Investing in Mexico can be hazardous--just ask Metalclad.
IN 1993, METALCLAD, A SMALL NEWPORT BEACH, California-based company, bought a beleaguered waste depot in Guadalcazar, an isolated community in the central Mexican state of San Luis Potosi. The company invested US$25 million to build a state-of-the-art facility Since its landfill would be the nation's largest and the closest to the Mexico City area--the country's industrial core--Metalclad would corner two thirds of the hazardous waste market as soon as it opened its doors.
It never did.
Seven years later, Metalclad's story is a cautionary tale, a saga of cross-border business gone awry In Mexico, where political sands have been shifting rapidly and in unprecedented ways in recent years, the company's experience, like that of the hazardous- and industrial-waste industry in general, is the clearest case yet of how politics can thwart logic, economics and a clean environment.
"The market for this kind of business in Mexico is probably one of the top two or three in the world," says Metalclad CEO Grant Kesler. "I see zero future [in this industry] unless the government of Mexico applies the political will necessary to make these projects succeed."
Metalclad is now awaiting the final verdict in a January 1997 lawsuit filed against Mexico alleging that the government of San Luis Potosi expropriated the company's property. The lawsuit was the first filed under the North American Free Trade Agreement (Nafta). The company is asking for $90 million in damages, plus $4 million in expenses. A three-member arbitration board heard the case in September 1999. Its decision--which cannot be appealed--is expected by the end of February 2000.
Mexico produces an estimated 8 million tons of hazardous waste a year. When the free-trade agreement was signed in 1993, only an estimated 6% of that hazardous waste was treated and disposed of safely. The rest was thrown into ravines and rivers, city dumps and deserts, or simply buried behind factories.
The country's hazardous-waste disposal market alone was believed to be worth $1.5 billion annually. Then there was recycling, incineration, and clean-up of clandestine dumps. All told, Mexican authorities have estimated the country's environmental infrastructure needs to be $2 billion annually through 2010. When Nafta took effect on Jan. 1, 1994, most observers touted hazardous waste treatment as one of the industries that would most benefit from increased foreign...