Fluence taps into Mexico to commercialise clean water technology

Clean water supplier Fluence Corporation (ASX: FLC) has finalised a substantial seawater desalination project for its customer, Comisión Estatal del Agua de Baja California (CEA), to provide water for the town of San Quintin, Mexico.

Once complete, the San Quintin plant’s capacity will serve over 100,000 residents in Baja California, a region the Mexican government has declared in drought since 2014, thereby alleviating currently strained groundwater resources across the city and the wider municipality.

Fluence is responsible for building and operating a US$48 million 5.8 million gallons/day (approximately 22 million litres per day) seawater desalination plant. Once completed, the plant will provide a clean source of water to San Quintin and neighbouring communities in the municipality of Ensenada.

The project marks a significant milestone for Fluence, having faced legislative hurdles and multiple delays since being awarded the contract in 2015. Following the passage of local legislation by the government of Baja California in mid-December 2017, Fluence has now successfully achieved “financial close”.

Financial closure is defined as a stage when all the conditions of a financing agreement are fulfilled prior to the initial availability of funds. Financial closure is attained when all the tie-ups with banks/financial institutions for funds are made and all the conditions precedent to the initial drawing of debt is satisfied.

The San Quentin plant is Fluence’s first off-balance sheet, non-recourse project with the required US$48 million in funding having been arranged via a combination of debt funding from the North American Development Bank and the remaining 25% from a combination of “local partners”, according to Fluence.

In order to facilitate the financing deal and to commence construction, Fluence used what’s known as a “Special Purpose Vehicle” (SPV) owned by Fluence and its local partners. The SPV intends to sell the produced water to the area of San Quintin for the next 30 years, after which ownership of the plant will be transferred to the CEA, the State Water Commission of Baja California.

Fluence expects to receive the first disbursement of funds and to start construction in Q3 2018, “subject to resolution of the local legislation appeal process”, which could result in project commencement later in the second half of 2018, depending on eventualities.

Fluence has said that it expects the plant to be fully operational within 20 months of project commencement, after which water sales are expected to generate around US$10 million of recurring annual revenues for Fluence.

“The San Quintin water desalination plant supports Fluence’s projected revenue for 2018, reaffirms the company’s position as a project finance partner for our clients, and increases our recurring revenue base that will underpin future growth,” said Henry Charrabé, Managing Director and CEO of Fluence. “We are targeting additional Build Own Operate Transfer projects later this year,” he added.

Following today’s news, Fluence shares were trading 2% higher at $0.54 per share this morning.