VZCZCXRO1443
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #4614/01 2392230
ZNR UUUUU ZZH
P 272230Z AUG 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8645
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RULSDMK/TRANSPORTATION DEPT WASHDC PRIORITY
RUEAHLA/DEPT OF HOMELAND SECURITY PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 MEXICO 004614 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX 
COMMERCE FOR 4320/ITA/MAC/WHA/ONAFTA/GERI WORD 
DOT FOR FRA/SNEWCOMER 
DHS FOR ABULLOCK 
WHITE HOUSE FOR HSC/JHOFFMAN 
STATE PASS TO GSA FOR SPEPPLER 
 
E.O. 12958: N/A 
TAGS: EIND ELTN ETRD EINV MX
SUBJECT: UNION PACIFIC MEXICO TALKS COLOMBIA RAILROAD 
CROSSING, PUNTO COLONET PORT 
 
 
Summary and Introduction 
------------------------ 
 
1 (SBU) Summary.  FCSOffs and EconOffs met with Juan Manuel 
Carreon, President of Union Pacific de Mexico (UP), to 
discuss issues currently affecting the company.  Carreon was 
clear that UP is not planning on moving to any new bridge in 
the Laredo area.  He did say that there were conditions that 
would make the Colombia rail bridge more economically 
feasible and push UP to consider moving.  He said that UP and 
Hutchinson Port Holdings have ended their joint venture to 
purchase Punto Colonet.   UP is working towards a resolution 
on the trackage rights negotiations while they will remain 
outside of any merger discussions. End Summary 
 
Colombia Rail Crossing 
---------------------- 
 
¶2. (SBU) Carreon began the discussion with talks on the 
Colombia Rail Crossing and UP's position on the crossing.  He 
explained that the issue is very complex and not many people 
in UP have a complete knowledge of the situation.  He said 
that UP does not support any of the current alternate rail 
plans -- Colombia or Kansas City Southern's alternative -- 
and further does not see itself supporting the Colombia 
crossing any time in the near future.  He said that the 
project is one with strong political backing but not strong 
financial backing and that, thus far, it does not make 
financial sense for any of the railroad companies to sign on. 
 
 
¶3. (SBU) Carreon explained that the Colombia Rail Crossing is 
a pet project of the state of Nuevo Leon, but the people 
involved do not have a good sense of the business cost that 
would be required from a rail company that diverts its routes 
through Colombia.  He further said that the state governor, 
Jose Natividad Paras, has not pursued the matter extensively 
in the first 4 years of his term and only has two remaining 
to push the matter.  He said that if Ferromex wins the 
concession to extend from their line to Colombia, the bridge 
may gain more economic feasibility and UP would consider 
using it.  Without another rail company taking the lead in 
investment, UP will not plan on making the move. 
 
Punta Colonet Port and Rail Line 
-------------------------------- 
 
¶4. (SBU) Carreon also discussed the current status of Punto 
Colonet.  He said that UP has ended its partnership with 
Hutchison Port Holdings to purchase the concession.  He said 
that, with the expansion of the Panama Canal, operated as a 
concession by Hutchison, the need for Punto Colonet is not as 
strong as when the plan was first conceived.  He also 
explained that UP met resistance from local farmers against 
its plan to extend the Punto Colonet rail lines across the 
border at Yuma, AZ to connect with its current lines.  The 
current likely plan, to cross at Calexico, CA, is less 
desirable and likely to be met with even more resistance from 
farmers and environmental groups.  He also said that the 
dispute over the previously issued mining concession that 
previously stalled the plan appeared to be ongoing despite 
the government of Mexico's (GOM) assertion that it had been 
settled.   He did say, however, that UP was willing to work 
with whoever ultimately wins the Punto Colonet concession. 
 
Other Rail Issues 
----------------- 
 
¶5. Despite the ruling by the Mexican Federal Competition 
Commission (Cofeco), Carreon believes that the merger is not 
dead yet.  He said that Ferromex's majority owner, Jorge 
Larrea and his Group Mexico, is not ready to take no as a 
final answer.  He also explained that the Secretariat of 
Communications and Transportation (SCT), specifically 
Undersecretary for Transportation, Manuel Rodriguez, support 
the merger and are looking for ways to give SCT the ability 
to approve it. He said that UP has been called upon at times 
to mediate, but is too involved in the issue to be a proper 
good office. (Note: Ferromex is 26% owned by UP with Grupo 
Mexico holding the remaining 74%.  The other merger company, 
 
MEXICO 00004614  002 OF 002 
 
 
Ferrosur is owned by Grupo Carso, Mexican monopolist Carlos 
Slim's conglomerate.) 
 
¶6. Carreon also discussed the renegotiation of trackage 
rights in Mexico and says that 28 of the 34 problems have 
been solved.  However, he was clear that resolving the 
majority of the problems does not equal success on the issue 
as a whole.  He said that the remaining issues are the most 
difficult to resolve.  (Comment: Competitor Kansas City 
Southern de Mexico (KCSM) has come out strongly against the 
lowering of trackage right costs for their portion of the 
rail.  They feel that SCT is pushing them on this issue while 
simultaneously supporting the merger that they feel will 
further undermine the credibility of the railroad industry in 
Mexico.  Many in the railroad industry feel that KCSM paid 
too much for the concession in the beginning and that they 
should not be able to continually pass on the cost of their 
poor investment to other companies that need to use the lines 
for which they have operating rights. End Comment.) 
 
Comment 
------- 
 
¶7.  Comment:  Both the Colombia rail project and Punto 
Colonet are being actively pursued by the GOM.  The Cameron 
Station-Colombia rail concession is included in President 
Calderon's National Infrastructure Program (NIP) with a value 
of 1.1 billion Mexican pesos (100 million USD) and plans for 
it to be jointly funded by the federal government and the 
private sector.  The 61 km rail spur would begin along the 
current line to Laredo, but divert to Colombia.  It would 
also include a crossing.   As mentioned previously, however, 
it could be a decade or more before any of the rail road 
companies see a reason to begin investment in new lines 
and/or yards.  Until that time, the private funding needed to 
begin construction will likely be unavailable. 
 
¶8. Punto Colonet figures prominently in the NIP as the 
largest rail project planned valued at 20.9 billion Mexican 
pesos (1.9 billion USD).  The NIP also calls for it to be 
financed exclusively with private sources.  It seems that UP 
will have a smaller role in the project that originally 
planned but are not completely abandoning the project.  The 
issue of trackage rights will likely be resolved in the near 
to mid future, but Post will continue to monitor the 
developments.  UP has stayed out of the merger discussions 
and will likely continue to do so.  End Comment. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA