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In 1919, community leaders decided it was of utmost importance for San Diego to have its own rail link with eastern states. The manufacturing, commercial and visitor industries, they determined, could not prosper if dependent on the Los Angeles rail link. But standing in the way was some very rough topography on the county's eastern fringes, making construction of a rail line time consuming and more expensive than what could be economically justified.
The answer to the dilemma was to build south, crossing into Mexico at Tijuana, then proceeding east some 40-odd miles over flat land, re-entering San Diego county east of Tecate. The topography from the point of re-entry to Imperial County (east of Tecate on the Mexican side) was extremely rugged. But construction time and cost savings going from Tijuana to Tecate made the project feasible. Mexico gave permission for the construction and provided the right-of-way.
So it came to be that San Diego built its railroad connecting to the eastern United States. For decades the line served the community, carrying cargo. Eventually the railroad was sold to Southern Pacific, which operated it until the late 1970s when it was sold to the San Diego Metropolitan Transit Development Board. The MTDB purchased the railroad not to haul freight, but because it needed the right of way between Downtown and the border for its contemplated trolley service.
MTDB's acquisition included the link that re-enters San Diego east of Tecate and travels to Plaster City in Imperial County where it connects to a major rail line to the East Coast. MTDB contracted with a short-haul rail company to run freight on the line while the transit board used the track for the new trolley.
As time passed, a portion of the east line fell into disrepair, and in 1982 a fire damaged a wooden bridge. Some tunnels had cave-ins. The link to Plaster City was shut down and the amount of freight it would carry deemed insufficient to justify the expenditure for repairs.
In 1984, MTDB contracted with RailTex, a short-distance railroad company, to take over the freight portion of the rail system still in operation between San Diego and Tecate. A clause in the contract specifies that if economic justification can be shown, RailTex is obligated to repair the closed link (about 12 miles) and re-open it for freight.
The entire contract hinged on RailTex reaching a rental agreement with Ferrocarriles Nacionales Mexicanos, a Mexican government agency under the Secretariat of Communications and Transportation. RailTex entered into a 10-year rental agreement with FNM, reportedly agreeing to pay $400,000 a year.
Fueled by Mexico's first major peso devaluation in the early 1980s, the offshore assembly (maquiladora) industry began to grow at an annual rate in excess of 20 percent along the Tijuana-Tecate border. Suddenly Japanese, Taiwanese and major U.S. corporations found Mexican labor to be competitive with that found in Far East countries with the added advantage of proximity to the U.S. market.
Then came Mexico's change in attitude toward foreign investment in industries and activities once considered "sacred cows." With the government getting out of its ownership position in the transportation industry, new opportunities were opening for the private sector, ones that could potentially have a dramatic effect on the Tijuana-San Diego region. Seaports and railroad routes were opened for bidding by private sector combinations of Mexican nationals and foreign investors.
In Baja California, the Port of Ensenada was placed on the agenda for privatization. Among the Mexican bidders was Grupo Morphy. GM lined up with a Far East consortium of large operators of seaports. The group's plans were to expand the port to handle up to 500,000 annual containers, which would be sent to Ensenada by diverting smaller cargo ships under the control of the Far Eastern consortium members from other Pacific Coast ports.
Critical to the plan was moving the cargo quickly out of Ensenada, as well as moving cargo in for shipment to the Far East and Europe. For this a railroad would have to be built from Ensenada to Tecate, to connect there with the existing rail line. It then became imperative to have the Tijuana to Tecate rail line included in the Port of Ensenada bidding package. Mexico's Secretariat of Communications and Transportation, at the request of Grupo Morphy, included the building of the railroad from Ensenada to Tecate and the existing Tijuana-Tecate rail line into the package.
Independent of what was happening in Mexico, the San Diego Unified Port District, operating under more aggressive management, was seeking new bulk cargo business. The stumbling block was the lack of direct railroad connections to the eastern U.S.
San Diego Councilman Juan Vargas, whose District 8 abuts the border, came up with the idea of reopening the inoperative portion of the rail line in East County. Because the railroad crossed the border twice, and would need some federal funding over and above what RailTex was obligated to invest, Rep. Bob Filner (D-50th District) began to champion reopening of the down line, plus its modernization to handle today’s longer and taller freight cars.
The San Diego Association of Governments and the Port District launched separate studies on repairing and upgrading the line. Sandag focused on the feasibility and cost projections of reopening the line, while the Port undertook a marketing study to determine the economic viability of the project. Neither study included the Mexican potential or that country's plans.
The Sandag study identified the costs for reopening the down portion of the rail line, which would allow for rail cars to connect for the first time since 1982 with Plaster City. It also looked at modernizing the rail line from its re-entry point in east San Diego County to Plaster City. Modernization would include elongating some curves to accept longer freight cars and raising the ceiling on tunnels to allow for double stacking of containers.
The Port performed a marketing study, which identified its best future prospects and provided sales projections. Income projections indicated the project was feasible, but the return on investment would be long-term. This would create difficulties in obtaining private investment that historically seeks a speedier return on investment. To make the project doable, federal funds for leveraging additional capital were deemed necessary.
Because both studies concluded hundreds of well paying jobs would be created early, and several thousand in years to come, Filner decided to ask Congress for $10 million in seed money. The payment would attract the additional $100-plus million needed from the public sector. It was a good plan, and smart.
Meantime, on the Mexican side, Grupo Morphy prepared its bid for the concession of the Port of Ensenada, the building of a railroad from Ensenada to Tecate and the inclusion of the Tijuana to Tecate existing rail line. Grupo Morphy is not in the transportation business, so it sought out RailTex, the railroad operators under contract with MTDB, and renters of the existing Mexican rail line from Tijuana to Tecate.
Guillermo Alvarez-Morphy, director of Grupo Morphy, extended an invitation to RailTex to enter into a management contract for the railroads in the event his group won the concession. Grupo Morphy suggested RailTex could, at its option, either enter into the agreement as partners or as simple line operators. RailTex was noncommittal, and ultimately decided to seek the concession itself.
Grupo Morphy's main activity is the construction of mega infrastructure and real estate projects. With its bid, it was seeking the opportunity to develop industrial parks with rail spur service along the Tijuana-Tecate right-of-way; to construct the railroad along with industrial parks along the Ensenada-Tecate right-of-way; and to handle the upgrade and expansion of the Ensenada port. To pull it all together, the group hired experts in port and railroad management. The resulting studies indicated the railroad would be a great success, handling Ensenada's port freight, the maquiladora industry's cargo, San Quintin Valley's emerging agricultural products, Valle de Guadalupe's wines and Tecate's beer.
When Filner asked Congress for the funds to repair the rail line on the U.S. side of the border, Rep. Duncan Hunter (R-51st District) rose in opposition. He reasoned that the railroad would attract robbers, illegal immigrants and drug smugglers. Hunter represents East San Diego and Imperial County where the rail line would enter and connect to the East, so his voice carried weight. Two other Republican congressmen representing San Diego followed his lead, as did their peers in the House of Representatives. There would be no federal funds for San Diego’s railroad.
Although San Diegans have become used to Hunter's personal vendettas against Mexico, Far East consortiums saw the actions as a sign something was dramatically wrong with the project. If there was to be no rail connection to the eastern United States, investing in the Ensenada port and railroad construction was not justified. They pulled out, forcing Grupo Morphy to do likewise.
To revive interest in its portion of the effort, the Mexican government removed the requirements of building the new railroad and operating the Tijuana-Tecate rail line from the Port of Ensenada concession package. The scaled-down project will in time increase the port's activities, but not nearly to the degree of its ambitious predecessor.
With the projects now split, Mexico prepared to seek bids solely for the rail line between Tijuana and Tecate, leaving the door open for a future package that would include building the railroad between Ensenada and Tecate. Again Grupo Morphy invited RailTex to join with them as the operators. Again RailTex said no.
Grupo Morphy sought out another railroad company and found Belgium's Transurb. RailTex announced it would bid with Grupo Proxima as its Mexican partner.
Published reports have RailTex paying annual rent of about $400,000 in U.S. dollars to Mexico for usage of the rail line. The concession was to be for 25 years. It is not clear how Grupo Morphy arrived at its bid of $10 million. Perhaps it is because multiplying $400,000 by 25 equals $10 million. Open for speculation is why RailTex bid around $2.3 million when it was an open secret that the Mexican government would not accept anything less than $5 million, and in fact expected about $6 million. Obviously, Grupo Morphy won the bid, but, as of late November, has not been awarded the concession because payment has not been made.
Responsible sources indicate that the Mexican government was perturbed with RailTex's lower than expected bid, but elated at Grupo Morphy's higher than expected bid. However, RailTex's low bid created a series of problems for Grupo Morphy. Chief among them was, why the large gap in the bids?
To find the answer, Belgium's Transurb launched an investigation, sending personnel and consultants to Tijuana and San Diego to meet with MTDB officials, conduct line inspections and talk with other railroad experts. Final reports are yet to be issued. Grupo Morphy asked for, and received, more time, but Mexico's Secretariat of Communications and Transportation is growing impatient.
Last month, the secretariat sent a letter to Grupo Morphy giving the company 60 days in which to make payment or lose its deposit and be declared in forfeit. Grupo Morphy countered with a need for additional time. Not only must it resolve for the benefit of its foreign partners that the line is viable, but in addition, the Asian, Russian, and Brazilian economic crises, plus the dramatic drop in crude oil prices, all leading to Mexico's most recent peso devaluation, have created a wait and see attitude among foreign investors. With the extension, Grupo Morphy now has until the end of January 1999 to make its payment.
What will happen if Grupo Morphy is not able to meet the new deadline? Mexico City observers believe the line would not be placed for rebidding by itself, but rather as part of a package that will include other short-haul lines in the country.
So we have San Diego and Imperial counties, along with Baja California, wanting and needing a direct rail connection to the east. The line would create new jobs, and attract investments on both sides of the border. The track is there, but the two sides can’t seem to make it work. So near, and still so far.
Patrick Osio Jr. can be reached through San Diego Metropolitan or by e-mail at posiojr@aol.com
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