CONSOLIDATED WATER CO. LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Expressed in United States dollars) 18. Government royalties Royalty expenses incurred during the year under the terms of the license to process and supply potable water, granted by the Government, amounted to $641,428 (1999: $560,441; 1998: $570,416). In accordance with the terms of the license, royalties are payable at the rate of 7.5% of gross water sales. Payments are made monthly in arrears. A staff pension scheme commenced during June 1995 and was offered to all employees, both full and part-time. The scheme is administered by the Cayman Islands Chamber of Commerce and is a defined contribution plan, whereby the Company matches the contribution of the first 5% of each participating employee's salary. The total amount recognized as an expense under the scheme during 2000 was $67,760 (1999: $48,554 1998: $45,537). Financial assets that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. The majority of the Company's cash balances are placed with high credit quality financial institutions. With respect to accounts receivable, the Company’s operations in Belize as described in Note 1 are concentrated with one customer. As a result, the Company is subject to credit risk to the extent of any non- performance by this customer. As at December 31, 2000 the Company was owed $348,959 from this customer.  Credit risk with respect to the remainder of the accounts receivable balance is limited due to the large number of customers comprising the Company's customer base and the ability of the Company to withdraw supply in the event of non-payment. At December 31, 2000 and 1999 the carrying amounts of cash and short term bank deposits and bank overdrafts, accounts receivable, accounts payable and accrued expenses approximated their fair values due to the short term maturities of these assets and liabilities. The Directors consider that the carrying amount for long term debt (Note 7) due to Royal Bank of Canada approximates fair value due to the characteristics of this debt. The fair value for long term debt due to European Investment Bank is approximately $1,207,000 (1999: $1,400,000) although this does not necessarily indicate that the Company could extinguish this debt for an amount lower than the carrying value. Fair value of this long term debt for which no market value is readily available is determined by the Company using predetermined future cash flows discounted at an estimated current incremental rate of borrowing for a similar liability.  In establishing an estimated incremental rate, the Company has evaluated the existing transactions, as well as comparable industry and economic data and other relevant factors such as pending transactions, subsequent events and the amount the Company would have to pay a credit worthy third party to assume the liability, with the creditors legal consent. The interest rates and terms of the Company's loans and Water Purchase Agreement are presented in Notes 7 and 14 respectively. Interest rate risk: Fair values: Credit risk: 20. Financial instruments 19. Pension benefits