Peso Turmoil Stalls Construction Gold Rush Along Border : Infrastructure: U.S. building and engineering firms had high hopes of providing basic and cleanup services to Mexico.

Just a few months ago, U.S. Filter Corp. was preparing to join an infrastructure gold rush along the U.S.-Mexican border, hoping to grab some of the $8 billion in new waste water, sewage and environmental projects earmarked for the region.

The company, a Palm Desert-based builder and operator of waste water treatment plants, even built a $20-million demonstration plant for the city of Cuernavaca out of its own funds, chiefly as a marketing device to show other Mexican cities that it could do the job.

But like so many other big plans for Mexico, this particular gold rush has been put on hold. The peso crisis has raised doubts about Mexico’s ability--and the U.S. Congress’ desire--to help finance border infrastructure projects. And it has doused the ardor of the builders themselves.

“The question is, how safe do you feel in Mexico?” said Chairman Richard Heckmann. “It’s going to be difficult for a while until we and other foreign investors feel more comfortable.”

Said Henry G. Parker, an international insurance adviser to Chubb Group of Insurance Cos., a construction bond underwriter, “He who puts money in wants to get his money back.”

U.S. Filter and dozens of other foreign construction, engineering and service firms had high hopes of providing Mexico with basic services--drinking water, sewage, housing and highways--particularly along the 2,000-mile border shared by the two countries.

In addition to providing a regional economic boon, the projects would attack some of the continent’s worst pollution--waste water and other problems in the Mexican border towns of Tijuana, Mexicali and Juarez that have poisoned the air and water on the U.S. side as well.

Dozens of big projects had been designated as essential to protect the public health along the border as U.S.-Mexico trade accelerated--steps that the Mexican government would not be able to take on its own.

At the top of the list are 11 “sister city” waste water projects stretching from the Brownsville-Matamoros region on the Gulf of Mexico to the twin Tecates in California and Baja California.

Mexico’s need for improved border infrastructure has long been recognized, and the impetus to go ahead came with passage of the North American Free Trade Agreement more than a year ago. The World Bank set aside $5 billion and the North American Development Bank, created by the NAFTA accord, was to lend $3 billion or more. The bank would be funded with a combined contribution of $450 million cash from the two countries over a four-year period.

But the peso crisis has discouraged outside companies from making the long-term investments that large and complex border infrastructure projects require. Although the two banks would offer low-cost financing and ultimately be self-supporting, they call for substantial upfront investments by the companies that build them.

“This year, we will continue to develop associations with people we already work with, take care of our projects underway, and wait for the storm to blow over,” said Richard Bryan, senior regional executive for Mexico and Central America at San Francisco-based Bechtel Corp.

In addition to pursuing border infrastructure opportunities, Bechtel was hoping to cash in on a planned expansion of Mexico’s oil refineries. Those plans have been scaled back as well in the wake of the currency crisis.

Brown & Root, the huge Houston construction firm, views the peso crisis as having “impeded” border construction opportunities, said senior business development manager Jim McGlothlin. The company submitted a bid on a toll road planned for Nuevo Laredo, Mexico, but McGlothlin now sees that project as questionable.

Another big question mark is the financial viability of projects like those that U.S. Filter wants to build--ventures that depend on shell-shocked Mexican customers paying fees for services that up to now have been free.

The concept of fee-based water and sewage is a novel one in most of Mexico. Although the NADBank and the World Bank would offer loans on favorable terms, the builders would have to collect fees or taxes from users to pay back the loans and earn a profit.

After a 15- to 20-year period of owning and operating the plants, the developers would turn the projects back over to the municipalities, according to a likely financing method described by Bechtel’s Bryan.

Now, with Mexicans’ spending power seriously impaired by the peso devaluation, U.S. firms are skeptical that such fee-based schemes can be successful in the current political climate.

Another risk for infrastructure developers is that they would be borrowing dollars but collecting fees in weakened pesos, leaving the developers vulnerable to steep currency losses if the peso continued to lose value.

And although the two countries have made their first equity investments in NADBank, there is some doubt as to whether Mexico can make future payments. And future contributions by the United States may also be problematic, given Congressional opposition to the Mexican bailout package. The Congress can vote to deny NADBank its future appropriation.

“The message we got is that it will be a year before any project funding of any kind is made available,” said Brown & Root’s McGlothlin.

The high-priority projects include a $450-million waste water treatment plant to clean up the New River in Mexicali, said to be the dirtiest in the hemisphere. The river is heavily polluted on the Baja California side of the border and empties into the Salton Sea in California’s Imperial Valley, throwing the lake’s ecosystem seriously out of kilter.

The largest project envisioned by the engineers was an $850-million waste water project for the El Paso-Ciudad Juarez region. The smallest: a $7.3-million treatment plant in southeastern Arizona.

NADBank Deputy Manager Victor Miramontes downplayed the impact of the peso problems, describing it as a short-term issue in “the long-term scope of the bank. . . . NADBank’s job is to deal with environmental issues that took 10, 20, 30 years to get to the level they are now. There are no overnight solutions.”

But others are concerned, including some on a U.S.-Mexico environmental commission set up to recommend the most deserving projects.

“We are worried about future Mexican increments and we are worried about our own Congress for our own increment. Funding issues back in Washington, the tight budget and the change in mood, all have us worried,” said Peter S. Silva of San Diego, a commission member.