A key partner is taking steps to pull out of a seawater desalination plant planned in Rosarito Beach that could supply drinking water to local homes and businesses.

Consolidated Water Co., a small, publicly traded firm, announced Wednesday that it’s trying to sell its stake in the project, highlighting just how difficult it will be for local water agencies to tap Mexico’s ocean as a new supply.

Cayman Islands-based Consolidated promised last year to invest $4 million in the deal, which then encountered delays and didn’t receive any needed permits. After spending that money, Consolidated said it needed to decide whether to continue investing. Its announcement Wednesday suggests it has had enough.

The Otay Water District, the local agency that supplies water to 200,000 people from Otay Mesa to Jamul, wants to buy water from the proposed plant. The district has spent $674,000 on the plan and has committed to spending $4 million more.

Consolidated was a key participant. Records show the district went as far as to spend at least $6,700 sending its general manager and two attorneys to the Cayman Islands to meet with the company before it agreed to get involved last year.

Consolidated said if a sale falls through, it would consider seeking other buyers, restructuring the partnership or canceling its involvement altogether.

The company’s withdrawal could hurt the project’s perception. Otay surveyed its customers last December and found that they were concerned about getting their water from Mexico. They overwhelmingly said they preferred to get water from the United States.

But the survey also found that customers responded favorably when they heard a well-established, publicly traded, global company was involved. If Consolidated Water pulls out, it could leave the deal without that key selling point.

In its third-quarter earnings release, Consolidated CEO Rick McTaggart spoke generally about the project’s problems. He said it has been unable to secure additional funding and hadn’t addressed “remaining uncertainties.”

“Although we are very disappointed that this particular opportunity has not developed as planned,” McTaggart said, “we have acquired a great deal of knowledge and expertise regarding the water markets in Mexico and the southwestern United States and expect to explore other opportunities in these regions in the future.”

Consolidated was a joint partner in the project with a private company, Norte Sur Agua, which originally proposed the deal. But Otay had touted Consolidated Water’s control of the deal rather than Norte Sur. For months, Otay’s general manager, Mark Watton, refused to disclose who was involved with Norte Sur, even though records show he’d repeatedly met with them over lunches and behind closed doors.

The water district finally announced those investors almost two weeks ago. If Consolidated does pull out, Norte Sur’s investors could be the only ones left in the deal.

I’ve put in a call to Watton to get the district’s reaction to the news but haven’t heard back. I’ll update this post if he calls back.

Update, 2:33 p.m.: Watton sent this written statement through a spokeswoman for the district. (He refers to NSC Agua, which is the name for the joint venture between Consolidated and Norte Sur Agua.)

It is not unusual for a development project of this nature to have changing landscapes, including project partners and other dynamics. It is our understanding that there are discussions going on that involve the principal partners of NSC Agua, and that those discussions will continue. The District has said that it is constantly monitoring the progress and viability of the desalination project and is basing expenditure decisions on that progress. If the principal partners of NSC Agua change, then of course the District will again re-examine the viability of the project and make appropriate decisions based on any new information.

Rob Davis is a senior reporter at voiceofsandiego.org. You can contact him directly at rob.davis@voiceofsandiego.org or 619.325.0529.

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Rob Davis was formerly a senior reporter for Voice of San Diego.

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