Terraqua Barranca business plan assuming no income from sale of water or from agribusiness conducted with that water.

1. Terraqua Barranca
A Business Plan Executive Summary
________________________________
Ramiro Priale & Paul Skillicorn
8/19/2011

2. Terraqua Barranca
A Business Plan Executive Summary
________________________________
Ramiro Priale & Paul Skillicorn
9/9/2012
Introduction:
Terraqua Barranca, a collaboration among principals now based in Peru and the
United States is launching a new business in Peru based on the Terraqua System.
Following successful commissioning of a comprehensive pilot project now being
conducted in collaboration with the community of Santa Catalina and the City of
Barranca in the Lima Region of Peru, the Company intends implementing a full
commercial scale operation which, through successive phases, will provide
comprehensive wastewater treatment services to the entire province of Barranca.
Terraqua Barranca intends to change, fundamentally, the existing paradigm for
wastewater treatment in Peru. The Terraqua System treats municipal, industrial and
CAFO (concentrated animal feeding operations) wastewater effluent to a fully recyclable
condition. Byproducts of the Terraqua wastewater treatment process – branded high
protein animal feeds, fish, crustaceans and protein concentrates – generate a positive cash
flow sufficient to cover both operating and capital costs. Nothing is discharged. No water
is lost. The Terraqua System, as first implemented in Barranca, Peru will, in fact, become
the first truly profitable commercial-scale “no-fees” wastewater treatment system in the
world.
Terraqua Barranca intends using the “entre” and local presence afforded by its
rural, or small town wastewater treatment concessions, to introduce at the community
level in Peru the massive advantages of its aquaculture methods in the context of a
mutually beneficial, truly interdependent joint venture agribusiness relationship with rural
community smallholders. In a second phase, agribusiness iteration, the TJVA (Terraqua
Joint Venture Agribusiness) enterprises will leverage possession of the continuous stream
of highly treated effluent realized by the Terraqua wastewater treatment system and
adoption of fertigation irrigation technologies also to achieve highly efficient distributed
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3. production and local processing of a wide range of valuable extractive crops, energy
crops, building materials and domes for internal consumption and sale to the US, Europe
and the Far East. In so doing, TJVA enterprises will also enrich rural community
partners in a manner and to a level hitherto thought to be unattainable.1
Terraqua Barranca intends employing an accelerated amortization, distributed
treatment approach to treating wastewater in the Peruvian urban context. In so doing, the
System will save the Municipal client not only the cost of a treatment plant – but also the
cost of installing and maintaining expensive mains that would otherwise be required to
aggregate wastewater and transport it to common points of treatment and discharge. It
will also allow quick, local distribution of treated wastewater to industrial clients and to
public and private irrigation applications – thus freeing up the municipality’s constrained
fresh water supplies for use in supporting new growth in the greater metropolitan area.
Terraqua and its partners intend financing each such system located within the larger
Barranca provincial area (Barranca, Supe, Puerto Supe, Pativilca and Paramonga) entirely
off budget to the partnering municipality. In latter phases of this project, this expansion
will, in part, be enabled by the capital gains realized through sale of properties that have
been “cycled” through the Terraqua process and thereby gained “absolute preference”
with respect to zoning allowances, installation of infrastructure (roads, electricity, water,
wastewater, telephone, emergency service, police etc.), and preferential access to
Terraqua-treated recycled water.
Following formal commissioning of the Barranca Pilot project, scheduled for late-
2011, construction of the first commercial Terraqua wastewater treatment plant, also in
Barranca, will begin in mid-2013 with early subsystem commissioning to occur in late-
2013 and full scale operations to begin in mid-2014. During the subsequent 5 years, the
Company will have become an important factor in the Peruvian domestic market for
premium, high protein branded feeds; an important new supplier of tilapia, barramundi, a
Western Pacific region fish, as well as Paiche (Arapaima in Brazil) and Paco, two
Amazonian fish species, to the US, European and East Asian markets.
The Company will be managed at the discretion of an international board of
directors, by a compact team of managers and production experts based in the Company’s
offices located in Barranca and Lima, Peru.
Recognizing its preeminent position in the “new world of wastewater treatment,”
Terraqua, Peru, the parent company, intends pursuing an aggressive program of Peru-
specific R&D with an aim to continue improving its local technology base while also
broadening the scope of its offerings. To that end, the Company will also continue
working with plants and organisms other than the duckweed and tubifex species that form
the foundation of existing technologies. The Company also intends to continue pushing
1 Readers should consult The Terraqua Barranca Agribusiness Plan for details on Phase II
of the Terraqua Barranca Project.
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4. the boundaries of its existing experience with the groundbreaking community-level
implementation of fertigation technologies and attendant approaches to deriving
leveraged value from resulting treated water.
Terraqua principals believe the Company’s “green” contributions to improving the
aquatic environment; changing the global paradigms for treatment of wastewater and
production of food protein; leveraging the limited and fragile supplies of fresh water for
human use and consumption; and developing dramatic improvements in the production
efficiencies of building materials and renewable energy feed stocks will come to be
recognized by a world that is gradually increasing its sensitivity to the environment in
which we live.
Public Benefits
A recitation of Terraqua Barranca’s public benefits – in effect a contribution to all
the citizens of Peru – is noteworthy.
During the first five years of the proposed project, Barranca will move from being
absolutely negligent in its treatment of wastewater to become the unquestioned global
leader. All wastewater treated by the Terraqua Barranca wastewater treatment plants will
meet the highest treated effluent standards in the world, and all of it will be fully
recycled. Nothing will be lost. This will have the effect of significantly expanding the
availability of water to all those living within Barranca Province – a region comprising
the towns of Barranca, Supe, Puerto Supe, Paramonga, Pativilica, Santa Catalina and
Caral.
In addition to recycling all treated wastewater, the Company intends introducing a
new, low cost means by which seawater can be brought, through ocean-current-powered
reverse osmosis, to a drinking water standard. Coastal communities participating in the
project will be given the option of supplementing their existing drinking water supplies at
a fraction of the cost now incurred by conventional reverse osmosis technologies.
By joint-venturing with rural communities, the Company intends to distribute up
to 10% of the project’s profits to individual members of those communities. By the end of
2017 rural household partners will be expected to share an annual distribution averaging
just over $150,000 per household. For the first time in contemporary history, a “major
rural development project” will have gone beyond merely providing basic needs, to
genuinely enriching rural Peruvians – helping them truly get ahead. These same rural
Peruvians will also have reduced the “wastewater treatment burden” of 50% of their
urban brethren effectively to zero. During the next five years Terraqua Barranca expects
to expand services to encompass the entire sewered population within the greater
Barranca province.
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5. Duckweed, the principal crop produced by the project, is widely recognized as the
most productive of all leafed plants. Grown with supreme efficiency, as it will be in this
project, duckweed will convert more CO2 per hectare than can any other combination of
plants on any “footprint” on the face of the earth. By 2017, project-grown plants, while
treating up to 500 liters of water each second to a drinking water standard, will be
removing over 20 tonnes of CO2 from the environment each year. This would be
equivalent to taking over a dozen mid-sized cars completely “off the road.”
By substituting for conventional activated sludge wastewater treatment plants, the
only comparable system when it comes to effluent quality, the Terraqua system, once
fully deployed as proposed in this business plan, will also save over 25,000 megawatt
hours of electricity each year – enough capacity to provide all the electricity needs of
over 1,000 Peruvian households: capacity that can contribute to improving the lives of
every Peruvian citizen. If produced by a conventional coal-powered thermal power plant,
that same energy would generate release of over 25,000 tonnes of carbon dioxide over a
12 month period, approximately the same amount as a fleet of 2,500 mid-sized cars.
The centerpiece of the Terraqua wastewater treatment system, the duckweed-
based biological nutrient removal system, will effectively change the global paradigm for
production of plant-based protein. One hectare of duckweed surface area will produce 30
times as much plant protein as will soybeans – and a better protein (better amino acid
profile) at that. In 2016, the project will produce more than 106,000 tonnes of duckweed
meal – substituting for approximately 120,000 tonnes of soybeans – all of which must
now be imported into Peru. The project’s novel vermiculture primary treatment system
will also produce more “meat protein” per unit of surface area than does any other animal
protein production system. As harvests of fishmeal inevitably decrease with overfishing
and the advent of global warming, “Terraqua worms” can easily replace those losses.
The Terraqua phased-sequenced anaerobic digesters provide an alternative
method by which to extract value from volatile solids. Today, they can deliver more
biogas, and a better biogas (higher methane) from primary waste solids than can any
other comparable process. These systems will also contribute, in a significant manner, to
both CO2 mitigation and energy savings throughout Peru.
Location
The Terraqua System may be profitably deployed in any Peruvian location where
wastewater is collected. Long term benefits are maximized, however, along the water
deficient coastal plain and in the Andean highlands – regions expected to experience
increasing future water shortages as the effects of global warming become more apparent.
This advantage is most pronounced in regions such as Barranca province, where
smallholder farmers – campesinos – still predominate. These favorable geographic
circumstances, combine with the favorable disposition of municipal authorities to make
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6. Barranca Province ideally suited to host the first major implementation of the Terraqua
System.
The Numbers
A brief summary of the “numbers” is presented below. The reader should note that
beyond Barranca city, no other sewered towns and villages of greater Barranca Province
feature in this plan. The “numbers” also ignore income and future value derived from
urban real estate capital gains. The Company believes, nevertheless, that this source of
income may eventually come to exceed most other Terraqua System outputs.
Additionally, invitations already received from the mayors and councils of towns such as
Supe, Paramonga and Pativilca suggest the Company will have no difficulty expanding
its services to cover the entire province.
Income Statement (Profit & Loss) 2013 2014 2015 2016 2017
SALES $ 51 $ 10,228,632 $ 16,262,780 $ 17,072,238 $ 17,072,238
Product Group 1 Sales $0 $1 $0 $0 $0
Product Group 2 Sales (frozen fillets) $4 $ 10,228,620 $ 16,262,768 $ 17,072,226 $ 17,072,226
Product Group 3 Sales $ 12 $6 $6 $6 $6
Product Group 4 Sales $ 35 $6 $6 $6 $6
COST OF GOODS SOLD $ 64,458 $ 5,035,878 $ 7,463,691 $ 7,900,092 $ 7,990,297
INCOME FROM PRODUCTION (Gross Margin) -$ 64,407 $ 5,192,754 $ 8,799,089 $ 9,172,146 $ 9,081,941
OPERATING EXPENSES $ 1,294,840 $ 2,611,773 $ 3,066,000 $ 2,974,286 $ 2,814,886
EBITDA -$ 602,083 $ 3,417,765 $ 6,616,776 $ 7,105,128 $ 7,200,979
INCOME FROM OPERATIONS -$ 1,359,247 $ 2,580,981 $ 5,733,089 $ 6,197,860 $ 6,267,054
NET INTEREST INCOME -$ 1,075,109 -$ 2,192,222 -$ 2,155,091 -$ 2,027,702 -$ 1,826,481
INCOME BEFORE TAXES -$ 2,434,357 $ 388,759 $ 3,577,998 $ 4,170,158 $ 4,440,573
TAXES ON INCOME $0 $ 157,158 $ 1,154,254 $ 1,379,165 $ 1,491,634
NET INCOME AFTER TAXES -$ 2,434,357 $ 231,601 $ 2,423,744 $ 2,790,992 $ 2,948,939
Cashflow Statement 2013 2014 2015 2016 2017
INVESTMENT AND OTHER CAPITAL $0 $0 $0 $0 $0
LONG-TERM DEBT $ 14,241,330 $ 3,171,833 $0 $0 $ 530,000
SHORT TERM LOANS $ 3,000,000 $ 2,400,000 $0 $0 $0
INCOME FROM OPERATIONS $ 47 $ 9,002,182 $ 16,066,547 $ 17,072,238 $ 17,072,238
INCREASE IN ACCOUNTS PAYABLE $ 25,089 $ 284,778 $ 403,317 $ 416,655 $ 412,588
INCOME FROM INTEREST $ 38,051 $ 16,357 $ 18,183 $ 39,161 $ 73,341
TOTAL SOURCES OF FUNDS $ 17,304,517 $ 14,875,150 $ 16,488,048 $ 17,528,054 $ 18,088,167
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7. CAPITAL EXPENDITURES $ 14,241,330 $ 3,214,517 $ 428,553 $ 480,428 $ 528,405
SALARIES, LABOR & COMM. $ 102,093 $ 2,065,236 $ 2,662,202 $ 2,710,939 $ 2,674,703
COST OF GOOD SOLD $ 27,071 $ 3,522,292 $ 5,408,875 $ 5,750,758 $ 5,821,567
OTHER OPERATING COSTS $ 472,970 $ 1,502,866 $ 1,852,483 $ 1,742,888 $ 1,593,633
PAYMENT OF PRINCIPAL $ 922,427 $ 2,170,850 $ 2,413,107 $ 2,519,518 $ 2,572,038
INTEREST EXPENSE $ 1,113,160 $ 2,208,580 $ 2,173,274 $ 2,066,863 $ 1,899,822
INCOME TAX PROVISION $0 $ 157,158 $ 1,154,254 $ 1,379,165 $ 1,491,634
DIVIDEND PAID $0 $0 $0 $0 $0
TOTAL UTILIZATION OF FUNDS $ 16,879,052 $ 14,841,499 $ 16,092,748 $ 16,650,559 $ 16,581,803
FUND INCREASE (DEFICIT) $ 425,465 $ 33,651 $ 395,300 $ 877,495 $ 1,506,364
OPENING CASH BALANCE $0 $ 425,465 $ 459,116 $ 854,416 $ 1,731,911
CLOSING CASH BALANCE $ 425,465 $ 459,116 $ 854,416 $ 1,731,911 $ 3,238,275
Balance Sheet 2013 2014 2015 2016 2017
ASSETS
CASH & SHORT TERM INVESTMENTS $ 425,465 $ 459,116 $ 854,416 $ 1,731,911 $ 3,238,275
ACCOUNTS RECEIVABLE $4 $ 1,226,454 $ 1,422,687 $ 1,422,686 $ 1,422,686
INVENTORIES $ 81 $ 135,183 $ 404,698 $ 831,757 $ 1,363,299
TOTAL CURRENT ASSETS $ 425,551 $ 1,820,754 $ 2,681,800 $ 3,986,355 $ 6,024,260
LAND AND IMPROVEMENTS $0 $0 $0 $0 $0
MACHINERY, EQUIPMENT, VEHICLES $ 14,241,330 $ 17,436,975 $ 17,874,340 $ 18,374,698 $ 18,935,547
BUILDINGS & IMPROVEMENTS $0 $0 $0 $0 $0
ACCUMULATED DEPRECIATION $ 757,164 $ 1,593,948 $ 2,477,635 $ 3,384,904 $ 4,318,828
TOTAL PLANT & EQUIPMENT $ 13,484,166 $ 15,843,027 $ 15,396,705 $ 14,989,794 $ 14,616,719
OTHER ASSETS $0 $0 $0 $0 $0
TOTAL ASSETS $ 13,909,717 $ 17,663,780 $ 18,078,505 $ 18,976,149 $ 20,640,979
LIABILITIES
SHORT-TERM DEBT & NOTES PAYABLE $ 2,476,875 $ 3,705,900 $ 2,352,584 $ 872,318 $0
ACCOUNTS PAYABLE $ 25,089 $ 309,867 $ 713,185 $ 1,129,840 $ 1,542,427
TOTAL CURRENT LIABILITIES $ 2,501,964 $ 4,015,767 $ 3,065,769 $ 2,002,158 $ 1,031,060
LONG TERM DEBT $ 13,842,028 $ 16,013,987 $ 14,954,195 $ 13,914,943 $ 13,256,591
INVESTMENTS & OTHER CAPITAL $0 $0 $0 $0 $0
RETAINED EARNINGS -$ 2,434,276 -$ 2,365,974 $ 58,541 $ 3,059,048 $ 6,353,328
TOTAL EQUITY -$ 2,434,276 -$ 2,365,974 $ 58,541 $ 3,059,048 $ 6,353,328
TOTAL LIABILITIES $ 13,909,717 $ 17,663,780 $ 18,078,505 $ 18,976,149 $ 20,640,979
Financing and Capital Contribution:
Terraqua Barranca is seeking investments of $8 million in cash and 50 qualifying
hectares of land immediately proximate to Barranca, along with $10 million in long-term
debt and $4.5 million in short term credit. The cash investors will acquire a minority 49%
stake in Barranca Investment Partners, which in turn, when fully subscribed, will own a
controlling 85% of Terraqua Barranca. The land investments will acquire a proportionate
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8. stake in Barranca Land Partners, which in turn, when fully subscribed, will own a
minority 15% interest in Terraqua Barranca.2
Alternatively, the project can employ a Public-Private Partnership (PPP) approach
within the context of a 30 year concession. Employing creative phrasing and the
Peruvian SNIPs mechanism, this approach can allow 100% of project financing to be
provided through the public sector. Trust-pooled municipal bonds, aid agency guarantees
to commercial credit and direct sovereign debt may all be employed, either singly or in
some combination, to raise the necessary capital. To that end, project principals are now
engaged in discussion with cognizant officials of the Peruvian Ministry of Housing, The
City of Barranca, USAID, The Overseas Private Investment Corporation (OPIC), The
InterAmerican Development Bank (IDB), private commercial banks and Andino
Regional Capital (bonding agency).3
Each “partner” in this Barranca expression of the Terraqua System contributes an
essential element to the project. Terraqua contributes proprietary technology and
management; its investment partner provides equity; the Municipal, Provincial and
Regional partners contribute wastewater and the means for its collection; and community
partners contribute their land, their labor and the environmental circumstance in which
they now live. The banking consortium will provide credit and the government of Peru,
acting on behalf of the project’s true beneficiaries, the people of Peru, will provide the
basic infrastructure which allows the project to move forward. Peruvian private sector
companies, their principals and their employees will also contribute contract construction,
expertise, machinery, design, engineering and supplies to the project.
Timing:
The Barranca pilot project is underway and treating raw municipal wastewater to
an advanced tertiary standard – higher than any commercial municipal system now
deployed anywhere in Peru. (see appendix 1.) A site to accommodate the wastewater
treatment elements of the Barranca city wastewater treatment project has been selected.
The city has thrown its full weight behind the project. The project has even been
approved by the Santa Catalina rural community board. Cognizant Barranca city and
2 Alternatively, the option exists to use only Terraqua Barranca and issue class A
(common), B (preferred) and C (land related preferred) shares – forgoing use of Barranca
Investment Partners and Barranca Land Partners.
3 In the event alternative financing becomes available, 85% of project equity will be held
by Terraqua, Peru, with 15% contributing to the Terraqua Barranca Trust, a fund having
an independent board exercising the Trust’s charitable mission towards the city and it’s
residents.
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9. regional water and wastewater officials (SEMAPA) are fully engaged. An environmental
assessment is underway. Construction is expected to commence within 120 days.
Contact Information:
Readers requiring additional information or those wishing to express an interest in
making an investment should contact:
Paul Skillicorn
Skillicorn@yahoo.com, PaulSkillicorn@gmail.com
Home/office: +1 512-383-5006 cell: +1 512-934-7441
Skype: PaulSkilliorn
Ramiro Priale
rpriale@terraquaperu.com
Home/office +511 4365103 cell: +511 996595044 / +511 969333641
Skype: RamiroPriale
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