The Rosarito Project represents the most important initiative we have undertaken since the construction of our Blue Hills plant in the Bahamas in 2005.
In May 2010, we acquired a 50% interest in N.S.C. Agua, S.A. de C.V. (“NSC”), a development stage Mexican company. We have since purchased, through the conversion of a loan we made to NSC, sufficient shares to raise our ownership interest in NSC to 99.9%. NSC was formed to pursue a project (the “Project”) encompassing the construction, operation and minority ownership of a 100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanying aqueducts to deliver water to the Mexican potable water system. We believe the Project can be successful due to the growing need for a new potable water supply for the area of northern Baja California, Mexico.
Through a series of transactions completed in 2012-2014, NSC purchased 20.1 hectares for approximately $20.6 million on which the proposed Project’s plant would be constructed.
In November 2015, the State officially commenced the tender for the Project. A consortium led by NSC and consisting of two other companies submitted its tender for the Project on the April 21, 2016 tender submission deadline date set by the State. Due to the amount of capital the Project requires, NSC will ultimately need an equity partner or partners for the Project. Consequently, NSC’s tender to the State for the Project was based upon the following: (i) NSC will sell or otherwise transfer the land and other Project assets to a new company (“Newco”) that would build and own the Project; (ii) NSC’s potential partners would provide the majority of the equity for the Project and thereby would own the majority interest in Newco; (iii) NSC would maintain a minority ownership position in Newco; and (iv) Newco would enter into a long-term management and technical services contract for the Project with an entity partially owned by NSC or one of our other subsidiaries.
In June 2016 the State designated NSC’s consortium as the winner of tender process for the Project. NSC subsequently incorporated Newco under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”), a special purpose company, to complete the Project. Through NSC we presently own 99.6% of AdR.
In August 2016 the Public Private Partnership Agreement (“APP Contract”) was executed between AdR, the Government of Baja California and the Public Utilities Commission of Tijuana. The APP Contract requires AdR to design, construct, finance and operate a seawater desalination plant (and accompanying aqueducts) with a capacity of up to 100 million gallons per day in two phases: the first with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system in Tijuana, Baja California; and the second phase with a capacity of 50 million gallons per day and an aqueduct to a second delivery point in Tijuana. The first phase must be operational within 36 months of commencing construction, and the second phase must be operational by the end of 2024. The APP Contract further requires AdR to operate and maintain the plant and aqueducts for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, the plant and aqueducts will be transferred to the State.
The total Project cost for Phase 1 is expected to be approximately 9.1 billion Mexican pesos. Annual revenues from the Project for Phase 1 are expected to be approximately 1.79 billion Mexican pesos.
The APP Contract does not become effective until various conditions are met, including the following:
- the State has established various payment trusts, guaranties and bank credit lines for the Project.
- AdR and the State have obtained all the necessary rights and approvals from the federal government.
- the rights of way for the Phase 1 aqueduct have been secured.
- all debt and equity financing agreements necessary to fund Phase 1 of the Project have been executed.
We continue to work with the State and potential equity and debt providers with the expectation that we will meet all of the conditions of the APP and commence this landmark Project in the coming months.