California approves bond issue for Carlsbad desalination

Poseidon Resources has submitted and had approved an application for US$ 780 million in tax-exempt bonds for the Carlsbad seawater desalination project.

The Private Activity Bonds (PABs) are issued on Poseidon’s behalf by the California Pollution Control Financing Authority (CPCFA) and were approved in October 2011.

The company is currently still negotiating agreement on the project’s water purchase agreement (WPA) with the San Diego County Water Authority (SDCWA), which has been under discussion since August 2011. Poseidon’s Scott Maloni denied a local press report that Poseidon had struggled to put together a financing package.

Maloni told D&WR, “Poseidon has a financing package/plan in place that will be called upon when the WPA with the SDCWA is executed. In fact, as the story points out, the state (via the CA Debt Limit Allocation Committee) approved the initial PAB application in 2010, and the state (via the CPCFA) approved the Initial Resolution Application for the updated amount of up to US$ 780 million in October 2011. The official allocation from CPCFA is received upon approval of the Final Resolution Application.”

Maloni points out that, while it was correct that project construction costs have gone up over the years, the construction costs and the total financing costs of the project as reflected in Poseidon’s CPCFA application should not be confused.

“For example, over US$ 125 million alone in project financing costs is capitalized interest needed to cover the period of time during project construction (approximately 3 years) when the facility is not producing water and therefore not generating revenue to pay the debt,” he said. “The environmental review process has also added tens of millions to the cost of the project through the addition of wetlands mitigation, indirect greenhouse-gas mitigation, source-water monitoring programs and a long-term piloting program. This process has strengthened the project, but has done so at a significant capital cost.”