The Multinational Monitor


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Toxic Shock
in a Mexican Village

by Andrew Wheat

METALCLAD CORPORATION saw Mexico as a market for its toxic waste treatment business "that was exciting, with potential for increased growth, capital and revenues," says Elgin Williams, head of investor relations for the Newport Beach, California-based company.

Indeed, Metalclad found excitement in Mexico, but not the bullish market excitement it once envisioned.

Metalclad wants to reopen and expand a toxic dump site in Guadalcazar County in the northern part of the north-central state of San Luis Potosí. That the company might succeed in doing so -- despite the opposition of many local officials and citizens -- has kept Guadalcazar residents on edge. Residents do not trust the federal government to enforce environmental laws. When the Mexican company that Metalclad bought its toxic dump from refused to obey federal orders to close down in 1991, local residents -- brandishing machetes -- enforced the order themselves.

Environmental groups such as Greenpeace-Mexico and the San Luis Potosí Ecological Support Group (SLPESG) view the toxic waste dump as an important test of whether or not Mexico will force foreign corporations to respect local sovereignty and federal environmental laws in the NAFTA era. Metalclad counters that what is really being tested is Mexico's credibility with foreign capital.

Mismanaging toxic waste

In late 1989, the state delegation of the Secretary of Urban Development and Ecology (Sedue) -- since replaced by the Secretary of the Environment, Natural Resources and Fish -- responded to complaints from residents of Mexquitic de Carmona County in San Luis Potosí by shutting down a toxic waste dump owned by a Mexican company, Technical Confinement of Industrial Wastes (Coterin).

Coterin reopened operations the next year on a piece of property known as La Pedrera in nearby Guadalcazar County. As the company dug test wells to evaluate the new site, representatives "came to the community to promise that they were going to provide water wells, highways, schools and a variety of benefits," says Ermillo Mendez Aguilar, a former county official and member of the SLPESG. Instead, Coterin began to store thousands of barrels of toxic waste on the site, even though it only had permission to operate as a temporary waste transfer site for 90 days, according to Evangelina Nuñez, an SLPESG board member.

According to Coterin's data, the Pedrera site took in more than 55,000 drums -- or some 20,000 tons -- of toxic wastes between November 1990 and May 1991. Area residents say that this waste storage was illegal and unsafe. "The rains of 1991 carried toxic drums a great distance, most importantly into a reservoir that is used in the rainy season to water livestock, crops and people," Nuñez says. "Several animals died and people stopped using the water." Even Metalclad's Williams says two of the toxic pits on the site his company bought from Coterin were badly mismanaged. "Nobody knows what's in those cells because the [record] logs -- it was a joke the way they were taken care of at the end." Citing poor management of the site, Sedue officials ordered it closed in May 1991.

Although the site was officially closed, semi-trailer trucks continued to unload toxic waste there. When local authorities ignored the complaints of outraged community members, citizens brandishing machetes mobilized in September 1991, preventing tractor trailers from unloading more toxic wastes. The trailers were detained for several days until Humberto Rodarte Ramón, a state representative of Sedue arrived, reassuring people that the trailers posed no threat. "If you think there's no problem, we'll give you a piece of land and build you a house so you can bring your family," Nuñez says one resident told Rodarte Ramón. Instead, the Stanford University-educated state official went on to work for Metalclad, where he "interfaces with all the government people down there for us," Williams says.

The more than 55,000 drums of toxic wastes on the site, including some explosive wastes, are buried five meters deep in three pits. There is evidence that the surrounding soil has been contaminated by heavy metals, hydrocarbons derived from petroleum, volatiles and halogenates. After analyzing an environmental audit prepared by Metalclad, Greenpeace concluded that there is evidence that leakage from the drums containing high concentrations of mercury, benzene and various organo-chloride solvents has contaminated the soil and could infiltrate the subsoil.

Despite Coterin's poor track record, the National Institute of Ecology (INE), the technical arm of the Secretary of the Environment, authorized the company to reopen the site in August 1993. A month later, Metalclad acquired 94 percent of Coterin's shares. Williams says Metalclad's acquisition is contingent upon the official reopening of the site.

Toasting Metalclad

Since INE approved the reopening of the site and Metalclad took over, the project has been presented in two different lights. Metalclad and leading U.S. and Mexican government officials (including Commerce Secretary Ron Brown, Ambassador to Mexico James Jones and Luis Donaldo Colosio, the then-Mexican Secretary for Social Development who was assassinated as a presidential candidate) all praised the venture as a model of how Mexico's environment can benefit from NAFTA.

In contrast, area community groups, some scientists and Greenpeace argue that Guadalcazar is a foolish site for a toxic dumping ground and that management of the site has been dangerously incompetent. Critics say Metalclad is using its money and political connections to sweep these failures under the carpet. The company has acknowledged some difficulty in securing support among the county's 28,357 inhabitants. A Metalclad spokesperson told United Press International in May 1994, "We ran into problems with local and state governments and it took pressure from the [Mexican] federal level to get the cooperation we ended up with."

Williams agrees with the environmentalists that money and politics have played too big a role in the proceedings. But he says Metalclad has been a victim rather than a beneficiary of this shenanigans. Metalclad planned to open the waste facility in September 1994, but Mexico's presidential campaign got in the way.

After Colosio was assassinated and Ernesto Zedillo took over as the ruling party candidate, Zedillo found himself slipping in the polls. Handlers identified the ruling Revolutionary Institutional Party's (PRI) poor environmental record as one liability. "Zedillo asked his governors of the PRI party if they were aware of any potential social unrest problems in their state and to do their best to curtail them," Williams says. "The governor came to us and said, 'Will you slow your construction down and do a low profile?' There had been some protesting at our site from people that we were in the process of educating ... [on the fact] that it was a safe thing and that it was going to be beneficial to the community. So we moved all the D-9 Cats [a large Caterpillar bulldozer] off and went to pick and shovel hand work and that's the way we built the project. It took us until March 10 to complete it," Williams says. "Because we honored [the federal authorities'] request and took a [big] hit financially, ... they increased our capacity annually from 30,000 tons a year to 120,000 tons per year."

Metalclad adjusted its design specification to accommodate the quadrupled capacity, Williams says, and its up-front costs increased from $15 million to $24 million, a considerable outlay for a company that had $19 million in revenues in 1994. This time, the company planned to open the site for business on March 10, 1995. Again, Williams says, politics interfered.

Mexico has just two operating toxic waste dumps: one operated by Central Chemical of Mexico near the east-central city of Guadalajara and another in the northern industrial city of Monterrey, which is a joint venture of the Mexican company RIMSA and U.S.-based Waste Management Inc. (now called WMX Technologies). RIMSA and WMX funded a "fictitious" geological study condemning the Metalclad site as unsafe, Williams says, and Greenpeace used this report to "give us fits."

"All of the waste coming to [our competitors] from Mexico City and the central industrial belt all drives past our front door and it's obvious to them that they aren't going to get it anymore," Williams says. "Waste Management wants to pick up the pieces of this -- they tried to buy it in the first place, but [Coterin] wouldn't sell it to them. They have $5 billion in annual sales -- they have more money than god," he says. "It's obvious that they've bought Greenpeace and the local people down there to fight against us," he says.

"It is ridiculous to suggest that we receive money from RIMSA and WMI, when Greenpeace has opposed various WMI incinerator projects in Mexico," says Fernando Bejarano, Greenpeace-Mexico's toxics program coordinator. WMX did not return calls from Multinational Monitor.

Williams says WMX's fear of competition is the only reasonable source of opposition to a project boasting "a perfect location and the best technology available in the world."

Second opinion

Not everyone shares the establishment view that Metalclad is a high-technology savior of Mexico's environment. At the request of Guadalcazar County officials, the SLPESG and Greenpeace-Mexico, a group of scientists studied the site and the environmental audit commissioned by Metalclad, reaching much different conclusions.

The geology of the region involves a complex hydrology typical of limestone formations with active sinkholes and subterranean streams, according to these experts. None of the site tests conducted offer an adequate model of the area's subterranean and seasonal streams, they say.

"It is incredible that the seasonal streams of La Pedrera and Las Viboras cross the site, in a violation of official Mexican regulations," says Fernanda Compa, a geologist at the Autonomous University of Guerrero. "The engineering projects Profepa [Mexico's Attorney General of Environmental Protection office] recommended to divert and control the rough and flooding waters of the sierra washouts are insufficient and will not resolve the fundamental problem, which requires the wastes to be moved out of the region."

The soil studies indicate that the site's "soils are very unstable and could fracture the membranes of the confinement cells, which could permit leakage to infiltrate the subsoil, surface waters to become contaminated during the rainy season or permit infiltration into deep aquifers," says Julio Millán, an independent soil mechanics consultant.

"Most of the Mexican environmental standards governing site selection for a toxic landfill have been violated by this project," says Greenpeace's Fernando Bejarano. "Why would a North American company select a site that already has problems and select, as well, a partner that has demonstrated grave irresponsibility?"

Health is a top concern of people near the site. "We have detected four cases of cancer [in the first quarter of 1995] in a very small population," says Ermillo Mendez Aguilar, a former county official who is active with the SLPESG. "We also have had three babies born this year with birth defects and other respiratory problems. ... We know that malformations normally come in like one case per 100,000 people. To have three or four in four months is extreme. In the county seat, we are only about 1,500 people."

"Classic NAFTA"

Since the beginning, Williams says, Metalclad conditioned its clean up of the dump site -- which the company estimates will take three years and cost $5 million -- upon receiving authorization to reopen the site. Without revenue from a reopened site, the company could not afford to remediate "a problem that we had nothing to do with," Williams says. "Who's going to take care of this site if we don't?"

The Mexican government estimates that the country produces about 6 million tons of hazardous waste a year. "They dump the equivalent of the Valdez spill in Alaska -- they dump that much waste oil and junk -- into the sewers on a monthly basis in Mexico," Williams says.

Metalclad told its shareholders in March 1995 that it expected to make $12.5 million from the project in its first year of operation. "In addition to being the first hazardous waste treatment facility built since NAFTA, [this project] is the classic NAFTA model in that it combines U.S. capital, U.S. technology and U.S. training with opportunities in Mexico," "says a letter to shareholders from company President Grant S. Kesler.

Now, the company is sounding less sanguine. "Had we known then what we know now, we would have stayed away from Mexico like the plague," Williams says. Before the San Luis Potosí debacle, the company had big plans for Mexico. In 1990, Metalclad set a goal to capture 70 percent of Mexico's toxic waste management market. The ambitious business plan calls for company subsidiaries to provide a range of services:
* Total Environmental Consulting SA was to provide environmental consulting services;
* Omega Chemistry (Química Omega) was to recycle toxic wastes and waste oils into fuels for Mexican industries;
* Potosí Ecosystems was to offer toxic waste confinement and incineration services.

Buoyed by NAFTA and these expansion plans, Metalclad stock was selling for $4 a share in November 1994. By May 1995, with the peso crisis and the company's inability to win over the community in San Luis Potosí, the value of a share had plummeted to $2. In mid-September 1994, Metalclad shares were up to $2.94, three-fourths of what they were worth a year earlier.

Bureaucrats' dilemma

Mexico's environmental authorities face a difficult decision. One option is to face the outrage of local residents and allow Metalclad to reopen soon. Another option is to upset Metalclad and other foreign investors by establishing an independent, technical team to identify the best locations in the country for badly needed toxic waste treatment facilities. If La Pedrera is one of them, Metalclad's project could proceed.

On September 14, Greenpeace and SLPESG submitted a request to Mexican Attorney General Antonio Lozano Gracia to investigate a string of alleged illegalities on the part of INE and Profepa that span the history of the Pedrera dump. These allegations include approving the site as a temporary "transfer station" without conducting an environmental impact study and allowing uncovered toxic and radioactive material to be illegally dumped there.

Greenpeace's Bejarano says that all indications are that the La Pedrera dump will get final approval to reopen. "We don't think that any foreign investment in Mexico should take precedent over environmental and health protections," he says. "These protections should be the criteria for [investment] decisions, rather than establishing a precedent of regulatory flexibility that allows Mexico to violate its laws to attract the investment of a foreign firm."

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