The future of the $3.4 billion Vista Ridge water pipeline project with the City of San Antonio and the San Antonio Water System was put into jeopardy Wednesday when Abengoa Sociedad Anónima (SA), the Spanish renewable energy and engineering conglomerate, filed for protection from its creditors in Madrid.
The filing could lead to what the Wall Street Journal called the "largest bankruptcy in the country's history."
City and SAWS officials said the filing would not impact the Vista Ridge project which won approval from City Council in October 2014 and led in part to significant rate hikes approved by City Council earlier this month.
“We made sure through last year’s negotiations that financial protections were built into the Vista Ridge project to insulate SAWS customers from risk," stated SAWS President and CEO Robert Puente. "The Abengoa Vista Ridge (company) is financially independent and legally separate from the holding company in Spain. That means the San Antonio Vista Ridge project will continue to move forward.”
Abengoa Vista Ridge has invested about $30 million into the project, according to SAWS officials, and therefore has the incentive to follow through on the project.
"Bankruptcy filing of (the) parent company is not projected to have an impact on progress of Vista Ridge project," Mayor Ivy Taylor stated in a text to the Rivard Report. "SAWS folks have been communicating with Abengoa."
SAWS customers won't technically be paying for the project until the deal's financial close, SAWS officials noted.
"The potential demise of Abengoa is an extreme example of a Spanish company whose debt-fueled expansion during the country’s boom years has handicapped its ambitions for growth today," the Journal reported.
Bloomberg News reported that Abengoa's bonds and stocks "tumbled to record lows" in the wake of the news and were suspended from trading on the Madrid Stock Exchange.
Abengoa SA is a global leader in energy production and transmission and water development with major projects underway or on the drawing board throughout Latin America and increasingly in the United States. The Vista Ridge project calls for Abengoa and its Texas-based partner, BlueWater Systems, to construct a 142-mile pipeline from Burleson County to San Antonio for delivery of up to 50,000 acre-feet of water to SAWS starting in 2019 or 2020 and continuing for 30 years with a 30-year renewal option. Vista Ridge, as the Abengoa-BlueWater partnership is known, has contracted with a significant number of landowners in Burleson and Lee counties to pump enough water from the Carrizo-Wilcox Aquifer to service 162,000 households annually.
“I have really enjoyed getting to know the people at Abengoa, but their company is probably going to have to go through a painful restructuring to come out of this situation," said Ramiro Cavazos, President and CEO of the San Antonio Hispanic Chamber of Commerce. "They’ve been living above their means and they can’t afford those levels of debt. We’ve seen the same thing happen to major American corporations. General Motors had to seek bankruptcy protection and they came out of it much stronger. The same could happen for Abengoa. I’m really pleased at the way SAWS negotiated the Vista Ridge contract to mitigate any exposure that either SAWS of the City otherwise might have had.”
The water from Vista Ridge would increase SAWS' available water supply by nearly 20%. A much-disputed water report draft prepared for the City of San Antonio this year labeled the Vista Ridge project as "high risk," a rating that was downgraded to "moderate risk" in the final version of the report. The report also stated that even if San Antonio did not proceed with the Vista Ridge project it would have to secure new water supplies of an equal magnitude to meet the long-terms demands of a population that is expected to grow by 1.1 million people by 2040.
The Wall Street Journal report stated that "the latest round of Abengoa’s negotiations with creditors began after Spanish investment firm Gonvarri Corporación Financiera canceled a plan to inject around €350 million ($372.85 million) into the Seville, Spain-based company, Abengoa said in a regulatory filing on Wednesday."
Editor's Note: This story has been updated with statements from Mayor Taylor and SAWS officials.
*Top image: The Abengoa PS20 Solar Power Plant located near Andalusia, Spain. Photo courtesy of Abengoa.