposed
cuts were primarily for items that were easily identifiable and minimal compared
to the expenses in the budget. We have not seen a detailed review of proposed
expenditures in order to arrive at the minimum necessary expenditures.
We recommend all expenses be reviewed at a departmental level and evaluated
to determine to arrive at a minimum based budget that is necessary for each
department.
Management holds weekly meetings on Wednesdays to review cash inflows and
outflows and adjust the monthly budgets. The yearly budget is also reviewed by
PWC.
Management is in the process of requesting an exemption from paying import
duties and sales taxes. We understand that this exemption has been granted to
other government owned entities.
The shares of CUC that were owned by the Company were transferred to
Refineria di Korsou (RDK) on.
NIB Consortium loan approximately NAF. 52.5 million (This loan was at
8%)
BOO Investment
NAF. 25,000,000 of the funds of the BNA loan were not invested in BOO as
originally contemplated in the unsigned prospectus and the companys near
term investment plan. According to management the proceeds of a second
tranche was planned for that investment.(The second tranche issuance never
took place)
Because some accounts take longer for deposits to clear and for the cash to
become available the balances shown in the accounts differ than what is actually
available. Also not all the accounts for Aqualectra are included in their financial
statements as Cash or Cash Equivalents because some are reserve accounts and
the cash is not readily available.
Areconciliation was provided to us as of September 30, 2010. We asked for a
more recent reconciliation but have not yet obtained the information.
For the reconciliation done as of September, 2010 there was a NAF 21,182,000
difference in the Aqualectras daily cash sheet and the Cash line item in the
financial statements. The line item in the financial statements was reporting
approximately NAF 21,182,000 higher than the total in the cash sheets. The NAF
21,182,000 difference is made up of approximately 14 different items including
pledged amounts, timing differences, suspense accounts, bank overdrafts,
reclassifications, etc.
As a whole, the process is far too complicated and there are many bank accounts
that seem to exist for no particular reason. In order for the cash to reconcile more
efficiently and accurately bank accounts should be eliminated to simplify the
process. Below is a breakdown of Aqualectras current bank accounts:
Page 69 of 164
17,974.04
916,812.71
Banco Di Caribe
Customers to make payments
Banco Di Caribe (On-Line) Customers to make payments - On-Line availability
(71,972.95)
7,185.57
Giro
Giro
Giro (On-Line)
804,383.98
297,379.14
(80.03)
SFTBank
SFTBank
219,420.94
7,269.69
Orco Bank
Orco Bank
196,534.73
96.22
Holding
Bank
M&C Bank
M&C Bank
M&C Bank
M&C Bank
Purpose of Account
Account for payments and receipts
Salaryaccount - moneyis transferred infromthe Holdingpayment and receipt account
Account openbut no balance currentlyand not used
Holding account inUS$
Production
Bank
M&C Bank
M&C Bank
M&C Bank
M&C Bank
M&C Bank
Purpose of Account
Payments account for Production - moneyis transferred fromHoldingand Distribution
Cashreserve account for projects for Production
Available cash reserved for projects in US$
Reserve account inUS$
Account inforeigncurrency(Euro)
RBTT
RBTT
232,995.82
626.39
Giro
Giro
Giro
208,766.26
5,037.74
556,498.54
Banco Di Caribe
SFTBank
ORCO Bank
$
$
(1,277,921.55)
9,033,329.43
2,631.52
20,402.97
64,942.85
3,206.60
235,589.99
Page 70 of 164
1,717.86
Therefore, it is obvious that there are multiple accounts that are not actually used
or frequently used, it was not clear then as to why these accounts continue to
remain open. . There are also inefficiencies in our view in how Aqualectra has
their accounts currently set-up and we noticed difficulties during our review and
in requesting data with management reconciling the balances from these
accounts to what is exactly listed in the financial statements.
For example, in Aqualectra Production there are two separate accounts in Giro
and both were described by management for Aqualectra payments.
No
Additionally, there are two current accounts for Aqualectra Production at RBTT.
One account has significant more activity than the other but there was no
specification as to why both accounts existed. Therefore our suggestion is to
eliminate the accounts that have small balances and consolidate the accounts so it
is easier to understand and reconcile the cash position of the company.
If
necessary, the financial institutions can be instructed to re-direct the funds to the
remaining account.
Deposits of Customers
We noted that the deposits that customers pay when opening accounts is not
currently funded and reserved within the cash accounts. These deposits amount
to approximately NAF 20 million at the end of 2009. The deposits are netted
against the receivables on the financial statements.
Leakages/Discrepancies-write offs
We noted that water leakages over certain amounts are investigated when a
complaint is received. After performing a field test to determine the validity of
Page 71 of 164
the leakage the Company usually assumes 50% of the overage in water (90% if it
involves senior citizens). These write-offs are coded as 992 write-offs. Some of
the leakages may have been ongoing for extended periods of time, in some cases
years and the company still absorbs 50% of the over usage.
Stricter policies need to be implemented in order to reduce the cost that the
company absorbs for these leakages and to better educate the consumer of their
responsibility to monitor leakages.
We also noted that discrepancies in electricity meter readings that arise as a
result of faulty readings and or misappropriations of electricity are investigated
and sometimes written off. These write-offs are coded as 995 write-offs.
Page 72 of 164
FTIConsulting
Aqualectra
Writeoff2009
TotalwriteoffCode992
TotalwriteoffCode995
Totalwriteoff
(317,832.30)
(2,246,345.99)
(2,564,178.29)
WriteoffaboveNAF5,0002009
AccountNumber
Name
10892687
DaCostaGomezFrank
10646701
BlokJacobusN
10386686
SchotborghEngelbertCh
13489695
StichtingMonumentenZorg
10688177
Franky'sCameraPhotStudio
11462922
StichtingKinderoordBrankkeput
10062169
StichingBirgendeRosario
10356940
PetersMEL
11234905
ChongRamoncitoR
11234905
ChongRamoncitoR
11234905
ChongRamoncitoR
11482786
CuracaoIndustrialServices
10148923
HooiEG
12605832
TropicalBowlingCenterN.V.
12457491
TajmahalTrad&CourierServNV
13639779
DiosaRuizJohnA
13557456
GillEttiennneC
13557456
GillEttiennneC
10356940
PetersMEL
LocalAddress
Kinikiniweg7
SchottegatwegNoord23
SanJuan108
Zaantjesleeg246
Lekstraat3
BrakkeputAriba2
FraterRadulphuswegKLito1
JanKok8akav
KayaPanseiku2
KayaPanseiku2
KayaPanseiku2
EmancipatieBoulevardZn
Veeris143a
KamindaJEKusters2A
SchottegatwegOost215c
Cassandraweg40
KayaJohnHSprockel6bT/O
KayaJohnHSprockel6bT/O
JanKok8akav
11545330
13289998
13197426
13289998
10910003
10938001
11396325
10913996
11280590
10987157
13516890
12306593
12226549
11393767
11082609
11493258
12118254
10283943
11533480
12681985
11493258
11475145
10364472
12574578
13658375
10318285
13620712
11080314
12617300
10355813
SunsetWatersBeachResortN.V.
MathildaErrolE
StichingCurEmergencyMedSer
MathildaErrolE
AbelinaLucitaE
PieternellaSilvana
MotaLakeMargritH
KootsMercelinoA
DuawaerEmerencianaMariaI
ChongisDorothyS
MaduroPieterszCarmenGM
WinklaarHuibertJ
MaduroPieterszCarmenGM
ChindysN.V.
BoyeWilson
CuracaoscheDokMaatschappijNV
RodeoCenterN.V.
HalleyKarenE
FlorezRojasElkin
PieterszImport&CoNv
CuracaoscheDokMaatschappijNV
CuracaoPortServicesNV
EmanuelSidneyE
Curanet
RoyerC
EfrosinaAirinMM
ThielmanMaximoR
TauberHermanos
ZimmermanLilianM
JonckheerAugustA
CoralCliffZn
FranklinDRooseveltweg255truk
MagrietlaanZnCems
FranklinDRooseveltweg255truk
NoordSantaRosa99
SeruPretuJuanLuis38
Parerawjik12kav
NoordSantaRosa99
KayaLabizjan3
CasCoraweg62
RondeKlipweg29
SeruFortunaweg43
RondeKlipweg29
NiuwePareraweg16a
MontanjaAbou87a
KoningspleinZn
JanBoos5
KayaNanziKoko3
Gosieweg16b
DeSavaan182
KoningspleinZn
BrionwerfZn
JanKok30
DrMJHugenholtzweg46a
KayaZrLDeutekom8
Souax54bNst
Corrieweg1A
Caracasbaaiweg55
Mahuma284
HermanusZn
Period Tar_Code
Amount
Created_By Created_D
200902
992 (4,695.98) MGO
5Feb09
200902
992 (6,726.37) MGO
11Feb09
200903
992 (10,839.64) MGO
11Feb09
200904
992 (8,399.51) MGO
26Mar09
200904
992 (6,956.20) MGO
1Apr09
200904
992 (6,061.33) MGO
9Apr09
200907
992 (51,384.68) MGO
18Jun09
200908
992 (7,164.34) MGO
17Jul09
200908
992 (20,255.49) MGO
6Aug09
200908
992 (7,185.77) MGO
6Aug09
200908
992 (5,645.73) MGO
6Aug09
200908
992 (21,429.31) MGO
10Aug09
200909
992 (11,266.50) MGO
6Aug09
200909
992 (14,393.67) MGO
11Sep09
200909
992 (7,470.00) MGO
11Sep09
200910
992 (5,869.15) MGO
18Sep09
200910
992 (5,494.79) MGO
18Sep09
200910
992 5,494.79 MGO
28Sep09
200912
992 (7,112.21) MGO
26Nov09
Subtotal (202,855.88)
200901
995 (900,596.69) RDO
22Jan09
200901
995 (49,037.00) RDO
200901
995 (16,908.64) RDO
200901
995 49,037.00 RDO
200902
995 (46,340.22) RDO
18Feb09
200902
995 (21,292.69) RDO
18Feb09
200902
995 (20,448.12) RDO
20Feb09
200902
995 (16,074.20) RDO
18Feb09
200902
995 (8,872.81) MGO
18Feb09
200903
995 (22,611.14) RDO
23Mar09
200903
995 (17,067.24) RDO
18Mar09
200903
995 (5,384.08) RDO
18Feb09
200903
995 17,067.24 RDO
18Mar09
200904
995 (16,598.86) MGO
27Apr09
200904
995 (15,760.03) MGO
15Apr09
200906
995 (211,883.38) RDO
24Jun09
200907
995 (25,874.80) RDO
16Jul09
200907
995 (8,856.88) RDO
24Jul09
200907
995 (6,803.18) RDO
30Jul09
200908
995 (125,018.40) RDO
16Jul09
200909
995 (128,846.50) RDO
23Sep09
200909
995 (40,912.00) RDO
18Sep09
200909
995 (8,013.52) RDO
26Aug09
200910
995 (428,896.74) RDO
14Oct09
200910
995 (16,582.95) RDO
8Sep09
200910
995 (8,419.20) MGO
18Sep09
200910
995 (6,155.73) RDO
1Oct09
200911
995 (18,441.83) TSF
2Nov09
200911
995 (15,500.00) RDO
13Oct09
200911
995 (6,754.84) RDO
22Oct09
Subtotal (2,147,847.43)
Total (2,350,703.31)
Page 73 of 164
FTIConsulting
Aqualectra
Writeoff2010
TotalwriteoffCode992
TotalwriteoffCode995
Totalwriteoff
WriteoffaboveNAF5,0002010
AccountNumber
Name
13449661
StichtingKinderdorpHedron
11173743
RamazanJaimeS
12470229
ColonSupermarket
11287738
FundashonKomunidatResurekshonIBida
13557456
GillEttienneC
12188026
JacobusMarcialH
13567273
MoserRodney
11882059
10865795
11768077
11882059
13691682
12632114
11297848
11507023
12603173
11459602
13728633
10457584
13507223
11034088
10707002
11484843
11311228
11311066
12392730
10411889
13621996
13621996
13605178
11295676
10815279
10638009
10908860
11066457
11181209
11182695
11408067
10476300
11180237
12581371
10462505
10546446
10546446
12581985
13777666
10156963
10224020
10308612
10385509
10386034
10360046
10498417
12709474
11156131
10529925
10529925
12337235
10286577
11633036
10802860
12653461
12665913
10566676
MejerFolgertJ
MartisSG
TheRibsFactory
MejerFolgertJ
MichelJosetteR
ImpexoNV
VanHolsteijnRoyJ
VanDerGenAuraV
LozanoTrujilloLuzA
StichingOudenVanDagen
KamperveenAdamsonLounetteG
PaulinaCathalinaC
BaeckerThoralfM
MetschLouisJ
StZorgVGeestlGehandicapten
SupermercadoLuzNV
RumkumNV
Nobles'sFreezoneN.V.
MarquisAgenciesN.V.
ErlingFrancoisR
HenriquezAllanJ
HenriquezAllanJ
HenriquezAllanJ
VanDerTolElizabethJ.M
IsidoraE
KokoEnriqueA
BeliosoPedroD
HatoServinioE
SelassaAronH
ElisaJuanaF
AngelistaFredy
AgataJoseMaria
MartinaPietersSM
LandburgEdwinAJ
AsporaatJohanitaA
TrappenbergVeraA
TrappenbergVeraA
PieterszImport&CoNV
TrappenbergVeraA
CalmeraTomasitoS
AlbertoJD
MarthaPedritoP
KeliePabloTH
RunschotRosaliaJ
PabloMariaH
WeigleMariaM
MariaAyshelGA
SebastianaMagdaE
JonckheerAugustA
JonckheerAugustA
LeopoldEoselA
MathildaMarjorieB
TropicanaSnack
KwidamaMeltrinM
BleuRayGolfResortPSectieN.V.
Fund.PaOrganisashionDiKarnavalFoka
MartisMeyerMariaP
(207,013.17)
(1,101,375.52)
(1,308,388.69)
LocalAddress
VeerisZn
MontanjaDlRey45
ColonWinkeicZn
KayaChikuchaZ/N
KayaJohnHSprocakelSbT/O
Esperansaweg61
SantaBarbaraResortMarineVillage24
Kintjanweg4
RondeKlipLndnst
Caracasbaaiweg54
Kintjanweg4
Veeter12B
Fokkerweg15
KayaMozzart52Z
Dr.MartinLKingBlvd58
KoraalSpechweg44
WegNaarWeigelegen54
Geuistraat5
Sombreroweg23
JanZoulval29kav
KleinKwartlierZn
PrinsenlaanZn
SchottegalwegNoord24
VrjeZoneLoodsDJ15
VrjeZoneLoodsE14
AbattoiwegZn
ResidenciasAscencion19Kav
KayaVivaldi73z
KayaVivaldi73z
KayaMozart50ZKv
PaseoAtlantic16
Ledaweg93
Avesweg27c
KentUZelf42a
MontanjaAbou177
WegNaarFuik240Nst
WegNaarFuik385
MonteVerte3
NoordRosendaal83
SabanaCraz44
Geleenstraat8
SirtJohnsweg30
WinstonChurchillweg124b
WinstonChurchillweg124b
DeSavaan182
VredenbergKintjan8gBhv
KayaMaPleternella19
Amerikaweg94
Gato90n
Colonia3D
Colonia49
SintWilbrous67
PortoRicoweg49
Quintastraat16
MontanjaDiRey449
Flip6a
Flip6a
Monchiweg84n
Mahuma285a
RondeKlip21a
TraiSeru86
BlauwHotel
BrievIndTerJlv6
KayaMontevideo5
Period Tar_Code
Amount
201003
992 (6,771.57)
201006
992 (7,338.87)
201006
992 (22,044.79)
201006
992 (12,446.95)
201008
992 (5,494.79)
201009
992 (12,813.76)
201012
992 (7,584.53)
Subtotal (74,495.26)
201001
995 (6,157.47)
201001
995 (8,656.89)
201001
995 (86,097.27)
201001
995 (6,157.47)
201002
995 (5,473.72)
201002
995 (24,373.75)
201002
995 (7,601.16)
201002
995 (16,133.40)
201003
995 (8,261.85)
201004
995 (90,720.26)
201005
995 (9,299.55)
201005
995 (13,612.74)
201005
995 (6,501.18)
201005
995 (20,075.65)
201006
995 (32,370.10)
201006
995 (43,492.13)
201007
995 (6,471.28)
201007
995 (6,733.98)
201007
995 (8,484.91)
201008
995 (6,033.54)
201008
995 (12,748.07)
201008
995 12,748.07
201008
995 (12,748.07)
201009
995 (9,617.73)
201009
995 (5,260.15)
201009
995 (6,093.10)
201009
995 (6,289.08)
201009
995 (10,629.87)
201009
995 (25,741.93)
201009
995 (7,576.70)
201009
995 (15,199.18)
201009
995 (14,774.07)
201009
995 (17,632.53)
201009
995 (31,676.29)
201009
995 (17,146.92)
201009
995 (6,857.08)
201009
995 6,857.08
201009
995 (96,776.02)
201009
995 (8,857.08)
201010
995 (9,553.78)
201010
995 (31,740.52)
201010
995 (8,909.50)
201010
995 (5,640.52)
201010
995 (16,659.08)
201010
995 (17,266.78)
201010
995 (13,210.61)
201010
995 (6,165.04)
201010
995 (7,668.11)
201011
995 (6,754.84)
201011
995 6,754.84
201011
995 (12,339.17)
201011
995 (8,515.47)
201011
995 (65,923.04)
201011
995 (14,778.21)
201011
995 (47,377.16)
201011
995 (9,678.64)
201012
995 (8,587.53)
Subtotal (982,740.18)
Total (1,057,235.44)
Page 74 of 164
Created_By Created_D
TSE
3Feb10
TSE
9Jun10
TSE
22Jun10
TSE
22Jun10
TSE
12Jul10
TSE
20Aug10
TSE
24Nov10
TSE
TSE
TSE
IRE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
TSE
MGO
MGO
RDO
RDO
RDO
RDO
RDO
RDO
RDO
RDO
RDO
RDO
TSE
TSE
TSE
TSE
RDO
RDO
RDO
RDO
RDO
RDO
RDO
RDO
TSE
RDO
RDO
RDO
TSE
TSE
RDO
TSE
TSE
TSE
12Jan10
12Jan10
15Jan10
21Jan10
8Feb10
12Feb10
24Feb10
24Feb10
19Mar10
16Apr10
23Apr10
27Apr10
4May10
21May10
7Jun10
7Jun10
7Jul10
7Jul10
7Jul10
30Jul10
11Aug10
11Aug10
12Aug10
19Dec08
19Dec08
18Feb09
18Feb09
18Feb09
18Feb09
18Feb09
18Feb09
19Feb09
12May09
4Jun09
7Oct09
19Aug10
19Aug10
3Sep10
10Sep10
18Feb09
18Feb09
18Feb10
18Feb10
18Feb10
18Feb10
18Feb10
18Feb10
11Feb10
12Oct09
12Oct09
6Nov09
11Dec09
16Apr10
3Jun10
4Nov10
11Nov10
7Dec10
Page 75 of 164
determine their priority and necessity under the circumstances and to obtain
clarification as to the reasoning behind the contracts.
Inventory Discrepancies
The company currently has 6 stores in total (1 for distribution and 5 for
Production).
annually where as the Production stores have them done monthly. Only 3 of the
6 stores produce reports based on stock takes discrepancies (SRI, SMU, and SOS).
SRI is located at the Accounting departments offices and does very little volume.
However, SMU and SOS are located at Mundu Nobo and they do large amounts
of volume. The monthly reports from SRI, SMU, and SOS describe the inventory
discrepancies and the reasons for why they exist. The other stores do not have
reports for why there are discrepancies or what they were caused from.
Management explained that they are in the process of implementing a process
where all the stores have to produce reports to explain their differences.
For the stores that do produce reports, discrepancies under NAF 25,000 are not
explained. As a summary of the discrepancies that did exist from 2009-Current
for the three stores that do produce reports we have the following:
Year
2009
2009
2009
2009
2010
2010
2010
2010
2010
Month
March
July
November
November
May
July
July
August
September
Store
SMU
SRI
SMU
SRI
SMU
SMU
SRI
SMU
SMU
Page 77 of 164
Amount of Discrepancy
25,011.00
25,916.78
58,649.11
69,515.48
(65,475.04)
48,517.58
(71,343.61)
117,745.00
146,050.87
2010
2010
2010
2011
2011
2011
September
October
December
January
February
March
SRI
SMU
SMU
SMU
SMU
SMU
(54,578.12)
(74,041.64)
(71,460.06)
31,995.56
33,577.14
72,523.36
The examples above summarize the discrepancies that were greater than 25,000
for the three stores.
supporting documents and their relation to the selection made but management
was not able to identify any documents relating to our selection and was not able
to fully explain the documentation.
Further, we obtained additional supporting documents for the selected expenses
in electronic form (both for Production & Distribution). We noticed that some of
the expenses did not have invoices or purchase orders; only the journal entry
was provided. After constant inquires, it was explained that some of our
selections were related to adjustments, reclassifications, corrections and fines and
therefore would not have an invoice, purchase order or authorization form. It
was also explained that for other expense selections the invoice and/or purchase
order were lost and they were not able to find it due to their accounting system
deficiencies and integration.
From our selections, there were six selections related to travel expenses for
employees. We noticed from the supporting documents that these were related
to travels in Business class to Dubai, St. Martin, Grand Cayman, Miami, Holland
and Finland. On June 16, 2011, we met with William Pandt (Human Resources
Director) in order to discuss these expenses. Mr. Pandt explained that most of
these travel expenses are related to the IDA World Conference, The
Technology
Transfer
Workshop,
Carilec
conference
and
Caribda
conference. We asked Mr. Pandt about the reason of several stops in different
countries until the final destination for the conference. Mr. Pandt later explained
that these were related to training and conferences on the same trip but different
countries. We also asked Mr. Pandt about their policy in travels for business class
and he stated that only executive directors were allowed to travel in business
class. However, we noted that in some of our selections other employees traveled
in business class. We asked Mr. Pandt about this but an explanation is still
pending.
Page 79 of 164
Consulting Costs
We noted various consulting projects that should be re-evaluated in order to
determine their priority and continuation. We have noted rather large expenses
in the general category of consulting services.
See below details of the consulting expenses for 2009 and 2010 exceeding NAF
100,000:
Consultancy Expenses Aqualectra Consolidated Report
Reporting period: December 2009 - December 2010
2009
2010
232,496
215,959
409,628
337,431
Advocatenpraktijk Asjes/Carrega
152,506
143,741
424,820
Berenschot B.V.
1,707,110
4,979,743
Buck Consultants
169,502
140,947
Coomeva
148,612
274,016
300,895
290,048
Ecovision N.V.
39,953
156,185
Envision N.V.
319,358
135,350
70,770
108,178
Ictas N.V.
88,725
112,087
427,022
491,352
(184,540)
206,985
Page 80 of 164
Kema Inc.
304,028
34,424
99,501
171,548
Medisch Adviseur
193,400
117,840
119,826
Oliveron
Pricewaterhousecoopers
809,401
681,938
PWC Tax
141,335
134,555
133,265
Robcon
Sentry Sourcing Services B.V.
229,159
206,183
525,925
335,592
Stradius BV
298,959
268,645
302,135
554,114
233,510
Subtotal 6,961,655
1,232,901
Total 8,194,556
10,832,507
1,663,561
12,496,068
2009
2010
409,628
337,431
152,506
302,135
NAF 711,763
554,114
NAF 934,051
Considering the amounts spent on outside legal advice, we would question the
need for a full time (as it would appear from the costs) in house legal counsel
who it appears is billing at a level close to or above the managing directors.
Accounting Fees
2009
427,022
809,401
141,335
NAF 1,377,758
2010
491,352
(184,540)
206,985
681,938
134,555
NAF 1,330,290
Besides using KPMG for the external Audit, PWC was contracted to help with a number
of specific assignments outside the scope of the audit. These assignments included: tax
audit, provided interim manager for Internal Audit, Interim personnel for specific
assignments, budget certification, and regulatory account certification.
Consulting Services
Berenschot B.V.
2009
1,707,110
2010
4,979,743
We have seen a presentation regarding the next step, however do question the
extremely high value paid in a single year to this company. We would
recommend that this contract be investigated in more detail during the turnaround phase.
Operating Expenses Requiring further Analysis or Rebidding
We noted that significant amounts of materials are purchased through both local
and international vendors. We obtained some of the details of these purchases
and some explanations for the most significant vendors. We also met with the
managing director 4 to get an understanding of the services provided, the reason
or if this contract was bid, but have not as yet done a comparison pricing in the
market to check if these products or services are over-priced.
There are a number of categories that we divided the costs into
We have also prioritized the costs mentioned above for further examination,
comparative pricing or re-tender during the turnaround phase.
Overhead or Office Type Costs
A substantial portion of the costs borne by Aqualectra are what we would term
non-essential costs that do not produce power or water but are incurred as an
overhead.
Our concerns are that there seems to be a fairly high number of consultants that
may be providing very similar services to others (such as Berenschot B.V.) Also
we note that there are large amounts spent for example on items such as service
4
D Jonis
Page 83 of 164
pins that cost over NAF 100 000 last year. We also note that an effort to reduce
and rationalize the number of printers and copiers (discussed elsewhere) to
reduce overhead costs that contribute nothing to producing power or water. We
have also discussed the cart leases elsewhere in this report.
Priority to review during Turnaround
General Costs
Vendor
Service or Supply
PO Amount
Invoice
Amount
Leasing of employee
cars.
225,847.65
562,989.00
Leasing of employee
cars.
241,723.65
233,348.85
591,244.66
607,176.81
DRM
296,347.36
279,763.52
Hermanus Jewelers
105,672.00
105,672.00
223,769.70
186,259.50
Car leasing.
Uralco N.V.
Productive Business
Solutions (Xerox)
Page 84 of 164
PO Amount
Invoice
Amount
60,480.00
22,260.00
Service or Supply
Year Operation Plan
for managers (K4S)
Educational services
for Aqualectra
personal (employee
evaluation and time
management)
62,776.33
62,776.33
RC Services RCS
76,440.00
54,600.00
K4S
Coordination of Year
Operational Plan for
2010 for HR and
Facility Management
departments
209,160.00
29,242.50
Dea Consult
Consulting services
for HR matter.
Integration of HR
department.
51,220.00
25,180.00
Consulting services
for technical
calculations for
Aquapower.
138,600.00
21,000.00
Eco-Vision N.V.
Project management
for different projects
including
environmental and
social studies.
558,526.50
234,055.50
Page 85 of 164
Envision N.V.
Support of IT
department.
Database issues and
supporting the
systems.
126,000.00
147,000.00
124,743.50
305,143.27
67,536.00
67,536.00
846,720.00
35,400.00
122,050.00
89,057.51
221,061.75
139,161.75
56,700.00
56,700.00
Software installation
Geometius bv.
HR dept.
Human Potential
Company that
provides services to
Aqualectra by
inputting data and
information related
to water and
electricity into the
GIS system.
Corporate Finance
KPMG
55,301.40
9,216.90
23,500.00
59,230.99
Simon Interiors
Remodelation of the
company cantina
73,043.25
56,505.75
Netpro N.V.
Page 86 of 164
Analysis of back
office and system
license
892,922.63
371,428.32
Top Browsers BV
Cantina
remodelation for
Nieuwe Haven
facility
81,181.92
65,985.09
Winhen
Consulting of the
reverse osmosis plant
in Santa Barbara in
order to improve
services.
741,312.00
213,617.25
Servisio na bo ordu
Cleaners production
510,357.00
88,633.43
Top Professional
Cleaning
377,895.70
271,798.80
Vendor
Service or Supply
PO Amount
Invoice
Amount
Curacao Vehicle
Tracking
123,354.00
10,279.50
Digilent
21,300.00
euros
7,350.00 euros
IBM
Software/hardware
support
63,636.30
63,636.30
A.I.S/Artificial Intel.
System
54,123.84
54,123.84
Lower Priority
Page 87 of 164
Copiers
108,738.00
15,048.60
Bepect B.V.
Personal education
on high voltage
installation.
50,400.00
92,250.90
Douane Nederlandse
Antillen (Inspectie)
Customs, payment of
taxes.
3,173,451.60
1,029,269.10
GIS4C B.V.
Framework
Agreement between
Aqualectra and ESRI
Nederland - Pipeline
mapping system
189,000.00
94,500.00
HET Waterlaboratorium
Consulting and
advice on the
laboratory for water
analysis.
19,580.00
494.50
Kema Consulting
(Europe) B.V.
109,000.00
153,251.82
Accommodation
and/or event costs
28,623.21
28,623.21
Microsoft
138,152.48
213,725.83
97,206.84
72,905.13
664,500.00
746,495.23
Nieuwe Post
Nederlandse Antillen
N.V.
Postal service
(sending invoice)
Page 88 of 164
Design of a waste
energy plant
183,635.00
73,454.00
Security personal in
Santa Barbara
287,280.00
23,940.00
177,660.00
14,960.21
Royal Haskoning
Santa Barbara Security
Services
trash pick up
Selikor
In terms of the technical department, while these costs are a vital part of
production and maintenance, we definitely recommend that larger contracts be
reviewed and if necessary go again out for tender. We suggest that the following
be prioritized for comparative pricing and retender under the turnaround phase,
Suppliers of Parts, Materials
Priority for Review during Turnaround
Vendor
C.J. Electric Cable
Supply N.V.
PO Amount
Invoice
Amount
1,215,863.25
1,935,907.30
85,042.00
42,521.00
Material for
machines.
109,166.40
109,166.40
Power transformers
for electricity.
1,236,104.13
2,807,311.47
220,349.85
321,633.38
67,011.55
323,763.76
Service or Supply
Supply of Cables and
Joints
Parts
Ashland
CG Power Systems USA
Inc.
Strategic supplier.
Curdin Trading B.V
Electricity materials.
Eaton Electric N.V.
Page 89 of 164
EoM
76,223.42
80,034.59
Hitness N.V.
113,982.78
162,864.42
Itron Nederland BV
1,369,271.75
1,997,999.09
Kuzeta
2,366,867.54
2,212,381.04
288,465.00
euros
426,580.45
euros
381,052.00
euros
1,000,395.92
euros
Popular Agencies
Chemical substance
for ph water level
206,640.00
206,640.00
765,405.98
653,550.15
Turbine Services
562,583.00
562,583.00
Twentsche Kabelfabriek
191,145.00
euros
481,664.20
euros
1,450,018.50
1,045,746.55
Electric meters
Landis & Gyr. Ltd
P.M.F Machinefabriek
Bergum
Industrial Gases
Linde Gas BOC
Nalco
222,918.68
163,588.23
93,365.00
euros
614,484.10
186,730.00
euros
Miami based
company that
provides buying
services for
Aqualectra, due to
economical reasons.
734,064.81
B&W Scandinavian
Contractor
44,600.00
44,600.00
Caribbean Cargo
Services
54,245.00
euros
296.67 euros
57,164.31
euros
85,746.48
euros
29,966.00
51,558.78
134,676.00
9,207.45
42,263.84
42,913.84
440,000.00
440,000.00
Lower Priority
Chuchubi Trunking
GEA
Nippon Accumulator
Page 91 of 164
Japanese Yen
Japanese Yen
Stromag
Electricity machine
production services
106,396.00
euros
106,396.00
euros
Sulzer
169,137.99
euros
160,983.22
euros
Torcida
31,419.15
31,419.15
Transporsafe Systems
Holland B.V.
31,410.00
euros
82,513.30 euros
Univar
Chemical substance
for ph water level
43,545.60
21,772.80
Verkoopkantoor
Winkels Export
59,514.00
euros
116,757.76
euros
Wartsila
Supplier of machines
(production of
electricity)
Parts for machines
related to electricity
and maintenance of
the machines.
4,635,712.85
2,172,304.65
1,510,117.64
euros
1,412,098.90
euros
PO
Amount
1,952,425.48
Invoice Amount
1,427,541.60
1,784,615.50
945,640.00
334,420.16
349,299.36
171,844.00
51,553.20
172,730.92
120,042.45
86,625.00
86,625.00
Installation of fire
prevention system
for the machines
411,135.00
172,674.71
Power maintenance
in streets outside of
plants
56,529.50
56,639.10
54,000.00
54,000.00
Service or Supply
Vendor
MNO Vervat-Curacao
N.V.
Street cable
installation for water
N.V. Curaao
Wegenbouw Mij.
Street cable
installation for water
Cleaning of diesel
machines, Aqualectra
Distribution
Inspection services of
the production
machines.
Ansaldo Thomassen
Cur. General
Contractors N.V.
Construction
company for street
wiring
CWM Infrastructure
Construction service.
They deliver
personal, material
and equipment for
maintenance.
DCE
Engco/Engineering &
Construct
Project engineering
of water distillation
and maintenance of
pipes.
Page 93 of 164
972,219.00
1,086,827.91
JC Construction and
Cleaning Services
Street cable
installation
384,000.00
57,405.50
Mapotech
83,089.29
103,861.64
859,369.60
1,296,671.93
118,169.85
101,175.64
Maintenance
contracts for
electricity and water
62,688.15
35,000.00
Maintenance
contracts for
electricity and water
44,180.00
22,090.00
Ortela General
Contractors
Maintenance
contracts for
electricity and water
217,141.26
63,633.82
Contractor service
for electricity and
water interruption.
1,271,969.93
1,141,252.56
141,000.00
221,891.06
111,183.99
78,732.34
Miart
Norelle
Norit
Metering of
Electricity usage for
customers that
choose to do prepay
Employee service
(cleaners) for
maintenance of
machines
Maintenance of
power lines of the
streets
Page 94 of 164
Water Solution
Repair maintenance
for facility in
Scharloo, water
reserve.
Operators and
cleaning personnel
for machines
Restoring of water
services
186,237.50
93,118.75
497,050.36
428,523.39
403,216.39
336,416.32
234,556.28
82,094.91
Yurgi General
Contractors
Street cables
ABB bv.
Supplier of technical
services.
146,170.00
220,981.34
ABB Power
80,290.00
80,290.00
Engineering package
for building of tanks
in Trai Seru
Field employee
training for street
cable
3,830,142.99
1,852,403.17
27,500.00
134,227.50
Lower Priority
Vendor
Ascon
Service or Supply
Construction entity
for breaking roads in
Page 95 of 164
PO Amount
Invoice
Amount
84,525.00
80,298.75
Caribbean Associated
Engineers
Construction
company for street
wiring
Renovation of water
tanks. This entity
performed the
supervision.
112,760.34
112,760.35
52,920.00
23,520.00
Vendor
Aqua Design
Aggreko
Service or Supply
PO Amount
Invoice
Amount
214,238.90
214,238.90
6,727,728.00
7,857,337.00
1,272,309.95
998,397.87
Purchase of water.
Supplier of power
The list above is based on our Purchase Order selections above 50,000 for 2010.
There are clearly many vendors which seem to perform the same or very similar
Page 96 of 164
Page 97 of 164
Infrastructure Receivables
Name
La Curacao/Divya
Date of Project
Open Amount
(NAF)
Dusron Bouwberdrijf
Transformatordoos IFE
Kamel Farouk
Richard Pang
These projects are the ones that the commercial department could confirm as
completed with outstanding payments. These projects are tracked manually by
the commercial department and as a result this list may not be a complete
representation of the outstanding infrastructure receivables.
Page 98 of 164
Year Operational
2010 274,982.90
2011
73,565.62
Incidental
251,805.25
83,112.55
Unspecified
3,216.81
772.80
Total
530,004.96
157,450.97
phone expenses that were missing for Anthon Casperson in 2010 were for
January, March, May, September, October, November, and December. There
were also missing phone expenses for Ben Statia in 2010 for May, September,
October, November, and December.
We also noted that some employees get a NAF. 120 monthly allowance if
approved by the department manager.
There are four machines listed in the support received from Aqualectra that
seemed to have very high costs. They are:
There are machines being used and paid for that are not necessary.
machines should be eliminated.
Two
Production and Distribution it should be combined into one machine. Also the
SNOS has a machine that should be discontinued but is still being leased.
Car Leases
The total amount paid for 2010 did not reconcile exactly to the December 31st
unaudited financial statements because the support received were the leases for
one month out of the year and the leases for each month differs. The amounts
combined for Distribution and Production are 300k less than the total in the
consolidated Unaudited 2010 statements as per December 31st, 2010.
There was a review done to understand why there was a NAF 300,000 difference
and it was determined by the accounting department because of previous errors
where financial leases were included as operational leases.
There are examples of several vehicles included in the 2010 and 2011 detail
where the lease period ended before the date of the detail.
Management
explained that these are included because those leases were extended and they
Page 102 of 164
continue to keep the car and pay the same monthly payments although the lease
term expired. In the 2011 support received from Aqualectra there is a total of 11
vehicles with monthly payments totaling NAF 10,965.00 (excluding O.B.) that
had leases set to expire in 2010.
Management explained that the general use cars are needed because there are
many workers that work different shifts throughout the day and these vehicles
need to be shared among them.
Two vehicles (NAF 3,500NAF each/per month, Excl. O.B.) are listed in the 2010
support and had leases set to expire in June, 2003. Two Ford Tankwagens had
lease terms from 1999 through 2003. They are included in the 2010 support and
according to management they were extended through the end of 2010 because
they were in use all the way through 2010. According to management, after 2010
they were no longer used and therefore are not included in the 2011 support.
The leases were originally set to expire in 2003 and they had planned to order the
newer models however the company was not able to produce them with the
required specifications so management decided to extend the current leases.
This same situation happened once again several years later on as well and thus
the Tankwagens were leased for approximately 11 years. The reason given to us
Page 103 of 164
Total Cost
And given there are two these vehicles have cost over NAF 1 million.
Source 1
Ford AEROMAX
Tankwagen
1997, 439873 km
USA
29.532 EUR
Source 2
TECHNICAL SECTION
Introduction
We based this section on the internal reports provided by each department
(Production and Distribution) but focused more on the power issues rather than
water as this is the heart of many of the current issues. Water costs will naturally
experience a reduction when power generation costs are reduced as power forms
a large part of the costs of distilling, reverse osmosis and pumping of water.
While not having gone in depth as to the history of the company, it would
appear that management have commissioned experts since before 2000 to assist
them in mapping out the future of the company. This was originally called the
2020 plan; it was then renamed to the 2030 plan and was last updated in 2008.
Despite
these
studies,
which
included
generation
and
investment
This then has brought things to a critical point where outside rented temporary
high cost electrical generation is now a key component of the base generation of
the company.
Below we have outlined our understanding of how the company has come to this
situation.
(this
5
6
Given the above sequence of events, certain management decisions then took
place that materially impacted the companys situation today
1. It would appear that only a small portion of the investment budget in the
past 3 years was used to actually improve the situation. The lack of
implementation of projects to replace generation post 2003 through to the
end of 2009 - meant that no new generation was in place to deal with
generation deficits from BOO and the wind farms. 7
2. This situation continued from 2003 through to the end of 2009 when only
10.6 MW was added this also meant that no new major generation was
in place to replace the proposed closure of Mundu Nobo.
3. Instead then of spending money on projects, these appear to be put off
and have apparently led to a large deficit in generation capacity that could
only be filled in the short term by temporary generators.
4. What then made this situation even worse, was that while this crisis was
going on and the first set of Aggrekos was on site, instead of actively
seeking projects to permanently replace generation management simply
resorted to adding to the Aggrekos.
As a result
1. This temporary generation has incurred both extensive rental and cost of
fuel that is more expensive generally than fuel used in larger permanent
generators.
2. In addition, unaccounted for power and water has remained at a level
above the norm for years which reduces income against power and water
production. This impacts on all aspects of the company especially the
amount of funds that could be reinvested in new projects.
3. Finally, inefficiencies and the issues stated above have resulted in rising
staffing, contractor, maintenance and fuel costs.
4. Hence, costs have risen; while the consumer base has not risen to the same
extent causing a rise in tariffs to cover costs.
5. No real attempt appears to have been made to deal with the high
overhead and O&M costs. 8
6. Aging machinery remains an issue with little prospect for replacement
under the current financial situation which continues to create a drag on
maintenance budgets.
7. Expensive fuels continue to be purchased for temporary generation.
Water
1. Water is produced (price at leaving the production plant) at around
$1.85/m3 -an average of 25% of the charged rate of the average at $
7.73/m3
2. On the water distribution side, it appears aging infrastructure results in
leaking that drives up unaccounted for water this results in
approximately 30% or $ 2.20/m3 of all water being produced not being
recovered.
3. Water distribution and overhead costs therefore account for $ 3.29/m3 or
45%.
DETAILED FINDINGS
Power
As mentioned in the summary introduction;
1. It appears that the Production department has consistently not utilized
their budgeted investment amounts, we noticed that in the past 3 years
on average only 15% of the budgeted amount was spent, and many
projects listed on the investment listing in the production annual reports
are carried forward, or cancelled. Over the long term this trend would
8
Both Kema and Vantage make reference to the need for reductions in these costs
Page 109 of 164
While the terms of the original engagement were more financial focused, a
technical review was needed as many of the cost drivers are based on technical
issues such as generation issues, fuel purchases, own and unaccounted for power
etc. To examine how the company arrived at its current situation, we first
examined the generation situation as this is a main driver to the fuel and
lubrication purchases.
In order to check what has occurred after this 2008 statement, we also examined
the Production reports for 2009 and 2010 to see if there had been any change
since this KEMA report had been completed and found there had been some
increase in late 2009/early 2010 with the extension of the Dokweg system with
DW 7 and DW 8, these two additional generators had added an average of 4.23
and 4.38 MW produced in 2010 to the system. 10
During the same time period, existing equipment was aging, which results in
increasing maintenance costs, as well as it had been planned for many years to
relocate Mundu Nobo.
2005
2006
2007
2008
2009
2010
260,028
231,055
245,938
255,946
284,377
331,670
Produced at
Dokweg
Total own
production
Produced by
Aggreko
Intake from
CUC
Intake from
Wind farm
Total Supplied
to the Grid
Own use
Sales
Unaccounted
for Power
326,063
377,188
342,579
371,958
346,380
388,400
586,091
608,243
588,517
627,904
630,757
720,070
51,009
97,969
110,796
232,062
199,275
192,077
139,374
121,260
41,848
37,132
47,524
42,940
30,479
24,934
16,861
855,285
101,558
616,833
855,042
85,278
615,278
823,534
83,328
626,580
848,766
85,213
633,691
874,920
85,454
654,390
889,575
84,005
679,103
136,894
154,486
113,626
129,862
135,076
126,467
The above table shows a number of issues that need to be addressed in the long
term that has affected the past and needs to be addressed in order to improve the
situation for the future.
In examining the past three years in a little more detail (as temporary generation
began in 2008) we saw the following;
Generation Capacity changes from 2008 to 2009
Steam Turbines
Gas Turbines
BSD
Aggreko
PV
2008
Kwh
173,591,057
79,353,381
1,988,618
51,008,785
13,102
Page 113 of 164
2009
Kwh
213,611,130
69,337,893
1,401,987
97,968,789
25,949
% Change
2008-2009
19%
-14%
-42%
48%
50%
Diesels ALCO/ISLA
Diesels Dokweg
Wind
195,229,750
176,728,030
30,479,480
158,331,510
188,048,390
24,934,000
-23%
6%
-22%
As can be seen above, between 2008 and 2009, there are four areas that lost
generation capacity, while three areas (excluding Aggrekos) increased
generation capacity. The deficit was taken up by increasing the generation
capacity with the Aggreko temporary rented generators.
Generation Capacity change from 2009 to 2010
Steam Turbines
Gas Turbines
BSD
Aggreko
PV
Diesels ALCO/ISLA
Diesels Dokweg
Wind
2009
Kwh
213,611,130
69,337,893
1,401,987
97,968,789
25,949
158,331,510
188,048,390
24,934,000
2010
Kwh
217,201,384
113,950,255
495,025
110,796,008
23,492
172,748,770
215,650,820
17,533,400
%
Change
2009 -10
2%
39%
-183%
12%
-10%
8%
13%
-42%
2008 to 2010
% Change
20%
30%
-302%
54%
44%
-13%
18%
-74%
Between 2009 and 2010 we see a slight increase in capacity from the steam
turbines, an increase in the gas turbine generation, a drop in capacity of the BSD
and the wind farms. There is an increase in the Diesels at ISLA with a
corresponding increase in generation from the diesels at Dokweg. However, we
also see another increase in generation capacity of the Aggreko generators.
Whether due to lack of foresight from the early to mid 2000s, bad planning or a
combination of issues, we see that the intake from both the wind farms and the
BOO dropped off starting in 2008.
In MWH
Intake from CUC
Intake from Wind farm
2007
192,077
42,940
2008
139,374
30,479
2009
121,260
24,934
2010
41,848
16,861
While at the same time periods, additional generation was then rented
2008
Aggreko 1
Aggreko 2
Aggreko 3
Total MN
Aggreko DOK
Totals
Kwh
51,008,785
0
0
51,008,785
0
51,008,785
2009
Ave.
MW Kwh
8.9
68,508,703
29,460,086
0
97,968,789
0.0
0
8.9
97,968,789
2010
Ave.
MW Kwh
9.2
55,479,413
6.6
31,624,067
320,302
87,423,782
0.0
23,372,226
15.8 110,796,008
Ave.
MW
8.5
6.3
5.6
6.3
26.7
While we dont have the detailed production reports from 2003 through to 2007,
we can probably assume due to the lack of additional generation installed that a
similar spending on investments for generation took place as we discuss later in
this section.
This meant that by the time generation started to drop in 2007 from the BOO and
wind farms, it was probably already too late to avoid renting some sort of
temporary generation to cover the initial shortfall until DW7 and 8 along with
other generation projects could be brought online. It would therefore appear that
there has been a long term pattern in not providing generation capacity to handle
demand, production drops etc. therefore by 2008, Aqualectra turned to
temporary generation to fill the gap.
from Mundu Nobo), it would appear all that was done was to continue to
contract additional rental units.
Equip Equipment
No
Description
Mundu Nobo
Turbine Gen
TG1
Stork
Turbine Gen
TG2
Stork
Turbine Gen
TG3
scher-Wyss
Turbine Gen
TG4
Escher-Wyss
Turbine Gen
TG8
Deleval Stork
Turbine Gen
TG9
deleval Stork
Turbine Gen
TG10 Fuji electric
TG11 Turbine Frame
Turbine Gen
TG40 Blohm Voss
Turbine Gen
TG50 Blohm Voss
Turbine Gen
TG60 GEC Ahlstrom
Gas Turbine
Frame
GT1
Thomason
Equip
(Year)
Name
plate
MW
Report
MW
from AQ
sheet
dated 19
May
Report
MW Ave
from AQ
for end
2010
%
efficiency
vs name
plate
1956
3.7
0.00
0.00
0.00%
1956
3.7
0.00
0.00
0.00%
1963
7.8
3.00
4.36
55.90%
1963
7.8
3.00
0.00
0.00%
1979
25.0
0.00
0.00
0.00%
1979
25.0
0.00
0.00
0.00%
1988
1990
25.0
25.0
20.00
20.00
15.15
16.28
60.60%
65.12%
1988
3.2
0.00
0.00
0.00%
1990
3.2
0.00
0.00
0.00%
1996
3.65
0.00
0.00
0.00%
1973
15.0
8.00
4.70
31.33%
GT2
BSD1
BSD2
DW1
DW2
DW3
DW4
DW5
DW6
DW7
DW8
DE1
DE2
DE3
DE4
Gas Turbine
Frame John
Brown
Not on last
version of sheet
Not on last
version of sheet
Sub-total
Dokweg
Diesel Wartsilla
Diesel Wartsilla
Diesel Wartsilla
Diesel Wartsilla
Diesel Wartsilla
Diesel Wartsilla
Diesel Wartsilla
Diesel Wartsilla
Isla
Diesel
Generator MAN
Diesel
Generator MAN
Diesel
Generator
MAN
Diesel
Generator MAN
Sub-Total
1979
20.8
14.00
10.67
51.30%
169
68.00
51.16
1995
1995
2001
2001
2002
2002
2010
2010
6.3
6.3
6.3
6.3
6.3
6.3
5.3
5.3
48.4
4.30
4.30
3.80
4.30
4.90
5.30
3.60
3.60
34.10
4.46
4.42
4.83
4.55
4.80
4.59
4.23
4.38
36.26
70.79%
70.16%
76.67%
72.22%
76.19%
72.86%
79.81%
82.64%
74.92%
2003
8.3
6.60
6.89
83.01%
2003
8.3
6.85
6.85
82.53%
2003
8.3
6.68
6.68
80.48%
2003
8.3
33.2
6.29
26.4
6.29
26.7
75.78%
Current
situation
251
129
114.1
** % efficiency is based on actual performance against the name plate maximum
As can be seen from the above data, there are 8 equipment sets that are not
operating (marked in red), one can also see that 8 sets of equipment were
installed prior to 1980, so are extremely old. We also noted that GT1 and GT 2
are installed prior to 1980, and while operating are not operating at anywhere
near capacity.
It is also clear from the above that Management have only added DW7 and DW8
with a total nameplate capacity of 10.6MW since the MAN generators were
installed in 2003.
This would suggest that they did not plan effectively to meet the needs of the
Island, taking into account the following factors;
Reports from the advisors they hired to produce the 2020 (and updated
2030) plan
And spend the capital needed to install generation to replace aging equipment
and meet growing demand. Aqualectras own advisors comment in 2008 that
projects have been delayed or cancelled and advise
Additional generating capacity is required as soon as possible in order to increase the
reliability to the desired level of 3 hours Loss of Load Probability per year. 11
In addition in the same paragraph, KEMA states This means that significant
investments in capacity additions are required to obtain sufficient production capacity
11
We also question if it is cost effective to have kept all of the above old equipment
in some stage of operation in terms of maintenance costs vs. the cost of installing
newer equipment, when costs of maintenance, hard to secure spares, less fuel
efficient technology is taken into consideration it may be more cost effective in
the long term to invest urgently in new generation capacity that falls in line with
the future long term plans regarding location, fuel types etc.
Following then onto from the KEMA review in 2008 concerning the issues with
old equipment, the drop of generation from BOO and the wind farms and the
44MW of temporary generation added from 2008. We then examined the
investment budget and spend in the past 3 years to see what management has
done to correct the situation.
We also removed from the figures those projects that in our view are repair or
maintenance rather than investments on increasing generation (new or
upgrading).
Item Listed on
Investments Overview
(NAF)
Total for all (water,
infrastructure and
power)
2008
Budget
2008 Spent
2009
Budget
2009
Spend
10,610,000
1,671,977
67,462,000
20,732,119
2010 Budget
2010 Spent
62,190,000
8,578,549
In 2008 only 15.76% of the Total Investment budget was actually spent
In 2010 only 13.8% of the Total Investment budget was actually spent
2008
Budget
2008
Spent
2009
Budget
2009 Spend
7,070,000
148,026
55,072,000
9,158,997
2,675,000
806,169
2,245,000
1,957,125
717,782
7,500,000
7,920,000
53,187
254,034
2,225,000
9,361,963
67,462,000
20,732,119
865,000
10,610,000
Page 120 of 164
1,671,977
2010
Budget
50,205,000
985,000
11,000,000
62,190,000
2010 Spent
7,899,407
642,142
37,000
8,578,549
Then examining the detail (table below), our analysis suggests the following;
In 2008 we were only able to identify one project that potentially increased
generation (Extension of the Diesel power station Isla) on which no
money was expended, and was listed as cancelled in 2009
In 2009 only 16.63% of the power investment budget was spent mostly
on upgrading existing equipment
The Extension of the Diesel power station Isla from 2008 on which no
money had been expended was listed as cancelled in 2009
2008
Budget
2008
Spent
2009
Budget
8,190,000
6,000,000
Page 121 of 164
2009
Spend
46,000,000
8,976,048
100,000
65,000
25,000
537
50,000
600,000
50,000
75,000
100,000
185,000
108,886
100,000
39,140
35,000
7,070,000
148,026
100,000
185,000
42,000
50,000
40,000
97,144
50,000
27,096
100,000
4,985
55,072,000
9,158,997
53,187
2010
Budget
2010 Spent
17,500,000
128,073
23,000,000
100,000
3,300,000
25,000
100,000
1,200,000
4,556,387
75,000
2,427,693
6,332
2,198
50,000
100,000
370,000
130,000
25,000
150,000
200,000
75,000
155,000
160,000
10 000
1,150,000
75,000
50,000
50,000
525,000
900,000
500,000
422,357
40,000
200,000
2,564
54,726
50,205,000
7,899,407
0
130,192
11,942
18,627
24,745
31,344
82,227
As mentioned previously, it seemed then that management had not spent the
funds that they had budgeted to increase capacity to meet a growing demand
and also to replace aging equipment. Aqualectras own production reports warn
that the older the equipment gets, the higher the maintenance costs are.
Instead then, it seemed there came a point in late 2007 when it was realized that
the Island was facing a shortage of generation capacity to meet peak demand.
Management then turned to temporary generation to cover this short fall.
Number of Units
Initial Contract - 14 x 1250Kva Units
Nov-11
Feb-09
Sep-09
Feb-10
May-10
Jun-10
As can be seen in the past 12 months there has been a substantial increase in
the number of units rented, along with the costs. We examined the contract
simply in terms of the rental of the unit (not the operating costs) and found the
following cost implications (in US$)
Feb-08
Base
Base
Base
Base
Unit Cost
$359,100
Total
Cost
$359,100
$0
$33,950
$228,480
$271,600
$228,480
Base
Base
Nov-11
Amend
1
Feb-09
Amend
2
Amend
2
Amend
2
Amend
2
$57,120
$2,227,680
$0
$3,086,860
$55,976
$2,910,752
$34,155
$34,155
$62,700
$62,700
$23,010
$184,080
$41,948
$1,761,816
$2,042,751
Sep-09
Amend
3
$41,948
$377,532
Feb-10
Amend
4
$91,214
$4,834,342
May-10
Amend
5
Amend
5
Amend
5
$49,410
$49,410
$19,005
$152,040
$38,010
$1,216,320
$1,417,770
Jun-10
Amend
6
Amend
6
Amend
6
$167,670
$367,840
$475,888
Amend
6
Amend
7
Aug-10
Amend
7
Amend
7
Amend
7
Amend
7
Amend
7
Amend
7
Feb-11
Amend
8
$68,990.00
$2,690,610
$28,000.00
$1,092,000
$4,794,008
$86,615.00
$5,023,670
$27,859.00
$1,643,681
$70,502.00
$70,502
$7,849,564
$133,043.46
$0.06
$122,914.00
$6,391,528
This then results in an overall rental price of US$ 29 million 12 ; this is a very high
priced solution to essentially covering base generation capacity, especially
considering the more expensive fuel they also use.
12
For the rental calculation based on units we have used 85% capacity/production
Page 126 of 164
The entire point of machines like Aggreko is that they are cost effective SHORT
term capacity as needed. Aggreko is a company that provides emergency
generation to organizations such as the Red Cross during times of disaster;
however we feel that keeping them on the Island on the long term defeats the
purpose of having an energy company when outside generation is covering 44
MW of load.
As part of this review, we requested a full download of the data within the
SCADA system and examined this data; this data was then examined to see the
pattern of energy.
We separated this data out month by month to see the peak and average
demand, but also to see how much capacity was really being provided by the
Aggrekos this had two purposes, firstly to see if we can reduce or even totally
do away with these generators, the second was to establish truly how much fuel
was being used and how efficiently.
This data showed that in 2010 there was a peak of 128.9MW on May 17, 2010 at
3pm with the following pattern;
Month
January
February
March
April
May
June
July
August
September
Peak Load
(in MW)
118.85
119.84
122.12
128.9
128.7
127.7
121.5
124.8
123.9
Page 127 of 164
Average Load
(in MW)
95.77
96.21
99.07
102.38
104.18
100.51
100.63
98.3
95.96
October
November
December
125.1
118.1
109.1
97.17
90.71
88.8
In effect then, the peak load of 128.9 MW for 2010 compared tothe production
numbers provided by Aqualectra of a peak capacity (before any improvements)
are the same. However this number contradicts Aqualectras own production
report for 2010 which states a maximum peak generation capacity (excluding
Aggreko) of 114.1MW.
We then did the same for the Aggreko data inside SCADA, looking at the peak
load and average, and what we saw was the following:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Peak Load
(in MW)
18.3
18.3
19.3
18.7
18.6
23.3
23.0
22.7
24.7
25.4
25.1
11.14
Average Load
(in MW)
7.76
13.8
16.0
15.4
14.5
19.0
18.6
13.7
8.73
8.9
6.6
5.7
As can be seen above, the peak needed by Aggreko to meet the demands within
the system was 25.4 MW in October 2010; however as can be seen the average for
that month was only 8.9MW. This is because for the bulk of the reporting period
(every 30 minutes for the month) the Aggrekos were producing little or no
power. This pattern is maintained in September, November and December 2010.
Page 128 of 164
In fact the peak time these machines were needed were June, July and August
when both the peaks and averages suggest this equipment providing power into
the system to match demand.
Given that there is 44MW of generation capacity being rented, and at peak this
equipment is providing only 25.4MW we assume then that the balance of
18.6MW is on site for system redundancy (N-1). We then referenced the detailed
production reports to see the detailed information on how this equipment was
utilized.
2010
Aggreko
Main
hours
Avail hour
January
February
March
April
May
June
July
August
September
October
November
December
535.74
656.92
741.7
687.44
718.52
720
724.25
597.87
338.1
350.46
237.9
219.77
744
672
744
720
744
720
744
744
720
744
720
744
Aggreko 2
January
February
March
April
May
June
hours*
296.95
519.51
732.5
626.58
625.7
690.25
Avail hour
744
672
744
720
744
720
Page 129 of 164
% of time used
72.01%
97.76%
99.69%
95.48%
96.58%
100.00%
97.35%
80.36%
46.96%
47.10%
33.04%
29.54%
% of time used
39.91%
77.31%
98.45%
87.03%
84.10%
95.87%
July
August
September
October
November
December
572.7
412.16
157.67
195.01
120.21
85.46
744
744
720
744
720
744
76.98%
55.40%
21.90%
26.21%
16.70%
11.49%
Aggreko 3
January
February
March
April
May
June
July
August
September
October
November
December
hours*
0
0
0
0
0
635.5
744
693
429
472.5
348
376
Avail hour
744
672
744
720
744
720
744
744
720
744
720
744
% of time used
0.00%
0.00%
0.00%
0.00%
0.00%
88.26%
100.00%
93.15%
59.58%
63.51%
48.33%
50.54%
Aggreko 4
August
September
October
November
December
hours*
0
0
0
0
57.18
Avail hour
% of time used
As can be seen from the data above marked in red, there are limited occasions
when the generators are operating more than 80% of the available hours.
We also wanted to see how hard these generators were working (what load was
being placed on them while they are working) so we also looked in more detail at
the amount of power (Kwh) the equipment was supplying compared with an
85% efficiency basis. The tables below show how hard these machines were
working DURING the hours they were actually switched on.
Page 130 of 164
Aggreko
Main
January
February
March
April
May
June
July
August
September
October
November
December
KWH
production
4,168,545
5,725,677
7,141,863
6,174,903
6,402,858
6,810,834
6,155,655
4,631,466
2,335,431
2,540,608
1,828,292
1,563,282
limit at
.85pf by
hours
8,437,905
10,346,490
11,681,775
10,827,180
11,316,690
11,340,000
11,406,938
9,416,453
5,325,075
5,519,745
3,746,925
3,461,378
Aggreko 2
January
February
March
April
May
June
July
August
September
October
November
December
KWH
production
1,495,090
3,442,880
5,160,668
3,927,310
4,185,630
4,625,520
3,777,800
2,189,710
748,740
966,399
660,042
445,277
limit at
.85pf by
hours
4,669,875
8,182,283
11,536,875
9,868,635
9,854,775
10,871,438
9,020,025
6,491,520
2,483,303
3,071,408
1,893,308
1,345,995
KWH
production
0
0
0
0
0
4,252,030
limit at
.85pf by
hours
0
0
0
0
0
10,009,125
Aggreko 3
January
February
March
April
May
June
Delta
4,269,360
4,620,813
4,539,912
4,652,277
4,913,832
4,529,166
5,251,283
4,784,987
2,989,644
2,979,137
1,918,633
1,898,096
Calculated
load
49.40%
55.34%
61.14%
57.03%
56.58%
60.06%
53.96%
49.18%
43.86%
46.03%
48.79%
45.16%
Delta
3,174,785
4,739,403
6,376,207
5,941,325
5,669,145
6,245,918
5,242,225
4,301,810
1,734,563
2,105,009
1,233,266
900,718
Calculated
load
32.02%
42.08%
44.73%
39.80%
42.47%
42.55%
41.88%
33.73%
30.15%
31.46%
34.86%
33.08%
Delta
0
0
0
0
0
5,757,095
Calculated
load
0.00%
0.00%
0.00%
0.00%
0.00%
42.48%
July
August
September
October
November
December
4,884,760
4,466,033
2,680,343
2,895,520
1,907,680
2,285,860
11,718,000
10,914,750
6,756,750
7,441,875
5,481,000
5,922,000
6,833,240
6,448,717
4,076,407
4,546,355
3,573,320
3,636,140
41.69%
40.92%
39.67%
38.91%
34.81%
38.60%
We also used this data to examine the reported fuel usage 13 against the Kwh
reported and also use the average unit price of fuel based on the 2010 purchases
of NAF 954/m3
Aggreko
Main
January
February
March
April
May
June
July
August
September
October
November
December
KWH
production
4,168,545
5,725,677
7,141,863
6,174,903
6,402,858
6,810,834
6,155,655
4,631,466
2,335,431
2,540,608
1,828,292
1,563,282
Reported
Fuel Cons
(m3)
1,269.1
1,668.0
2,095.8
1,891.4
1,970.8
2,044.2
1,876.0
1,473.1
764.3
836.8
551.1
596.9
totals
55,479,414
17,038
13
Kwh per
m3
3,285
3,433
3,408
3,265
3,249
3,332
3,281
3,144
3,056
3,036
3,318
2,619
NAF (m3
by NAF
954/m3)
1,210,721
1,591,272
1,999,393
1,804,396
1,880,143
1,950,167
1,789,704
1,405,337
729,142
798,307
525,749
569,443
38,424
16,253,775
Our research showed that a generator of this type would use approximately 70 gallons per hour (0.29m3)
Aggreko 2
January
February
March
April
May
June
July
August
September
October
November
December
totals
KWH
production
1,495,090
3,442,880
5,160,668
3,927,310
4,185,630
4,625,520
3,777,800
2,189,710
748,740
966,399
660,042
445,277
31,625,066
Aggreko 3
January
February
March
April
May
June
July
August
September
October
November
December
KWH
production
0
0
0
0
0
4,252,030
4,884,760
4,466,033
2,680,343
2,895,520
1,907,680
2,285,860
totals
23,372,226
Reported
Fuel
Consumption
(m3)
446.6
957.7
1,435.4
1,155.0
1,227.1
1,294.5
1,108.7
618.0
240.6
282.5
327.2
156.2
Kwh per
m3
3,348
3,595
3,595
3,400
3,411
3,573
3,407
3,543
3,112
3,421
2,017
2,851
9,250
39,274
Reported
Fuel
Consumption Kwh per
(m3)
m3
0.0
0
0.0
0
0.0
0
0.0
0
0.0
0
1,080.0
3,937
1,284.7
3,802
1,219.4
3,662
706.1
3,796
717.1
4,038
535.6
3,562
585.8
3,902
6,129
NAF (m3
by NAF
954/m3)
426,056
913,646
1,369,372
1,101,870
1,170,653
1,234,953
1,057,700
589,572
229,532
269,505
312,149
149,015
8,824,023
NAF (m3
by NAF
954/m3)
0
0
0
0
0
1,030,320
1,225,604
1,163,308
673,619
684,113
510,962
558,853
26,699
5,846,780
Aggreko 4
December
KWH
production
320,302
Reported
Fuel
Consumption
(m3)
110.9
totals
320,302
111
Kwh per
m3
2,888
NAF (m3
by NAF
954/m3)
105,799
2,888
105,799
Therefore in addition to the rental for 2010, fuel cost approximately NAF 31, 030,
000 for this temporary generation. Therefore, in very simple terms then,
Aggreko set
Aggreko 1
Aggreko 2
57.61
37.4
Aggreko 3
41.95
23.1
Aggreko 4
The data above would suggest then that there may be a real opportunity to
reduce the amount of rental generators on site. This should form part of the
turnaround phase along with a risk analysis of the impact of removing
generators against the N factor for redundant systems.
Fuel Findings
As mentioned above, the largest single expense is the fuel costs; we examined all
of the data in detail as we had found some reporting issues between the
production reports and the audited financial statements.
Based on this detailed review, there appears to be poor overall control and
reporting over the fuel purchases. Discrepancies were identified between the
financial statements and the actual fuel unit price and quantity and type.
We requested all fuel purchase invoices with a priority on diesel pricing initially
due a potential discrepancy in the reports provided to the board during the
November 2010 budget meeting. On page 27 of that report the unit price for
Marine Diesel Oil for Dokweg for 2009 was substantially higher than the norm at
NAF 2,974.36/m3.
The price also seemed to be going against the trend of other fuels generally fuel
prices went up in this document between the 2009 and 2010 expected columns
but this fuel type dropped from NAF 2,974.36 to a more realistic NAF
1,246.38/m3.
We then raised this issue with management and a correction was discussed,
basically the type of fuel, location where this fuel is used are often mixed up.
This then results with a large NAF value with a lower amount of units assigned
to it in the reports, which caused a very high unit price.
In order to then make sense of the reports, we had to shift numbers from fuel
type to other fuel types.
Unit
Tons
m3
Tons
m3
m3
Tons
2009
Reported
numbers
95,831
69,119
43,884
663
0
30,849
240,346
Totals
from
provided
Invoices
28,753.78
58,743
44,102
400
1,344
96,639.06
229,982
Correct
allocated
totals
96,639.06
60,086
44,102
400
28,753.78
229,982
As can be seen above, IFO/AFO for Isla was reported as 30,849 tons in the
approved financial statements, when there were actually invoices showing that
96, 639 tons had been supplied, similarly, the financial report states that IFO for
MunduNobo was 95, 831 tons when there was only 28,753 tons of this fuel
delivered to Mundu Nobo.
We also saw 1,344 tons of Marine Diesel oil being supplied to Mundu Nobo
(Negropond) which did not appear on the financial reports. These types of
reporting discrepancies then impacted on the unit prices that had been reported
in the 2009 financial statement. We then took the actual amounts in M3 or tons
purchased by the amounts invoices in NAF and saw the following:
Therefore once we had made the corrections our detailed findings are:
Unit differences
Unit
tons
m3
tones
m3
2009 Financial
Report
95,831
69,119
43,884
663
0
2009 Actual
invoices
96,639
58,743
44,102.42
1,689
GO
IFO
Aggreko Dokweg
Diesel plant Isla
Delta
tons
tons
30,849
240,346
Tons/m3
Unit
tons
m3
tones
m3
tons
tones
Delta
2010 Report
82,614
97,610
53,458
1,715
0
39,623
275,020
28,754
229,927
10,419
2010 Actual
invoices
92,839
73,033
48,985
1,633
5,192
39,051
260,731
-14,289
It would appear that there was some misallocation of invoices between 2009 and
2010 which resulted in an over reporting of 10,419 tons in 2009 and an underreporting of 14,289 in 2010. Correcting this, we then have 3870 m3 of fuel (NAF
3,870,000) that needs to be accounted for. This could be a result of any number of
possibilities from an error in data input, differences in measurement due to
temperature changes impacting on metering volume. We would recommend
further checks on this.
Another issue is the differences we found when comparing the liters that had
been invoices against those reported as sent on the detailed reports. We took the
involved quantity by the reported unit price per liter, and then did the same with
the units sent.
We did this only for Mundu Nobo (although the same may be true for
Isla/Dokweg) and calculated a difference of NAF 799,361 for 2009 and NAF 897,
959 for 2010. We have provided the detailed breakdown of these differences at
the rear of this report in table form.
Part of the issue may be the methodology by which the units and invoices are
calculated, invoices are based on the Total Observed Liters (TOV) 14 . Invoices are
measured on a standard methodology used by petroleum tank surveyors in
measuring bulk shipments.
This means in this case that because the fuel is at around 31c, it has expanded
against the standard 15c. This then means that in effect only 712,527 liters are
recorded on the meter as sent, making it more complicated is that the fuel rises in
temperature as it travels through the pipeline (sun effect etc) and records show in
14
Total observed volume (TOV) total volume of material measured in the tank including cargo (oil), free water
(FW), entrained sediment and water (S&W), sediment and scale as measured at ambient (observed) temperature and
pressure
15
Gross observed volume (GOV) TOV less FW and bottom sediment, being the measured volume of oil and
S&W at observed temperature and pressure.
16
Gross standard volume (GSV) measured volume of oil at standard conditions of 15oC and atmospheric
pressure. In practice, the GSV is the GOV multiplied by the volume correction factor (VCF) obtained from the
appropriate ASTM/IP Petroleum Measurement Tables
Page 138 of 164
this case that on the received side the fuel is now 33.1c. which has the impact of
raising the GSV liters to 715, 692
In summary:
725,070 liters was ordered/paid,
712, 527 liters was metered as sent
715, 692 liters were metered as received
These differences resulted in differences of NAF 799,361 for 2009 and NAF 897,
959 for 2010 for Mundu Nobo IFO purchases via pipeline. We are not in a
position as we are not petroleum experts to judge if this is the most appropriate
way to meter and invoice fuel transfers of this type.
Some fuels are delivered in tanker and others in pipeline, complicating this is the
numerous measuring and invoicing units used, some fuels are measured in liters,
others cubic meters, metric tons and even barrels. While often these are all
Page 139 of 164
detailed in the reports behind the invoices, it creates control issues when one
does not have the entire pack of documents, etc.
We would suggest that effort be made to identify which fuel is best suited in
terms of delivery method, metering method, etc to simplify operations, invoicing
and financial controls. It is already apparent that the financial report bears only
some resemblance to the types of fuel really purchased.
It was reported for example in the financial reports that the unaccounted usage
was 13.31% in 2008 and 12.91% in 2009. If you examine the financial statements
taking into account own usage then this % of power produced for which no
funds are received is considerably higher.
In MWH
Sales of Electricity
Electricity Intake from
Production
Electricity Intake from CUC
Electricity intake from Wind
farms
Total Intake
Unaccounted or own usage
% not covered by income from
Sales
2006
615,278
2007
626,580
2008
633,691
2009
654,390
588,517
199,275
608,243
192,077
678,913
139,374
728,726
121,260
47,524
835,316
220,038
42,940
843,260
216,680
30,479
848,766
215,075
29,934
879,920
225,530
26.34%
25.70%
25.34%
25.63%
Of the general numbers above we split out the amount of electricity consumed
by Aqualectra, which according to the reports is;
In MWH
2006
2007
2008
2009
2010
Own use
Non-revenue power
85,278
154,486
83,328
113,626
85,213
129,862
85,454
135,076
84,005
126,467
Own use
In financial terms using the lowest possible tariff (Santa Barbara) of NAF 0.43 per
KWH, Aqualectra are using the following amounts of their own power.
MWH
NAF
2006
85,278
36,669,540
2007
83,328
35,831,040
2008
85,213
36,641,590
2009
85,454
36,745,220
2010
84,005
36,122,150
Considering that this is a substantial part of the generation capacity of the Island,
this is a fairly large part of the power being generated that could be part of any
cost reduction plan in the future.
MWH
NAF
2006
154,486
66,428,980
2007
113,626
48,859,180
2008
129,862
55,840,660
2009
135,076
58,082,680
2010
126,467
54,380,810
Distribution
The Distribution system appears to be in a better state however, as has been
discussed with the Technical management - other than basic maintenance,
continued work on the SCADA system and the replacement of one section of the
30kv distribution system - all projects planned for distribution should be placed
on hold until the cash flow situation is resolved.
Recommendations - Power
We suggest a petroleum expert examine all of the fuel metering and unit
methodologies to recommend if these are effective and fair.
Water
Water is currently being supplied in two types of systems of water distillation.
The first are the original evaporator/distilling units situated at Mundu Nobo, the
second is the two RO plants with two distinctly different contracts. The third
aspect is of course the storage and distribution system along with the metering
and controls.
Like power, water supplied to consumers is fairly expensive when compared to
other suppliers in the Caribbean market. There are of course two aspects to
consider, one is the amount by which any base tariffs should increase to keep pace
with inflation in Curacao (driven by increasing staff and other costs). The other is
how does that base tariff compare with other suppliers in the region/similar
market.
Therefore since the 2005 base the average increase in the CPI for the Curacao is 17.6%
(excluding the first 4.1% as this is the difference between 2004 and 2005). In other words
we could expect to see an increase of no more than 17.6% between 2005 and 2010.
The second aspect is how does the base tariff on which the inflation increase is
applied compare with the market?
In the tables below one will see the individual tariffs along with the history,
Residential Consumers
As can be seen below, taking into account the CPI, a positive is that, for
residential users, the price has actually substantially decreased over time with the
largest decrease for the smallest user, which would benefit the section of the
community that traditionally are under more financial pressures.
Base Tariff
Delta
Fixed
Fuel
31-Jan-05
5.52
4.55
10.070
31-Jan-06
5.52
4.55
10.070
0.00%
7-Jul-07
5.52
5.33
10.850
7.19%
5-Jun-08
5.52
5.33
10.850
0.00%
5-Feb-09
4.93
2.52
7.450
-45.64%
7-Sep-09
4.9348
3.0353
7.970
6.53%
1-Feb-10
4.9348
3.0353
7.970
0.00%
11-Apr-11
4.9348
3.0353
7.970
0.00%
with 5c drop
-26.35%
without drop
-26.35%
As can be seen above, over time the price that these consumers are paying is
26.35% less in 2011 than they were in 2005. Taking into account CPI for the period
2005 through 2010 of 17.6% this reduction actually is even higher being 44% less
Page 144 of 164
in real terms than 2005. However, also note that it does not appear that the 5c
drop has been applied to this tariff.
Base Tariff
Delta %
Fuel
31-Jan-05
8.77
4.55
13.320
31-Jan-06
8.77
4.55
13.320
0.00%
7-Jul-07
9.47
5.33
14.800
10.00%
5-Jun-08
9.47
5.33
14.800
0.00%
5-Feb-09
8.8848
2.52
11.405
-29.77%
7-Sep-09
8.8848
3.0353
11.920
4.32%
1-Feb-10
10.0851
3.0353
13.120
9.15%
11-Apr-11
10.0851
3.0353
13.120
0.00%
with 5c drop
-1.52%
without drop
-1.52%
This middle tier residential consumer is paying 1.52% less in 2011 than in 2005,
taking into account the CPI increase of 17.6% then these consumers are paying
19.12% less in real terms than 2005
Base Tariff
Delta
%
Fuel
31-Jan-05
10.4
4.55
14.95
31-Jan-06
10.4
4.55
14.95
0.00%
7-Jul-07
11.18
5.33
16.51
9.45%
5-Jun-08
11.18
5.33
16.51
0.00%
5-Feb-09
10.59
2.52
13.11
-25.89%
7-Sep-09
10.59
3.0353
13.63
3.78%
1-Feb-10
12.03
3.0353
15.06
9.50%
11-Apr-11
12.03
3.0353
15.06
0.00%
with 5c drop
0.74%
without drop
0.74%
In real terms taking into account the CPI, these consumers are paying 16.86% less
in 2011 than they paid in 2005.
Base Tariff
Delta
%
Fuel
31-Jan-05
12.05
4.55
16.60
31-Jan-06
12.05
4.55
16.60
0.00%
7-Jul-07
12.91
5.33
18.24
8.99%
5-Jun-08
12.91
5.33
18.24
0.00%
5-Feb-09
12.3248
2.52
14.84
-22.87%
7-Sep-09
12.3248
3.04
15.36
3.35%
1-Feb-10
13.9899
3.04
17.03
9.78%
11-Apr-11
13.9899
3.04
17.03
0.00%
with 5c drop
2.50%
without drop
2.50%
Again in real terms, accounting for the 17.65 CPI increase the highest level of
residential consumers could be paying 15.1% more for their water.
Base Tariff
Commercial (02)
Fixed
31-Jan-05
Delta
%
10.05
Fuel
4.55
14.6
31-Jan-06
10.05
4.55
14.6
0.00%
7-Jul-07
11.04
5.33
16.37
10.81%
5-Jun-08
11.04
5.33
16.37
0.00%
5-Feb-09
10.4548
2.52
12.9748
-26.17%
7-Sep-09
10.4548
3.0353
13.4901
3.82%
1-Feb-10
10.4548
3.0353
13.4901
0.00%
11-Apr-11
10.4548
3.0353
13.4901
0.00%
with 5c drop
-8.23%
without drop
-8.23%
Commercial users, in real terms are now paying 25.8% less for their water than in
2005.
Base Tariff
Industrial Standard
Fixed
Delta
%
Fuel
31-Jan-05
10.05
4.55
14.6
31-Jan-06
10.05
4.55
14.6
0.00%
7-Jul-07
11.04
5.33
16.37
10.81%
5-Jun-08
11.04
5.33
16.37
0.00%
5-Feb-09
10.4548
2.52
12.9748
-26.17%
7-Sep-09
10.4548
3.0353
13.4901
3.82%
1-Feb-10
10.4548
3.0353
13.4901
0.00%
11-Apr-11
10.4548
3.0353
13.4901
0.00%
with 5c drop
-8.23%
without drop
-8.23%
Likewise, industrial standard are also paying 25.8% less now in real terms taking
into account the CPI increases between 2005 and 2010.
Page 147 of 164
Base Tariff
Delta
%
Industrial Import
Fixed
Fuel
31-Jan-05
9.15
4.55
13.7
31-Jan-06
9.15
4.55
13.7
0.00%
7-Jul-07
11.04
5.33
16.37
16.31%
5-Jun-08
11.04
5.33
16.37
0.00%
5-Feb-09
10.4548
2.52
12.9748
-26.17%
7-Sep-09
10.4548
3.0353
13.4901
3.82%
1-Feb-10
10.4548
3.0353
13.4901
0.00%
11-Apr-11
10.4548
3.0353
13.4901
0.00%
with 5c drop
-1.56%
without drop
-1.56%
Industrial import clients are paying 19.16% less for water in real terms taking into
account the 17.6% increase in the CPI.
Industrial export
Base Tariff
Delta %
Fixed
Fuel
31-Jan-05
10.05
4.55
14.6
31-Jan-06
10.05
4.55
14.6
0.00%
7-Jul-07
10.09
5.33
15.42
5.32%
5-Jun-08
10.09
5.33
15.42
0.00%
5-Feb-09
9.5048
2.52
12.0248
-28.23%
7-Sep-09
9.5048
3.0353
12.5401
4.11%
1-Feb-10
9.5048
3.0353
12.5401
0.00%
11-Apr-11
9.5048
3.0353
12.5401
0.00%
with 5c drop
-16.43%
without drop
-16.43%
Page 148 of 164
Industrial export is paying 34% less in real terms in 2010 than 2005 using the CPI
index.
Base Tariff
Hospital
Delta %
Fixed
Fuel
31-Jan-05
9.15
4.55
13.7
31-Jan-06
9.15
4.55
13.7
0.00%
7-Jul-07
10.09
5.33
15.42
11.15%
5-Jun-08
10.09
5.33
15.42
0.00%
5-Feb-09
9.5048
2.52
12.0248
-28.23%
7-Sep-09
9.5048
3.0353
12.5401
4.11%
1-Feb-10
9.5048
3.0353
12.5401
0.00%
11-Apr-11
9.5048
3.0353
12.5401
0.00%
with 5c drop
-9.25%
without drop
-9.25%
The hospital tariff has dropped by 26.8% in real terms accounting for the CPI
index increase from 2005.
When the tariff drop was instituted in April 2011, we noted a new tariff that
appeared in the tables for the Santa Barbara area. This area falls under a separate
agreement as land was provided to Aqualectra to build the new reverse osmosis
plant.
Base Tariff
11-Apr-11
with 5c drop
without drop
Sta. Barbara
Fixed
0.0665
Fuel
0.0665
Therefore when one averages out all of the rates we see that the average in NAF
and USD is as follows.
Base Tariff
Average overall
tariff
In USD
31-Jan-05
NAF 14.016
7.79
31-Jan-06
NAF 14.016
7.79
7-Jul-07
NAF 15.594
8.66
5-Jun-08
NAF 15.594
8.66
5-Feb-09
NAF 12.199
6.78
7-Sep-09
NAF 12.715
7.06
1-Feb-10
NAF 13.192
7.33
11-Apr-11
NAF 13.192
7.33
As can be seen above, compared with the power tariffs, water has in real
monetary terms reduced in price over time. However we need to also consider if
the overall base tariffs are in line with market
2006
Curacao
7.79
2007
8.66
2008
8.66
2009
7.06
2010
7.33
2011
7.33
In 2011 the reported rates for water (average) per cubic meter (m3) in the region
were;
Area
Aruba
(local Currency)
4.55
In USD
US$ 2.54
Barbados
1.5
US$ 0.75
Bahamas
3.17
US$ 3.17
Belize
2.73
US$ 1.4
Caymans
5.6
US$ 6.69
Curacao
7.33 (in US $)
US$ 7.33
Jamaica
38.69
US$ 0.46
Grenada
1.59
US$.59
However, we did note that the raw production cost of water is far lower than the
charged costs. Internal Aqualectra reports show that the average price of water as
it leaves the plant is between US$ 1.8 and US$ 1.9 per m3, this was then compared
with other production costs for other plants around the world.
It must be understood that the plants below often have very different operating
conditions; hence we took a broad rangeof RO plants to give a good cross section.
Location
Plant
$ per
Cubic
Meter
Trinidad
Singapor
e
Point Lisas
$0.73
Tuas
$0.49
Australia
Perth
$1.17
Israel
Palmachim $0.81
USA
Carlsbad
$0.81
Comment
Source
Trinidad Desalination Plant.
Waterindustry.org (2000-1026). Retrieved on 2011-03-20
Environmental Data
Interactive ExchNAFe
Perth Seawater Desalination
Plant, Seawater Reverse
Osmosis (SWRO), Kwinana.
High Capex Water Technology.
costs
Retrieved on 2011-03-20
Globes Business and
Technology
News:"Palmachim
desalination plant
inaugurates expansion",
November 17, 2010
Kathryn Kranhold, Water,
Water, Everywhere..., The
Wall Street Journal, January
17, 2008
Page 151 of 164
Israel
Hadera
$0.73
Israel
Ashod
$0.67
Projected
Israel
Soreq
$0.59
Projected
Costs are driven by the production costs, distribution costs, overhead costs and
unaccounted water costs. Assuming the above data from Aqualectra is correct
and the average tariff is $ 7.33/m3, the production cost averages at $1.85, we then
have approximately $ 5.45/m3 of costs that can be assigned to distribution,
overhead and unaccounted water.
The Aqualectra reports state that they experience on average 30% of unaccounted
water which calculates at $ 2.20/m3, this then means that $ 3.29/m3 covers the
distribution and overheads.
While there are a number of issues that water production will need to face in the
coming years, by far the biggest is reducing the unaccounted for or non-revenue
water. Many of the possible solutions have already been recommended by other
experts, such upgrading the distribution system, improving metering etc simply
though as part of any turn-around strategy these recommendations need to be
implemented to reduce this very large capital deficit caused by non-revenue
water.
Distillation Units
Page 152 of 164
Advances in Reverse osmosis technology in the past 10 years have led to many
facilities now changing over from the traditional evaporator or distillation
systems to reverse osmosis. Given that Aqualectra is already investing in RO
plants and there are no current plans to build more evaporators we will focus on
RO.
Reverse Osmosis Units
The first is the RO plant at Mundu Nobo owned by Aqua Design; this plant
produced 5,695,219 m3 of potable water in 2009 17 . The second plant is the
relatively new RO plant in operation in the Santa Barbara facility 18 . The plant at
Mundu Nobo is owned, operated by Aqua Design, and has identical operating
conditions as the 7 Seas however there are some differences between this
agreement and 7 Seas, such as;
There is a sliding scale allowing Aqualectra to purchase the plant over time. This
means that the price for water includes a capital cost portion from Aqua Design.
Aqualectra provides the staff to run and maintain (same pool of labor as the
distillers)
Aqua Design has to pay Aqualectra US$ 0.08c/Kwh for power used by the plant.
In the original agreement signed in 1995, water cost $1,40/ m3, an amendment
that expanded the plant considerably (from 3000 m3 per day to 10,200 m3 per
day) entered into in 1999 raised this price to
17
18
As already mentioned one of the major components of this cost is the energy
costs. The report states that in the Aqualectra system energy costs make up
nearly 60% of the cost to produce water 19 As previously mentioned, the high
costs of power generation given the impact of fuel fluctuation play a huge role in
that unit price.
We also reviewed the existing Santa Barbara plant contract details for the 7,100
m3/day plant that was dated December 2010 (numbers are very much current),
we see the following;
Description
US$
Engineering Costs
382,410.40
Equipment Costs
6,528,065.00
945,877.00
Erection costs
1,172,321.00
Commissioning Costs
386,410.00
Project Total
$9,415,083.40
19
Description
US$
Civil works
712,500.00
Indirect
118,805.00
Mechanical Erection
913,202.00
Electrical Erection
112,500.00
146,619.00
90,960.00
295,450.00
On-Shore total
$2,390,036.00
A Large Scale Plant to supply Potable and Industrial water for the Island and
Refinery may be an option to consider. The option that should be considered in
the future, would be to combine the needs study for Aqualectra in their 2030
strategic plan with the long term needs of the refinery. While there are integration
studies available - as the current water supply situation on the Island is reviewed
with existing plants becoming older and more cost effective RO plants available,
there is probably good opportunity to make full use of the economy of scales.
Issues to be considered under this study would be:
Will the distil units at Mundu Nobo be shut down in the near future?
Is it expected that the refinery will continue to operate at its present capacity
and for how long?
Will the refinery continue under a reduced capacity and when will these
changes take place?
Where will Aqualectra need water for the Islands population in the future
and how can this be reconciled with the above needs?
How much both entities will need in the future (potable and industrial)?
What location could be considered that would optimally supply both the
refinery and the island water system?
Page 155 of 164
Update the integration studies and consider a Large Scale Plant to supply
Potable and Industrial water for the Island and Refinery.
Delta
0.00%
7.63%
16.86%
-10.70%
17.07%
0.00%
-8.39%
23.59%
29.50%
Delta %
0.00%
14.84%
14.93%
-9.35%
15.26%
3.89%
-7.12%
30.88%
35.48%
Commercial (02)
Delta
0.00%
15.59%
14.07%
-8.77%
14.44%
4.13%
-6.70%
30.96%
35.29%
Fixed
0.3421
0.3421
0.4067
0.4067
0.3719
0.3719
0.3719
0.3319
Fuel
0.1584
0.1584
0.196
0.296
0.2735
0.3838
0.3838
0.3738
0.5005
0.5005
0.6027
0.7027
0.6454
0.7557
0.7557
0.7057
Delta
%
0.00%
16.96%
14.23%
-8.88%
14.60%
0.00%
-7.09%
29.08%
33.77%
0.00%
18.19%
16.58%
10.50%
16.81%
0.00%
8.25%
32.10%
37.27%
Fixed
0.2482
0.2482
0.3015
0.3015
0.2667
0.2667
0.2667
0.2267
Fuel
0.1584
0.1584
0.196
0.296
0.2735
0.3838
0.3838
0.3738
0.4066
0.4066
0.4975
0.5975
0.5402
0.6505
0.6505
0.6005
Delta
%
0.00%
18.27%
16.74%
10.61%
16.96%
0.00%
8.33%
32.29%
37.49%
Delta
0.00%
63.82%
18.59%
11.93%
18.67%
0.00%
24.09%
66.73%
73.19%
Delta
%
0.00%
63.33%
18.80%
-12.07%
18.85%
0.00%
24.28%
66.35%
72.92%
Delta
0.00%
11.29%
29.59%
-13.78%
20.97%
0.00%
2.72%
45.36%
43.83%
Delta
%
0.00%
11.45%
29.81%
-13.96%
21.18%
0.00%
2.67%
45.66%
44.17%
Hospital (33)
Hospital High
Base Tariff
(33)
Fixed
Fuel
total
31-Jan-05
0.1261
0.1584 0.2845
31-Jan-06
0.1261
0.1584 0.2845
7-Jul-07
0.1537
0.196
0.3497
5-Jun-08
0.1537
0.296
0.4497
5-Feb-09
0.1189
0.2735 0.3924
7-Sep-09
0.1189
0.3838 0.5027
1-Feb-10
0.1189
0.3838 0.5027
11-Apr-11
0.0789
0.3738 0.4527
with 5c drop 2005 to April 2011
without drop 2005 to Feb 2011
Delta
0.00%
18.64%
22.24%
14.60%
21.94%
0.00%
11.04%
37.15%
43.41%
Hospital Low
(33)
Fixed
Fuel
0.1213
0.1584
0.2797
0.1213
0.1584
0.2797
0.1388
0.196
0.3348
0.1388
0.296
0.4348
0.104
0.2735
0.3775
0.104
0.3838
0.4878
0.104
0.3838
0.4878
0.064
0.3738
0.4378
Delta
%
0.00%
16.46%
23.00%
15.18%
22.61%
0.00%
11.42%
57.62%
58.73%
Base Tariff
5.52
31-Jan-05
5.52
31-Jan-06
5.52
7-Jul-07
5.52
5-Jun-08
4.93
5-Feb-09
4.9348
7-Sep-09
4.9348
1-Feb-10
4.9348
11-Apr-11
with 5c drop
without drop
4.55
4.55
5.33
5.33
2.52
3.0353
3.0353
3.0353
10.070
10.070
10.850
10.850
7.450
7.970
7.970
7.970
Delta
0.00%
7.19%
0.00%
45.64%
6.53%
0.00%
0.00%
-26.4%
-26.4%
8.77
8.77
9.47
9.47
8.8848
8.8848
10.0851
10.0851
4.55
4.55
5.33
5.33
2.52
3.0353
3.0353
3.0353
13.320
13.320
14.800
14.800
11.405
11.920
13.120
13.120
Delta
%
0.00%
10.00%
0.00%
29.77%
4.32%
9.15%
0.00%
-1.52%
-1.52%
Residential (cont.)
Base Tariff
31-Jan-05
31-Jan-06
7-Jul-07
5-Jun-08
5-Feb-09
7-Sep-09
1-Feb-10
11-Apr-11
with 5c drop
without drop
Residential 12m3 to
20m3
Delta %
Fixed
Fuel
total
Fixed
Fuel
10.4
10.4
11.18
11.18
10.59
10.59
12.03
12.03
4.55
4.55
5.33
5.33
2.52
3.0353
3.0353
3.0353
14.95
14.95
16.51
16.51
13.11
13.63
15.06
15.06
12.05
12.05
12.91
12.91
12.324
12.324
13.989
13.989
4.55
4.55
5.33
5.33
2.52
3.04
3.04
3.04
0.00%
9.45%
0.00%
25.89%
3.78%
9.50%
0.00%
0.74%
0.74%
16.60
16.60
18.24
18.24
14.84
15.36
17.03
17.03
0.00%
8.99%
0.00%
22.87%
3.35%
9.78%
0.00%
2.50%
2.50%
Base
Tariff
Industrial Standard
Delta
Fixed
31-Jan10.05
05
31-Jan10.05
06
7-Jul-07
11.04
5-Jun-08
11.04
5-Feb-09 10.4548
7-Sep-09 10.4548
1-Feb-10 10.4548
11-Apr10.4548
11
with 5c drop
without drop
Fuel
Delta %
total
Fixed
Fuel
4.55
14.6
10.05
4.55
14.6
4.55
5.33
5.33
2.52
3.0353
3.0353
14.6
16.37
16.37
12.9748
13.4901
13.4901
0.00%
10.81%
0.00%
26.17%
3.82%
0.00%
10.05
11.04
11.04
10.4548
10.4548
10.4548
4.55
5.33
5.33
2.52
3.0353
3.0353
14.6
16.37
16.37
12.9748
13.4901
13.4901
0.00%
10.81%
0.00%
26.17%
3.82%
0.00%
3.0353
13.4901
0.00%
-8.23%
-8.23%
10.4548
3.0353
13.4901
0.00%
-8.23%
-8.23%
Industrial
Industrial Import
Industrial Export
Base Tariff
31-Jan-05
31-Jan-06
7-Jul-07
5-Jun-08
5-Feb-09
7-Sep-09
1-Feb-10
11-Apr-11
with 5c drop
without drop
Delta
Fixed
9.15
9.15
11.04
11.04
10.4548
10.4548
10.4548
10.4548
Fuel
4.55
4.55
5.33
5.33
2.52
3.0353
3.0353
3.0353
total
13.7
13.7
16.37
16.37
12.9748
13.4901
13.4901
13.4901
0.00%
16.31%
0.00%
26.17%
3.82%
0.00%
0.00%
-1.56%
-1.56%
Delta %
Fixed
10.05
10.05
10.09
10.09
9.5048
9.5048
9.5048
9.5048
Fuel
4.55
4.55
5.33
5.33
2.52
3.0353
3.0353
3.0353
14.6
14.6
15.42
15.42
12.0248
12.5401
12.5401
12.5401
0.00%
5.32%
0.00%
28.23%
4.11%
0.00%
0.00%
-16.43%
-16.43%
Hospital
Hospital
Base Tariff
31-Jan-05
31-Jan-06
7-Jul-07
5-Jun-08
5-Feb-09
7-Sep-09
1-Feb-10
11-Apr-11
with 5c drop
without drop
Delta %
Fixed
9.15
9.15
10.09
10.09
9.5048
9.5048
9.5048
9.5048
Fuel
4.55
4.55
5.33
5.33
2.52
3.0353
3.0353
3.0353
13.7
13.7
15.42
15.42
12.0248
12.5401
12.5401
12.5401
0.00%
11.15%
0.00%
28.23%
4.11%
0.00%
0.00%
-9.25%
-9.25%