VZCZCXRO1228
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
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) 
 
¶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. 
 
 
 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
 
GARZA