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Financing closes for desalination plant

With the closing of a transaction for $734 million in tax-exempt bond financing on Monday, construction of the long-awaited seawater desalination plant in Carlsbad is set to begin within the next several days.

The San Diego County Water Authority adopted in late November the water purchase agreement with the desalination plant developer, Poseidon Resources, setting the San Diego region to begin receiving a proportion of its drinkable water from the facility by 2016. Scheduled to be built beside the Encina Power Station in Carlsbad, on land owned by the power station’s owner, NRG Energy (NYSE: NRG), the new desalination facility will be the nation’s largest, and have the capacity to produce up to 56,000 acre-feet of fresh water annually.

The completed financing will fund the desalination plant’s construction, as well as the construction of a 10-mile water pipeline connecting the facility to inland distribution sites.

Grading is scheduled to begin on the construction site during the first couple of days in the new year.

Thomas Wornham, chairman of the Water Authority’s board of directors, called the finance closing “no small feat.”

“This is a major milestone in the development of this historic project,” Wornham said in a release. “To do so just three-and-a-half weeks after the Water Purchase Agreement was approved required a monumental effort by all involved.”

Kiewit Shea Desalination, a joint venture between subsidiaries of Kiewit Corp. and J.F. Shea Construction Inc., will provide engineering, procurement and construction services for the desalination plant and the pipeline under a fixed-price contract. IDE Americas Inc., a subsidiary of IDE Technologies LTD, will design the seawater process plant under the direction of the joint venture and will be responsible for the operation and maintenance under a 30-year contract.

Poseidon Resources CEO Carlos Riva credited the staff of Water Authority General Manger Maureen Stapleton with completing the financing in a compressed timeline. He also acknowledged NRG Energy for its role in allowing Poseidon to lease the land on which the facility will stand.

“We began developing this project in 1998,” Riva said. “Developing a project of this size, complexity and scope requires a great deal of risk-taking, resources and perseverance, and, for our project site owner, NRG, a good deal of patience. We appreciate the commitment NRG has shown for this vital water supply project.”

Carlsbad Mayor Matt Hall called the closing historic for the San Diego region, which is projected to receive as much as 7 percent of its fresh water supply from the desalination facility by 2020.

The bond sales began in mid-December at an interest rate of 4.78 percent, lower than earlier estimates. With the lower interest rate, the projected cost to the Water Authority for the water dropped by about $125 per acre-foot, to between $1,917 and $2,165 per acre-foot.

The Water Authority’s purchase agreement with Poseidon covers a period of 30 years, with an option for the Water Authority to purchase the facility after at least 10 years under the contract.

Poseidon estimates the project will produce 2,300 jobs during construction, and that it will support more than 575 jobs for the life of its operations.

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