Mining Group Fights Over Rights to Build Mexico's Newest Port

Dec. 11, 2006
Colonet Bay has suddenly become the most sought after piece of real estate on the North American West Coast. Located some 120 miles south of San Diego,

Colonet Bay has suddenly become the most sought after piece of real estate on the North American West Coast. Located some 120 miles south of San Diego, what is to become a major port is in the midst of an unexpected conflict because of a snafu created by the Mexican government.

As it turns out, last June the Secretariat of Communications and Transportation (SCT) issued a mandate calling Colonet Bay fit to become a deep-sea port. Bid-ding was opened for interested companies to build out the port.

At that point, a mining company that has been running open-air operations extracting iron and titanium produced a document indicating they were the sole concessionaires for the coastal area that includes the 3,000 hectares (one hectare is 100 square meters, a little over two acres) allocated for building the port. The Baja California Mining Group has entered a habeas corpus plea against the port designation arguing that in May of last year, the government's Economics Secretariat (ES) granted them a 30-year concession to exploit the land.

The government's idea at the time had been to develop mining and perhaps a railroad line between the cities of Ensenada and Tecate. The mining group had agreed to those conditions. A Santa Feowned railroad spur already exists between Tecate and Tijuana. As the possibility of building a port at Colonet Bay emerged, the SCT moved ahead without taking the mining group into consideration.

At the ES, the under secretary who awarded the concession to the Baja mining group, Salvador Ortiz, says that coexistence of both the mining group and the port is feasible. It could be accomplished through an agreement in which the mining company would give up the 3,000 hectares needed to build the port. "We awarded a concession of federal land, not an ownership title," says Ortiz.

But the mining group is not yielding that easily. In fact, Gabriel Chavez, head of the company, says they would be willing to give up to 2,400 hectares for the construction of the port—with its proposed 30 docking piers—if in exchange the mining group would be allowed to build a second port with nine docking piers.

A resounding "No" was the immediate answer from the SCT . . . but they are reconsidering.

Chavez says the idea of building the port is not a new one. In 2002, he recalls, the government offered the project to Hutchison Port Holdings, Mexico's largest port operator. At the time Hutchison dropped the project as being unfeasible. Estimates are that it will take some $6 billion to create the infrastructure.

The ES's Ortiz envisions both ports as feasible. The mining group would use them mainly to export minerals, although the facility could also serve container ships.

The Colonet Bay project is seen as an excellent alternative to the cargo bottleneck at the Ports of Long Beach and Los Angeles that are projected to be totally saturated no later than 2020.

"Both projects can operate in harmony", says Ortiz.

But will they? Just exactly where the 2,400 or 3,000 hectares is a point of conflict as obviously the SCT and the mining group want the prime position on the bay.

The mining group has created a new entity, the Baja California Port Enterprise (BCPE) that is leading the legal fight against the SCT mandate. Francisco Kassian, legal representative for the BCPE, indicates that a tit-for-tat arrangement might be reached. He says the Enterprise is willing to "donate" 2,400 of the 3,000 hectares being demanded by the SCT in exchange for the concession to build the smaller port, which will be done in a joint venture with Stevedoring Services of America, at a cost of $1 billion.

"We have entered the habeas corpus plea against the (SCT) authorities," notes Kassian, "and will take every pertinent legal action to protect the interests of the mining group."

After refusing to accept BCPE's proposal the SCT's Merchant Marine office, which oversees ports, has chosen to "not comment on Punta Colonet," as a Merchant Marine spokesman told this reporter. Just exactly what the SCT's position will be, or what actions they will take, remains to be seen. At present the SCT has opted to take no action since President Vicente Fox's Administration was ending on December 1.

Other lines need to be untangled
On another front, a different power struggle has begun between "traditional competitors," railroad companies Ferromex and Kansas City Southern Industries, the two major Mexican railroad operators. Both want the concession to build and operate the 160-kilometer short line to be developed between Colonet Bay and Mexicali, which is slated to serve the Port of Ensenada. Construction of the rail line will be awarded to the winner of an open auction that includes secret bidding to be conducted next year.

"We are interested," says Juan Rebolledo of Ferromex. "There is no railroad line between Punta Colonet and the border."

For the moment these issues remain to be resolved. Salvador Ortiz of the Economics Secretariat sees "no conflict of interest" and that the mining group will continue to have its concession and the iron ore rich area to mine. "We will not take the concession away because it is already awarded," he claims, "But it is for mining—although they have the right to put it to other uses."

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