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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 TO SPEAK 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 on agendized and non-agendized items via email at [email protected]. Public comments submitted will be read into the record at the Committee Meeting and the 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 AND THE OTAY MESA CONVEYANCE AND DISINFECTION SYSTEM PROJECTS (KENNEDY) 4. ADJOURNMENT BOARD MEMBERS ATTENDING: Mitch Thompson, Chair Tim Smith 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 2 AGENDA ITEM 3 STAFF REPORT TYPE MEETING: Desalination Committee MEETING DATE: July 24, 2020 SUBMITTED BY: Bob Kennedy CIP./G.F. NO: P2451- DIV. NO. ALL Engineering Manager 001101 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 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. 2 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) 3 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.

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