"We have a huge amount of operational experience and we're prepared to guarantee performance"

Friday, May 13, 2011

Cayman Islands-based Consolidated Water Company designs, builds and operates desalination plants and potable water distribution systems.

Starting out as a private water utility in Grand Cayman in 1973, the company now provides bulk and retail water to government and private entities and operates systems in several Caribbean countries.

Expanding its reach further, Consolidated Water is looking to begin construction of a new plant in Baja California state on Mexico's northwest coast in early 2012.

BNamericas spoke with CEO Rick McTaggart to find out more about the project and the company's other ventures.

BNamericas: In Q1 Consolidated Water reported expenses of some US$1mn related to the development of the Mexico desalination project, can you elaborate on that?

McTaggart: It's pretty straight forward, we've committed to fund the development project up to US$4mn. We started funding around May last year. That US$1.1mn that we spent in the first quarter of this year is part of that funding commitment.

We've been working on agreements to obtain a strategic site to build the plant on, and we've also been negotiating with the federal electricity commission [state power company CFE] in Mexico to access feed water for the plant.

BNamericas: How does the electricity commission figure into the project?

McTaggart: The desalination plant would be located next to a large thermo-electric power plant that already has access to seawater for its cooling systems. So we've been negotiating agreements with the commission to access the water and power for our 100Mg/d [379Ml/d] facility, which we expect to require around 80MW.

We've also been in discussions to allow us to put test equipment on the electricity commission site so we can start collecting data on seawater quality and various parameters that are necessary for us to design the large scale plant.

We haven't obtained customer contracts yet, nor have we have started designing the system, we're in the early stages of development.

BNamericas: Will this be a build, operate, transfer project?

McTaggart: It'll be privately owned, and we expect to have contracts with government entities in the United States and Mexico to sell water. Not to sell equipment or plant - we will own the plant and sell water to these government agencies.

BNamericas: Does the company have any other construction projects in the pipeline?

McTaggart: We don't have any new projects on the drawing board at this point, other than the one that we're building in the Bahamas right now. That will impact our bulk segment revenues and earnings after October of this year.

BNamericas: That's the Blue Hill plant in the Bahamas, where production will be expanded by 67%? Can you tell us more about it?

McTaggart: We made a proposal to the Bahamas water and sewerage corporation at the end of last year, which was accepted at the end of January this year.

Really, the impetus for the project is to replace a barge water operation in Nassau. They're utilizing port space that is currently being used by the barge water operation for other purposes. So, we have a very tight deadline to get the additional desalination capacity in order to replace the barge water that comes in from [San] Andrés island.

BNamericas: Consolidated had shown interest in the El Salitral desalination plant in Ensenada, being tendered by the Baja state water authority. The tender has been delayed several times, is that project still of interest?

McTaggart: We're interested and currently looking at the opportunity and collecting information. You're right, it has been cancelled several times, and I understand the tender deadline is being extended once again until sometime in June.

We're going to bid on it. They want the project on the southern side of the city and then they're running quite a long transmission main up to the northern side to deliver water to their storage tanks. And I think that transmission line represents a very large capital cost in the project. It'd be nice if they could minimize that, but that's how they want the project, so that's how we'll price it.

BNamericas: Is the company looking at any other projects in Mexico?

McTaggart: Yes, though there's nothing that I'd like to comment on at this time. But we've developed a very solid partnership with some Mexican firms and also some in southern California. As you know, the whole western side of Mexico is quite arid and there are a number of cities that require additional water. We're just evaluating all the opportunities that are presented to us.

BNamericas: Is desalination becoming more competitive in terms of potable water projects?

McTaggart: Absolutely. I think southern the United States and Mexico have the same issues - they rely completely on large rivers for water. However, there's only a limited amount of water that comes down the rivers.

The pricing trends that we're seeing for bulk water from the Colorado river, for example, in the southern United States are really converging on what desal pricing is going to look like in the next couple of years, and that's what's driving our interest in the region.

If they can get water from the river for US$2/1000gl, it's likely that desal's not going to be competitive. But if they're paying US$4-5/1000gls, in the next three or four years desal will definitely compete with that.

BNamericas: What sets Consolidated Water apart from other desalination companies?

McTaggart: A lot of companies sell equipment and operate it for a period of time, maybe during a warrantee period. A lot of the bigger desal companies, such as GE and Doosan, don't have an appetite for long-term operations.

That's where I think we shine. We've been operating various types of desal equipment since 1973. We have a huge amount of operational experience and we're prepared to guarantee performance and the delivery of water to the customers. We have contracts that are as long as 23 years, and we're very comfortable doing that, whereas some other companies may not be and don't have our depth of experience with the equipment.