February 26, 2024
The $2.8 billion Pacheco Pass reservoir project is still looking for investors

Six years after unveiling plans to build a 320-foot high dam and reservoir at Pacheco Pass in southern Santa Clara County, the largest water agency in Silicon Valley still hasn’t found any other water agencies willing to help fund the project.

The price tag has tripled to $2.8 billion since 2018 due to unstable geology found in the area. The Santa Clara Valley Water District, which is pursuing the plan, has delayed groundbreaking by at least three years, to 2027, instead of 2024 announced five years ago. And environmentalists won a lawsuit this summer that will require more study of how ongoing geological work will affect endangered plants and animals.

But this week an unusual potential partner came to light: China.

During questioning from water district board members at a public meeting Tuesday night, Rick Callender, the district’s CEO, said he had been approached by a local developer who offered to broker a deal in which “international governments” would pay some or all of the costs.

“They would probably sell the water to farmers, right?” said Jim Beall, a former state senator who was elected to the water district board last year.

“I don’t know who they would sell the water to,” Callender said. “We didn’t get that far.”

Beall said he was concerned he had never heard of the proposal.

“Some things should be disclosed,” he said. “I mean, we should know. I’m interested in this international thing. I didn’t know there was an international connection here. Is the federal government involved?”

“Is China involved?” he added moments later.

“Yes,” Callender said. “That was the proposal that came from a local developer.”

Callender said he dropped the idea over his concerns about whether Chinese funding would be “acceptable or legal.”

In an interview afterward, Callender declined to identify the developer. He said it was not Edmund Jin, a Chinese businessman who bought the 12,000-acre El Toro cattle ranch where the new dam would be located in 2017, beating the water district to the property, and possibly setting himself up for a large payout if the district takes the property by eminent domain.

Callender said the unnamed developer called him about five months ago and said the Chinese government could pay some or all of the dam costs.

“I said I’m not interested,” he said. “They don’t need to put a proposal in writing. Foreign government investment in Valley Water? What is that? I’ve never heard of it happening. I don’t care if it was England or Canada.”

Over the past decade, China has invested more than $1 trillion in ports, railways, wind farms, bridges and other projects in dozens of countries, including Greece, Kenya, Croatia, Indonesia, Russia, Pakistan, Sri Lanka and Nigeria as a way of building economic ties and expanding political influence. The jobs are often filled by Chinese construction workers.

The effort, called the Belt and Road Initiative, has been a centerpiece of President Xi Jinping’s tenure.

Under it, China also has helped fund some water projects, including dams in Cambodia, Laos and Pakistan. Some have had serious construction problems. The $2.7 billion Coca Codo Sinclair hydroelectric plant in Ecuador, finished in 2016, has been plagued with thousands of cracks and other major flaws.

In Pakistan, officials shut down the Neelum-Jhelum hydroelectric plant last year after detecting cracks in a tunnel that transports water through a mountain to drive a turbine, according to the Wall Street Journal.

Callender said he opposes Chinese  funding on broader grounds.

“You don’t want foreign investments in local government,” he said. “Play it all the way through. A foreign interest owns the reservoir. They are selling the water. And the money is going back to China instead of local interests. It’s so far from our tax base it doesn’t make sense.”

With the Pacheco project, the water district, based in San Jose, is hoping to build the largest new Bay Area dam since Los Vaqueros Reservoir in Contra Costa County was built 25 years ago.

The district’s plan calls for constructing a 320-foot-high earthen dam on the North Fork of Pacheco Creek in the rugged canyons about 2 miles north of Highway 152 near Henry Coe State Park.

The new reservoir would hold 141,000 acre feet of water, replacing a small reservoir there that was built in 1939.

The project received a major boost in 2018 when former Gov. Jerry Brown’s administration awarded it $485 million from Proposition 1, a $7.5 billion water bond passed by voters in 2014. That was supposed to pay for half.

But as its price tag has risen, no other partners have signed on. According to a staff presentation Tuesday night, the project’s current cost estimate is $2.78 billion. Including financing, it is $3.27 billion. But that assumes partner agencies will pay 35% and share the water. If none come forward, the full cost to the water district will be $5.5 billion, the staff report showed.

Four of the district’s board members: Chairman John Varela, Dick Santos, Tony Estremera and Nai Hsueh, have indicated support for continuing to design the project. Two others, Rebecca Eisenberg and Barbara Keegan, are opposed, saying expanding recycled water, conservation and other projects that have greater likelihood of being but, such as a $1 billion plan to enlarge Los Vaqueros Reservoir, make more sense. The other board member, Beall, has raised increasingly skeptical questions but has not come out strongly in favor or against Pacheco.

In an interview Thursday, Varela said he had not heard of the Chinese funding possibility until this week, but opposes it. As for the lack of partners, he said, California’s droughts are increasingly severe, and Silicon Valley needs more reservoir capacity.

“It’s still early,” he said. “The seeds are in the ground. We’re going to find partners. I’m confident we will.”