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Consultants have been hired. Engineers and lobbyists, too. Public opinion has been polled.
The Otay Water District has spent at least $674,000 on its plan to buy water from a seawater desalination plant planned across the border in Rosarito Beach. The district, which supplies water to 200,000 people from Otay Mesa to Jamul, has committed to spend $4 million more.
But for all of the district’s work toward the unprecedented binational water deal, it hasn’t yet checked the track record and history of the corporation that first proposed the idea.
In fact, the district’s general manager, Mark Watton, refused to disclose the corporation’s top employees — even though he’s met behind closed doors at least four times with representatives from the company, Norte Sur Agua. Watton wouldn’t say who he met with.
The result is a shroud of secrecy blanketing a proposal that could enable the United States to tap Mexico’s ocean as a water source for the first time. If Otay does strike a deal, the district’s secrecy makes it unclear who stands to profit from the international water pact.
The major water agencies that supply Tucson, Phoenix, Las Vegas, Los Angeles and San Diego have also been closely studying the site in Rosarito Beach for its potential to augment the strained Colorado River, the lifeblood of the arid region. Drinking water could be pumped to the United States or swapped for the rights to some of Mexico’s share of the Colorado.
But while major suppliers are in the midst of a joint multi-year study, Otay has struck out on its own and already begun preparing to upgrade its system for an influx of desalinated water. The district needs to improve its pumping system and build a disinfection facility to bring the water in. It’s hired an engineering firm to do $3.9 million of the $30 million of work that will be needed. Little has been done so far.
A desalination plant in Mexico, which faces less stringent regulation than here, remains far from certain. No permits have been granted in either Mexico or the United States. Otay hasn’t committed to buy water from Mexico, though it hopes to get a third of its supply from the effort no sooner than 2015.
This much is known: Norte Sur Agua, a Mexican company, first proposed building the estimated $500 million plant and repeatedly met with Otay officials behind closed doors in 2010 just before bringing in a partner, Consolidated Water, a small, publicly traded Cayman Islands-based company. Norte Sur Agua and Consolidated are now 50-50 partners in a joint venture called NSC Agua.
Consolidated agreed last year to spend $4 million developing the plant and says it has “effective financial control” over the partnership, according to regulatory filings. But the public company has already spent that much and is currently deciding whether to continue investing in the project, which has encountered delays.
Rick McTaggart, Consolidated’s president and CEO, said in an email that confidentiality agreements prohibited him from disclosing the principals of Norte Sur Agua. A man named Gough Thompson is listed with Norte Sur Agua in Otay’s board agendas; Watton said he “may be one of the principals.” Thompson could not be reached.
Two local water officials, speaking on condition of anonymity because they did not want to alienate Watton, said Otay’s secrecy about Norte Sur was unusual. They both said they would not hesitate to say publicly who they were dealing with if they were executing such a deal.
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They said it was unusual that Otay had not checked the history or backgrounds of anyone involved with Norte Sur Agua, which is an equal partner in the desalination venture. When a public agency begins spending ratepayer money on a new water source, the officials said, numerous checks should first be made to ensure the deal is realistic.
“You’re going to want to make sure that whoever is in the deal has the track record to deliver,” said one of the officials, who is familiar with public-private partnerships. “And if you’re not pursuing other water sources because of this, you don’t want to miss other opportunities.”
When Poseidon Resources Corp. first proposed a desalination plant in Carlsbad, its top officials and track record were well known and reported publicly. That led to a robust local discussion and examination of the company’s only other desalination plant in the United States, a Tampa, Fla., effort that had encountered delays and other problems.
Watton said Otay checks companies it hires to know their reputation, past history and expertise. The district has checked and been satisfied with the track record of Consolidated Water, the publicly traded company that’s providing initial funding. Consolidated has built and operated small desalination plants in several Caribbean nations, none as large as the proposed Rosarito facility.
“They’re the organizers, the money behind the deal,” Watton said. “They’re the main players. Essentially they’re controlling the deal.”
The local water officials said it’s still prudent to know everyone who’s backing such a major deal, where investors’ money comes from and whether those backers have the wherewithal to spend more if the project encounters delays or if one investor loses interest. They said those checks should be done as early as possible to ensure that district money isn’t wasted on a project that may not manifest.
“You don’t do that the day you sign an agreement to buy,” one official said, “because what if you’re going to get in bed with someone you don’t want to be in bed with? As a public agency, who your partners are says a lot about you.”
Rob Davis is a senior reporter at voiceofsandiego.org. You can contact him directly at email@example.com or 619.325.0529.
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