The multiparty agreement that kept Iron City Beer flowing appears in danger of going flat as the reorganized brewer hedges on its commitment to make $4 million in capital improvements.

Iron City Brewing Co. has sent signals to local officials suggesting that it may not complete the installation of a new boiler system and a new keg line by Sept. 19, as called for in its bankruptcy court reorganization plan. The failure to complete that work by that date would forestall the reduction of $1 million in debt to the Pittsburgh Water and Sewer Authority, and could jeopardize hundreds of thousands of dollars in anticipated low-interest loans.

The 147-year-old Lawrenceville brewery has also hit snags in its effort to finalize a $500,000 equipment loan with the state.

Portions of the plant, meanwhile, are operating at a fraction of its capacity, according to employees.

The issues have been before city of Pittsburgh officials since a Feb. 28 meeting with Iron City executives, but only now are they coming to the fore. On Thursday, a committee of the water authority board, at a closed-door meeting, got an update from that agency's solicitor, Cliff Levine, who said he will write to, or meet with, the brewer to determine if it is in danger of defaulting on its water and sewer debt agreement.

"They appeared to be considering deferring some of the capital improvements," said Mr. Levine, outside of the meeting. "There was an issue as to whether or not the revised capital improvement plan had an effect on any of the documents entered into in the bankruptcy," conceivably resulting in a default.

Don Kortlandt, general counsel for the Urban Redevelopment Authority, said that modernization was "absolutely" a key to making the brewery competitive again. Ownership "came in and said, 'This is what we have to do.'"

At the Feb. 28 meeting, though, Iron City executives said they were changing the schedule, especially on the new $2 million kegging line.

Just days earlier, on Feb. 21, Iron City President Tim Hickman was quoted saying that an old gas boiler had been upgraded last fall, new keg systems had been ordered and 1,400 new kegs were received in January, with 10,000 new kegs expected by June.

The Allegheny County Health Department inspected the plant this spring and confirmed that a coal-fired boiler had been shut down, as promised. Last fall, according to the health department, the brewery furnished a copy of an agreement to purchase six new, smaller, natural-gas boilers and the department has issued a permit to purchase the six.

"We understand they may have started work on one of them," said Health Department spokesman Guillermo Cole.

But Dave Kelly, president of Local 144b of the International Union of Electrical and Communcation Workers, said there "is no machinery being brought in of any significance." Mr. Kelly, who works on the bottling side of the operation, noted that not much work is being done at the plant, citing a meeting last week at which Mr. Hickman told employees they would work only 10 days per month until the end of the year.

Another employee from the brewing side of the operation called the capital improvements "a figment of someone's imagination." A new keg line -- the machine that runs and cleans the barrels -- is nowhere to be seen, he said. And this employee estimated that only 300 to 500 new kegs had actually arrived on site.

"They have this big master plan, and it's not working and they are dragging the whole conglomerate down with them."

The water authority's insistence on payment of $2.7 million in delinquent water and sewer bills was one of the biggest issues in the brewer's 2005 bankruptcy. The agreement that got the brewer out of bankruptcy reduced that debt to $1.5 million. Of that, the authority would write off $1 million in phases through 2010 if the brewer makes the capital improvements, and keeps current on its bills and taxes.

Last year the water authority and brewer signed a term sheet that, like the reorganization plan, required that the improvements be made by September 2007. Otherwise, the $1 million debt remains in place, and the authority can choose to trigger a mortgage it holds on brewery property.

The bankruptcy plan also requires that the brewer secures the financing, at the very least, for the boilers and keg line if it is to get a second round of public aid.

So far, the new ownership group at Iron City, formerly Pittsburgh Brewing Co., has collected $362,500 in public money -- $200,000 in state "opportunity" grants, $12,500 in grants from the URA and $150,000 in loans from Allegheny County. All were part of a $937,000 assistance package announced last February by Gov. Ed Rendell at a news conference in Downtown Pittsburgh.

Part of Mr. Rendell's package, a $500,000 state equipment loan, may be in doubt.

The Pennsylvania Department of Community and Economic Development is considering Iron City's request that the state be removed as primary lien holder on $500,000 -- meaning the state would not be paid first if the loan goes bad.

"The state is requiring they be the first lien on that loan and Iron City is not in position to offer that," said brewery spokesman Scott Henry, who added that Iron City reached out to state Rep. Don Walko to argue its case on the loan (Mr. Walko is also chair of the water authority board).

The Iron City spokesman declined comment on questions about meetings with any other officials. Connecticut businessman John Milne, who led the group of investors that took control of the brewery last September, could not be reached via e-mail. Mr. Milne recently was indicted on insider trading and securities fraud charges relating to his time as president of Greenwich, Conn.-based United Rentals Inc. Mr. Milne has denied the allegations, and Mr. Hickman, president of Iron City, has said the legal problems will not affect the brewery.

State economic development spokesman Kevin Ortiz confirmed that brewery officials "have expressed some concerns tied into our offer" but that it is "way too early" to know if this threatens Mr. Rendell's package. "We need to take a look at it. We will continue to work with the company with the goal of making sure this project moves forward."

In exchange for the "opportunity" grant from the state, Iron City has to retain 100 jobs and spend $4 million on improvements within three years. The $500,000 loan from the state's Machinery and Equipment Loan Fund does not specify precisely how that money should be used, other than for eligible costs associated with the improvement project. If the terms change, however, the state can review what's eligible and what isn't. The state also has yet to release $50,000 in job training funds promised as part of the original package, according to Mr. Ortiz.

Bob Hurley with the Allegheny County Department of Economic Development does not sound worried about the county's $150,000 loan to Iron City, which was finalized Feb. 27. The loan was for "working capital and equipment," said Mr. Hurley, the department's deputy director, without specifying what sort of equipment has to be purchased. The "assumption was that equipment may be boilers," but it "may not be boilers."

Also, there is "no particular time frame" in which Iron City has to act, he said. During a recent conversation with the brewery president, "it seemed that things were going pretty good." The brewery, Mr. Hurley said, is "investigating" whether new boilers are needed or "existing boilers can be adequately retrofitted."

Similarly, the URA's $37,500 modernization grant, payable over three years, isn't tied to specific improvements or timetables. "The part that really caught the interest of the [city] administration, and me, was that you had 150 employees willing to make substantial concessions" including shift reductions and cross-training, Mr. Kortlandt said. "It appeared that if we didn't support the new purchasers somewhat, financially, all of those concessions would be for naught."