The financially troubled Spanish company whose subsidiary is under contract with the city of San Antonio to build a massive water pipeline entered into the initial phases of bankruptcy proceedings Wednesday, raising questions about the viability of the controversial project.
Seville-based Abengoa Sociedad Anónima, which has been struggling for a year with high debts, began insolvency proceedings Wednesday after a possible investor said it would not infuse the engineering and renewable energy firm with additional cash, according to a Reuters report.
Meanwhile, the company’s subsidiary, Abengoa Vista Ridge LLC, still is expected to build a 142-mile water pipeline that would transport more than 16 billion gallons of water per year to San Antonio from Central Texas’ Burleson County. Last week, the City Council unanimously — albeit cautiously — approved a sizable water rate increase to help pay for the $3.4 billion project.
San Antonio Water System President and CEO Robert Puente said in a statement Wednesday that Abengoa SA’s “debt restructuring is not expected to impact the Vista Ridge pipeline project.”
“The Abengoa Vista Ridge project is financially independent and legally separate from the holding company in Spain,” the former state lawmaker said. “That means the San Antonio Vista Ridge project will continue to move forward.”
But councilman Ron Nirenberg said Wednesday that “the timing is very surprising and, frankly, concerning,” noting that he met with Abengoa officials three weeks ago to discuss the company’s shaky finances and was given “direct assurances of their rebound” and, thus, ability to proceed with the project.
“This will clearly test the theory of whether or not the child can survive without the parent,” he said.
Abengoa did not immediately respond to a request for comment.
While Nirenberg has voted with his colleagues to approve the Abengoa subsidiary contract and the water rate increase, he has remained skeptical amid lingering concerns about the project, including Abengoa’s deteriorating financial status.
In August, credit rating agency Moody’s announced it was considering downgrading Abengoa’s credit rating, which already is low. The company also was hit this year with a class-action lawsuit alleging that it misrepresented the state of its balance sheet to investors.
Its stocks plunged by more than half on Wednesday, according to the Reuters report. Companies that begin pre-insolvency proceedings have four months under Spanish law to reach an agreement with creditors to avoid full-blown insolvency and a potential bankruptcy, the report noted.
But Puente and other San Antonio officials, including Mayor Ivy Taylor, have dismissed the potential impact if Abengoa defaults or goes bankrupt, saying it — and its ratepayers — are protected under the contract, unanimously approved last year by City Council. For example, if Abengoa has to terminate the agreement early, it will owe the city up to $2 million.
“We made sure through last year’s negotiations that financial protections were built into the Vista Ridge project to insulate SAWS customers from risk,” Puente said in his Wednesday statement.
Nirenberg said the utility was convening an emergency meeting to discuss the issue.
While the news raises questions about whether the project will come to fruition, Nirenberg said his assumption — for now — is that it will.
“We have other options, but our pursuit of long-term water security needs to be all-of-the-above, and that’s why we pursued Vista Ridge and we’ll pursue it ‘til it doesn’t happen,” he said.
Disclosure: The San Antonio Water System was a corporate sponsor of The Texas Tribune in 2010. A complete list of Tribune donors and sponsors can be viewed here.
This article originally appeared in The Texas Tribune at http://www.texastribune.org/2015/11/25/vista-ridge-parent-company-enters-pre-bankruptcy/.