Business Context and Reporting Period
Company: Consolidated Water Co. Ltd.
Filing Type: Form 8-K (Current Report)
Date of Event: August 22, 2016
Reporting Period: Single event report regarding a material definitive agreement.
Key Financial Metrics and Project Economics
This filing details a new public-private partnership (APP) contract rather than historical financial performance. Key projected metrics for the new project include:
- Total Project Cost: Approximately 9 billion Mexican pesos (approx. US$490 million).
- Expected Annual Revenues: Approximately 1.02 billion Mexican pesos (approx. US$55.5 million).
- Project Capacity: Up to 100 million gallons per day (in two phases of 50 million each).
- Contract Term: 37 years of operation and maintenance.
- Revenue Mechanism: Water rates indexed to the Mexican national consumer price index; energy costs are pass-through charges subject to efficiency guarantees.
- Financing Strategy: Expected to raise Mexican peso-denominated debt through a consortium led by the North American Development Bank.
Material Changes and Project Scope
On August 22, 2016, the State of Baja California, Mexico, signed an APP Contract with Aguas de Rosarito S.A.P.I. de C.V. (AdR), a special purpose vehicle owned by NuWater S.A.P.I. de C.V. and N.S.C. Agua, S.A. de C.V. (NSC). NSC is a 99.9% owned subsidiary of Consolidated Water Co. Ltd.
The agreement covers the design, construction, financing, and operation of a seawater desalination plant in Playas de Rosarito, Baja California. The project is structured in two phases:
- Phase 1: 50 million gallons per day capacity with an aqueduct to Tijuana; must be operational within 36 months of construction commencement.
- Phase 2: Additional 50 million gallons per day capacity with an aqueduct to a second delivery point in Tijuana; must be operational by the end of 2024.
At the end of the 37-year operating period, the plant and aqueducts will be transferred to the State Water Commission of Baja California (CEA).
Conditions, Risks, and Management Commentary
Effectiveness Conditions: The APP Contract is signed but not yet effective. It becomes effective only after AdR secures required equity and debt financing for Phase 1 and meets specific conditions, including:
- Establishment and registration of payment trusts, guaranties, and bank credit lines by the State.
- CEA obtaining federal rights to take and desalinate seawater.
- Execution of water purchase and sale agreements between CEA, payment trusts, and the Public Utilities Commission of Tijuana (CESPT).
- AdR obtaining all necessary rights of way for the aqueduct.
- AdR obtaining federal permission to discharge residual water.
- Execution of all necessary financing agreements.
Documentation Status: The contract was executed in Spanish and is currently being translated for filing as an exhibit to an amended Form 8-K.
Investor Verification Checklist
- Verify the successful execution of financing agreements, particularly the debt consortium led by the North American Development Bank.
- Confirm the establishment of the State's payment trusts and guaranties required for contract effectiveness.
- Monitor the timeline for Phase 1 operational readiness (36 months from construction start) and Phase 2 (end of 2024).
- Review the translated APP Contract exhibit once filed to assess specific risk allocation and termination clauses.
- Assess the impact of Mexican peso exchange rate fluctuations on the US$490 million cost and US$55.5 million revenue estimates.