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Bids to Begin to Build A Port

June 18, 2007
Ernesto Ruffo Appel says he always knew there would be an opportunity to build a new port in Baja California. Now he is promoting the construction, from

Ernesto Ruffo Appel says he always knew there would be an opportunity to build a new port in Baja California. Now he is promoting the construction, from scratch, of just such a port at Colonet Bay, 110 miles down the coast from San Diego. He would do the building through his company, Puerto Colonet Infraestructura (PCI).

"I'm a native of Ensenada," he explains, "and every time there was a strike at the ports in Los Angeles and Long Beach, ships would race down to Ensenada to get there first to be the only vessel docking at the port. I am talking about the seventies. Those two U.S. ports are getting more and more containers. It's clear that by 2010 they'll be unable to handle the growth. So there's an obvious opportunity for new port construction in Baja California."

Besides having been mayor of Ensenada (1986-1989), then state governor (1990-1996), Ruffo's father owned several tuna fishing vessels which helped give him a unique perspective on ocean commerce. Before entering politics and after getting a BA in business administration, Ruffo was a fleet master. He recalls that in rough weather he would sail his fleet to hide within the natural protective barrier at Point Colonet.

Ruffo was named by former Mexican President Vicente Fox as Border Affairs Commissioner, a post he held for three years before resigning in 2003 and giving up his political career.

In the interim he kept in touch with marine terminal operators at Los Angeles. They had hired him as a consultant. When asked if the Mexican government could build a new port, he said it just didn't have the money for such a project. They then asked why he didn't build the port.

"Me? I don't have money to do it," he answered. But they kept pressing, giving him letters committing themselves to be his customers if he built the port.

They also provided him with cost forecasts showing how much he could charge customers for port usage.

"I took the letters and forecasts," recalls Ruffo, "to a bank. The banker said, ‘hey, this is feasible. Do you realize you have the possibility for very big business in your hands?' "Some time ago I had the opportunity of talking to the California's Secretary of State Transportation," he continues. "I was concerned that the idea of a new port in Baja California would be seen as competition. But she thought it was a great idea since she understands California's economy could slow down if its infrastructure becomes saturated. She told me that if we built such a port—with complementary railroads, new roads to the border and an airport--the California economy would be bound to keep growing. ‘We are one and the same economic region even if it is in two nations,' she claimed. And she was absolutely right."

When Ruffo was governor in 1991 he requested then-President Carlos Salinas to privatize the port at Ensenada because the Mexican government didn't have adequate funding to build the necessary infrastructure.

Salinas liked the idea and modified the law. However, instead of privatizing Ensenada, Merchant Marine officials in Mexico City privatized other ports closer to the capitol.

"Finally the concept of divestment reached Ensenada," says Ruffo. "One company is already unloading containers there. We see the need to have a railroad there, but decided against since Ensenada is a tourist resort and a tranquil place. Another negative is that the city's bay isn't deep enough for newer generation ships.

Today Ruffo Appel is somewhat anxious since Mexico's Secretariat of Communications and Transportation is currently working on auctioning off the rights to create the port. PCI will be bidding for the 30-year contract to build and operate Port Colonet.

"We are ready to participate," he claims. "The package includes a four-track railroad project running from Colonet to the border at El Paso that will connect the port to the United States." Colonet is 75 miles south of Ensenada. The railroad would run east over flat desert land to the Gulf of California in order to link up at Mexicali.

Bidding will be tough. Some of Mexico's top construction companies are busy preparing proposals. Ruffo thinks "the bidding will center on who will be able to bring in the most containers per year to the port for a number of years, and who will give the most to the Mexican government. The concession is for 30 years and is renewable. The amount of money to be recuperated is enormous."

Ruffo speculates that construction of the port and railroad will cost about $4.5 billion. "That includes trains to roll on the tracks and cranes at the port. In order of importance," he says, "construction will begin with creation of a gas liquefying plant, an electric plant and a desalinizing plant."

PCI's proposal is to build 18 docking positions, each 400 meters long. Each dock will be able to handle some 850,000 TEUs (twenty-foot equivalent units) a year. The project is ultimately slated to annually handle 17 million TEUs. Since the coast in the vicinity is clear, Puerto Colonet—the fishing village's new official name; it used to be Punta or Point Colonet—has a great deal of space for expansion if needed.

The project is not without headaches. Before turning Punta Colonet into Puerto Colonet, the Federal Economics Secretariat issued an operating concession to a mining concern, Grupo Lobo, to permit mining of` titanium and other metals from the sea bed. The concession includes most of the bay.

"They have a maritime mining concession that covers 30,000 hectares," explains Ruffo. "It covers 60 kilometers of coastline and five kilometers into the sea. President Fox declared 3,000 hectares as Puerto Colonet. The problem here is that the mining concession includes the port. This has become a juridical debate, which is being solved through legal processes. Grupo Lobo argues that if it gives up its 3,000 hectares of mining concession it should have the concession for the new port. It would want to manage the containers, handle all vessels and have exclusive rights for filling stations. They want everything. The government said, ‘No.' If it gives all of this to the mining company, the port would lose its competitiveness."

In the courts in Mexico City Grupo Lobo has lost all its separate cases and so far has six rulings against them.

"The government knows that the port is a public interest priority and is using all the might of the Mexican state to clear the port from problems," continues Ruffo. "The only thing stopping PCI from winning is the debate between the federal government and miners. As soon as it's over the bidding contest will start, and PCI has every possibility of winning it."

Ruffo sees the possibility of explosive regional development with creation of logistics businesses that will cater to the needs of cargo owners. "If a customer like Wal-Mart says it has to send a container to a given city in the United States," he claims, "and it has to be packed with lamps, sofas, easy chairs, televisions sets and fans, we have to have the facilities to deconsolidate and consolidate."

He believes eventually there will be many industrial parks around the port where it will be possible to handle products from the Far East that need to be finished, wrapped, kitted or labeled. "We have all the needed space," says Ruffo. "I believe that those located all along the route between Puerto Colonet and final cargo destinations will benefit through their value added operations."

There is gossip that since Ruffo Appel has a great deal of political clout and is a solid member of the ruling National Action Party, he has used his influence and power for "insider trading" and "land hoarding" at Colonet, which is still a small village of 6,000 where land was cheap until now.

"Is it true?"

Ruffo can't help but smile at the question.

"First of all, I perform openly," he argues. "Nothing I do is hidden. I even went to the Chamber of Deputies to tell them whenever I am called by them to explain any of my actions, I will do so as a private citizen. I am not a public official. Those in other parties look at my achievements and suspect I will be taking votes from them, moving them to the National Action Party. That's not the case. This is a matter of the economic opportunities for the region. I am openly competing in business and have a chance of losing.

"On the other hand," concludes Ruffo, "all of this happened because of ideas I took to Mexico City. I happened to be among the first to have the insight."

Logistics Know-How Needed
PCI has appointed Xavier Rivas as its business liaison in the U.S. Rivas operates through his company, Santa Rosalia. He is looking for investors if and when PCI wins the concession to build and operate Puerto Colonet.

More than money, Rivas says he is open to doing business with corporations with know-how on port operations, maritime cargo business and railroad operations as well as all types of logistics operations. Rivas has offices in Mexicali and Las Vegas and can be reached at (702) 352 3406 or at [email protected].

Ernesto Ruffo Appel of Puerto Colonet Infraestructura (PCI).

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