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07-24-20 Desalination Project Committee Packet.pdf
OTAY WATER DISTRICT DESALINATION PROJECT COMMITTEE MEETING and SPECIAL MEETING OF THE BOARD OF DIRECTORS BY TELECONFERENCE 2554 SWEETWATER SPRINGS BOULEVARD SPRING VALLEY, CALIFORNIA FRIDAY JULY 24, 2020 12:00 P.M. This is a District Committee meeting. This meeting is being posted as a special meeting in order to comply with the Brown Act (Government Code Section §54954.2) in the event that a quorum of the Board is present. Items will be deliberated, however, no formal board actions will be taken at this meeting. The committee makes recommendations to the full board for its consideration and formal action. AGENDA 1.ROLL CALL 2.PUBLIC PARTICIPATION – OPPORTUNITY FOR MEMBERS OF THE PUBLIC TOSPEAK TO THE BOARD ON ANY SUBJECT MATTER WITHIN THE BOARD'S JU-RISDICTION BUT NOT AN ITEM ON TODAY'S AGENDA In lieu of in-person attendance, members of the public may submit their comments onagendized and non-agendized items via email at boardsecretary@otaywater.gov. Public comments submitted will be read into the record at the Committee Meeting andthe public may continue to watch and listen to meetings. The information on how to watch and listen to the District’s live streaming can be found at this link:https://otaywater.gov/board-of-directors/agenda-and-minutes/committee-meetings/ DISCUSSION ITEMS 3.INFORMATIONAL UPDATE FOR THE ROSARITO DESALINATION PLANT ANDTHE OTAY MESA CONVEYANCE AND DISINFECTION SYSTEM PROJECTS(KENNEDY) 4.ADJOURNMENT BOARD MEMBERS ATTENDING: Mitch Thompson, Chair Tim Smith 2 All items appearing on this agenda, whether or not expressly listed for action, may be delib- erated and may be subject to action by the Board. The Agenda, and any attachments containing written information, are available at the Dis-trict’s website at www.otaywater.gov. Written changes to any items to be considered at the open meeting, or to any attachments, will be posted on the District’s website. Copies of the Agenda and all attachments are also available through the District Secretary by contacting her at (619) 670-2280. If you have any disability that would require accommodation in order to enable you to partici- pate in this meeting, please call the District Secretary at 670-2280 at least 24 hours prior to the meeting. Certification of Posting I certify that on July 21, 2020 I posted a copy of the foregoing agenda near the regular meeting place of the Board of Directors of Otay Water District, said time being at least 24 hours in advance of the meeting of the Board of Directors (Government Code Section §54954.2). Executed at Spring Valley, California on July 21, 2020. /s/ Susan Cruz, District Secretary STAFF REPORT TYPE MEETING: Desalination Committee MEETING DATE: July 24, 2020 SUBMITTED BY: Bob Kennedy Engineering Manager CIP./G.F. NO: P2451- 001101 DIV. NO. ALL APPROVED BY: Rod Posada, Chief, Engineering Jose Martinez, General Manager SUBJECT: Informational Update for the Rosarito Desalination Plant and the Otay Mesa Conveyance and Disinfection System Projects GENERAL MANAGER’S RECOMMENDATION: No recommendation. This is an informational item only. COMMITTEE ACTION: Please see Attachment A. PURPOSE: To update the Otay Water District (District) Desalination Committee (Committee) on the progress of the Rosarito Desalination Plant and the Otay Mesa Conveyance and Disinfection System Projects (Project)(see Exhibit A for District Project location). ANALYSIS: This item was last presented to the Committee as an update at a meeting held on January 22, 2020. The updates or significant milestones that have been reached since the last update to the Committee include: Project Direction Aguas de Rosarito S.A.P.I. de C.V. (AdR), the special purpose company formed to own the Project, signed a 40-year definitive public-private partnership agreement with the State of Baja California (State) on August 25, 2016 to build a desalination AGENDA ITEM 3 2 plant and conveyance pipeline (Rosarito Project) and operate it for 37 years. The companies that make up AdR include a Mexican company called N.S.C. Agua S.A. de C.V. (NSCA), that is a subsidiary of Cayman-Islands based Consolidated Water (CWCO), together with one or more affiliates of Greenfield SPV VII, S.A.P.I. de C.V. (Greenfield), a Mexico company managed by an affiliate of a leading U.S. asset manager, and Suez Medio Ambiente México, S.A. de C.V., ("Suez"), a subsidiary of SUEZ International, S.A.S. The APP Contract does not become effective until the State establishes and registers various payment trusts, guaranties, and bank credit lines for specific use by the Rosarito Project. During the congressional session that ended in March 2019, the State congress passed Decreto #335, which renewed fiscal authorizations to put in place various obligations. Decreto #335 was set to expire at the end of 2019, however, a last-minute extension of six months was granted by congress. Without the Decreto’s approval, the State is not authorized to put the payment guaranties in place and cannot complete key conditions precedent for financial close. On June 29, 2020, AdR received a letter (the “Letter” see Exhibit B) from the Director General of CEA terminating the APP Contract. The reasoning provided in the Letter for the decision to terminate the APP Contract is that the Project (a) is not financially feasible due to increases in the construction, operating, and financing costs for the Project, in addition to negative changes in economic conditions (e.g., interest rates and currency exchange rates); (b) is not sustainable for CEA and CESPT given its financial unfeasibility; (c) puts pressure to increase the rates charged to customers; (d) would force the State to cover a deficit of CEA and CESPT, thus preventing the State from spending on investment programs or social expenditures; and (e) negatively affects the general interest. The Letter requests that AdR provide an inventory of the assets that currently comprise the “Project Works” (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to be calculated in accordance with the terms of the APP Contract. 3 Rosarito Desalination Project in the News The Rosarito Beach Desalination project and water shortages are subjects in the national, state, and local news, as well as in Mexico in the State of Baja California. In a June 30, 2020 article in BNAmericas entitled, “Mexico desal projects move forward despite COVID-19”, it noted that the coronavirus pandemic has not altered plans to construct four desalination plants including the Playas de Rosarito in Baja California project. (Exhibit C) In a July 4, 2020 article in the San Diego Union Tribune entitled, “Baja California governor accuses big US companies of water theft”, it noted that “an independent audit of Baja California’s water agency alleges that former employees of the utility colluded with international corporations to defraud the state out of at least $49.4 million.” (Exhibit D) In a July 12, 2020 article in the San Diego Union Tribune entitled, “Governor says Baja used water as a piggy bank. Critics worry about his bigger plan”, it noted that “Bonilla has been a key proponent of the desalination plant, strongly advocating for it on both sides of the border, but he says the stalled project has nothing to do with the audit. It’s not even going to be built during my term.” (Exhibit E) In a July 13, 2020 article in the Water Desalination Report entitled, “State Government Cancels Rosarito SWRO”, it noted the reasons the state mentioned in the termination letter, including the project is not financially feasible, increases pressure to raise water rates, and prevents the state from spending on investment or social programs. (Exhibit F) In a July 14, 2020 article in the Adelante Valle entitled, “Reporta corporativo cancelación de planta desaladora en Baja California”, it noted that The Baja California State Water Commission decided to cancel the Playas de Rosarito Desal Plant Project. (Exhibit G) In a July 15, 2020 article in the Bergeron Report entitled, “Bonilla cancels desalination plant contract previously promoted”, it noted that “Jaime Bonilla Valdez was director of the Otay Water District, California, where he supported the project to buy desalinated water imported from Mexico....” (Exhibit H) 4 In a July 15, 2020 article in the San Diego Union Tribune entitled, “Cancelan construcción de desalinizadora en Baja California”, it noted that “last November 7, the current Governor Jaime Bonilla, who presided over the Otay Water District for several years, expressed that the state could not pay 158 million pesos per month.” (Exhibit I) In a July 15, 2020 article in Newsweek Mexico entitled, “Planea Bonilla otra desalinizadora para BC; sería más pequeña” it noted that a smaller desalination plant is planned for Baja California. (Exhibit J) In a July 19, 2020, article the Monitor Economico de Baja California entitled, “Gobierno de BC reconoce nuevo proyecto de desaladora para Tijuana”, it noted that “After cancelling the contract with the winning company of the tender of the Playas de Rosarito desalination plant, the Secretary for Water Management, Sanitation and Protection (SEPROA), Salomón Faz Apodaca, acknowledged that they are discussing a new desalination project for the city of Tijuana which must occur within 3 years.” (Exhibit K) In a July 20, 2020 article in the Voice of San Diego entitled, “The Latest in Baja’s Water Saga”, it stated “The current state of the desalination plant is … confusing.” The article noted that the project has appeared “to resurface in a new plan backed by Bonilla, though it would be smaller”. (Exhibit L) Contract with AECOM The contract with AECOM expired on June 30, 2018 and was not extended. Presidential Permit The Department of State issued a Presidential permit (Permit) to the District on May 16, 2017, authorizing the District to construct, connect, operate, and maintain cross-border water pipeline facilities for the importation of desalinated seawater at the international boundary between the United States and Mexico in San Diego County, California. This Permit will expire unless work begins on the cross-border pipeline or the permit is extended by May 16, 2022. The District reached out to the State Department to see if this Permit could be assigned by the District to another agency and early indications are this is possible. 5 FISCAL IMPACT: Joe Beachem, Chief Financial Officer No fiscal impact as this is an informational item only. See Attachment B - Budget Detail. As of June 30, 2020, $4,168,651 has been spent. Staff has stopped all activities and expenditure concerning the Project. STRATEGIC GOAL: This Project supports the District’s Mission statement, “To provide exceptional water and wastewater service to its customers, and to manage District resources in a transparent and fiscally responsible manner” and the General Manager’s Vision, "To be a model water agency by providing stellar service, achieving measurable results, and continuously improving operational practices." LEGAL IMPACT: None. BK/RP:jf P:\WORKING\CIP P2451 Desalination Feasibility Study\Staff Reports\Committee Desal Update 2020-2\Revised Staff Report 7-21-20\Committee 07-24-20, Staff Report, Desal Update, (BK-RP)-Rev.docx Attachments: Attachment A – Committee Action Attachment B – Budget Detail Exhibit A – Project Location Exhibit B – SEC Form 8-K, CWCO, dated June 29, 2020 Exhibit C – Mexico desal projects move forward despite COVID-19, BNAmericas, dated June 30, 2020 Exhibit D – Baja California governor accuses big US companies of water theft, San Diego Union Tribune, dated July 4, 2020 Exhibit E – Governor says Baja used water as a piggy bank. Critics worry about his bigger plan, San Diego Union Tribune, dated July 12, 2020 Exhibit F – State Government Cancels Rosarito SWRO, Water Desalination Report, dated July 13, 2020 Exhibit G – Reporta corporativo cancelación de planta desaladora en Baja California, Adelante Valle, dated July 14, 2020 Exhibit H – Bonilla cancels desalination plant contract previously promoted, Burgeron Report, dated July 15, 2020 6 Exhibit I – Cancelan construcción de desalinizadora en Baja California, San Diego Union Tribune En Espanol, dated July 15, 2020 Exhibit J – Planea Bonilla otra desalinizadora para BC; sería más pequeña, Newsweek Mexico, dated July 15, 2020 Exhibit K – Gobierno de BC reconoce nuevo proyecto de desaladora para Tijuana, Monitor Economico, dated July 19, 2020 Exhibit L – The Latest in Baja’s Water Saga, Voice of San Diego, dated July 20, 2020 ATTACHMENT A SUBJECT/PROJECT: P2451-001101 Informational Update for the Rosarito Desalination Plant and the Otay Mesa Conveyance and Disinfection System Projects COMMITTEE ACTION: The Desalination Committee (Committee) reviewed this informational item at a meeting held on July 24, 2020. ATTACHMENT B – Budget Detail SUBJECT/PROJECT: P2451-001101 Informational Update for the Rosarito Desalination Plant and the Otay Mesa Conveyance and Disinfection System Projects Date Updated 06/30/2020 Budget 35,700,000 Phases Planning Consultant Contracts 26,369 26,369 - 26,369 BROWNSTEIN HYATT FARBER98,577 98,577 - 98,577 CAMP DRESSER & MCKEE INC13,311 13,311 - 13,311 CPM PARTNERS INC 380,200 380,200 - 380,200 HECTOR I MARES-COSSIO 71,531 71,531 - 71,531 MARSTON & MARSTON INC26,700 26,700 - 26,700 REA & PARKER RESEARCH4,173 4,173 - 4,173 SALVADOR LOPEZ 225,499 225,499 - 225,499 SILVA-SILVA INTERNATIONAL 34,600 13,400 21,200 34,600 SVPR COMMUNICATIONSMeals and Incidentals 21,944 21,944 - 21,944 STAFFPrinting61 61 - 61 MAIL MANAGEMENT GROUP INC Professional Legal Fees 2,516 2,516 - 2,516 ARTIANO SHINOFF 162,041 162,041 - 162,041 GARCIA CALDERON & RUIZ LLP43,175 43,175 - 43,175 SOLORZANO CARVAJAL GONZALEZ Y32,612 32,612 - 32,612 STUTZ ARTIANO SHINOFF Regulatory Agency Fees 3,120 3,120 - 3,120 COUNTY OF SAN DIEGO 2,142 2,142 - 2,142 STATE WATER RESOURCESService Contracts 500 500 - 500 REBECA SOTURA NICKERSON875875- 875 LEONARD VILLAREAL 32,463 32,463 - 32,463 (W)RIGHT ON COMMUNICATIONS INC 39,500 39,500 - 39,500 BUSTAMANTE & ASSOCIATES LLC290 290 - 290 SAN DIEGO DAILY TRANSCRIPT685 685 - 685 SAN DIEGO UNION-TRIBUNE, THE Standard Salaries 1,212,336 1,212,336 - 1,212,336 Total Planning 2,435,219 2,414,019 21,200 2,435,219 Design 001102 Consultant Contracts 1,432,253 1,432,253 - 1,432,253 AECOM TECHNICAL SERVICES INC 3,952 3,952 - 3,952 AIRX UTILITY SURVEYORS INC 5,000 5,000 - 5,000 ATKINS8,818 8,818 - 8,818 CPM PARTNERS INC5,109 5,109 - 5,109 MARSTON+MARSTON INC 35,520 35,520 - 35,520 MICHAEL R WELCH PHD PE Meals, Travel, Incidentals 3,457 3,457 - 3,457 STAFFProfessional Legal Fees 7,761 7,761 - 7,761 STUTZ ARTIANO SHINOFFRegulatory Agency Fees 1,127 1,127 - 1,127 STATE WATER RESOURCES Service Contracts 1,084 1,084 - 1,084 SAN DIEGO UNION-TRIBUNE LLC114 114 - 114 REPROHAUS CORPStandard Salaries 250,108 250,108 - 250,108 Total Design 1,754,303 1,754,303 - 1,754,303 ConstructionStandard Salaries 329 329 - 329 Total Construction 329 329 - 329 Grand Total 4,189,851 4,168,651 21,200 4,189,851 Vendor/Comments Otay Water DistrictP2451 Otay Mesa Desalination Conveyance and Disinfection System Committed Expenditures Outstanding Commitment & Forecast Projected Final Cost 571-1RESERVOIR 870-1RESERVOIR OTAY MESA RD EN R I C O F E R M I D R DONOVA N DONOVANCORRECTIONALFACILITY SIEMPRE VIVA RD G.F. BAILEYDETENTION FACILITY AIRWAY RD AL T A R D PASEO DE LA F U E N T T E STATE PRISON RD ALT A R D MEXICO USA OW D B O U N D A R Y FUTURE FUT U R E ?ò ?Ü ?Ü FUTUREPORT OFENTRY OTAY WATER DISTRICTOTAY MESA DESALINATION CONVEYANCEAND DISINFECTION SYSTEM PROJECT EXHIBIT A CIP P2451 0 2,0001,000 Feet F P: \ W O R K I N G \ C I P P 2 4 5 1 D e s a l i n a t i o n F e a s i b i l i t y S t u d y \ G r a p h i c s \ E x h i b i t s - F i g u r e s \ E x h i b i t A , M a r c h 2 0 1 5 . m x d Legend Pipeline Alternative 1 Pipeline Alternative 2 Pipeline Alternative 3 VICINITY MAP PROJECT SITE NTSDIV 5 DIV 1 DIV 2 DIV 4 DIV 3 ?ò Aä%&s ?p ?Ë !\ F Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] Toggle SGML Header (+) Section 1: 8-K (FORM 8-K) UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 June 29, 2020 (Date of earliest event reported) CONSOLIDATED WATER CO. LTD. (Exact Name of Registrant as Specified in Charter) Cayman Islands, B.W.I.0-25248 98-0619652 (State or Other Jurisdiction of (Commission File No.)(IRS Employer Identification No.) Incorporation) Regatta Office Park Windward Three, 4th Floor West Bay Road, P.O. Box 1114 Grand Cayman, KY1-1102 Cayman Islands (Address of Principal Executive Offices) (345) 945-4277 (Registrant’s telephone number, including area code) Not Applicable (Former Name or Former Address, if Changed Since Last Report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below): ¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s)Name of each exchange on which registered Class A common stock, $0.60 par value CWCO The Nasdaq Global Select Market Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ¨ Go to... Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨ Item 1.02 Termination of a Material Definitive Agreement. As previously reported, Consolidated Water Co. Ltd. (the “Company”), through its wholly-owned Netherlands subsidiary, Consolidated WaterCooperatief, U.A. (“CW-Cooperatief”), owns a 99.99% interest in N.S.C. Agua, S.A. de C.V. (“NSC”), a development stage Mexican company.NSC was formed in 2010 to pursue a project (the “Project”) that originally encompassed the construction, operation and minority ownership of a100 million gallon per day seawater reverse osmosis desalination plant to be located in northern Baja California, Mexico and accompanyingpipelines to deliver water to the Mexican potable water system. Through a series of transactions completed between 2012 and 2014, NSC purchased 20.1 hectares of land for approximately $20.6 million onwhich the proposed Project’s plant was to be constructed. In 2012, NSC entered into a lease (the “Lease”), with an effective term of 20 years from the date of full operation of the Project’s desalination plant, with the Comisión Federal de Electricidad for approximately 5,000 square meters of land on which it planned to construct the water intake and discharge works for the plant. The Lease may be cancelled by NSC if the Project does not proceed. In August 2014, the State of Baja California (the “State”) enacted new legislation to regulate Public-Private Association projects which involve thetype of long-term contract between a public-sector authority and a private party required to complete the Project (the “APP Law”). Pursuant to thisnew legislation, in March 2015, NSC submitted a detailed proposal (the “APP Proposal”) to the Ministry of Infrastructure and Urban Developmentof the State of Baja California (“SIDUE”) that complied with the requirements of the new legislation. The new legislation required that suchproposal be evaluated by SIDUE and submitted to the Public-Private Association Projects State Committee for review and authorization. In response to its APP Proposal, in September 2015, NSC received a letter dated June 30, 2015 from the Director General of the Comisión Estataldel Agua de Baja California (“CEA”), the State agency with responsibility for the Project, stating that (i) the Project is in the public interest withhigh social benefits and is consistent with the objectives of the State development plan; and (ii) that the Project should proceed, and the requiredpublic tender should be conducted. In November 2015, the State officially commenced the required public tender for the Project, the scope ofwhich the State defined as a first phase to be operational in 2019 consisting of a 50 million gallon per day plant and an aqueduct that connects to theMexican potable water infrastructure and a second phase to be operational in 2024 consisting of an additional 50 million gallons per day of production capacity. A consortium (the “Consortium”) comprised of NSC, NuWater S.A.P.I. de C.V. (“NuWater”) and Suez Medio Ambiente México, S.A. de C.V. (“Suez MA”), a subsidiary of SUEZ International, S.A.S., submitted its tender for the Project in April 2016 and in June2016, the State designated the Consortium as the winner of the tender process for the Project. In August 2016, NSC and NuWater incorporated Newco under the name Aguas de Rosarito S.A.P.I. de C.V. (“AdR”) to pursue completion of theProject and executed a shareholders agreement for AdR agreeing among other things that (i) AdR would purchase the land and other Project assetsfrom NSC on the date that the Project begins commercial operation and (ii) AdR would enter into a Management and Technical ServicesAgreement with NSC effective on the first day that the Project begins commercial operation. NSC initially owned 99.6% of the equity of AdR. InFebruary 2018, NSC acquired the remaining 0.4% ownership in AdR from NuWater. On August 22, 2016, the Public Private Partnership Agreement for public private partnership number 002/2015, bid number SIDUE-CEA-APP-2015-002 (“APP Contract”), was executed between AdR, CEA, the Government of Baja California as represented by the Secretary of Planning andFinance and the Public Utilities Commission of Tijuana (“CESPT”). The APP Contract required AdR to design, construct, finance and operate aseawater reverse osmosis desalination plant (and accompanying aqueduct) with a capacity of up to 100 million gallons per day in two phases: thefirst with a capacity of 50 million gallons per day and an aqueduct to the Mexican potable water system in Tijuana, Baja California and the secondphase with a capacity of 50 million gallons per day. The first phase was to be operational within 36 months of commencing construction and thesecond phase was to be operational by July 2024. The APP Contract further required AdR to operate and maintain the plant and aqueduct for a period of 37 years starting from the commencement of operation of the first phase. At the end of the operating period, ownership of the plant and aqueduct would have been transferred to CEA. 2 Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] In December 2016, the Congress of the State of Baja California, Mexico (the “Congress”) passed Decreto #57 which, among other things, ratifiedand authorized the payment obligations of the corresponding public entities under the APP Contract and authorized the corresponding public entities to obtain a credit facility to guarantee their payment obligations. During 2017, following consultations between representatives of the State of Baja California and the Ministry of Finance of the Federal Government of Mexico, it was determined that certain amendments to Decreto #57were required to comply with recent changes to the Federal Financial Discipline Law for Federative Entities and Municipalities. In addition, anamendment of Decreto #57 was required to authorize the inclusion of revenue from the CESPT in the primary payment trust for the Project. Theseamendments were included in Decreto #168, which was approved by the Congress in December 2017. The authorization of the paymentobligations of the public entities under the APP Contract and for the execution of the credit agreement to guarantee such payment obligations givenin Decreto #57, as amended by Decreto #168, expired on December 31, 2018. During the congressional session held at the end of March 2019, theCongress passed Decreto #335, which renewed the authorizations for the various payment trusts, guaranties and bank credit lines required to beestablished for the Project by the State entities. Decreto #335 expired December 31, 2019. During the congressional session held at the end ofDecember 2019, the Congress passed Decreto #37, which renewed the authorizations for the various payment trusts, guaranties and bank creditlines required to be established for the Project by the State entities. Decreto #37 expired June 30, 2020. Both the exchange rate for the Mexican peso relative to the dollar and general macroeconomic conditions in Mexico varied since the execution ofthe APP Contract. These changes adversely impacted the estimated construction, operating and financing costs for the Project. The APP Contractand the APP Law allow for the parties to negotiate (but do not guarantee) modifications to the consideration (i.e. water tariff) under the APPContract in the event of such significant macroeconomic condition changes. In February 2017, AdR submitted proposals to CEA requesting thedefinition of the mechanism required by the APP Contract to update the consideration under the APP Contract for changes in foreign exchangerates, lending rates and certain laws which have impacted the Project. On June 1, 2018, AdR and CEA executed an amendment to the APP Contractwhich, among other things, increased the scope of Phase 1 of the Project by including the aqueduct originally designated for Phase 2, andaddressed AdR’s concerns regarding the impact on the Project for changes in the exchange rate for the peso relative to the dollar and changes ininterest rates that have occurred subsequent to the submission of the Consortium’s bid for the Project. As a result of this amendment to the APPContract, the final cost of Phase 1 and the related consideration to be charged by AdR under the APP Contract was to be determined based uponthe bid submitted by the Consortium, the changes set forth in the amendment to the APP Contract and the economic conditions (e.g. interest ratesand currency exchange rates) in effect on the financial closing date for Phase 1. In February 2018, AdR executed a subscription agreement (the “Subscription Agreement”) for the equity funding required for the Project. TheSubscription Agreement calls for NSC to retain a minimum of 25% of the equity in AdR. One or more affiliates of Greenfield SPV VII, S.A.P.I. deC.V. (“Greenfield”), a Mexico company managed by an affiliate of a leading U.S. asset manager, will acquire a minimum of 55% of the equity ofAdR. The Subscription Agreement also provides Suez MA with the option to purchase 20% of the equity of AdR. If Suez MA does not exercisethis option, NSC will retain 35% of the equity of AdR and Greenfield will acquire 65% of the equity of AdR. The Subscription Agreement willbecome effective when the additional conditions related to the Project are met, including but not limited to those conditions discussed previously.The aggregate funding to be provided by AdR’s shareholders for the Project, in the form of equity and subordinated shareholder loans, is presentlyestimated at approximately 20% of the total cost of Phase 1 of the Project. This Subscription Agreement was scheduled to expire on September 30,2020. 3 NSC expected to generate a portion of its funding for AdR through the sale to AdR of the land it had purchased for the Project. On June 29, 2020, AdR received a letter (the “Letter”) from the Director General of CEA terminating the APP Contract. The reasoning provided in the Letter for the decision to terminate the APP Contract is that the Project (a) is not financially feasible due to increases in the construction, operating and financing costs for the Project in addition to negative changes in economic conditions (e.g. interest rates and currency exchange rates); (b) is not sustainable for CEA and CESPT given its financial unfeasibility; (c) puts pressure to increase the rates charged to customers; (d) would force the Government of the State to cover a deficit of CEA and CESPT, thus preventing the State Government from spending on investment programs or social expenditures; and (e) negatively affects the general interest. The Letter requests that AdR provide an inventory of the assets that currently comprise the “Project Works” (as defined in the APP Contract) for the purpose of acknowledging and paying the non-recoverable expenses made by AdR in connection with the Project, with such reimbursement to be calculated in accordance with the terms of the APP Contract. The Company, AdR and NSC plan to vigorously pursue all legal remedies and courses of action available under the APP Contract and applicable law (including, if necessary, international treaties and agreements) with respect to any rights they may have upon termination of the APP Contract, including the reimbursement of expenses and investments. However, the Company cannot provide any assurances that it will be able to obtain reimbursement for any expenses or investments made with respect to the Project. Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] As a consequence of the termination of the APP Contract, the Company, AdR and NSC expect to and shall terminate the various agreements ancillary to the Project. Also as a consequence of the termination of the APP Contract, the land NSC purchased and the rights of way deposits it has made may have declined in value due to the loss of their strategic importance derived from their incorporation in the Project. Due to the uncertainty associated with the amount and timing of any reimbursement from the State Government, the Company may be required to record impairment losses to reduce the carrying values of the land and/or the rights of way (which amounted to approximately $21.2 million and $3.0 million, respectively, at March 31, 2020) to their current fair values. Such impairment losses could have a material adverse impact on the Company’s consolidated financial condition and results of operations. The summary of the Letter does not purport to be complete and is qualified in its entirety by reference to the full text of the Letter that is filed herewith as Exhibit 10.1. Note about forward-looking statements. Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to the Company’s business plans, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward- looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company’s products and services in the marketplace, the outcome of the Company and NSC’s attempt to pursue legal remedies and courses of action available under the APP Contract and applicable law with respect to NSC’s rights upon termination of the APP Contract, the Company’s ability to manage growth and other risks detailed in the Company’s periodic report filings with the Securities and Exchange Commission. Except as otherwise required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. 4 Item 9.01. Financial Statements and Exhibits. (d) Exhibits. Exhibit No.Title 10.1 Letter dated June 29, 2020 from the Director General of the Comisión Estatal del Agua de Baja California to Aguas de Rosarito, S.A.P.I. de C.V. 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CONSOLIDATED WATER CO. LTD. By: /s/ David W. Sasnett Name: David W. Sasnett Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] Title:Executive Vice President & Chief Financial Officer Date: July 6, 2020 6 EXHIBIT INDEX Exhibit No.Title 10.1 Letter dated June 29, 2020 from the Director General of the Comisión Estatal del Agua de Baja California to Aguas de Rosarito, S.A.P.I. de C.V. 7 (Back To Top) Section 2: EX-10.1 (EXHIBIT 10.1) EXHIBIT 10.1 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 Mexicali, Baja California, on June 29th, 2020. [Seal that says STATE WATER COMMISSION OF BAJA CALIFORNIA/ DISPATCHED/ JUNE 29, 2020] AGUAS DE ROSARITO, S.A.P.I. de C.V. Boulevard Rodolfo Sánchez Taboada number 10488, suite 801, Zona Río, Tijuana Baja California, Mexico Postal Code 22320. and/or Paseo de los Héroes number 10289-302, Col. Zona Urbana Rio Tijuana Tijuana Baja California, Mexico Postal Code 22010. Present. We make reference to the Public-Private Partnership Agreement Number C-SIDUE-CEA-APP-2015-002, entered into on August 22nd, 2016, by and between the STATE WATER COMMISSION OF BAJA CALIFORNIA (hereinafter, the “CEA”) y AGUAS DE ROSARITO S.A.P.I. de C.V. (hereinafter, the “DEVELOPER”); as well as STATE COMMISSION OF PUBLIC UTILITIES OF TIJUANA (hereinafter, “CESPT”) in its capacity as joint obligor, and by, at that time, the Ministry of Planning and Finance as guarantor in the Current Account Credit Facility. Said agreement was subject matter of Public Bid number SIDUE-CEA-APP-2015-002, was notarized before the public faith of Mr. Rodolfo González Quiroz, Notary Public number 13 of the City of Mexicali, Baja California, as evidenced in notarial deed number 78,242, volume 1,890, dated August 26th, 2016, which was amended through amendment agreement dated June 1st, 2018, (hereinafter, the amendment agreement dated June Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] 1st, 2018 will be referred as “Amendment Agreement”; and jointly the Amendment Agreement and the agreement C-SIDUE-CEA-APP-2015- 002 will be referred to as the “APP Agreement”). The APP Agreement, as established in the Amendment Agreement, is for the “Construction, Financing and Operation of a Desalination Plant in the Municipality of Playas de Rosarito” consisting of “A Desalination Plant with a capacity of up to 4.4 m3/second in two stages: the first with a capacity of 2.2 m3/second and an aqueduct to the delivery point in Tank 3 up to the El Florido Water Treatment Plant both in the Municipality of Tijuana, the expansion to 20,000 m3 of the mentioned Tank 3, and the second with a capacity of 2.2 m3/second, includes the Design, Preparation of the Executive Project, Construction, Electromechanical Equipment and functioning Tests of the Desalination Plant and the Aqueducts; as well as, their Operation, Conservation, Maintenance including its conduction and delivery of up to 4,400 liters per second, the treatment and the disposition of the rejection water during an operation period of 37 years” (hereinafter the “Project”). [Illegible signature][Illegible signature]1 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 The terms written with an initial capital letter, the meaning of which is not expressly defined herein, shall have the meaning ascribed to them in theAPP Agreement. In this regard, the fifth paragraph of Clause First of the APP Agreement provides that the guaranteed annual volume of water at 95% efficiency forboth stages of the Project shall be 131.2 million cubic meters, equivalent to 4,162 liters per second of Potable Water; the first stage being 65.6million cubic meters, equivalent to 2,081 liters per second, and for the second stage 65.6 million cubic meters, equivalent to 2,081 liters per second at the Measurement Point, regardless of its conduction to the Delivery Point, as well as the disposition of the Rejection Water1. The public-private partnership projects, in accordance with the provisions of article 2, paragraph two of the Public-Private Partnership Law for the State of Baja California (the “APP Law”)2, must be fully justified, specify the social benefit that is sought to be obtained, and evidence the need or convenience before other forms of financing, principles that have ceased being in effect in the case of the Project, because, in the event of continuing with the fulfillment of the agreed obligations, a damage would be caused to the CEA, to the CESPT, to the State of Baja California and to the users of the service by generating strong pressure to increase the current rates, as will be evidenced below, with the provisions of the first paragraph of Article 123 of the Regulations to the APP Law3 and Clause Thirtieth, section V, number 14 of the APP Agreement being applicable. Legal representation of Mr. Luis Granados Pacheco, General Director of the State Water Commission The undersigned, Mr. Luis Granados Pacheco is the General Director of the State Water Commission of Baja California, pursuant to the terms of the appointment issued in my favor on November 1st, 2019, by the Constitutional Governor of the State of Baja California, Mr. Jaime Bonilla Valdez and ratified before the H. Board of Governors of the CEA, which is supported by the notarization of the corresponding minutes which corresponds to volume 5,103, with number 183,694, dated November 21st, 2020, notarized before the faith of Notary Public number Five of the city of Mexicali Baja California, Mr. Luis Alfonso Vidales Moreno, which was registered in the Public Registry of Property and Commerce in the City of Mexicali Baja California, by means of entry 5883674 dated November 22nd, 2019 of the civil section, who exercises the legal representation of said organization in accordance with articles 11 and 12 of the Decree by which the State Water Commission of the State of Baja California is created, published in the Official Gazette of the State of Baja California on March 3rd, 1999 (hereinafter the “Decree for the Creation of the CEA”. 1 Clause First, paragraph fifth of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Subject Matter of the APP contained in Clause Fifth of the Amendment Agreement to the Public-Private Partnership Agreement dated June 1st, 2018, named Amendment to the APP Clauses, pp 13-14. 2 Public-Private Partnership Law for the State of Baja California published in the Official Gazette of the State on August 22nd, 2014, article 2, second paragraph. […]In the terms provided for in this Law, the public-private partnership projects shall be fully justified, specify the social benefit that is sought andevidence the need or convenience before other forms of financing. 3 nd Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] Regulations for the Public-Private Partnership Law for the State of Baja California published in the Official Gazette of the State on August 22 , 2014, article 123, first paragraph. The Contracting Entity must agree in the Public-Private Partnership Agreement that it may be early terminated when general interest reasons occur or, when for justified cause, the need for the requirement of the originally agreed goods or services extinguishes, and it is evidenced that, continuing with fulfillment of the agreed obligation, would cause a damage or prejudice to the State. […] 4 Clause Thirtieth, Section V, Number 1 of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Early Termination of the APP, Early Termination for reasons of general interest, pp 71-72. [Illegible signature][Illegible signature]2 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 Legal representation of Chemist Rigoberto Laborín Valdez, General Director of the State Commission of Public Utilities of Tijuana Chemist Rigoberto Laborín Valdez, has the authority to contract, obligate and agree on behalf of the CESPT in accordance with his functions, whoevidences his capacity by means of an appointment dated November first, two thousand nineteen, granted by Mr. Jaime Bonilla Valdez,Constitutional Governor of the State of Baja California, which was granted in accordance with the provisions of articles 49 fraction X of thePolitical Constitution of the Free and Sovereign State of Baja California, 2 and 12 of the Organic Law of Public Administration of the State of BajaCalifornia, 21 of the Law of Quasigovernmental Entities of Baja California and 11 of the Law of the State Commissions of Public Utilities of theState of Baja California and through a power of attorney granted by its Board of Directors as evidenced in Public Deed Number 182,428, Volume 5,896, dated November 13th, 2019, which is duly notarized before Notary Public Number 3 of this city of Tijuana, Mr. Xavier Ibáñez Veramendi, registered in the Public Registry of Property and Commerce under Entry 6182154 of the Civil Section, with registration date December 4th, 2019. Opinion of the CEA as a Contracting Entity Pursuant to the terms of article 123 of the Regulations to the APP Law, on June 25th, 2020, the CEA issued the opinion supporting the early termination of the APP Agreement, which specifies the reasons and justified causes creating it and supporting and motivating such circumstance areprecised, which are communicated to the Developer herein, for the relevant legal, regulatory and contractual purposes (hereinafter the “CEAOpinion”). Resolution of the Board of Directors of the State Water Commission of Baja California. At the Fourth Extraordinary Session of the Board of Directors of the CEA held on June 26th, 2020, the Board of Directors of the CEA resolved to authorize the early termination of the APP Agreement for the reasons set forth in the CEA Opinion and authorized the undersigned, in his capacityas as CEA's General Manager, to proceed lawfully. [Illegible signature][Illegible signature]3 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA. CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 GROUNDS FOR THE EARLY TERMINATION OF THE APP AGREEMENT FOR CAUSES OF GENERAL INTEREST Articles 1, 2, 5, 10, 11 and 12 of the Decree for the Creation of CEA, 1 of the Decree amending the Executive Decree creating the Decentralized Organism known as State Water Commission, 111 and 112 of the APP Law, 123 of the Regulations to the APP Law, and other related provisions, as well as the provisions of Clauses First, Third, Fourth, Fifth, Thirtieth Section V, number 1, Thirty Third and Thirty Eighth of the APP Agreement and resolution number SE/008/26-06-20 passed during the Fourth Extraordinary Session of the Board of Directors of the CEA are the Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] basis for the early termination of the APP Agreement. REASON FOR THE EARLY TERMINATION OF THE APP AGREEMENT FOR CAUSES OF GENERAL INTEREST. Causes of general interest for the termination of the APP Agreement. In accordance with what is indicated in Clause Thirtieth, section V, number 1, item a), below are the causes of general interest that justifiablyevidence that if the obligations of the APP Agreement continue to be fulfilled, a damage would be caused to the CEA, to the CESPT, to the Stateof Baja California and to the users of the service, by generating strong pressure to increase the current rates, all the foregoing to the detriment of thegeneral interest. a)Description. As evidenced below, the current conditions of the Project have been substantially modified with respect to the original conditions arising from the Public Bid number SIDUE-CEA-APP-2015-0025, which trigger the provisions for terminating the APP Agreement for reasons of general interest in accordance with the legal, regulatory and contractual provisions that have been indicated andthe reasoning described herein; as it does not constitute a sustainable solution given its financial unfeasibility, as well as the damage thatwould be caused by continuing fulfillment of the obligations agreed in the APP Agreement. b)Justification. Under the APP Agreement, the Developer must carry out the necessary actions for the development of the Project consisting of the planning, definition and execution of all the actions that it considers necessary to supply for 37 years, the operation of a flow of up to 4,400 LPS of desalinated and potable water in two stages, each one of 2,200 LPS, to partially cover the demand in theMunicipalities of Tijuana and Playas de Rosarito in the State of Baja California. Originally, it was forseen that the second phase, corresponding to 2,200 LPS, would begin operations in the year 20246. 5 Exhibits 1, 4 and 5 of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Call, Proposition and Scope of the works of the Reference Terms, respectively. 6 Cfr. Note 9. [Illegible signature][Illegible signature]4 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 Current Account Credit Facility The APP Agreement contains an obligation of CEA to carry out the contracting of a Current Account Credit line, which must comply with the following characteristics7: a.Be irrevocable and contingent; b.To guarantee to the Lenders of the Developer the fulfillment of the payment obligations in charge of the CEA; c.Have an amount equivalent to 3 months of the payment of the Consideration including the Value Added Tax. d.Have as a source of payment the necessary and sufficient percentage of the income from the tax on the remunerations for personal work plus the income from water rights collected by the CESPT for the rendering of its public utility service. e.Be in force as long as there are payment obligations in charge of the CEA under the APP Agreement (in the order of 37 years); This current account credit line implied a guarantee for an amount of $295.78 million pesos for phase 1 which was increased in $223.8 million pesos for phase 2, giving a total of $519.6 million pesos for both phases8. Original Consideration Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] The APP Agreement was executed with a bid amount equal to $98.6 million pesos of monthly consideration for the first phase and $74.6 million pesos for the second (at February 2016 prices). That is, the consideration for the two phases amounted to $173.2 million pesos including value added tax9. To place the above amounts into context, the monthly management income of CESPT (Audited in 2019) was of $328.8 million pesos and the operative result (management income minus operating expense) was $49.1 million pesos per month10. That is, the amount of the Consideration established in the APP Agreement11 only for phase 1 of $98.6 million pesos represents 30% of the income of the CESPT for 2019 and 200% of the operating result (income minus management expenses), therefore the payment of the Consideration would represent the creation of an annual deficit in the order of $593.17 million pesos to CESPT, this is due to obligation of the CESPT under the APP Agreement, of executing a water purchase and sale agreement in order for the CEA to have sufficient resources to pay the Consideration12. 7 Clause Twenty Ninth of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Resources of the Consideration, pp. 68-70. 8 Item 6 of clause Twenty Ninth of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Resources of the Consideration, pp. 69. 9 Exhibit 4 to the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Proposition. 10 Opinion on the Financial Statements of the State Commission of Public Utilities of Tijuana for the period comprised between January 1st and December 31st, 2019. 11 Clause Eleventh of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Consideration for the Services, pp. 40-46. 12 Opinion of the CEA. [Illegible signature][Illegible signature]5 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 The deficit in the CESPT mentioned in the previous paragraph impacts the CEA, the State Government and the users in the following manner: a.The deficit of CESPT would cause it to be unable to make full payment under the Water Purchase and Sale Agreement entered into with the CEA, causing the CEA in turn to not have sufficient resources for payment of the Consideration under this agreement. b.Upon the lack of sufficient resources for the payment of the Consideration, the exercise of the Current Account Credit that the CEA would contract with the guarantee of the Government of the State of Baja California, represented at the time by the Ministry of Planning and Finance (SPF), would be triggered c.Given that the Current Account Credit would affect the income and rights for the tax on remuneration for personal work in a necessary and sufficient percentage, the Government of the State of Baja California would have its income affected in the amount of resources necessary to cover the deficit of the Consideration, thus reducing the resources available for its investment or social spending programs. d.Given that the deficit would be maintained over time, this would generate strong pressure to increase user rates seeking to reduce said deficit. Amendment Agreement The Amendment Agreement amended the Total Cost of the System and consequently the Total Investment Amount and changed the original risk matrix of the Project by incorporating an acknowledgement of the variations in the exchange rate and interest rates, in addition to the updating mechanism for inflation originally foreseen, in accordance with the following13: a.It increased the total cost of the System for phase 1 from $5,254.48 million pesos to $6,099.80 million pesos Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] b.It reduced the total cost of the System for phase 2 from $3,271.26 million pesos to $2,624.58 million pesos 13 Clauses Fourth and Fifth of the Amendment Agreement to the Public-Private Partnership Agreement, dated June 1st, 2018, named Amendment to the APP Clauses; Clause Forty Sixth named total Cost of the System pp. 25-26. [Illegible signature][Illegible signature]6 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 c.It modified the amount of the Consideration in charge of the CEA and in favor of the Developer. d.It included a clause entitled: “Adjustment mechanism to recognize changes in financial conditions during the investment period”, which allows for an increase in the payment arising from the increase in the exchange rate in United States Dollars, in Euros and the increase in the interest rate. Economic Impacts of the Amendment Agreement The monthly consideration of $98.6 million pesos for the first phase was increased to $107.83 million pesos per month without considering the effects of exchange rate and interest rate adjustments14. Likewise, to place into context the amounts indicated in the previous paragraph, this Consideration of $107.83 million pesos represents 30% of the income of CESPT in 2019 and 219% of its operating result (income minus management expenses), which would imply generating an annual deficit for CESPT in the order of $704 million pesos.15 When calculating the effect of the “Adjustment mechanism to recognize changes in financial conditions during the investment period”16 incorporated into the APP Agreement through the Amendment Agreement, the Consideration for phase 1 including value added tax is estimated could increase from $107.83 million pesos to $125.50 million pesos per month.17 Again, to place in context the amounts indicated above, the Consideration for Phase 1 for $125.50 million pesos represents 44% of the income ofCESPT in 2019 and 296% of the operating result (income minus management expenses) which could generate an annual deficit for CESPT of $1,157 million pesos with the same affectation on the State of Baja California and the corresponding pressure for an increase in user rates.18 Options to cover the Deficit generated between the income and payment obligations in charge of the CEA and the CESPT The amount of the Consideration to be paid by the CEA and the CESPT under the APP Agreement were increased due to the AmendmentAgreement, which increased the amount of the investment and incorporated the change mechanism per increase of the exchange rate and interestrate, which means that the amount of such Consideration, from their origin, could generate a budget deficit for the CESPT that began at $593million pesos annually, but when incorporating the effects arising from the Amendment Agreement, could reach an amount of $1,157 million pesos annually, which should be covered by the contingent credit line as follows:19 14 Clause Fifth of the Amendment Agreement to the Public-Private Partnership Agreement, dated June 1st, 2018, named Amendment to the APP Clauses; Clause Eleventh.- Consideration for the Services. Sets an amount for total monthly consideration of $92,968,663, which amount, when adding the VAT, results in $107,843,649, p. 16. 15 Opinion of the CEA. 16 Clause Fifth of the Amendment Agreement to the Public-Private Partnership Agreement, dated June 1st, 2018, named Amendment to the APP Clauses; Clause Fourteenth named Adjustment Mechanisms to recognize changes in the financial conditions during the investment period pp. 17- 19. 17 Opinion of the CEA. 18 Ibidem. 19 Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] Ibidem [Illegible signature][Illegible signature]7 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 The deficit of the CESPT mentioned in the previous paragraph impacts the CEA, the State Government and the users as follows: a.The deficit of the CESPT would cause it to be unable to make full payment under the Water Purchase and Sale Agreement entered intowith the CEA, causing the CEA in turn to not have sufficient resources for payment of the Consideration under this agreement. b.Upon the lack of sufficient resources for the payment of the Consideration, the exercise of the Current Account Credit that the CEA wouldcontract with the guarantee of the Government of the State of Baja California, represented at the time by the Ministry of Planning and Finance (SPF), would be triggered. c.Given that the Current-Account Credit would affect the income and rights for the tax on remuneration for personal work in a necessaryand sufficient percentage, the Government of the State of Baja California would have its income affected in the amount of resourcesnecessary to cover the deficit of the Counterpart, thus reducing the resources available for its investment or social spending programs. d.Given that the deficit would be maintained over time, this would generate strong pressure to increase user rates seeking to reduce saiddeficit. This level of deficit would have to be covered through a combination of the following three sources: a.Reducing or eliminating future investments of the CESPT to the detriment of its service b.Use budget resources of the State Government of Baja California affecting the social or investment projects. c.Increase rates substantially affecting the economy of the population. Conclusion Based on the above founded and motivated, in case of continuing with the obligations foreseen in the APP Agreement, a negative impact on thefinances of the CEA, of the CESPT and in the finances of the State of Baja California and a strong pressure to carry out an increase in the currentrates would be created, thereby affecting the general interest. In other words, the Project contained in the APP Agreement: [Illegible signature][Illegible signature]8 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA. CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 a.Is not sustainable. b.Is not financially viable, nor sustainable for the CEA and the CESPT. c.Puts pressure on the increase in the amount of the rates to be paid by the users, affecting their economy. d.Negatively affects the general interest. Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] Notice of Early Termination of the APP Agreement for General Interest Reasons. In this context and given that it is the obligation of CEA to plan and coordinate the pertinent actions so that the population has sufficient hydraulic infrastructure through sustainable solutions, as established in article 1 of the Decree amending the Executive Decree creating the Decentralized Organism known as the State Water Commission, through which the State Water Service Commission is administratively and operationally incorporated into the State Water Commission20 and which must promote, at all times, its healthy development, a task that is made difficult by the financial unfeasibility of the APP Agreement, due to the complex situation described in this document; Therefore, pursuant to the terms of Articles 111 and 112 of the APP Law, 12321 of the Regulations to the APP Law, as well as the provisions of Clauses First22, Third23, Fourth24, Fifth25, Thirtieth section V, number 126, Thirty Third27 and Thirty Eighth28 of the APP Agreement, the company AGUAS DE ROSARITO S.A.P.I de C.V. is hereby notified, in its capacity as Developer under the APP Agreement, of the early termination of the APP Agreement for causes of general interest as of this date, and therefore said agreement ceases to have effects immediately. 20 Decree amending the Executive Decree creating the Decentralized Organism known as the State Water Commission by means of which the State Water Service Commission is administratively and Operationally integrated to the State Water Commission published in the Official Gazette of the State on January 27th, 2006, article First. Articles 1, 2, 4 and 12 of the Decree creating the State Water Commission of Baja California are amended to readas follows: Article 1.- The decentralized public body with its own legal personality and assets is created, called the State Water Commission of Baja California, which purpose will be to plan and coordinate the pertinent actions for the population to have sufficient hydraulic infrastructure, as well as to appoint, organize, and execute the water in block policy in the state, thus satisfying the demand for water services through sustainable solutions. 21 Cfr. Note 3. 22 Clause First of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Subject Matter of the Agreement, contained in Clause Fifth of the Amendment Agreement to the Public-Private Partnership Agreement, dated June 1st, 2018, pp. 13-15. 23 Clause Third of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Description of the Works of the Agreement, pp. 28-29. 24 Clause Fourth of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Times for the Execution of the Agreement, pp. 29-33. 25 Clause Fifth of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Realization of the Project and Financing of the Agreement, pp. 33-35. 26 Clause Thirtieth, Section V, Number 1 of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Early Termination of the APP, Early Termination for reasons of general interest, pp. 71-72. 27 Clause Thirty Third of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Early Termination for reasons of general interest or Justified Causes, pp. 81. 28 Clause Thirty Eighth of the Public-Private Partnership Agreement identified with number C-SIDUE-CEA-APP-2015-002 named Notices, pp. 86-87. [Illegible signature][Illegible signature]9 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 Requirement to the Developer: In terms of the provisions of Clause Thirtieth, section V, number 1, items a), b) and c)29 respectively, the Developer is requested to, within the terms mentioned below: a.Begin the inventory of the assets that are currently comprise the Works of the Project referred to in paragraphs a) and b) of number 1 of Section V of Clause Thirtieth of the APP Agreement and proceed to its delivery to CEA within 90 (ninety) business days as from the date of delivery of this notice; b.For purposes of that mentioned in the immediately preceding paragraph, Mr. Juan Carlos Sandoval has been appointed as representative Document Contents https://www.snl.com/Cache/IRCache/ca2f6df5c-512b-d524-d499-087ee152c1c3.html#tm2024078d1_ex10-1.htm[7/8/2020 10:13:51 AM] of CEA. c.Submit to CEA the corresponding evidence, with the purpose of acknowledging and paying the non-recoverable expenses and those pending amortization made by the Developer in the Project. d.The reimbursement will be calculated in accordance with the APP Agreement. For purposes of carrying out the delivery of this notice in terms of the provisions of Clause Thirty Eighth of the APP Agreement30, I hereby inform you that this notice will be delivered to you by Mr. Alejandro Aguilera Martinez, in his capacity as legal representative of this State Water Commission of Baja California. Without further ado, saying goodbye to You. SINCERELY, [Illegible signature] MR. LUIS GRANADOS PACHECOGENERAL DIRECTOR AND LEGAL REPRESENTATIVEOF THE STATE WATER COMMISSION OF BAJA CALIFORNIAAS CONTRACTOR OF THE APP AGREEMENT. [Illegible signature] MR. RIGOBERTO LABORIN VALDEZGENERAL DIRECTOR OF THE STATE COMMISSION OF PUBLIC UTILITIES OF TIJUANA. 29 Cfr. Note 13. 30 Cfr. Note 5. [Illegible signature][Illegible signature]10 [Seal that says AGENCY: STATE WATER COMMISSION OF BAJA CALIFORNIA.CEA – Comisión Estatal del Agua]SECTION: GENERAL DIRECTION OFFICIAL COMMUNICATION: DG/122/2020 c.c.Members of the State Committee for Public-Private Partnership Projects. Present General Minister of the Government of Baja California.- Present. Minister of Finance of the State of Baja California.- Present Minister of Infrastructure, Urban Development and Territorial Reorganization of the State of Baja California.- Present Minister of Water of the State of Baja California. Present. Minister of Honesty and Public Function. Present. H. Board of Directors of CEA.- Present. Mr. Juan Carlos Saldoval in his capacity as representative of the State Water Commission of Baja California in terms of this official communication- present Project Supervision.- Present. Project Logbook.- Archive [Illegible signature][Illegible signature]11 (Back To Top) Exhibit D Baja California governor accuses big US companies of water theft Fidencio Carillo Gonzales has been living next to a canal that flows through Tijuana for six years and complains about its horrible smell. (Alejandro Tamayo / The San Diego Union-Tribune) At least 80 employees of the state water agency have been suspended or fired. By WENDY FRY JULY 4, 2020 6 AM BAJA CALIFORNIA — An independent audit of Baja California’s water agency alleges that former employees of the utility colluded with international corporations to defraud the state out of at least $49.4 million, according to an auditor and the governor of the state. Local and international corporations — including such well-known U.S. names as Coca- Cola, FedEx and Walmart — for years took water for use in their Mexican factories, retail stores and distribution centers without fully paying for it, Baja California officials have alleged. “These businesses have been systematically robbing the people,” said Baja California Governor Jaime Bonilla, who took office in November 2019. That corruption contributed to chronic under-funding of the state water agency, known as the Comisión Estatal de Servicios Públicos de Tijuana or CESPT, Bonilla said. To cover up the water theft, the auditor says, some companies also installed their own clandestine drainage systems to illegally discharge contaminated water into Tijuana’s already strained storm drains and canal. That water feeds into the Tijuana River, which flows through that Mexican city toward the San Diego coast. There it crosses the border into the United States, polluting the southernmost communities in San Diego County. More than 80 former employees of the water agency have been suspended or fired since the audit began, and nearly 450 companies are being investigated in the ongoing independent audit conducted by FisaMex, a Mexico-based accounting firm. In Colonia Lomas Taurinas trash and standing water in a storm drain that runs through the middle of the valley. This neighborhood is south of the Tijuana International Airport. Residents complain about the fowl smells in the area on June 30th, 2020 in Tijuana. The state is investigating as many as 400 companies for water theft and illegal dumping of sewage. Coca-Cola, Samsung, Hyundai and Home Depot are among a growing list of international and American companies the state of Baja California is investigating for alleged water theft and the illegal discharge of water sewage into the city’s crumbling drainage systems. (Alejandro Tamayo/The San Diego Union Tribune) In a written statement, Coca-Cola said its Baja California bottling plant obtains the water it uses in compliance with Mexico’s federal general water law, and the factory makes “responsible use of the resource, improving our processes to be more efficient and reduce its consumption.” Specifically, the Baja California plant said it processes 97 percent of its wastewater at its own wastewater treatment plant, and then returns it to the environment in compliance with federal law. The remaining 3 percent is discharged into the sewer system for which the company says it has discharge rights. None of the other companies responded to questions from the San Diego Union- Tribune. Some companies have responded to state investigators, saying they did not pay for water because they were not charged under the prior state administration. Bonilla doesn’t accept that explanation, pointing to measures he says some companies have taken to avoid being billed for their true water consumption, which were uncovered during the months-long audit. Bonilla has vowed to make the companies pay what they owe, so he can “clean-up the canal and stop spreading contaminated water to the beaches of Imperial Beach.” “That has to stop,” he said. According to Bonilla, the uncollected state funds could have been used to invest in maintenance and infrastructure to prevent at least some of the Tijuana sewage spills that have fouled San Diego shorelines and strained international relations. The Tijuana River runs through the city of Tijuana heading towards San Diego coast on June 30th, 2020 in Tijuana. The state is investigating as many as 400 companies for water theft and illegal dumping of sewage. Coca-Cola, Samsung, Hyundai and Home Depot are among a growing list of international and American companies the state of Baja California is investigating for alleged water theft and the illegal discharge of water sewage into the city’s crumbling drainage systems. (Alejandro Tamayo/The San Diego Union Tribune) Tens of millions of gallons of raw sewage and toxic sludge spill every year into the Tijuana River on the Baja California side, and then drain into Southern California’s lower ground, eventually emptying into the Pacific Ocean. In 2019, more than 2.3 billion gallons of wastewater and polluted runoff crossed the line, contaminating U.S. properties, beaches and wildlife habitats. The sewage has most impacted Imperial Beach, a small coastal city within the County of San Diego. In Colonia Chula Vista sewage water and trash flow in the storm drain on June 30th, 2020 in Tijuana. The state is investigating as many as 400 companies for water theft and illegal dumping of sewage. Coca-Cola, Samsung, Hyundai and Home Depot are among a growing list of international and American companies the state of Baja California is investigating for alleged water theft and the illegal discharge of water sewage into the city’s crumbling drainage systems. (Alejandro Tamayo/The San Diego Union Tribune) It’s a decades-old problem, recently featured on “60 Minutes.” The United States plans to invest $300 million in infrastructure to stop the sewage from flowing across the border, according to the legislative act governing the United States-Mexico-Canada Agreement. Imperial Beach Mayor Serge Dedina, a vocal critic of the cross-border sewage, said he was “shocked but not surprised” about the results of the Baja California audit. “We expected something like this was going on — but nothing at that scale,” said Dedina. “It all makes sense now — why the situation deteriorated so quickly and why they never seemed to be able to fix anything. Some of the most powerful, wealthy corporations in the world we now know contributed to our sewage crisis,” he added. Bonilla said he plans to do his part by ensuring companies operating in Baja California pay for the water they use, so the utility can start investing in maintenance to replace aging city pipes and upgrade Tijuana’s largest sewage treatment plant. Companies will be fined for illegal sewage discharges, he said. In Colonia Chula Vista sewage water and trash flow in the storm drain on June 30th, 2020 in Tijuana. The state is investigating as many as 400 companies for water theft and illegal dumping of sewage. Coca-Cola, Samsung, Hyundai and Home Depot are among a growing list of international and American companies the state of Baja California is investigating for alleged water theft and the illegal discharge of water sewage into the city’s crumbling drainage systems. (Alejandro Tamayo/The San Diego Union Tribune) “These are multi-million dollar, transnational corporations that are listed on the stock exchange,” said Bonilla. “And, in Tijuana, they steal water?” Coca-Cola, FedEx, Walmart, Samsung and Hyundai are among the more than 400 companies whose water and sewage use has been audited. Coca-Cola is accused of contracting with CESPT in 1992 to connect water to a parking lot located 150 meters from its bottling factory in Tijuana. Manuel Garcia, the Fisamex auditor, said the company then illegally connected the water services from the parking lot to its property across the street, where he says it employees hundreds of people. Since 1992, Coca-Cola has only been paying the same minimum monthly bill of five units of water for its entire factory, Garcia said, about the same amount of water used by one person living conservatively in a small home. Garcia said the company owes the CESPT about $1.1 million in unpaid water fees for the past five years, the maximum time frame the agency is allowed to collect. When he visited Coca-Cola’s property, Garcia said he discovered three hidden drainage pipes — two that were eight inches in diameter and one that was 12 inches. The professionally installed drainage pipes were never authorized by CESPT, he said, but they eventually connect to the Tijuana canal, which funnels sewage water toward the U.S. border. Coca-Cola released a statement in response to the allegations at Corporacion del Fuerte, the system’s bottler in Tijuana: “For more than 30 years operating in Baja California, hand in hand with Corporacion del Fuerte, we have been characterized by complying with the laws and obligations applicable to our processes, the satisfaction of our customers and consumers, and by supporting the community,” the statement read in part. “We reiterate our commitment and willingness to continue collaborating with the authorities in favor of the development of the area.” For one of Hyundai’s large auto-assembly factories along the border, auditors could not locate any water or sewer account on file with the Baja California water agency. Since 2012, the company has not paid the state for a single drop of water, state investigators said. “How is it a company like Hyundai, a transnational company, listed on the stock exchange, its profits being reviewed by its shareholders … How is it they come settle in Mexico without ever paying a water bill?” asked Bonilla. “Nothing is installed. There’s no meter, so they have volumes of water coming in, enjoying the free drainage and there’s absolutely no record of them at all at the water agency. Let’s see. It means, to do all that, they had to have been cooperating with the CESPT,” he said. Garcia said Hyundai owed $489,104 in unpaid water fees to the CESPT for the past five years. Bonilla said the director of a well-known hotel in Tijuana recently asked to meet with the governor to complain about the “injustice of the CESPT.” The hotelier explained he had already paid CESPT employees directly in April about a quarter of his bill to make his entire outstanding balance disappear, Bonilla said. A forensic analysis of the account showed the hotel’s approximately $178,000 debt had been deleted from the agency computers without any record of the payment to the CESPT employees, according to Bonilla and the auditor. The secretary of Baja California’s public integrity unit, Vicenta Espinoza Martínez, agreed it would have been difficult for no one at the CESPT to notice the discrepancies. “It caught our attention when reviewing the budgets,” said Espinoza Martínez. “When reviewing the accounts of large water consumers we saw we were actually spending more than we were bringing in — more than our income was ... and some accounts were being charged for very minimum consumption despite being very large companies ... to the point where it was illogical.” The new governor has vowed to collect what is owed or to cut off water to big companies, including Grupo Aeroportuario del Pacífico, the Mexican company that runs the Tijuana International Airport. In June, state officials cut off water at the airport, causing employees and passengers to complain about the smell of urine and concerns over the spread of coronavirus. Last Monday, CESTP officials turned the water back on after the company paid $1.5 million in back payments for water. Baja California state law says the company can only be charged for five years worth of discrepancies in unpaid water bills. Grupo Aeroportuario del Pacífico’s CEO Raúl Revuelta Musalem said in a statement on June 29 the company is “committed to the economic and social development of Mexico” and working with Baja California officials to building a “spirit of conciliation to jointly face adverse circumstances facing the country.” Bonilla, a former Otay Water District director, is a member of the ruling MORENA political party, a new leftist party founded by Mexico’s current president. In 2019, MORENA defeated the National Action Party or PAN, the political party that had nearly exclusively governed Baja California for 30 years between 1989 and 2019. “I’m from Tijuana. I’m from Baja California, and it hurts me a lot that these businesses come here and make a lot of money off the sweat of Baja Californians, but they don’t comply — at a minimum — with their basic obligations,” Bonilla said. He said he was equally upset with the water agency. “They cut off the water very rapidly for the woman who lives on the corner who owes 1,800 pesos ($79.37), but not for the giant corporation that hasn’t paid for water for 7 years ... " said Bonilla. Victor Manuel Vegas, 45, lives on the property adjacent to the illegal drainage ditch used by the airport in the Lomas Taurinas neighborhood. He’s been complaining about the smell since 1993. “When it is hot, it smells so bad; it’s unbearable. My kids can’t even live here with me because we’re worried about the contamination,” Vegas said. He’s seen chemicals, gasoline, oil and other hazardous material flowing through the creek. “My family is afraid to live here with me because of their illegal actions,” he said. Exhibit E Governor says Baja used water as a piggy bank. Critics worry about his bigger plan An audit alleges utility employees colluded with companies to defraud the state out of millions of dollars in exchange for funding preferred candidates By WENDY FRY JULY 12, 2020 5 AM BAJA CALIFORNIA — Baja California’s new governor, Jaime Bonilla, says he is battling to clean up widespread corruption that for years ate away at the state’s water agency. Even Bonilla’s critics acknowledge the corruption and the failing water system, which results in frequent sewage spills that foul Tijuana and San Diego beaches. But those critics also allege the high-profile investigation, which has already led to 30 criminal complaints, is aimed at Bonilla’s political enemies. And they worry that it could be used to build up his own nest of public funds. Attorneys for some of the companies swept up in the audit, as well as independent political analysts, say they suspect that Bonilla’s investigative effort may help resurrect the controversial Playas de Rosarito facility, a $470 million seawater desalination project that stalled because of a lack of consensus about the licensing terms to a private company. It’s an allegation Bonilla strongly denies. “What they are doing is criminal. And they want to be the victims?” responded Bonilla, referring generally to the companies audited and their supporters. “They are dumping radioactive material into the channel. It has nothing to do with politics. We are doing the right thing.” Bonilla has been a key proponent of the desalination plant, strongly advocating for it on both sides of the border, but he says the stalled project has nothing to do with the audit. “It’s not even going to be built during my term,” he said. The governor insists his goal is to regulate the water utility so it can better address the sewage spills at the border and provide water and sewer services to all residents in Tijuana and Baja California. Rapid growth in the border state and over-dependence on the Rio Colorado-Tijuana aqueduct has led to water scarcity in the region’s coastal zones. In February, Bonilla pushed forward an independent audit of the Comisión Estatal de Servicios Públicos de Tijuana or CESPT, the agency responsible for supplying the city with water and sewer services and collecting payments. Results of the expanding audit, which has now turned into a criminal probe, allege employees of the utility colluded with local and international corporations to defraud the state out of millions of dollars in exchange for bribes and political funding for their preferred candidates. That’s money Bonilla says should have been used to invest in infrastructure. “No more free passes. They have to pay for the water they use — and not one penny more and not one penny less,” said Bonilla on Friday evening. “I don’t care if it’s Coca-Cola or Disney or Walmart. In Mexico, they’ve got to pay their bills.” Everyone who spoke to the San Diego Union-Tribune agreed that large companies in Baja California were given unfair breaks on their water bill — sometimes paying nothing — in exchange for political support of the prior administration under the National Action Party, or PAN. They emphasized that their concern is about Bonilla’s motivation for the audit, not the audit itself. Coca-Cola — the only company accused in the audit of water theft that has responded publicly — denied any wrongdoing, saying it treats its own water on site, as allowed under Mexican federal law. Independent political analyst Dr. Benedicto Ruíz Vargas, a writer and researcher who studies water issues and Baja California politics, said corruption within the water agency has been a well-known fact for decades. Water agency officials are accused of taking bribes to help big corporations conceal the amount of water they actually used, so those companies had lower bills. In one example, the Hyundai factory in north Tijuana, the company never paid anything for water or sewage services, according to auditors. In some extreme cases, the companies installed clandestine drainage systems to conceal their water usage and to dump toxic material into Tijuana drainage systems that flow toward the border and into Imperial Beach, state officials claim. The CESPT has long been regarded as an arm of the former ruling political party, Ruíz said. “It served to promote politicians,” said Ruíz. Bonilla’s staunchest critics belong to the PAN and its candidates are the strongest opponents of MORENA, the political party of both the governor and nation’s president. Ruíz said Bonilla’s efforts could be seen as trying to debilitate the PAN before the next election cycle . “This effort (the audit) has the principal intention of uncovering the network of corruption of the previous government,” said Ruíz, adding the damage in public perception could affect the PAN beyond just the 2021 election cycle. “I don’t think there’s any doubt the (water) agency needs to be cleaned-up, but if Bonilla who is the principal enemy of the PAN is the person to do it ...” Big-name companies like Coca-Cola, FedEx, Walmart, Samsung and Hyundai are among the now more than 833 companies statewide that have been implicated in the water agency’s billing irregularities and wide-ranging corruption scheme. So far, prosecutors have filed criminal complaints in Baja California accusing 129 current and former officials of the water agency of bribery and conflict of interest, the state’s Secretary of Honesty and Public Integrity Vincenta Espinoza said Wednesday. Officials have already collected $27.3 million of the $34.2 million they say the prior administration did not collect from companies and international corporations in Tijuana alone, she added. Administrative directors in the agency have received $50,000 payments to their bank accounts on the same day as the agency approved giant multi-use development projects without an opinion about how much water the development would use, which is a requirement for approval, Espinoza said. “Do you think that’s ethical for a company with 1,500 employees to receive a water bill for 300 pesos ($13), the same as what they would pay at home?” she asked. “It is not real or ethical to say that these are political issues. They say that politically we want to hit them, excuse us, but they are the politicians. There are more than 900 companies, so if there are three or four politicians who say we are attacking them, what about the other companies that are not in politics?” Real estate businessman David Saúl Guakil, the former campaign coordinator of former President Enrique Peña Nieto, is the owner of at least eight multi- housing buildings in Tijuana. Espinoza said clandestine pipes were installed on his properties to conceal the true amount of water used on the property. Guakil, who is eyeing a bid for mayor of Tijuana, has denied accusations of water theft. Some question whether Bonilla is trying to raise funds and awareness of the state’s water scarcity to secure financing for the desalination plant that was planned for Rosarito. If built, the giant reverse-osmosis facility would convert up to 100 million gallons of seawater a day. A portion of that water would be sold to the San Diego region, according to details of the financing scheme and Otay Water District documents — a point of great contention in Mexico. Jaime Martínez Veloz, the president of the Center of Studies for Northern Border Projects, said Bonilla negotiated the deal from both sides of the border, leaving doubt about whether Baja California would actually benefit. “There’s plenty of shortcomings in the sale and purchasing operations, but for me the seriousness of this — the biggest concern — is that a North American official designed and clarified ... details of a development with the final goal of selling water to San Diego,” said Martínez Veloz, referring to Bonilla. The governor responded that Martínez Veloz is “irrelevant in Baja California state politics.” Bonilla advocated for the desalination project when he served on the Otay Water District in Chula Vista, but he has since said publicly that the financing does not pencil out for Baja California. A spokesman for the CESPT confirmed several U.S. companies had filed claims against the agency about the retroactive charges, but the spokesman said he could not release copies of the claims to the San Diego Union-Tribune because they were in the possession of Fisamex, an outside company conducting the audit. As part of its contract with the state, Fisamex, a Sonora-based accounting firm, is collecting 20 percent of the funds recuperated during the audit — another major source of criticism about the investigation. Several residents on both sides of the border said they are not concerned about the governor’s motivations for conducting the audit, as long it results in better management of the sewage and water-delivery systems. “We just want the water cleaned up,” said Imperial Beach Mayor Serge Dedina, who has been a vocal critic of the cross-border sewage spills. “I couldn’t even begin to tell you what is happening or why. Our only focus is getting the border cleaned up — and what goes in within the bureaucratic or political fights in Mexico or Baja California is really beyond our purview.” Water Desalination ReporT Volume 56, Number 26 The international weekly for desalination and advanced water treatment since 1965 13 July 2020 Mexico State government cancels Rosarito SWRO On 29 June, the State Water Commission of Baja California (CEA) advised Aguas de Rosarito (AdR), the special purpose vehicle created to deliver the Rosarito Seawater Desalination Plant, that it was terminating the contract for the plant that had been executed in August 2016. Although the state governor of Baja Norte held groundbreaking ceremonies over two years ago, the project has still not reached financial closure. Meanwhile, the water situation in the region remains •Forces state government to cover cost deficits, thus preventing spending on investment or social programs; •Negatively affects the general interest. The letter also asks AdR to inventory the project assets— including $24.2 million in property and right-of-way costs— to acknowledge pay for AdR’s non-recoverable expenses. As a consequence of the termination, CWCO and its partners will terminate the various agreements ancillary to the project. Tom Pankratz, Editor, P.O. Box 75064, Houston, Texas 77234-5064 USA Telephone: +1-281-857-6571, www.desalination.com/wdr, email: tp@globalwaterintel.com © 2020 Media Analytics. Published in cooperation with Global Water Intelligence. Singapore International Water Week Jun 1968 – Aqua-Chem commissions 7.5 MGD MSF at Rosarito; world’s largest seawater desal plant Jul 2005 – Binational Mexico-US SWRO project concept explored, cost estimated at $3.10/kgal ($0.82/m3) Mar 2010 – San Diego County feasibility study finds no ‘fatal flaws’ with 25 MGD Binational SWRO Jun 2010 – CWCO and Mexican partner create NSC Agua, start developing project Sep 2011 – CWCO contracts site for desal plant adjacent to CFE’s Rosarito power plant Feb 2012 – CWCO acquires control of NSC Agua, accelerates development of project Nov 2012 – CWCO leases property for intakes/discharge within CFE’s Rosarito power plant Nov 2012 – CWCO & Otay Water District (OWD) sign LOI to deliver up to 20 MGD across US border to OWD May 2013 – CWCO acquires 2nd parcel of property, for a combined 49-acres for Rosarito SWRO Nov 2013 – OWD applies for US Presidential permit for cross boarder pipeline to import water Aug 2014 – Baja Norte enacts new public-private partnership (APP) law Jan 2015 – Baja Norte accepts CWCO’s unsolicited proposal Feb 2015 – CWCO selects Suez as potential EPC partner Jun 2015 – Baja Norte declares project in public interest and says it should proceed under APP Law. Nov 2015 – Baja Norte issues RFP for 2X50 MGD Rosarito SWRO project under 40-yr DBOOT contract May 2016 – Of three bids, CWCO is top-ranked bidder by Baja Norte Aug 2016 – Baja Norte executes contract with Aguas de Rosarito (AdR), CWCO’s SPV Dec 2016 – Congress of State of Baja Norte authorizes the project’s 40 year financial guarantees May 2017 – US Presidential international pipeline permit granted to OWD Feb 2018 – Black Rock’s Mexican fund commits to acquiring 55% of AdR’s equity Mar 2018 – Still awaiting financial close and 2 permits, Baja Norte governor holds groundbreaking ceremony Jun 2018 – AdR and Suez sign EPC Agreement with option for Suez to become CWCO’s 20% equity partner Jun 2018 – Contract amended to include added scope, provisions to adjust interest & currency rates Dec 2018 – Project guarantee authorization expires at end of year; congressional approval extension required Mar 2019 – International Development Bank agrees to $200 million in project funding. Aug 2019 – State Congress re-establishes authorization for project guarantees until 31 Dec 2019 Dec 2019 – State Congress re-establishes authorization for project guarantees until 30 Jun 2020 Jun 2020 – Baja Norte terminates contract: “not financially feasible…due to changes in economic conditions” Rosarito Mexico SWRO Project Development Timeline as dire as ever. Between 2002 and 2010, several feasibility studies concluded that there was a need and an interest in a binational project that would serve customers on both sides of the US/Mexico border. When no public binational project was developed, Cayman- based Consolidated Water (CWCO) began privately developing the project. That project was a 100 MGD (378,500 m3/d) SWRO project built in two phases and co-located at CFE’s Rosarito Power Station, 12 miles (20km) south of Tijuana, which could deliver up to 20 MGD of water across the US border to the Otay Water District in San Diego County. When the project was publicly bid in 2016, CWCO’s winning tariff for the first phase of the project was $3.10/kgal ($0.82/m3), under a 40-year water purchase agreement. According to the state’s termination letter, the reasons for cancelling the project are: •Not financially feasible due to con- struction, operating and financing cost increases, and negative changes in interest and currency exchange rates; •Not sustainable for the government given its financial unfeasibility; •Increases pressure to raise water rates;“Baja Norte” refers to the Mexican state of Northern Baja California and its various agencies Exhibit G Reporta corporativo cancelación de planta desaladora en Baja California Redacción/Adelante Valle Jul 14, 2020 La Comisión Estatal del Agua de Baja California decidió cancelar el proyecto de la planta desaladora de Playas de Rosarito. Según indica un reporte de la empresa Consolidated Water, el pasado 29 de junio la agencia estatal notificó al corporativo de Islas Caimán sobre la cancelación del contrato que había sido ejecutado en agosto de 2016. “A pesar de que el Gobernador de Baja Norte (SIC) llevó a cabo ceremonias de inauguración hace más de dos años, el proyecto no había alcanzado el cierre financiero. “Mientras tanto la situación del agua en la región permanece más extrema que nunca”, indica el reporte emitido este lunes 13 de julio. Según el corporativo caribeño, el gobierno de Baja California sustentó su decisión debido a la inviabilidad financiera del proyecto, así como su costo de financiamiento y operación, cambios negativos de intereses y en el tipo de cambio. Además, el Gobierno de Baja California señaló la insustentabilidad del proyecto por su inviabilidad financiera y las presiones para aumentar las tarifas de agua, problemas de déficit del gobierno estatal para cubrir el proyecto, que evitaría el gasto en programas sociales. La carta enviada por la CEABC solicita evaluar el inventario de activos del proyecto, que incluye 24.2 millones de dólares en costos de propiedades y derechos de vía, para reconocer el pago a Aguas de Rosarito por los gastos no recuperables. La empresa, a través de su filial en México, Aguas de Rosarito, había realizado entre 2002 y 2010 estudios de factibilidad que llevaron a determinar la necesidad de proyectos binacionales que servirían a clientes tanto de Estados Unidos como de México. El ex Gobernador, Francisco, Vega, había negado rotundamente que el agua producida por la desaladora habría de tener como destino los Estados Unidos, lo cual señalaron grupos ambientalistas de Baja California. Debido a que ninguna empresa había desarrollado este proyecto, Consolidated Water (CWCO) empezó con la etapa de planeación de la planta. El proyecto habría generado unos 100 millones de galones a través de la construcción de dos fases que se ubicaría a un costado de la Estación Eléctrica de Rosarito. Una quinta parte de la producción de agua habría quedado en manos del Distrito de Aguas de Otay, al cual el gobernador Jaime Bonilla fue electo en años pasados. La planta, cuyo proceso fue lanzado de manera pública en 2016, fue otorgada a CWCO por un costo de 3.10 dólares por kilogalones con un contrato de 40 años. Exhibit H https://burgeronreport.com Bonilla cancels desalination plant contract previously promoted By Leonardo Abad - July 15, 2020 https://burgeronreport.com The Baja California government terminated the contract for the desalination plant in Playas de Rosarito, which ex-governor Francisco Vega presented in 2018, when he laid the foundation stone for the work. Rubén Sánchez, director of the project, confirmed by telephone call the cancellation of the Public Private Association contract between the company Aguas de Rosarito and the state government. Aguas de Rosarito was created to develop and operate this project, and is a subsidiary of the publicly listed transnational Consolidated Water. In a June 29 statement, Consolidated Water said the Commission Baja California State Water Authority (CEA) decided the cancellation due to the financial infeasibility of the project, the cost of financing and operation, as well as the peso-dollar exchange rate. In the same document, CEA requests to evaluate an inventory of project assets, which includes $ 24.4 million in property costs and rights of way, which will have to be paid to Aguas de Rosarito for unrecoverable expenses. [19659002] The State Commission for Water in Baja California and Aguas de Rosarito SAPI de CV They signed the contract for the work, under the Public Private Partnership (APP) scheme in August 2016. The contract established that the state government would have to buy 173 million pesos a month of water, for the next 37 years, from According to the report “ The sides of the water “. The project of the desalination plant in Playas de Rosarito was surrounded by controversy from its beginning until its cancellation. Its project was to distribute water in Tijuana and Playas de Rosarito, but also sell to the United States through the Otay Water District. Mark Watton, former general manager of the Otay Water District in San Diego, California, confirmed that he was holding talks to buy Baja California water, from state administrations prior to that of the PAN Francisco Francisco, as revealed in the report “ The Plan of BC and Sonora to export water to the United States “. The current governor of Baja Califor girl, Jaime Bonilla Valdez was director of the Otay Water District, California, where he supported the project to buy desalinated water imported from Mexico. In a minute from the 2014 Water District, the support of the then federal deputy, Jaime Bonilla, and Héctor Mares Cossio, his deputy, was recorded for the contract between Consolidated Water and the Baja California government. In the document specifies that they would assist in a meeting with Governor Francisco Vega on October 10 of that same year. Exhibit I Cancelan construcción de desalinizadora en Baja California Recreación artística de la planta desalinizadora en Rosarito. (NSC Agua) By ALINE CORPUSAGENCIA REFORMA JULIO 15, 2020 6:40 AM La Comisión Estatal del Agua (CEA) de Baja California canceló el proyecto de la desaladora de Playas de Rosarito y le avisó al consorcio Aguas de Rosarito, informó Mark Robak, miembro de la Junta del Distrito de Agua de Otay, en California. “La CEA informó a Aguas de Rosarito, (consorcio) creado para entregar el agua desalada de mar, que se terminaba el contrato realizado desde agosto del 2016”, tuiteó el martes 14 el funcionario del organismo de agua. Robak mostró un documento en el que se exponen las causas de la cancelación, entre ellas que el proyecto no es financieramente factible debido a aumentos en los costos de construcción, operación y financiamiento. Así como cambios negativos en las tasas de interés y de cambio de divisas, y que había presión para aumentar las tarifas de agua. “Obliga al gobierno estatal a cubrir los déficits de costos, evitando así el gasto en inversión o programas sociales. Afecta negativamente el interés general”, dice una de las razones enumeradas. La carta también solicita a ADR que se haga un inventario de los activos del proyecto, incluidos 24.2 millones de dólares en propiedad y costos de derecho de paso. El Distrito de Agua de Otay, un proveedor público de agua, agua reciclada y servicio de alcantarillado en Estados Unidos, ubicado en la zona colindante con Tijuana, esperaba que México le vendiera el líquido, a través de la desaladora, por lo que tenía su propio comité de seguimiento. En una memoria de una reunión en diciembre de 2017, se expone que la junta del organismo debería esperar hasta 2020 para ver el curso del proyecto. “Después de las elecciones presidenciales del 2018 y las elecciones para gobernador del 2019", indica la minuta. Además se hace referencia a una tubería aprobada por el Gobierno de Estados Unidos en mayo de 2017 para la importación de agua. El pasado 2 de julio, el Secretario para el Manejo, Saneamiento y Protección al Agua del Estado, Salomón Faz Apodaca, informó en conferencia que el Gobierno de Baja California revisaría este mes si seguiría el proyecto de la planta desaladora. Apenas el 29 de marzo de 2019, el ex Gobernador panista Francisco Vega solicitó una actualización del presupuesto original para el proyecto, que se dio a conocer públicamente en 2015. El 7 de noviembre pasado, el actual Gobernador Jaime Bonilla, quien presidió el Distrito de Agua de Otay por varios años, expresó que el estado no podía pagar 158 millones de pesos mensuales. Grupo REFORMA solicitó entrevista con Faz Apodaca y el vocero de Aguas de Rosarito, quienes mencionaron que más tarde podrían hacer algún pronunciamiento. Exhibit J Planea Bonilla otra desalinizadora para BC; sería más pequeña Por Eduardo Jaramillo Castro 15, julio, 2020 3 minutos de lectura Tras la rescisión del contrato con Aguas de Rosarito para la construcción y operación de la planta desalinizadora, el gobierno aún desconoce cuánto deberá pagar por la cancelación, pero ya contempla crear otra de menor dimensión. El Secretario para el Manejo, Saneamiento y Protección del Agua de Baja California, Salomón Faz Apodaca, dijo que en unos dos años tendrían la definición de una planta desaladora más pequeña que el proyecto cancelado, para dar servicio por unos 15 años con holgura. En el contrato, el gobierno de Baja California tenía que asegurar el pago mensual de 173 millones de pesos durante 37 años de consumo de agua, pero ahora deberá subsanar los gastos por la recesión anticipada del contrato de Asociación Público Privada (APP). El Secretario Salomón Faz, dijo no tener un cálculo de cuánto costará la rescisión del contrato, que en este momento se está decidiendo de acuerdo a las inversiones de ambas partes y que se enmarca en el punto trigésimo del contrato. El proyecto de Aguas de Rosarito contemplaba producir 4.4 metros cúbicos de agua por segundo en la etapa más final, y en la primera etapa contemplaba producir 2.2 metros. El contrato firmado por el entonces gobernador Francisco Vega, fue anunciado como la planta desalinizadora más grande de latinoamérica. “Necesitamos una planta desaladora modular, que vaya creciendo y dando certidumbre de agua a la zona, pero de una manera más razonable y sin un costo para las finanzas del estado”, dijo Salomón Faz. El secretario dijo desconocer si en el nuevo proyecto para la construcción de una desalinizadora sería por medio de otra APP. Una opción sería aquella que ofrezca la entrega de agua desalinizada sin que el gobierno de Baja California deba invertir, solo garantizar la compra de agua a largo plazo. Dijo que buscarán un esquema donde el gobierno del estado no tenga que invertir, como contemplaba el contrato recientemente cancelado. Aseguró que Tijuana cuenta con abasto de agua suficiente para todos sus usos en los próximos 5 años. La razón de la suspensión del agua en ciertas zonas son por daños o mantenimiento en la infraestructura. Otra alternativa que contempla el estado consiste en activar 21 pozos que tienen permiso vigente para ser operados, y que se encuentran abandonados. “Estos pozos generarían 400 litros por segundo, que representan 5 años de agua para Tijuana, con un costo de inversión de 40 millones de pesos” agregó Faz. En junio 29, la empresa Consolidated Waters, propietaria de Aguas de Rosarito anunció la terminación del contrato, sin que hasta ahora el estado emitiera una posición. El gobierno de Baja California dio por terminado el contrato con Aguas de Rosarito por inviabilidad financiera del proyecto, el costo del financiamiento y operación, así como el tipo de cambio peso-dólar, de acuerdo a la trasnacional. Rubén Sánchez, director de la desarrolladora Aguas de Rosarito, confirmó las plácticas para llegar a un acuerdo, pero dijo que no podía emitir más comentarios antes de responder al gobierno del estado sobre el aviso de cancelación del contrato. Exhibit K Gobierno de BC reconoce nuevo proyecto de desaladora para Tijuana Por Armando Nieblas RadarBC.com Luego de cancelarse el contrato con la empresa ganadora de la licitación de la desaladora de Playas de Rosarito, el Secretario para el Manejo, Saneamiento y Protección del Agua (SEPROA), Salomón Faz Apodaca, reconoció que analizan un nuevo proyecto de desalación para la ciudad de Tijuana, lo que deberá ocurrir en un plazo no mayor a 3 años. El pasado 29 de junio la Comisión Estatal del Agua (CEA) en Baja California, notificó a Consolidated Water la cancelación del proyecto de la desaladora en Playas de Rosarito, debido a la inviabilidad financiera del mismo, así como su costo de financiamiento y operación. Al respecto, el titular de la recién creada SEPROA explicó que desde el inicio de la presente administración comenzaron con la revisión de ese proyecto, dándose cuenta que era demasiado grande para las necesidades de la zona costa y además implicaba un fuerte impacto a las finanzas del Estado. Detalló que actualmente el Gobierno del Estado cuenta con pasivos de hasta 35 mil millones de pesos, muy por arriba de lo reportado por la anterior administración, lo que compromete las finanzas estatales y por consiguiente la posibilidad de continuar con ese proyecto. “Era imposible de cumplir para las finanzas públicas del Estado y sobre todo considerando un proyecto tan grande”, indicó. Dijo que Tijuana podría tener una desaladora de hasta 1 metro cúbico, que le garantizaría el abasto por los próximos 7 años. Además explicó que la ciudad requiere 100 litros de agua por segundo cada año, adicional a lo que está recibiendo, por lo que contar con una planta que genere mil litros, representaría un abasto de hasta 10 años. Salomón Faz Apodaca reconoció que cuentan con otros proyectos para garantizar el abasto de agua en la zona costa del Estado, uno de ellos la rehabilitación de 21 pozos de la Comisión Estatal de Servicios Públicos de Tijuana (CESPT), lo que permitiría extraer 400 litros de agua por segundo, representando 4 años de abasto con una inversión de apenas 40 millones de pesos Reconoció que la posibilidad de extraer agua de los pozos les permitirá ganar tiempo para llegar al propósito final, que es la desalación. “Vamos a terminar desalando forzosamente, el único tema es cuándo”, expresó. Agregó que hasta ahora no hay una fecha específica para echar andar el nuevo proyecto de la desaladora, pero debe ser no mayor a tres años, sobre todo porque hay muchas empresas interesadas en participar, principalmente extranjeras. Pero aclaró que el proceso de licitación del nuevo proyecto tendrá que ser transparente y abierto, además que tendrá que socializarse, tal y como, se hará con el contrato de suministro de energía eléctrica para el Acueducto Río Colorado‐Tijuana. Al ser cuestionado sobre el costo económico que representará para el Estado la cancelación del contrato con Aguas de Rosarito, explicó que será el área jurídica quien se encargue de revisar las consecuencias económicas. “Costaría más terminar el proyecto, serían 2 mil millones de pesos al año, por muchos años”, puntualizó. Por último, el Secretario para el Manejo, Saneamiento y Protección del Agua adelantó que el proyecto de la desaladora Kenton en San Quintín también está siendo revisado, mientras tanto sigue en proceso. Exhibit L Maya Srikrishnan July 20, 2020 The Latest in Baja’s Water Saga Critics say Baja California governor Jaime Bonilla’s investigation into widespread corruption at the state’s water agency is aimed at his political enemies, the San Diego Union-Tribune reports. They also worry that the investigation could be used to build up his own nest of public funds and could be used to resurrect the controversial $470 million desalination project in Playas de Rosarito. The current state of the desalination plant is … confusing. Last week, Reforma reports, the company spearheading the project disclosed that its contract had been canceled, said Mark Robak, a member of the Otay Water District, which has long backed the project in an effort to have its own independent water supply, separate from the San Diego County Water Authority. The project has indeed appeared to resurface in a new plan backed by Bonilla, though it would be smaller, Newsweek Mexico reports. For some background, the Border Hub for Investigative Journalism published an investigation last year detailing irregularities in the contracting process for both the Rosarito desalination plant and another one planned in Ensenada. The desalination plant has also been critiqued by San Diego water officials. They told us in 2017 they worried the project would siphon money from Tijuana’s already-strained sewer system, which has caused millions of gallons of sewage to cross north and frequently forces the closures of San Diego beaches.