Baja Strives to Stay the Course Despite Slump

Autos and energy will lift Baja California to a new level of industry over the next decade. But the border state must first muddle through a deep slump in tourism and light manufacturing that has state officials worried.

Eugenio Elorduy Walther, the new governor of Baja California, told The Times that Mexican officials are negotiating with auto parts manufacturers that want to set up operations in the state to supply Toyota Motor Corp., which has announced plans to build an assembly plant in Tijuana this spring.

He also disclosed that Royal Dutch/Shell Group has become the latest energy company to express interest in building a major liquid natural gas terminal on the Baja coast. Other sources say Marathon Petroleum of Houston has acquired an oceanfront Baja site about 15 miles south of the U.S.-Mexico border where it too plans an LNG pier and processing facility. Neither Shell nor Marathon would comment on the land deals.

Elorduy said Toyota will invest $100 million in a 700-acre manufacturing site that will produce pickup truck beds. He declined to specify which companies are seeking to set up shop to supply Toyota, but he said new factories probably would be located in Mexicali, Ensenada and Tijuana. “The benefits will be spread around,” said Elorduy, a former Mexicali mayor and auto dealer.

Mexico’s federal border affairs chief Ernesto Ruffo said last week that several large infrastructure projects to be unveiled in coming months will enhance Baja’s appeal to heavy manufacturers.

“I dare to think that we are on the eve of a transformation, a new epoch for Baja California,” Ruffo said. New projects could include an airport, a railroad linking Ensenada and Tecate, roads and water and port facilities.

Though natural gas projects and the prospect of Toyota’s fifth North American manufacturing operation have generated headlines and local excitement, the state’s bread-and-butter economic sectors, tourism and light manufacturing, have been hit hard by the U.S. economic slowdown and the Sept. 11 terrorist attacks.

Tourism has declined dramatically, with many weekend and day visitors from the United States staying home, discouraged by lengthy border delays caused by heightened security. Rosarito Beach Hotel owner Hugo Torres Chabert says business at his city’s hotels is down 30% since Sept. 11.

“It’s recuperating very slowly. Some people think there is still a five-hour wait, as there was after the attacks. There has been a problem in making people know that it is less,” Chabert said. Northbound vehicles at the San Ysidro-Tijuana port of entry wait an average of an hour to cross. Pedestrians can wait as long to cross.

Rosarito Beach Mayor Luis Enrique Diaz said attendance at the Fox Studios Baja theme park called Foxploration has been disappointing since its opening last year and that the complex’s film studio has not had a movie production in more than a year.

Last week, Ensenada lost the twice-weekly port calls of the Royal Caribbean’s 1,500-passenger Viking Serenade cruise ship, which for 11 years had plied the waters from Los Angeles and San Diego and brought $15 million in business to local suppliers and the tourism industry.

The cruise line announced the end of the Los Angeles to Ensenada run before the Sept. 11 attacks.

The fallout from the U.S. recession also has caused huge job losses at the foreign-owned assembly plants along the border known as maquiladoras.

Additionally, the region is being hit by the 5% addition to the value-added tax, a levy recently slapped on by the federal government that applies to imported U.S. goods. Tijuana and other border cities consume significantly more U.S. goods than Mexico overall.

The tax hike means costs for both businesses and consumers are rising disproportionately in Tijuana and other border cities, said Noe Fuentes of the Northern Frontier College in Tijuana, making the state less competitive in attracting employers.

So Toyota’s announcement in early January that, after a three-year search, it had decided to establish a new factory in Tijuana, comes as welcome news. Oscar Arce, a Tijuana attorney who as a former state official led the negotiations with Toyota, said Baja beat out four other Mexican states as well as Nevada and California to win Toyota’s commitment.

“They wanted to have a strategic location in the most important market in Latin America and also be close to California, where its sales are very strong,” Arce said. Arce said Toyota’s suppliers would relocate to Tijuana from Asia and the U.S., to provide “just-in-time” delivery of parts, reducing Toyota’s inventory costs. Like Elorduy, he declined to identify which suppliers were coming.

The Shell and Marathon proposals to build LNG plants in Baja follow unveilings of similar projects last year by Sempra Energy of San Diego and El Paso Corp. All would be positioned to meet the growing energy demand on both sides of the California-Mexico border. None has as yet received a permit from the Mexican government. An LNG plant has never been built in Mexico.

The plants would receive supercooled liquid gas shipped by tanker from Pacific Rim fields, re-gasify it, then transport it by pipeline.

Sempra has acquired land about 60 miles south of the border and wants to build a pipeline to the U.S. border to deliver gas to California.

Sources familiar with the plans of the other energy companies said that Shell’s oceanfront site is adjacent to Sempra’s and that Shell also is discussing the possibility of building a pipeline to the border. Marathon’s property is just south of the Playas de Tijuana area on the Pacific Coast, sources said.

The gas projects, which would cost hundreds of millions of dollars each, have not been universally welcomed. The city of Rosarito has so far refused to give El Paso a land-use permit for the plant, and some residents of the Bajamar resort community in Ensenada and just north of the Sempra and Shell sites are said to be unhappy about the proposals.

Nonetheless, Baja’s geographic and strategic advantages make the state’s industrial evolution inevitable, Tijuana’s mayor, Jesus Gonzalez Reyes, said late last month. He expects Toyota to spawn an “industrial corridor” in an unpopulated area eight miles southeast of downtown Tijuana.

To help Tijuana cope with increasing traffic, construction will begin in May on a 30-mile loop road connecting the new U.S.-Mexico border crossing east of the existing Otay Mesa port of entry to Rosarito Beach, which is 10 miles south of Tijuana, Gonzalez Reyes said.