Competitors on the landbridge
Two inter-ocean waterways are focusing attention on Central America. While progress on the expansion of the Panama Canal has been held up by disputes between the Panama Canal Authority and the GUPC consortium which is responsible for the construction work, the government of Nicaragua wants to implement plans for a waterway of its own. An overview of the situation.
On 15 August 1914 the first ship passed through the Panama Canal, which is 82 km long and links Colón on the Atlantic with Balboa on the Pacific.
At present, the size of vessels passing through the canal is limited by the lock dimensions to a length of 294.1 m and a width of 32.3 m, which corresponds to a maximum container capacity of around 4,600 teu. That is soon due to change. Since 2007, work has been in progress on an expansion of the canal that will enable ocean giants with a capacity of up to 12,600 teu to transit the waterway. In addition to the existing locks, new three-chamber sets of locks are being built at each end of the canal. The lock chambers will have a width of 55 m and a length of 427 m each. This will enable ships to transit the canal with a draught of up to 15.2 m instead of the present 14.04 m, while the maximum width will be increased to 49 m and the maximum length to 366 m.
In addition, the navigable channels in Lake Gatún are being widened and deepened and the Culebra Cut enlarged. Furthermore, on the Atlantic side an additional road crossing will be created by means of a cable-stayed bridge with two masts.
The costs of the project were originally budgeted to come in at approximately USD 5.25 billion (EUR 3.84 billion), with completion scheduled for 2014 – on time for the centenary of the canal’s opening. However, it became known at the end of 2013 that the budget had already been overrun by approximately USD 1.6 billion (EUR 1.17 billion) and that the completion of the project would be delayed until the second half of 2015.
Problems in Panama
Since it is not yet clear who is to meet the costs that have accrued so far, the GUPC consortium that has been awarded the contract suspended work at the beginning of February (see ITJ Daily of 6 February 2014). Just under two weeks later, however, the Panama Canal Authority (ACP), the operator of the canal, announced that construction had been resumed. In the meantime, ACP has transferred the equivalent of EUR 26.9 million to GUPC in payment of its charges for December. No fundamental agreement between the two parties had been reached at the time of going to print, but the authority’s chairman Jorge L. Quijano has expressed cautious optimism.
The volume of goods transported through the Panama Canal corresponds to roughly 5% of world seafreight traffic. The waterway generates nearly 8% of Panama’s gross domestic product (GDP). In the first quarter of the current financial year, which runs from 1 October to 30 September, a total of 87.7 million PC/UMS (Panama Canal Universal Measurement System) were shipped through the canal according to information provided by ACP. This amounts to approximately 5% more than was previously estimated for this period, and corresponds to a total number of 3,450 transits.
Suez Canal as a competitor
Even if the enlarged canal will have the capacity to accommodate substantially bigger vessels, it will not be designed for the most recent generation of containerships that are now being used by a growing number of lines in order to benefit from economies of scale. The Danish Maersk Linke is already routing its ships serving the US east coast via the Suez Canal and North Atlantic, arguing that it is economically more viable to take the longer route since it permits the use of larger vessels.
The Egyptian waterway could therefore develop into a bigger competitor than it has been in the past. Furthermore, the Panama Canal could soon have another rival closer to home, for plans are taking shape for a link between the Atlantic and the Pacific in Nicaragua. Many have already dreamed of the construction of a canal in this country, from the Spanish colonists to Napoleon III and the United States. Plans for such a connection have existed at least since the middle of the 16th century.
Nicaragua’s president Daniel Ortega now wants to make this vision a reality (see ITJ Daily of 17 June 2013), and in this connection he is relying on Chinese support. Last summer he officially awarded a concession to build a canal for post-Panamax ships between the two oceans to the Hong Kong Nicaragua Canal Development Investment Co. (HKND). The project is an attractive one for HKND. It has the right to construct and manage the canal for an initial period of 50 years, with an option to extend the concession for a further 50 years.
HKND is backed by the investor Wang Jing, who will hold a 49% stake in the canal, while Nicaragua will own 51%. The concession also includes a railway line, an oil pipeline, an international airport and free trade zones at both ends of the canal. It also grants the operators the right to use the natural resources along the waterway. However, it is not yet clear exactly what route «El Gran Canal» is to follow. HKND is currently carrying out a feasibility study.
Two routes with a length of 200 to 300 km are under consideration, both of which are meeting with heavy criticism from environmentalists inside and outside the country. One option runs through Lake Nicaragua. This, however, is the country’s biggest fresh water reservoir. This scheme would involve the destruction of some 400,000 ha of rain forest and wetlands. Since the Nicaraguan government is carrying out no environmental impact studies of its own, it must rely on the findings of HKND. The second possibility uses the San Juan river, which marks the border with Costa Rica. This route would be problematic, for there are long-standing disputes with Costa Rica.
Calculation with unknowns
Although much about the project is still unclear, it is certain that both Nicaragua and HKND have a strong interest in its successful completion. Ortega expects it to stimulate the economy and create many jobs in a country that has one of the lowest GDP in Central America, ahead only of Haiti. The Chinese, for their part, would gain ready access to raw material resources which at the same time is likely to prove extremely lucrative.
On the other hand, it is questionable whether a canal with an expected length of 280 km, which will not be completed until after 2020, would be an economic proposition. On average, ships need eight to twelve hours to transit the Panama Canal, while crossing through Nicaragua would probably take three to four days. However, the Panama Canal would lose its monopoly position, which would probably have an impact on prices. But the price to be paid by the environment is still anybody’s guess.