Panama: Canal carries high hopes

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Dressed in military-style fatigues and holding a metal pole for catching snakes, José Luis Ortega hardly looks to be at the vanguard of a $5.25bn project to expand Panama’s canal.

But before long, the strip of land near the Pacific Coast that Mr Ortega is clearing of fauna in preparation for the bulldozers will be gone. In its place there will be an access channel that by 2014 will take some of the world’s largest maritime vessels from the Pacific to the Atlantic.

If all goes to plan, the expansion will double the canal’s present capacity of 325 PCUMs tons (a measurement based on volume rather than weight) a year. Just as important, it will allow so-called post Panamax ships, a new and much larger type of vessel, to pass through the canal.

Trade experts say that the combination of doubling the canal’s capacity as well as providing access for the post-Panamex ships could transform global maritime trade, making it both cheaper and faster.

Francisco Miguez, director of the expansion project at the Panama Canal Authority (ACP), the autonomous government agency that has run the canal since the US returned ownership to Panama at the end of 1999, even believes that it could create new routes and markets.

Just one example, he says, would be to make the Chinese market viable for Venezuelan oil. “It opens up many possibilities,” he says.

It would almost certainly have huge implications for Panama itself. In recent years, the small Central American country of just over three million has experienced Chinese-style growth and a boom in the construction sector that tempts comparisons with Dubai.

Last year, Panama grew 10 per cent, one of the highest rates in the world. At its peak, the expansion project will generate an estimated 7,000 direct jobs and another 35,000 indirectly. Once complete, it will also boost shipping in the canal, particularly of container ships.

According to Samuel Lewis Navarro, the government’s vice-president, container traffic, which was 12.6m twenty-foot equivalent units last year, has risen sharply since the start of the millennium, and will rise still more steeply in the next two years.

Some observers, however, say this hinges on a huge “if”. There are several concerns surrounding the project but the main one is whether it will come in on time and within budget.

Latin America is littered with examples of once-lofty and ambitious projects that went badly wrong. In addition, the project is the largest in the country’s history – with the exception of the construction and completion of the original canal in 1914.

The plan is to add a third set of locks on the Pacific and Atlantic sides, each with its own new access channels, to dredge the existing canal, to raise the water level of the Gatun Lake at the highest point, to straighten several parts of the existing canal, and to dredge ocean access on each side.

Panama’s ACP points out that the two contracts awarded so far have exceeded expectations. Cilsa Minera, a company belonging to Carlos Slim, Mexico’s telecommunications mogul and one of the world’s richest men, is already far advanced, for example.

Just beyond the Pedro Miguel locks near the Pacific, huge diggers and dump trucks are removing earth and rock at a rapid rate from Paradise Hill as part of preparatory work for eventual construction of the new access channel. The project is 27 per cent completed, according to the ACP.

A little closer to the coast, more work is being carried out by Constructoras Urbanas, a local company. Alberto Alemán, the ACP’s administrator, held a stake in the company but says he sold it as soon as he took up his post to avoid any conflict of interests.

Mr Miguez insists both contracts are advancing more quickly than expected and were also awarded for sums significantly below the ACP’s estimated budget. “That gives us an idea that the bids we are getting are significantly below what we budgeted for,” he says.

Admittedly, these two contracts are relatively straightforward compared with the contract to construct the locks themselves – by far the most expensive and complicated part of the expansion.

But here also the ACP – which plans to finance half of the project with its own cash flow from raising tariffs an average of 3.5 per cent a year until 2025 and the rest from loans – is optimistic.

Four proposals, it says, have already passed the first round of qualifications. In addition, the engineering companies that have submitted proposals are some of the world’s biggest, and include ACS Servicios, Comunicaciones y Energía, SL of Spain, Bouygues Travaux Publics of France and Bechtel Internacional of the US.

More generally, canal officials point out that while the project is big it is neither unique nor that complicated – unlike, say, the tunnel linking the UK with France. What is more, the conditions are not as inhospitable as those many oil companies have to endure. Mr Miguez says: “We are not talking about drilling in Alaska here.”