Editor’s note: The Rivard Report reached out Gerónimo Gutiérrez, the President of the San Antonio-based NADBank, on the occasion of the bank’s founding 20 years ago. We asked Pres. Gutiérrez to reflect on the bank’s record over the last 20 years and to look ahead at the bank’s trajectory in the coming years.
Rivard Report: Mr. Gutiérrez, the North American Development Bank is celebrating its 20th anniversary this week. The NADBank is jointly financed by the United States and Mexico to finance environmental projects on the border certified by your partner institution, the Border Environment Cooperation Commission (BECC). How have the two entities changed the border over the last 20 years? It still seems to be a place of great poverty and environmental degradation, especially on the Mexican side.
Gerónimo Gutiérrez: I believe the NADBank is having a significant and growing impact in the border region. The border has long faced serious infrastructure challenges, and we have definitely made progress. Looking at wastewater management: 20 years ago only an estimated 21% of wastewater in Mexican border communities was being treated prior to being discharged. The Rio Grande in particular suffered under this scenario. Today, an estimated 87% of wastewater in Mexican border communities is being treated prior to discharge. We can’t take credit for all of this improvement, but the 58 wastewater treatment plants constructed or expanded with the bank’s support have definitely had an impact.
NADBank is also impacting the development of renewable energy along the border, where there is huge potential for wind and solar projects. We have financed 19 projects thus far with a generation capacity of 1,279 megawatts, (which) are providing enough clean and sustainable energy to power 484,000 homes in communities on both sides of the border.
Altogether, 198 infrastructure projects, from Tijuana-San Diego to Brownsville-Matamoros, have received financing of $2.3 billion from NADBank. The total investment in these projects is around $6.7 billion, which shows that NADBank is complementing and leveraging other sources of funding –including private investment– and not displacing them.
RR: How has the NADBank changed the Texas-Mexico border?
GG: Since its inception NADB has provided almost $560 million in loans and grants to support 49 projects in Texas, including 16 water conservation projects in irrigation districts that are expected to save an estimated 98,200 acre-feet of water a year in drought-prone areas in South Texas; four renewable energy projects with an installed generation capacity of 451 MW, including the Los Vientos wind project and the Alamo 4 Solar Park, both of which sell power to CPS Energy; and 24 water and/or wastewater projects, in many cases providing first-time services to colonia residents.
Additionally, wastewater projects along the Mexican side of the border have contributed to a significant increase in the treatment of sewage prior to its discharge into shared rivers and waterways, including the Rio Grande. In many cases, Mexican communities have sewer systems but no treatment facilities. NADB has supported construction of the first treatment plants for communities such as Matamoros, Rio Bravo, and Ciudad Mier in Tamaulipas, as well as Ciudad Juárez, Chihuahua and San Luis Rio Colorado, Sonora. Altogether, the Bank has supported the construction or expansion of 37 treatment plants in Mexico, which have a combined capacity to treat 241.5 million gallons a day.
RR: What are some of the most successful projects you would cite?
GG: One major project I would point to is the water conservation project in Delicias, Chihuahua. There are water savings from improved infrastructure, modern equipment and better irrigation techniques estimated at 201,626 acre-feet per year as a result of this project on the Rio Conchos, which is the principal tributary from Mexico into the Rio Grande. In addition to conserving water, other benefits have included reduced agrichemicals contamination in water runoff and increased productivity and better crop quality.
I would also point to communities rather than individual projects, where we have had a significant impact through a series of projects. Ciudad Juárez is a great example, where the city’s first wastewater treatment plant was one of the bank’s earliest projects. We have financed four wastewater treatment projects thus far in Cd. Juárez, as well as a major urban mobility project that involves street paving and construction of bypasses to improve traffic flow which in turn improves air quality. In Tijuana, the Bank has funded 11 projects, mostly relating to wastewater collection and treatment, but also one relating to solid waste management and one road project. Tijuana is approaching 100% wastewater treatment coverage, which unfortunately is not common in Mexico, and NADBank has been part of virtually every project undertaken over the last 20 years.
In renewable energy, the Energía Sierra Juárez project in Baja California stands out, as it will be the first renewable energy project constructed in Mexico exclusively for cross-border transmission to San Diego, California. And our first wind project in Mexico in El Porvenir, Tamaulipas, is the first utility-scale project for commercial consumption in the border region.
RR: Isn’t it true that wastewater and effluent still enters the Rio Grande from the Mexican side of the river at different points in Texas? Water samples certainly support that conclusion.
GG: Yes, there is still work to be done. The bank is not and was never conceived as a regulatory agency. Our role is to support local communities in their infrastructure projects. Wastewater treatment improvement has been a priority for BECC and NADBank, and the U.S. EPA’s contribution of $673 million toward border water and wastewater improvements has been a vital part of the success we have seen. Nevertheless, lack of proper maintenance of infrastructure and continued growth in border communities both contribute to raw discharges in some areas.
RR: How much money have the two governments invested in border environmental projects since your inception?
GG: The two governments have paid a total of $450 million in to the Bank. NADB has used this capital and leveraged additional funding from capital markets and other sources to disburse a total of US$2.08 billion in loans and grants to support 198 environmental infrastructure projects. This includes US$604.7 million from U.S. EPA for NADB’s Border Environment Infrastructure Fund (BEIF). The Bank generally doesn’t fund 100% of the project costs. The remaining funding comes from a combination of sources, including federal and state grant and loan programs. For instance, in the case of Mexican projects funded with BEIF grants, the BEIF funding is matched dollar for dollar by Mexican grants, mainly through the Mexican federal water agency, Comisión Nacional del Agua (CONAGUA). The whole premise of a development institution is to leverage other sources of funding, including private investment. In that regard, it is important to note that NADBank itself is not subsidized or funded on an ongoing basis by the two governments. We received the one-time infusion of capital, and we operate off of that, leveraging additional capital in the private markets, and paying our operating expenses from our retained earnings.
RR: Have all those loans been repaid on time?
GG: To date, NADB has partially or fully disbursed 86 loans totaling almost US$1.49 billion. Of those loans, two totaling US$16.6 million have been partially or fully written off and one loan for US$3.7 million is in arrears, or what we call “non-performing.” We are in negotiations with the project sponsor and do expect to collect soon on this loan. The current non-accrual rate of our loans is 0.3%, which is not bad by any standard.
RR: Some say the two governments would have to infuse far more capital in the bank for it to truly address all the border’s environmental issues. True?
GG: We are actually having this very discussion with our Board of Directors now. Since 2009, our loan portfolio has grown around 40% each year. This healthy growth rate and a robust pipeline of projects have prompted requesting both governments to move forward with the Bank’s first capital increase. Notwithstanding the stringent fiscal conditions that both governments face, we believe this can and should be accomplished. The next several months will be important for us in pursuing this objective.
RR: We tend to think of border environmental projects certified by the BECC and financed by the NADBank to be related to water quality: solid waste management, sewage treatment facilities, water purification, etc. How about air quality. Both countries emit pollutants into the air. In Mexico, industrial pollution and seasonal agricultural fires send a haze across the border from Big Bend to the Rio Grande Valley. On the U.S. side, oil and gas drillers are polluting the air with unregulated emissions in the Eagle Ford Shale Play, but prevailing winds bring most of that pollution north toward San Antonio. Are there any specific projects financed by the NADBank to improve air quality and stop pollution practices?
GG: Yes, the Bank has financed several street paving and roadway improvement projects aimed at improving air quality by reducing vehicular (PM10) dust generated by traffic on dirt roads, as well as relieving traffic congestion, as well as clean energy projects. The renewable energy projects we are financing are displacing an estimated 2 million metric tons per year of CO2, 3,410 metric tons of SO2, and 3,224 metric tons of Nox per year.
RR: NADBank presidents serve a single, five-year term, with the office alternating between a Mexican appointment and a U.S. appointment. Is this enough time to be effective in the position, or should the governments allow its leadership to serve two terms so presidents can operate on a longer timeline?
GG: NADB is one of the few truly bilateral institutions that exist. I think that part of our success is a result of a deliberate and systematic effort to maintain a long-term institutional approach with respect to all we do. Having a real binational team that is focused on addressing both US and Mexican interests along the border is crucial. The Managing Director and Deputy Managing Director each serve one, five-year term. I tend to think that any managing director probably has more to contribute than what can be accomplished in five years. In the end, the Board of Directors makes that decision.
RR: A lot has changed on the border since the North American Free Trade Agreement was initialed in San Antonio in 1992. When negotiators for both Mexico and the United States first envisioned the BECC and NADBank, is the mission they set being realized today?
GG: Far from perfect, the NADBank has learned from the failures and successes of 20 years. As with any other institution, it has changed over time, and hopefully it will continue to do so, if it wants to meet new challenges and if it is to remain significant. Infrastructure and the environment are increasingly important components of our bilateral relationship, and the North American competitiveness equation. Within a clear environmental mandate, acting to leverage and not displace private resources, maintaining good stewardship of public monies, bringing the additional capital that is expected of any development bank, and acting with professionalism as we help develop projects, NADBank has plenty to do on the border as we look toward the future. We expect that ports of entry infrastructure will grow within the Bank’s portfolio. Energy will certainly continue to be a priority.
RR: If you had to predict the NADBank’s course for the next 20 years, what do you see in the coming decades? Won’t we reach a point where border infrastructure catches up and the BECC and NADBank will become unnecessary, or will the border always need extra attention from the two nations?
GG: A little over 20 years ago, leaders from Mexico and the United States took on the task of creating, for the first time, a free trade agreement between a developing and a developed country. One of the many challenges that this task implied, was not only abating evident infrastructure lags along the border in sectors such as water and solid waste management, but also creating institutions that could help governments address the growing environmental infrastructure needs of a fast-growing border region. Conditions along the border are improving, but no country or region is ever done with the job of improving infrastructure. Whereas in the past, much of our work was in order to provide first-time basic services, the future will require expansion and improvement of existing infrastructure. I am a believer in the role of development institutions in general, as catalysts for other sources of investment, and as institutions that bring an added value that may not be met by commercial institutions. I also believe that the border, as the crossroads of a growing and dynamic trade relationship that reached $500 billion in 2013, should always be an area of special focus within the bilateral relationship.
RR: When does your term as president end? Will you stay in San Antonio?
GG: I find San Antonio to be a great place, a city with a bright and promising future for people and business. It is a place that is very much connected to Mexico. On a personal basis, I live a great life in the city that my kids now call home. I am Mexican national and live by my work, thus I will very much hope to find the right opportunity to stay in San Antonio.
RR: Thank you for your time, Pres. Gutiérrez. Congratulations on the NADBank’s 20th anniversary.
*Featured/top image: Solar project in Picture Rocks, Arizona. Photo courtesy of North American Development Bank.