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Financial woes might slow desal facility

The engineering firm that would build and operate the plant faces money problems, which could delay construction and drive up costs.

By CRAIG PITTMAN, Times Staff Writer

© St. Petersburg Times, published January 25, 2002

An engineering company hired to build and operate Tampa Bay's first desalination plant has run into financial trouble, the second time in two years the $110-million project has been jeopardized by money problems.

An engineering company hired to build and operate Tampa Bay's first desalination plant has run into financial trouble, the second time in two years the $110-million project has been jeopardized by money problems.

Covanta Energy's difficulties could spell trouble for Tampa Bay Water, possibly delaying construction and raising the price tag for the desalination plant under construction next to Tampa Electric Co.'s power plant in Apollo Beach.

Replacing the engineering contractor at this point, with the plant half-built, could delay completion by a few months, according to Tampa Bay Desal spokeswoman Honey Rand.

But if the plant isn't finished by Dec. 31, it faces fines of $10,000 a day from the Southwest Florida Water Management District, or Swiftmud, Tampa Bay Water chairwoman Ann Hildebrand said.

"That could be pretty traumatic for us," said Hildebrand, a Pasco County commissioner. By dramatically boosting the cost of the plant, the fines would affect "everybody in Tampa Bay Water," including its thousands of customers, she said.

Tampa Bay Water officials say they are working around the clock to redo their financing to keep Covanta's woes from dragging down the desalination project. They insist they could not have foreseen this.

"This is nothing we had any control over," Tampa Bay Water general manager Jerry Maxwell said, just before catching a plane to New York to negotiate with lenders over a new financing arrangement.

Covanta spokesman Vincent Ragucci said he could not comment on the company's financial future but said the company is trying to "evaluate alternatives to allow this project to move forward on the current schedule."

Launched with great fanfare in 1999, the plans to build the largest desalination plant in the western hemisphere on the shores of Tampa Bay is supposed to take brackish water from the bay, remove the salt and produce 25-million gallons of freshwater a day to slake the thirst of the growing Tampa Bay area.

It first ran into trouble in 2000 when the original engineer, Stone & Webster, declared bankruptcy and dropped out of the project. So last year the New Jersey-based Covanta was hired to replace Stone & Webster. Covanta is supposed to design and build the desalination plant for $74-million, and to operate it for 30 years for $7-million a year.

Covanta, formerly known as Ogden Energy Group, seemed a safe choice at the time, Maxwell said, since the company has built and operates 20 waste-to-energy plants around the country. But last summer's energy crisis in California crippled Covanta's cash flow, he said.

"They had payments due them from the state of California which weren't made," he said. "They were incredibly cash-strapped."

Covanta first announced to investors in October that it was holding millions of dollars in uncollected debts from California utilities. But officials from Tampa Bay Water and Poseidon Resources, the Connecticut company that partnered with Covanta to form Tampa Bay Desal, did not know about Covanta's financial problems until Dec. 9.

That was the day they were supposed to sell the bonds that would pay for construction of the plant. However, Covanta was unable to put up a $74-million performance bond that would guarantee the plant's construction would proceed even if the company ran into trouble, according to Maxwell and Rand.

Because the bond sale to finance the plant was postponed until next month, Maxwell said, Tampa Bay Water has had to extend a $42-million bank loan used to start initial construction on the plant as well as borrow an additional $3-million.

And to pay off $250,000 in expenses related to the aborted bond issue, Tampa Bay Water had to tap into a reserve fund that is supposed to keep water rates stable, he said.

In case Covanta follows Stone & Webster into bankruptcy, Maxwell said, Tampa Bay Water is now working to make the desal project immune to a Covanta collapse. Tampa Bay Desal is taking over the job of paying the subcontractors and could wind up running the project entirely, he said.

Or Covanta could avoid bankruptcy and everything could proceed smoothly, Maxwell said. So far the project is on schedule and not exceeding its budget, he said.

"I hope ... that Covanta is going to be able to pull some rabbit out of the hat so we can continue to proceed," Hildebrand said. "There's a lot at stake for the Tampa Bay region."

-- Staff writers Saundra Amrhein and Jean Heller contributed to this story.

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