Port of Punta Colonet, Mexico

Mexico's government is preparing to open bidding on the largest infrastructure project in the nation's history, a $4-billion seaport that could transform this farming village into a cargo hub to rival the ports of Los Angeles and Long Beach.

If completed as planned by 2014, the port would be the linchpin of a new shipping route linking the Pacific Ocean to America's heartland. Vessels bearing shipping containers from Asia would offload them here on Mexico's Baja peninsula, about 150 miles south of Tijuana, where they would be whisked over newly constructed rail lines to the United States.

The massive development, which is to be privately funded, is attracting interest from heavyweights such as Mexican billionaire Carlos Slim Helu. The world's second-richest man is part of a consortium planning an "aggressive" run at the project, according to Miguel Favela, general director of Mexican operations for cargo terminal operator MTC Holdings of Oakland.

Favela said MTC had teamed up with Slim's IDEAL infrastructure company and Mexican mining and railroad giant Grupo Mexico in an effort to nab the 45-year concession.

Mexico's transportation secretariat will release the request for proposal in June and hopes to select a winner by summer 2009, Subsecretary Manuel Rodriguez Arregui said in an interview earlier this month.

Competition promises to be fierce. Hong Kong-based Hutchison Port Holdings, a major port developer and operator whose parent company is chaired by billionaire Li Ka-Shing, said it planned to study the bid documents. So will terminal operators SSA Marine of Seattle and Dubai's DP World.

Ditto for railroads Union Pacific Corp. of Omaha and Fort Worth-based BNSF Railway Co. Several companies had previously expressed interest in the deal but backed off after repeated delays in the launch of the bidding.

"All the major players . . . they'll be here," said a confident Rodriguez Arregui, who will oversee the selection process.

The Punta Colonet proposal will be structured as a joint port and rail project, requiring terminal operators, railroads and construction companies to join forces to win the deal. Hutchison and Union Pacific had formed an earlier alliance that dissolved last year. Sources said SSA had partnered with leading Mexican construction firm Empresas ICA. Those companies declined to comment about their arrangement.

Rodriguez Arregui said Mexico would choose the group that could guarantee the most volume, and he estimated the facility would be capable of handling a minimum of 2 million containers annually at start-up.

The prospect of billionaires duking it out over this remote stretch of Baja underscores just how lucrative the movement of goods between Asia and North America has become. About 30 million containers crossed the Pacific last year, a flow that had been increasing by about 10% annually for more than a decade until recently. And, though transpacific trade has slowed because of weakness in the U.S. economy, experts said those figures would continue to grow over time.

With the West Coast's largest port complex, L.A.-Long Beach, constrained by urban development and environmental regulations, shippers are searching for alternatives.

Punta Colonet has emerged as an attractive option. It's close to the United States. It possesses a wide, natural harbor. And it's located in a rural, lightly populated area offering almost unlimited room for expansion.

"In the long run . . . it could get to the size of Long Beach-L.A.," which last year handled 15.7 million containers combined, Favela said. "Without a doubt, this is one of the biggest green-field projects ever to be done" in the industry.

The plan is nothing if not ambitious. Punta Colonet would be the first major seaport built in North America in nearly a century.

The harbor would have to be dredged and protected with breakwaters. The rail links could prove costly and complicated. Hundreds of miles of new track must be laid in Mexico.

But the ultimate route and U.S. crossing points would depend on which railroad snared the deal and how it would link up with existing networks on both sides of the border.

Mexico's transportation secretariat estimates the winning consortium will have to invest at least $4 billion to get the project launched.

Some industry experts are skeptical. Dubbed the "Port of Illusion" by one Baja newspaper, Punta Colonet has been plagued by legal squabbles and other setbacks since it was first proposed in 2004. While Mexico dithered, competitors forged ahead.

Panama is in the midst of a $5.3-billion expansion of its landmark canal. Canada, whose coast is the shortest sailing distance from Asia, is looking to capitalize on that advantage with $3 billion in port and rail improvements to speed cargo to the United States.

Ports along the West, East and Gulf coasts of the U.S. have begun their own upgrades. So has Mexico's own Puerto Lazaro Cardenas on the Pacific Coast of the state of Michoacan.

"The logic for [Punta Colonet] is not as strong now," said Asaf Ashar, research professor with the National Ports and Waterways Institute in Washington. But others insist there will be plenty of boxes to go around. The Punta Colonet project could be especially appealing to U.S. railroad interests, which don't want to lose business to Canada or Panama.

Union Pacific owns a 25% stake in the Mexican railroad firm Ferromex, which is part of Grupo Mexico. And it controls the U.S. side of the tracks at half a dozen key border crossings from Calexico, Calif., to Brownsville, Texas, making it an obvious contender.

Union Pacific spokeswoman Zoe Richmond said the company was waiting to see the Mexican government's request for proposal. She wouldn't comment on whether the railroad was contemplating renewing its partnership with Hutchison or joining a new consortium to bid on Punta Colonet.

Some industry veterans say Mexico's timetable may be overly aggressive and that its insistence on awarding the contract as a package deal rather than divvying it up into separate infrastructure, port operation and railroad pieces will make a complex project even more unwieldy.

Mexico has a spotty track record when it comes to executing big public-works projects on time, on budget and with top-flight quality. Much is riding on the outcome.

"What's at stake here is much more than the project itself," Rodriguez Arregui said. "It's our capacity to show the world that we can do big things."

Not everyone is likely to share his enthusiasm.

A new Baja port could dilute the power of Southern California's unionized longshoremen, whose muscle depends in part on shippers having few options on the West Coast. Surfers will lose a prized spot for catching waves near Punta Colonet. Environmentalists are already worried about potential destruction of some of the area's unique plants and sea creatures.

Mexico plans huge Baja port for U.S. trade

Calderon will open bidding for infrastructure contracts Thursday. The project is likely to transform the village of Punta Colonet.

By Marla Dickerson
August 28, 2008

Mexico's government is setting sail with the largest infrastructure project in the nation's history, a $4-billion seaport that it hopes will one day rival those of Los Angeles and Long Beach.

President Felipe Calderon is scheduled to travel to northern Baja California today to open bidding on a development that his administration hopes will catapult Mexico into a major player in North American logistics.

Plans call for the construction of a massive port in the tiny coastal village of Punta Colonet, about 150 miles south of Tijuana, along with new rail lines to whisk Asian-made goods north to the United States. Mexico's aim is to snatch some Pacific cargo traffic from Southern California's ports, whose growth is constrained by urban development and environmental concerns.

Punta Colonet is expected to have a capacity of 2 million shipping containers annually when it opens in 2014, Mexico's transportation secretariat told The Times But officials envision it ultimately handling five times that amount. Last year, the ports of L.A. and Long Beach handled 15.7 million containers combined.

The massive development is to be privately funded, with the first phase estimated to cost between $4 billion and $5 billion. The government is expected to award the 45-year concession in 2009.

A number of major players are expected to vie for the project, including Mexican billionaire Carlos Slim Helu, the world's second-richest man. Slim's infrastructure company, known as Ideal, has teamed with Mexican mining and railroad giant Grupo Mexico and New Jersey-based terminal operator Ports America Group to make a run at the deal.

"We've spent a lot of years working on this," said Miguel Favela, head of Mexican operations for Ports America. "It's going to make Mexico _ much more competitive."

About 30 million shipping containers crossed the Pacific Ocean last year, a flow that increased about 10% annually in the last decade. A weak U.S. economy has slowed the trade, but experts predict it will rebound.

With shippers increasingly worried about congestion at L.A.-Long Beach, Punta Colonet has emerged as an attractive alternative. It's close to the United States. It possesses a wide, natural harbor. And it’s in a lightly populated area offering almost unlimited room for expansion.

When Calderon visits the dusty hamlet of about 2,500 people today, he is expected to talk about the big changes in store. The village will need extensive upgrades to its roads, housing, electrical grid and water supply. State and local officials are planning for a city of about 200,000 to spring up around the port.

The changes envisioned are alarming environmentalists, who worry about the potential destruction of the area's plants and wildlife. But the farmers who scratch out a living there are thrilled at the prospect of a big payday.

"What we need is employment for our kids," said Jesus Lara, representative of several peasant landowner groups that are eager to sell. "Everyone is excited. Having the president come your town is like winning the Lotto."

But whether Punta Colonet turns out to be lucrative for Mexico won't be known for years. Competitors up and down the Pacific coast are in the midst of major upgrades. Panama has begun a $5.3-billion expansion of its landmark canal. Canada’s Prince Rupert port in British Colombia began speeding containers to the American heartland by rail last year and is planning a major expansion.

Little of the cargo bound for Punta Colonet will stay in Mexico, making the port vulnerable to the whims of shippers, who can choose other routes to the United States.

"Nothing is guaranteed," said Asaf Ashar, research professor with the National Ports and Waterways Institute in Washington. "It's a big risk."

Building a seaport from scratch would be difficult enough. But the overland transportation piece is likely to make or break Punta Colonet. The deal is being structured as a joint port-and-rail project, requiring terminal operators, railroads and construction companies to team up in consortia to win the bid. The railroad’s ultimate route and U.S. crossing points will depend on which railway operator is chosen and how it manages to link up with existing rail networks on both sides of the border.

Union Pacific Corp. of Omaha and Forth Worth-based BNSF Railway Co. control the U.S. side of the tracks at most of the key U.S.-Mexico border crossings. Striking a deal with one of those companies to get the cargo to the American side will be crucial, said Paul Bingham, managing director of the global trade and transportation practice for Global Insight, a Massachusetts-based consulting firm.

"They have the ability to essentially choke off that port," Bingham said.

BNSF spokesman Patrick Hiatte said Wednesday that the company was "very interested" in the Punta Colonet project. He declined to say with whom the firm might collaborate to make a bid.

Union Pacific could not be reached for comment. The company earlier had teamed with Hong Kong-based Hutchison Port Holdings to make a run at the project, but that alliance dissolved last year.


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