E. Europe Seeks Way to Pay Environment Cleanup Tab : Pollution: Old Soviet Bloc countries want U.S. technology to end contamination. But can they afford it?

Poor, polluted Eastern Europe wants the best environmental cleanup that very little money can buy.

The ecologically sophisticated new leaders in the old East Bloc admire U.S. environmental technology--particularly from cutting-edge California. U.S. companies are equally attracted to the tattered postcard cities and countryside of a region in which decades of coal-based, inefficient energy use--with almost no environmental controls--have left a startling legacy of contamination.

In Czechoslovakia, 70% of the rivers are polluted; in Poland, half the cities and 35% of industry do not treat sewage and other waste; in eastern Germany, 15,000 hazardous waste sites haven’t even been evaluated.

Yet so far, political and regulatory uncertainties--and a lack of hard cash--have stalled a parade of U.S. environmental-service firms that are more than willing to help.

Well before the Yugoslav crisis, political stability worried many businesses. While the first U.S. trade fair in battered Kuwait totted up more than $100 million in contracts, a May exposition in Eastern Europe for U.S. environmental companies was canceled.

One is unlikely to be proposed again soon.

“The political climate did not settle down as quickly as it once seemed it would,” says Robert T. Hayden, vice president of Conway & Co., which set up the fair.

“There are three countries everybody’s interested in--Poland, Czechoslovakia and Hungary--because they are by far the least likely to turn back into dictatorships or go into civil war,” says one high-ranking international banker. “Yugoslavia, obviously people are scared senseless of. Bulgaria and Romania are still de facto old-regime states.”

Eastern Germany, a special case, is likely to deal mostly with German companies. Albania is not yet even a blip on the radar screen to environmental entrepreneurs.

All these nations also have severe financial problems, the depths of which some U.S. firms have discovered only in awkward close encounters.

“Many companies come in and say, ‘Oh, this will cost $50 million,’ ” says Stephen R. Wassersug, program manager of the Regional Environmental Center for Central and Eastern Europe, in Budapest. “But these people, budget-wise, are working on a shoestring.”

The problems force companies that want to do business in the East--and the plants and government agencies that want their help--to be flexible.

In Bulgaria recently, Joseph W. Harrison, director of the office of capital goods of the U.S. Commerce Department, heard a plaintive offer from the head of a large petrochemical factory.

Harrison was visiting with representatives of seven U.S. environmental companies. The Bulgarian outlined for them the pollution problems at his plant. Then Harrison asked how he would pay to clean it up.

“We’ve thought of that,” the Bulgarian replied, “and we are prepared to share some of the goods we produce.”

He found no immediate takers among the Americans for such a deal. “Probably they had never done anything like that,” Harrison says.

The Bulgarian was suggesting simple barter--or countertrade as it is known in international commerce. Perhaps the best-known recent example was the $3-billion deal last year between Pepsico Inc. and the Soviet Union, to trade cola syrup for vodka and oceangoing ships.

Certainly there is public support for a major investment in environmental cleanup. Environmental neglect under the old regimes was a rallying cry for reformers. A 1990 public opinion survey in Czechoslovakia, for instance, showed that 83% said the environment was their top priority.

Yet for all the public sentiment, more important to these new economies now are jobs and a great yearning for Western consumer life and its conveniences.

And so, while debate persists in the United States over the environmental effects of polystyrene packaging, Dow Chemical Co. begins producing polystyrene foam in Hungary this month. Similarly, Procter & Gamble, in a joint venture, will introduce Pampers disposable diapers to Poland.

East Europeans, after all, are undergoing several evolutions at once--only one of which is to form environmental policy.

“They’re not in a position yet to deal with the issues that we deal with,” says Gerry Powell of Chicago-based Waste Management Inc., the world’s largest disposal and environmental-services company.

Eastern Europe is struggling to convert its money into tradable hard currencies. Meanwhile, reserves of foreign currency have been severely drained, particularly since the Soviets began to demand hard currency themselves from their East European trading partners. Yet U.S. companies are reluctant to invest without guarantees that they can take profits out.

“You’ve got to have a lot of guts to walk in there and be prepared to write money off,” says Bill Johnson, president of Browning-Ferris International, the foreign arm of the Houston-based waste management firm.

Beyond this, the prevalence of inefficient, polluting factories has made it difficult to raise money. Many East European countries hope to attract foreign currency by selling state enterprises to Western investors. But when a Polish steel mill, for example, went on the block for $150 million, the Poles were offered a mere $7 million--for the land.

The East has hoped that Western nations and banks would lend money for the cleanup. And some have, particularly to German companies. Deutsche Bank has offered to finance specific projects--something that U.S. banks with drained earnings have been unwilling to do.

U.S. government funding is also developing slowly and in relatively small amounts.

“The net effect leaves us sitting around, while the Japanese, the Swedes, the Italians and even the British--who we ought to be able to beat any day of the week--pull ahead of us,” says Roger Lane Carrick, an environmental lawyer in the Los Angeles office of Heller Ehrman White & McAuliffe.

So the search continues for uncommon ways to do business in Eastern Europe.

Some U.S. companies are looking at leasing arrangements or making deals through European affiliates or other companies.

GE Environmental Systems will provide Electrikim, a Polish utility, with four giant scrubbers to remove sulfur dioxide from factory smoke. The company, a subsidiary of General Electric Co., manufactures 31% of the world’s scrubbers and plans to fill the order through its Dutch licensee, Hoogevens Technical Services.

“We get paid by HTS, not the Poles,” says spokesman Jack Batty, “While financing is always an issue, it’s not insurmountable.”

The other big holdup for U.S. cleanup companies has been the unsettled state of environmental rules and regulators. U.S. firms, veterans of decades of regulatory skirmishing in this country, know all too well the need for solid standards before bidding a job.

Last fall, Angelo J. Bellomo headed east to scout contract opportunities on a trade tour assembled by the California Commission for Economic Development and led by Lt. Gov. Leo T. McCarthy. Bellomo, a former state toxics regulator, now directs regional operations for Sacramento-based McLaren-Hart Environmental Engineering Corp., which primarily cleans up hazardous waste sites.

In Eastern Europe, he found another role for his company.

“The real need now is to develop the laws and regulations,” Bellomo says. “It was clear that there is going to be a lot of cleanup over there--but in three to five years.”

Bellomo, and fellow former government regulator Carrick, are now working pro bono through the development commission to advise East European legislators as they build their regulatory frameworks.

California’s rules--and its environmental firms--have special appeal.

“Eastern European ministers think of California environmental services companies as particularly capable,” Carrick says. “They are concerned that Germany and other countries have come in and offered them cheaper equipment, second-rate equipment, older technology and generally treated them like Third World countries.”

Meanwhile, the few U.S. environmental firms actually rolling up their sleeves have contracts signed by outside parties, largely through loans from the World Bank or grants from the U.S. Agency for International Development or environmental foundations. AID itself has almost $200 million in projects planned or already begun.

For instance, the Department of Energy and AID are funding a $10-million plan to cut power-plant emissions near Krakow, Poland, as well as energy-efficiency improvements in 48 big Eastern Europe industrial plants.

Next is a $34-million regional project in collaboration with the World Bank and the European Community to try to make sense out of regional energy-purchasing patterns. Other U.S. plans range from work on improving household coal-burning methods in Poland to bringing Eastern European entrepreneurs to the United States to work alongside private industry environmental technicians and marketers.

One AID project, run by the New York-based World Environment Center, has since January been sending U.S. executives in the other direction, to Eastern Europe, to transfer ideas directly by working in individual factories.

“We went into a tannery in Hungary that has been in continuous business since 1335,” says Thomas McGrath, director of the center’s Central and Eastern European programs. The idea was to assess how hides were tanned and learn what happened with leftover materials.

The center’s expert found what many have learned on such trips.

“People have the technical competence,” McGrath says. “They just don’t know how to manufacture and be environmentally safe.”

Polluted Eastern Europe

The nations of Easttern Europe and the region’s seas all have severe environmental problems. Some of the worst are listed below:

A--North Sea:

Heavy-metals pollution: mercury, cadmium, lead.

B--Black Sea:

90% biologically dead from pollutants.

Beaches periodically closed: bacterial pollution.

C--Baltic Sea:

Much of the sea floor lifeless due to nitrogens compounds and organic wastes.

Beaches periodically closed because of pollution.

D--Poland:

Little or no air-pollution control.

Half the cities and 35% of industry do not treat waste.

Children have 5 times the lead of Danish children.

Air pollution damage to 82% of forests.

E--Eastern Germany:

A third of rivers and 9,000 lakes biologically dead.

Air pollution damage to 57% of forests.

15,000 unmonitored hazardous waste dumps.

F--Czechoslovakia:

Heavy air pollution.

70% of rivers badly polluted; 50% of drinking water below national standards.

30% of children have allergies.

G--Hungary:

1 of every 17 deaths blamed on air pollution.

44% of sewage treatment plants only do crude treatment of sewage.

700 of the country’s 3,000 city wells contaminated.

750 plant and 150 animal species declared endangered or rare.

H--Romania:

80% of river water unpotable.

Improperly stored radioactive waste.

Massive over-logging of forests.

I--Bulgaria:

Some children have extremely high lead levels.

Erosion damage to 80% of agricultural land.

Air pollution damage to 78% of forests.

J--Yugoslavia:

Sava River watershed heavily polluted.

Adriatic Sea coastline polluted by sewage, toxics.

Air pollution from coal burning, leaded gasoline.

17,500 acres of agricultural land lost annually to urban sprawl, soil erosion, acid rain.

K--Albania:

Air and rivers polluted.

10% of land drained, destroying wetlands.

Tirana, the capital city, does not treat its sewage.

Source: Worldwatch Paper 99, Worldwatch Institute, November, 1990; Worls Wildlife Fund U.S.