SignOnSanDiego.com > News > Mexico -- Smelling money in sewage

Area firm hopes to sign no-bid deal with U.S. agency to treat Tijuana region's polluted water, then recycle it
By Mike Lee and Terry Rodgers
November 13, 2005

Where most people smell sewage, two North County businessmen smell money.

By leveraging a U.S. government-funded wastewater treatment system pegged for Tijuana, developer Enrique Landa and consultant Jim Simmons aim to become the kingpins of recycled water in the parched state of Baja California.
The cornerstone of their project is a no-bid contract with a little-known U.S. agency. The deal to build and operate the facility is supposed to be signed by Dec. 19. It capitalizes on two trends: the U.S. government awarding more sole-source contracts, and cities looking to the private sector to handle wastewater treatment.

But even with signed papers, the Tijuana concept would be risky because it relies on the budget blessing of an increasingly cost-conscious U.S. Congress, real estate negotiations in Mexico and final approval by the Mexican government. Landa and Simmons created Bajagua Project LLC solely to pursue the deal for a treatment plant, which includes aerated ponds where pollutants are broken down by bacteria and removed from wastewater. It's taken about a decade and $20 million for them to reach this point.

The men and their suite of consultants have been so successful at marketing that their company's name is synonymous with the project they aim to build – like Kleenex is to tissues.

Bajagua has been sold to the American public as a way to keep Tijuana's raw sewage from flowing across the border and onto beaches in San Diego County. But the company's investors are angling for something potentially much more lucrative: the first high-grade water recycling operation in the Tijuana region.

"We see a bigger opportunity here," Simmons said. "We want to be the purveyors of reclaimed water in Mexico."

Bajagua officials estimate the company could serve more than half of Tijuana's current water demand. Potential customers include nearby maquiladoras – factories that make everything from consumer electronics to medical devices. Some of these businesses rely on a steady flow of water for their work.
Bajagua also may be able to inject purified water into an aquifer or use it to irrigate greenbelts.

To recycle water, the company would need to enlarge its proposed plant to include facilities that super-scrub and then deliver the water. U.S. taxpayers would not subsidize the expansion. However, such infrastructure would leave Bajagua in position to continue selling highly treated water even when the U.S.-funded portion of the plant is given to Mexico in 20 years.

It's too soon to speculate publicly about the profit potential, Simmons said, because terms haven't been negotiated with the Mexican government, which would own whatever purified water Bajagua produces.

Some people question whether Landa and Simmons know what they are doing.

Mexico's lack of infrastructure and its price controls on recycled water make Bajagua's resale concept shaky, said Oscar Romo of the Tijuana River National Estuarine Research Reserve in Imperial Beach.

"It's very easy to say they are going to recycle the water, but ... who is going to pay to deliver that water?" he said.

Doubters have hounded Bajagua for years, but they have not derailed the company's plans.

One reason: Bajagua investors have tapped into the growing popularity of public-private partnerships to run facilities that local governments traditionally operated.

"The public sector can maintain an adequate level of control over the whole project while taking advantage of the skills refined by the private sector in the competitive marketplace," said Richard Norment, executive director of the National Council for Public-Private Partnerships in Washington, D.C., which touts such deals.

The number of privately operated U.S. wastewater plants has more than doubled in the last six years – from about 2 percent to 5 percent of all facilities, Norment estimated. He attributed the rise to an increasing number of cities unable to meet federal clean-water mandates on their own.

The public-private arrangements succeed because companies usually operate more efficiently than agencies, Norment said.

The Bajagua concept appeals to some people in an additional way: The U.S. government is steering more and more contracts to specific companies without opening them up for bids.

In fiscal 2003, the Bush administration entered into 43,000 contracts worth $107 billion without "full and open competition," according to a report done by House Democrats. That was $40 billion more – or 60 percent higher – than what was spent during the final year of the Clinton administration, the research showed.

Critics of no-bid contracts fear myriad abuses when the government gets too cozy with businesses.

"Sole-source contract awards limit aggressive negotiations, prohibit innovations and result in increased costs," said Scott Amey, an attorney for the Washington, D.C., watchdog group Project on Government Oversight.
Key details of how Bajagua obtained the no-bid contract remain secret.

The San Diego Union-Tribune filed a Freedom of Information Act request for documents that Bajagua and other firms submitted in 2004 to establish their qualifications. The request was rejected by the International Boundary and Water Commission, the U.S. agency in charge of the project.

Some details have been made public.

Bajagua is offering to build the treatment plant without any upfront money from the U.S. government. The company expects to earn $4.5 million to $6 million on its investment, plus fees for managing the facility.

Bajagua aims to serve as an intermediary to obtain all necessary permits and approvals. It would leave the construction work, as well as operation of the treatment plant, to other firms.

On the brink of finalizing a contract, the U.S. government still has no firm budget for building and operating the sewage treatment system.

The boundary commission estimates the Bajagua bill at $500 million over two decades. The Congressional Budget Office puts the figure at more than $600 million.

"The best we can do is guess what the costs would be," said Diana Forti, the commission's budget officer in El Paso, Texas.

Bajagua will finance the project through a Citigroup loan, hoping the U.S. government will repay the company through annual appropriations. It also plans to buy insurance in case Washington backs out.

"We have no guarantees" the Tijuana plant will be paid for by Congress, Forti said. "We simply continue to do as we have been directed."

Rep. Bob Filner, D-San Diego, has guided Bajagua through the political process and remains sure the project will be fully funded once a contract is signed.

"It's as safe as anything," he said.

The crucial budget is for fiscal 2008. The commission probably will ask for about $1 million that year to pay for the first month of operating Bajagua. If the money comes through, it's highly unlikely that Congress would refuse subsequent funding.

Bajagua has made another unusual offer: It pledges to repay the U.S. government for all construction costs of the plant if it's able to sell enough purified water in Tijuana.

It's too soon to say how the rebate concept will be made part of the contract, the commission's Forti said.

Bajagua officials said they have spent $20 million on engineering, lobbying and other aspects of the project. They're negotiating to buy about 235 acres near the junction of the Alamar and Tijuana rivers. That land will be enough for the treatment plant, plus any additional facilities to treat wastewater at higher standards for resale.

Simmons, 61, of Escondido is trying to stay positive about the project, but still says it's one of his worst investments. "If I had known it was going to take 10 years and all this money, I would not have done it," he said.

A former San Marcos councilman, Simmons has specialized in guiding developments through the pre-construction processes of engineering and permits. He's been involved in projects throughout San Diego County, from the San Elijo Hills housing development to the Gregory Canyon Landfill.

Court records show Simmons was in Chapter 13 bankruptcy reorganization from 1997 to 2001. He attributed his financial troubles to a soft California economy and his investments in Bajagua. A recession in the early 1990s hit developers hard, though it took a few years to topple Simmons, who typically gets paid when projects are completed. Simmons said he repaid all his debts with interest.

He lists the likes of U.S. Reps. Randy "Duke" Cunningham, Duncan Hunter and Filner as references for his San Marcos development company, Consultants Collaborative.

Landa, an architect who lives in Rancho Santa Fe, is a developer whose projects include a golf course housing development in Maui, Hawaii. He did not respond to several interview requests.

In the mid-1990s, according to his colleagues, Landa was developing El Florido business park in Tijuana when he ran into a host of infrastructure shortcomings involving sewage treatment, water supply and electricity.

The colleagues said Landa began thinking about how to provide basic services in his home country and expand his business park. He and Simmons also were partners in Agua Clara LLC, which helped to build a wastewater treatment plant in Sonora.

They turned Agua Clara into Bajagua. Eventually, Landa and Simmons added another major partner, Boston business lawyer Irwin Heller, and a few small investors.

"The momentum is heading in the right direction, and it's going to happen," Simmons said.