S&P Awards Aqualectra with an ‘A-‘ Financial Rating

Beaming with pride, the team at Aqualectra was pleased to announce that the highly esteemed Standard & Poor’s Financial Services, LLC, has awarded the company an ‘A-‘ financial rating. As the first utility company in the Caribbean to be awarded a Standard and Poor’s (S&P) rating, this has undoubtedly proven to be an enormous achievement, not only for the company, but for Curaçao as well, which also holds an S&P rating of ‘A-’.

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This rating places the company in a stronger position to be able to finance future projects, not only for the growth of the company, but also for the overall development of the local economy.

Standard and Poor’s Financial Services, LLC, (S&P), a division of S&P Global, is known for it’s stock market indices, as well as it’s internationally renowned credit ratings on public and private companies, as well as government entities. It is considered one of the three big credit rating agencies of the world.

Aqualectra has worked very hard in recent years to improve, not only the efficiency of its production and operations, but also its customer service and financial stewardship, in order to raise the company out of debt into a level of financial stability. Given the financial and operational status of the company just a few years back, S&P’s ‘A-‘ credit rating is an even greater testimony to the hard work and due diligence of the team members of Aqualectra. And indeed, there’s more to it than meets the eye.

A Pivotal Moment
During the period of 2010 to 2012, Aqualectra was suddenly faced with severe financial distress due to large material losses at the time as a result of an abrupt tariff reduction. The company was indeed unprepared for this sudden downturn and had no pre-established safety net. The management team was forced to develop a turnaround plan to help the company overcome its financial hurdles. This plan consisted of the development of a number of different projects and financial strategies, the major ones being:

• A new diesel power plant at Dokweg II, ultimately commissioned in 2015. This would serve to transition production from steam to diesel thereby creating less of an impact on the environment, using less manpower and requiring significantly less fuel. This new process would serve to increase the efficiency of their operations while simultaneously stabilizing the power supply to better suit the demands of their customers. This new power plant would also enable Aqualectra to cease their contract with Aggreko, thereby no longer having to lease their generators.

• Transitioning the desalination of their water supply from evaporation to reverse osmosis. Both the Santa Barbara and Mundo Nobo reverse osmosis facilities have been expanded. This has proven to be a far more energy efficient process thereby reducing production costs.

• Introducing solar energy and increasing wind energy production. This goes without saying that it will serve to reduce the impact on the environment as well as fuel costs.

• Eliminate the backlog of maintenance requirements at the power plants. Often the lack of maintenance would incur a significant cost due to inefficiency in the energy production process.

• Updating and replacing several major water supply lines, and the upgrading of the overall monitoring system. This would serve to decrease the number of incidents of leakage.

• Decreasing operational and internal expenses resulting in sound financial management. Transitioning from a cash management status to a budget management status, with a full fuel pass through to the client.

With a cohesive management team effort in conjunction with capital injection support from the Minister of Finance, José Jardim, Aqualectra successfully implemented this turnaround plan. As a result, the company was able to generate a profit by 2014 and 2015, with all likely probability that the trend will continue for 2016 and the coming years. It is important to note that the S&P rating is based on current and past performance, as well as a 5-year outlook, and takes into account the financial security of the company for that time period. An important factor that helped the company to earn the A- rating was S&P’s belief that “there is an ‘almost certain’ likelihood that the government of Curaçao would provide Aqualectra with timely and sufficient extraordinary support in the case of financial distress,” as noted in the S&P report. Additionally, it was noted that, “the issuer’s ‘bb-‘ stand-alone credit profile (SACP) reflects Curaçao’s short regulatory framework track record and Aqualectra’s relatively high leverage.”

This was the first time that a utility company in the Caribbean has submitted to S&P. The rating serves as a benchmark against other international companies and also serves as an internal protection tool, acting as a foundation point from which to start further financial analysis. Because of the international recognition of such a highly esteemed institution as S&P, the ‘A-‘ rating now puts Aqualectra in a unique position to negotiate contracts for the financing of future projects.

What the Future Holds in Store
With a stable outlook for the next few years, the company has ambitious plans for the future, with several projects already in the pipeline. • From 2012 to present, Aqualectra has successfully decreased their tariffs by 16%. Because of a greater level of efficiency in their production, they project that they will be able to continue with these lower tariffs in the coming years.

• As of mid-2016, the implementation of a new back office system ERP (Enterprise Resource Planning) is already underway, with the installation of SAP software companywide. This new software will serve to increase the efficiency and accuracy of all billing, administrative and service functions.

• Also planned for 2017, is the installation of an advanced metering system that serves to improve the structuring of both the water and electricity supply, and enables the company to rebalance the grid, maintain accuracy of billing and reduce water leakages and malfunctions.

• A planned merger of both the production and distribution companies is also in the works and will allow Aqualectra to simplify their internal structure.

• The wind park at Tera Kora will be expanded, and its commissioning is planned in 2017, enabling the company to reduce their emissions and make further strides in their efforts to make Curaçao greener.

• 2017 will be the year in which Aqualectra breaks ground for construction of the new headquarters building at New Haven. The new location is more centralized and brings operations and administration closer together. The current properties at Otrobanda and Mundo Nobo will be sold and made available for tourism projects that will bring a direct economic benefit to the island.

Lessons Learned
Aqualectra has certainly come a long way to re-gain its position of financial stability that it held in the past. The calculated planning and diligent execution of its strategies to improve efficiency and bring its production and administration up to the 21st century, has paid off. While the company does not foresee any major financial or political stumbling blocks in the near future, it remains guarded and has sufficiently protected itself by means of this new S&P rating, which serves as a financial measurement gauge from which it can establish its position in the future. Aqualectra survived a harsh wake up call in the past few years, but has learned from its experience and has grown into a stronger, leaner company that is now better equipped to take on whatever challenges may lay ahead in the future.