FINAL REPORT Evaluation of Seawater Desalination Projects ...

EVALUATION OF SEAWATER DESALINATION PROJECTS
PROPOSED FOR THE MONTEREY PENINSULA
Project development costs such as engineering, permitting, legal, environmental documents,
obtaining regulatory permits and approvals, and other related development costs will be
initially incurred by Poseidon. Mr. MacLaggan indicated that internal corporate funds would
be employed to meet these ongoing costs in order to implement the project. Such costs will
be capitalized as part of the project capital cost for eventual reimbursement to Poseidon.
Poseidon is also responsible for financing and implementing a pilot project to demonstrate
the feasibility of desalination at the site. P/SMCSD submitted an application for a grant from
the Department of Water Resources utilizing Proposition 50 funding to finance 50 percent of
an estimated $3 million pilot plant project cost. The project was not recommended by DWR
staff for grant funding according to the June 12, 2006 Staff Funding Recommendation for the
2006 Proposition 50 funding cycle.
In view of Poseidon Corporation potentially becoming the lead entity responsible for project
financing, a brief review was made of the background of Poseidon Resources, Inc. Poseidon
was founded in 1995 for the goal of developing and financing water industry projects.
According to the company, it is the largest private owner of water facilities in Mexico as well
as a leading developer of water and wastewater public-private partnerships in North America.
The company is in the process of developing several high-profile desalination projects,
including two in southern California at Carlsbad and Huntington Beach. A recent
desalination project experience at Tampa Bay, Florida resulted in the project being taken
over by the local water authority after plant operational failure and two contractor
bankruptcies. Financing was problematic with the Tampa Bay project because of a legal
challenge to the project from local homeowners, which resulted in about only half of the
financing secured for the project up front. The second contractor-related bankruptcy created
an obstacle to obtaining required financing for the rest of the project. 45
Poseidon is a United States corporation whose largest shareholder is Warburg Pincus, an
international investment firm. This partner-owned investment company has holdings in more
than 120 companies located in North and South America, Asia, and Europe. Projects in the
water industry are only a small portion of the investment activities of Warburg Pincus.
However, the company’s only business focus is private equity investing. With Warburg
Pincus, it appears that Poseidon Resources has extensive private equity financing resources if
obligated to obtain financing for the proposed MBRSDP in-lieu of the district not pursuing
municipal bond financing.
45 In a June 28, 2006 email, Poseidon Resources stated that the representation of the Tampa Bay Desalination
project was not accurate. Poseidon Resources states that Tampa Bay Water exercised its option to purchase the
project from Poseidon Resources when construction was 30% complete. At the time, according to Poseidon,
the project was on schedule, within budget, would have been completed according to design, and would have
met performance specifications. Furthermore, it states that testimony of water agency staff and outside experts
confirms these conclusions and that these conclusions are part of the public record. The additional information
does not nullify the initial conclusions of the text.
Monterey Peninsula Water Management District 5-13