"Desalination projects for mining are going to need direct investment"

Friday, October 21, 2011

Northern Chile's Atacama desert is one of the driest places in the world. This fact, together with booming mining activity in the region, means authorities and utilities are always looking at ways to cope with water scarcity, particularly when it comes to drinking water.

One of the most important tools to secure water consumption has been the development of desalination plants. Region II capital Antofagasta already has one, with a 600l/s capacity, providing 60% of the city's water needs.

The region's utility Aguas Antofagasta is currently in the process of building Desaladora Sur, the city's second plant. Once the facility goes online by mid-2014, 100% of the regional capital's drinking water will be obtained through desalination.

Aguas Antofagasta submitted a first EIA to the environment ministry (MMA) in January and withdrew it in March, submitting a second EIA in September.

BNamericas spoke with Patricio Mártiz, Aguas Antofagasta's planning and development manager, to find out about the reasons for the new EIA and the progress of the Desaladora Sur project.

BNamericas: Why did Aguas Antofagasta submit a second EIA?

Mártiz: We filed the first EIA in January, but withdrew it in March due to the number of questions and comments the environmental evaluation committee [SEA] had for us. The committee had a rather extensive list of questions, some of which really did deserve consideration, along with some "what ifs" that required further analysis.

So we withdrew the project, and between March and September we carried out additional studies based on the SEA's questions, and resubmitted it in September to expedite the whole process.

BNamericas: When do you expect the project's EIA will be approved?

Mártiz: We are expecting approval in January, based on SEA's timelines, because it takes them four to six months on average to evaluate an EIA.

We expect to have answered all of the questions that came from the committee in March, and have the clarifications included in this second EIA, therefore speeding up the process.

Once the project has been approved, we will start the tender process. Obviously we have to get board approval, but once we have that, construction will begin immediately.

BNamericas: Does the company have a timetable for the project's upcoming stages?

Mártiz: We anticipate that the tender process will take five months, as it goes along with engineering from the bidders. That is to say, we set the guidelines and the bidders have to take them and create the general engineering for the project.

Having done this, the bidders must then submit the project to us for a technical evaluation. Then the financial offer is made and again, the board's authorization is sought for construction.

BNamericas: So, starting from when the EIA was submitted in September, it will be one year, give or take, before construction of the plant begins.

Mártiz: Exactly - we are expecting five months from the environmental approval process, plus five months for the tender process.

We expect the process to move very quickly because we are planning to assess the companies this year so that once the tender process begins, they have already been sort of pre-evaluated. With that, we expect to award the tender as soon as possible, given that the EIA is approved.

BNamericas: Have companies already expressed interest in participating in the tender?

Mártiz: Yes, there has been a lot of interest. All of the large desalination companies in the world, which are mainly Spanish, French, Korean firms and others, are interested. There has been a lot of contact from both sides. We give them information and let them know how the process is going.

I think the tender process will involve a fair number of high quality bidders.

BNamericas: What are the costs associated with the project?

Mártiz: The cost is estimated between US$80mn and US$100mn, depending on what you take into account. For example, in the EIA we said that the project would cost US$120mn, which reflects the cost of the entire plant plus all of the accompanying infrastructure such as pumps, pipes, etc.

But we believe the plant should cost around US$80mn.

BNamericas: Will this cost be covered by the winning firm?

Mártiz: Yes. We are hiring someone for the construction and we'll pay based on progress, since there will be guarantees involved.

The company that wins the tender has to operate the plant for two years, which is to provide us with a guarantee. We're not going to tell the company what to build, but rather we are going set certain parameters or specify what the plant's output should be.

BNamericas: What does that mean?

Mártiz: For example, we're going to say what we want the plant's production capacity to be in terms of energy, in terms of maintenance, etc., and [the companies] will have to make an attractive offer.

But again, the tender will be based on parameters. The bidders will have to include in their proposals, for example, that the plant will consume X amount of energy; the membranes will be changed every X period; the chemicals will cost X amount; and so on.

We can then check at the end of the two operating years to see that the bidder is fulfilling all of the parameters set out in the proposal.

BNamericas: What will the Desaladora Sur plant's useful life be?

Mártiz: It's a long-term plant. The civil work will last for 50 years and the equipment will last 25-30 years. In the end, the plants last a long time because maintenance work and equipment upgrades are carried out.

The important thing is that there will be a fixed structure at the plant and those works are civil structures with a 50-year useful life. The rest involves equipment that can be moved and changed and upgraded.

BNamericas: Aguas Antofagasta operates throughout region II. What will the supply radius of the new plant be?

Mártiz: This plant will supply the coastal city of Antofagasta and, in conjunction with the existing [La Chimba] plant, Mejillones.

BNamericas: Has there been any talk with mining companies in the area about using the water for industrial purposes?

Mártiz: This plant will not be initially for industrial use; it will be purely residential – for drinking water.

That said, obviously we are in contact and have had conversations with mining companies. Some of our customers are mining companies. However, we believe that the big projects are going to need direct investment, meaning mines will need their own plants that will be similar in size to this project, or even bigger in terms of capacity.

BNamericas: Aside from this plant, what other projects does Aguas Antofagasta have in the short and medium term?

Mártiz: Residentially, the Desaladora Sur project is our main project due to its 1,100l/s capacity. It is our main concern at the moment and our focus is 90% directed on this project.

The other 10% is on the desalination plant in Tocopilla. We are currently looking for land and starting the environmental studies to build a 100l/s plant in the city.

In addition, the city of Taltal has a 5l/s plant that we bought in 2008. We are going to carry out a 4l/s expansion that will support this plant. In Taltal we are also going to begin a 60l/s plant project so that 100% of the city's water comes from desalination plants. These are our immediate-term projects.

BNamericas: And is there a long-term development plan?

Mártiz: There's not a defined plan. Our ideas just involve seeing what the region needs.

This is a very industrial region and those of us who live in Antofagasta live off mining and the direct and complementary services that are linked to the activity.

Essentially, Antofagasta revolves around the mining industry and service providers for the mining industry. Obviously we are participating in talks and looking at opportunities in this field. We don't currently have any concrete projects, but we are looking closely at the development of opportunities we can participate in.

About Patricio Mártiz

Patricio Mártiz is a civil engineer from Chile's Northern Catholic university, with an MBA from Universidad de Chile.

He has been with Aguas Antofagasta for eight years, and in his current capacity, is in charge of new businesses, infrastructure and Atacama Water & Technology (AWT), a subsidiary of Aguas Antofagasta.

Mártiz also serves as president of the Latin American association for desalination and water reuse (Aladyr).

About the company

Aguas Antofagasta is the water utility operating in Chile's northern region II.

The company is owned by Inmobiliaria Punta de Rieles (99%) and Antofagasta railway company FCAB (1%). Both companies are owned by Chile's Luksic Group.