R 090158Z JUL 08
FM AMCONSUL TIJUANA
TO SECSTATE WASHDC 7535
INFO AMEMBASSY MEXICO 
ALL US CONSULATES IN MEXICO COLLECTIVE
AMCONSUL TIJUANA

UNCLAS TIJUANA 000730 
 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EIND EINV MX
SUBJECT: PLANNED MEGAPORT IN BAJA CALIFORNIA COULD RELIEVE CONGESTION 
AT U.S. PACIFIC PORTS 
 
REF: Mexico 949 
 
 
SUMMARY:  Construction of the long-planned and continually 
delayed Punta Colonet port, 150 miles south of San Diego, CA, is 
a top priority for the state government of Baja California. 
Optimistically, the state and federal governments hope 
developers will begin construction in 2009, and that the port 
will start partial operations three years later.  The port would 
be another Baja California link to Asia, but the main purpose is 
to relieve saturation at the Los Angeles and Long Beach ports, 
as most of the port's goods from Asia will be destined for the 
U.S.  Several legal and coordination problems have slowed down 
the bidding process, and it is not yet clear if the project will 
leave the drawing board. 
 
PLANS FOR A NEW PORT 
 
¶2.         Since 2004, the Mexican federal government has been 
trying to implement the construction of a new port in Punta 
Colonet, Baja California. Since then, the project has 
experienced the impacts of government transitions and conflicts 
with other economic projects in the area. The construction will 
require an investment of about USD 9 billion and, if 
constructed, would be the most important port in the Mexican 
Pacific, with an annual capacity of about 6 million TEU's (a 
container of twenty-foot equivalent units), with 90% of the 
imported containers going to the U.S.  There are no other 
similar ports in the area; the Port of Ensenada, operated by 
Hutchison Port Holdings, in 2007 managed only 127 thousand TEUs. 
 
¶3.      The increasing international trade between North America 
and Asia and the overcrowding of the two main ports on the 
American west coast, Long Beach and Los Angeles, motivated plans 
for the new port.  With China alone, from 2005 to 2006, U.S. 
trade increased over 16%. Neither Long Beach nor Los Angeles can 
satisfy the increased shipping capacity of the new generation of 
cargo ships.  From 1998 to 2002 the cargo operated by these 
ports grew from 6.9 million TEUs to 9.9 million.  In 2007, both 
ports processed about 15 million TEUs. 
 
¶4.      If it becomes a reality, the Punta Colonet Port will be 
established in a sparsely populated area of twenty square 
kilometers and would become fully operational within ten years 
of beginning construction.  The GOM envisions that the port will 
consist of an airport, a railway to the U.S, and ten docks, 
connected with the rest of the state with new federal roads. 
While the state government has sponsored some feasibility 
studies conducted by Mexican and transnational companies, 
neither the state nor federal government have specific plans and 
are leaving these tasks to the company or consortium that wins 
the contract. The winning company would construct and operate 
the different parts of the multimodal port, including the vital 
railway to connect it with the U.S.  In addition, there will be 
a need for urban and industrial infrastructure.  The Baja 
government projects that the population in the area could grow 
to 100,000 people after ten years of the port's operations. 
 
PROBLEMS IN THE PROJECT 
 
¶5.      The bidding process to construct the port has been stuck 
for several years.  Since coming to office in August 2007, the 
PAN administration of Governor Osuna Millan has made pushing 
forward the Punta Colonet project a priority.  It created an 
office to coordinate the project activities between federal 
government officials and local authorities, presided by Josi 
Rubio Soto.  According to Mr. Rubio, the lack of coordination 
between government agencies explains the delays in the call for 
bids. 
 
¶6.      For example, as a result of this lack of coordination, the 
federal government is involved in a legal controversy with a 
Mexican mining company for land usage in Punta Colonet.  The 
Federal Secretary for Economy (SE) granted a concession to Grupo 
Minero Lobos (GML) in August 2005 to mine titanium and magnetite 
in the coast waters near Punta Colonet, even though the area 
already had been identified for the port project by the 
Secretary for Communications and Transports (SCT).  In order to 
continue with plans for the port, the federal government tried 
to pull back the concession, causing GML to file a lawsuit. 
 
¶7.      Further complicating the picture, GML had formed an 
alliance with the American company Stevedoring Services of 
America (SSA), which already operates several port locations in 
Mexico.  The two companies wanted a part in the construction of 
the port at Punta Colonet, and after the government pulled its 
concession to GML, both tried to negotiate a deal to construct 
and operate one of the docks at Punta Colonet without 
participating in an open bidding process.  When that didn't pan 
out, SSA decided to leave the alliance; analyst say given its 
interest in Mexican ports, SSA wanted to remain on good terms 
with the government. 
 
¶8.      With the change of the state government in Baja California 
in 2007, the negotiations with GML appear to have eased. 
According to Mr. Rubio, the state and federal governments have 
reached an agreement with GML, so that mining and port projects 
can coexist.  Company representatives have declared they are 
willing to withdraw their lawsuits from the courts, though this 
has not yet happened. 
 
¶9.      Even if the GML imbroglio is resolved, it is unclear when 
the federal government will move forward with a call for bids. 
Mr. Rubio said the bidding process could be launched at the end 
of July to begin construction in 2009.  At the same time, some 
federal officials have declared the call for bids will be held 
later in 2008.  Alejandro Chacsn, the Ports and Merchant Marine 
General Coordinator from the SCT said the government would call 
for bids at the end of 2008, and Alejandro Delgado Oscoy, a 
federal deputy who chairs  the Commission for Transports in the 
Chamber of Deputies, told press there is no certainty about the 
date to launch the bidding process, but that it may be published 
at the end of this year. 
 
CORPORATE INTERESTS 
 
¶10.      Some companies have formed strategic alliances around the 
opportunity of this mega project.  Mexican companies Grupo Carso 
and Ferromex have declared they would participate in a joint 
venture.  The well known former Baja California Governor, 
Ernesto Ruffo Appel, leads a group of shipping companies in the 
conglomerate "Puerto Colonet Infraestructura", which has 
acquired several land properties in the area and has lobbied in 
favor of the project.  Hutchison Port Holdings may participate, 
as it has experience operating Baja's current most important 
port, Ensenada, as well as the American Marine Terminal 
Corporation. 
 
¶11.     However, the government's delays have caused some 
companies to give up. The American company Union Pacific, which 
had allied with Chinese Hutchinson Port Holdings declared in 
2007 it would not participate in a future bidding team.  The 
company had planned to construct the railway to connect the port 
with the United States through the Yuma Dessert, and had 
conducted several feasibility studies. 
 
¶12.     COMMENT:  If it becomes a reality, Punta Colonet will 
increase Baja's economic integration with both Asia and the U.S. 
and make the state an even more important portion of many U.S. 
companies' supply chains.  The project may have surpassed 
several of its most notable problems, such as the lack of 
coordination between governmental agencies and the litigation 
with the Grupo Minero Lobos.  At least so far, local landowners 
have not staged protests against the construction of the port 
and many of them are already in discussion with investors and 
the government to sell their plots.  The port is a high priority 
for Governor Millan and is the top feature of his development 
plan for the State.  Still, a lack of clarity in the bidding 
process and the failure of either the state or federal 
government to make detailed plans could yet hamper the project. 
 
 
KRAMER