Identifier
Created
Classification
Origin
06MEXICO2333
2006-05-02 17:38:00
CONFIDENTIAL
Embassy Mexico
Cable title:  

PUNTA COLONET PORT AND RAILROAD PROJECT LOSING

Tags:  ECON MX EINV BTIO ETTC ETLN EAIR ETRD ENRG 
pdf how-to read a cable
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DE RUEHME #2333/01 1221738
ZNY CCCCC ZZH
R 021738Z MAY 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0607
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEAHLA/DEPT OF HOMELAND SECURITY
C O N F I D E N T I A L SECTION 01 OF 02 MEXICO 002333 

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/25/2016
TAGS: ECON MX EINV BTIO ETTC ETLN EAIR ETRD ENRG
SUBJECT: PUNTA COLONET PORT AND RAILROAD PROJECT LOSING
INTENSITY (C-TN5-0533)

REF: 05 STATE 224328

Classified By: MINISTER COUNSELOR FOR ECONOMIC AFFAIRS
JAMES T. HEG FOR REASONS 1.4 (B) AND (D)

C O N F I D E N T I A L SECTION 01 OF 02 MEXICO 002333

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/25/2016
TAGS: ECON MX EINV BTIO ETTC ETLN EAIR ETRD ENRG
SUBJECT: PUNTA COLONET PORT AND RAILROAD PROJECT LOSING
INTENSITY (C-TN5-0533)

REF: 05 STATE 224328

Classified By: MINISTER COUNSELOR FOR ECONOMIC AFFAIRS
JAMES T. HEG FOR REASONS 1.4 (B) AND (D)


1. (SBU) Summary: Dep Econcouns and Econoff met February 17
with Union Pacific Railroad's Director General for Mexico
Juan Manuel Carreon to discuss the Punta Colonet port
development project in Baja California, Mexico. Carreon
believes Union Pacific and partner, Hutchison Port Holdings,
a Hong Kong Chinese port company, may have to set aside plans
to begin construction of a new port and rail line to the U.S.
and pitch the project to the next Mexican administration.
End Summary.


2. (C) Dep Econcouns and Econoff met with Union Pacific's
Vice President for Mexico Juan Manuel Carreon February 17 to
discuss a proposed project to construct a new port in Punta
Colonet, near Ensenada in Baja California and a new rail link
to Yuma, Arizona. Carreon explained that the Punta Colonet
project idea has been floating around since the Mexican
railroads privatized in the early 1990s and Union Pacific
(UP) bought part of Ferrovia Mexicana. UP teamed up with
Hutchison Port Holdings (HPH),a Hong Kong company at that
time to develop the idea for a new Port in Baja California,
close enough to the U.S.-Mexico border for incoming cargo to
travel by rail to the U.S. According to their plan, HPH
would be in charge of the port and UP would be responsible
for the rail yard and transportation to the U.S., including a
new border crossing in Yuma, Arizona. Carreon said that 100
percent of the incoming cargo would be shipped up to U.S. by
rail. Since the California ports of Long Beach and Los
Angeles are currently oversaturated, UP believes this would
be a viable and affordable alternative for shippers to bring
goods from Asia into the U.S.


3. (C) Carreon said both companies were initially working

with the State of Baja California and its governor to
implement the project. Since Mexican federal law regulates
port concessions and requires a bid process, state
politicians apparently thought they could pass state laws
that would allow both companies to bypass the bid and
concession processes. Carreon didn't really convey why the
plan fell through, but said they have been working with the
Secretariat of Communications and Transport (SCT) and the

SIPDIS
state of Baja California to continue the project. Carreon
stressed that despite SCT claims, SCT is not funding the
projects nor were they involved in any of the planning. UP
would be responsible for laying down 180 miles of double
track. The port itself would have 20 berths.


4. (C) Carreon said UP will need USG support for their
project, specifically a CBP preclearance facility at the port
in order to avoid hold-ups at the border. Carreon said the
cargo would also be safer coming into Punta Colonet because
it will be a more modern port.


5. (C) Carreon said they are working closely with the
consulting firm Public Strategies to gain momentum for the
project. However, he said they continue to be confronted
with problems. He claimed that anti-trust laws that prohibit
port companies from bidding for concessions at more than one
port on each coast are being misinterpreted. In this case,
he argued, the "market" is different so the Punta Colonet
project shouldn't be categorized with other Hutchison Port
Holdings concessions on the West Coast. In addition, Carreon
said that while UP is aware that business and investment
processes move faster and more smoothly when Mexican partners
are included, HPH has refused to partner with any Mexican
firm on the project.


6. (C) Carreon insisted that all the proper environmental
surveys have been completed (evidently by HPH) and said that
they found no harmful effects on the environment. However,
the SCT, the Mexican Navy, and the Secretariat of the
Environment were quoted in a February 2006 report as saying
they were just completing their topohydrographical studies.
(No such study has been released to date.) After concluding
these studies, the agencies plan to conduct an overall
feasability study. (The GOM also said it was in charge of
the port design.) In addition, Vida Ensenadense, an Ensenada
citizens group, which wants to see the Punta Colonet project
go forward and fought expansion of the Ensenada Port, has
asked the GOM to develop a master plan and develop the legal
framework to set aside land for the development of the port
and rail line. The government and businesses will be
required to negotiate for right of way on ejido (ie.
collectively owned) land for the rail line.


7. (C) UP and HPH believe it will take seven or eight years

MEXICO 00002333 002 OF 002


to complete the primary phase of the project. Carreon is
doubtful that they can negotiate a deal with the SCT before a
new administration takes office. He said several SCT
officials believe it can happen but Carreon is afraid the
project could end up caught in election-related political
maneuvering. He believes the project is vulnerable to
criticism from members of the Mexican Congress because
Congress made a recommendation in the 1990s during the rail
privatization that no foreign ownership should be allowed in
railroads in the Baja Peninsula.


8. (C) Marisa Walker, the Executive Director of CANAMEX
Corridor and Cyberport Project, a joint venture by the states
of Nevada, Idaho, Utah, and Montana to develop a
transportation, communication, and commercial corridor from
Mexico through the U.S. to Canada, confirmed the challenges
of implementing the Punta Colonet Project in a phone
conversation with Econoff on April 25. Walker's team has
been working closely with HPH and UP because the port project
will help develop the southern tier of the corridor including
a new port of entry at Yuma. She said that Secretary Cerisola
of SCT is now considering debundling the project and may
issue regulations for the concession that would favor HPH and
not UP. Walker added that HPH is trying to convince the
Cerisola that the feasibility of the project is dependent on
UP's participation. She said HPH and UP are hoping the
Secretary of Economy will step in and encourage SCT and the

SIPDIS
President's office to consider a regulatory/concessions
framework that will favor both companies. She did clarify
that they understand the bid process will be open to other
companies but that UP and HPH will probably be in a more
favorable financial and technical position.


9. (C) Comment: Clearly UP and HPH would like to circumvent
the Federal Mexican port concession regulations and avoid a
formal tender process. But while UP and HPH see this as
their project, the GOM sees it as a large infrastructure hub,
under the SCT's coordination, for multimodal transportation,
with potential for an airport, as well as a service hub that
includes and energy plant.


10. (C) It is doubtful that the project will be approved by
the current administration. Although Embassy has been
informed that several SCT officials have traveled to China
and have favored HPH in past disputes involving American
companies, Mexican companies may be apprehensive about
permitting a primarily private foreign-funded and operated
project of this magnitude to occur. The project is also
dependent upon the next President. A nationalist could
decide to heed Congress' advice regarding foreign investment
in Baja. Another could favor the local population if a
dispute over land use were to arise. Embassy's Customs and
Border Protection (CBP) Office recently informed Econoff that
UP has never approached their office at the local level to
inquire or discuss the potential for a pre-clearance cargo
facility in Punta Colonet. Without a CBP pledge to establish
a pre-clearance cargo facility to clear the U.S. bound
containers, costs will remain high and the price of goods
would likely be unable to compete with those arriving
directly into U.S. ports. Post will continue to follow the
issue and report any new developments.






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