Postcard from the Panama Canal

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As we were watching in awe how large container ships were guided through the Miraflores locks of the Panama Canal, I wondered if the tourists around us were aware of the on-going expansion of the Panama Canal, co-financed by IFC, ADC, IADB, EIB and JBIC, and the emerging $40 billion competition in Nicaragua. (Shortlink: http://wp.me/p27qSt-yd)

While visiting Panama to support the Penonome Wind Farm development, we also took a break to visit the Panama Canal. As reported in the Guardian in June 2013 (and elsewhere), the Panama Canal may soon (?) be getting some competition. Nicaragua and China are teaming up to build an alternative to the Panama Canal through Nicaragua.

The Panama Canal is an important element of the global marine transportation industry. It connects the Atlantic Ocean to the Pacific Ocean. The Panama Canal handles about 5 percent of marine trade among all major economies worldwide. However, about one third of the world's container ships are currently too big for the 50-mile Panama canal. After construction of the new locks, larger and more economic container ships will be able to ship through the canal. The Panama Canal is also a significant revenue generator for the Panamanian Government. The Panama Canal generated almost $10 billion in tax revenue for Panama since the U.S. handed over control at the end of 1999.

Sipping coffee while overlooking the Miraflores locks, we could see (barely) some of the construction activities which were taking place in the distant background. (A few months later, I had a chance to see some of the expansion work more closely - see image below). According to a December 2008 press release, the International Finance Corporation (IFC), the Andean Development Corporation (ADC), the European Investment Bank (EIB), the Inter-American Development Bank (IADB) and the Japan Bank for International Cooperation (JBIC) provided a long term loan over $2.3 billion for the expansion of the Panama Canal (total cost $5.25 billion). This expansion includes building new water-saving locks and improving navigational channels.

Panama Canal Expansion (July 2014)

As perhaps now almost a routine for such mega projects, a coalition of NGOs have filed a complaint with the IFC Compliance/Advisory Ombudsman (CAO) about the project. The complaint was also submitted to the Complaints Mechanism of the EIB; the Complaints Mechanism of JBIC and the Independent Consultation and Investigation Mechanism (MICI) of the IADB. (See also my blog on Uptake of Independent Accountability Mechanisms at MFIs). The NGO coalition apparently also decided not to engage in a facilitated dialogue process which, in turn, triggered a compliance audit process.

More recent news (August 2014) highlights the dispute over $1.6 billion in cost overruns for the on-going expansion project. There are also concerns about impact of Climate Change, which is expected to result in more frequent closures and delays (read: higher fees). So, the Panama Canal remains very exciting, in every meaning of the word.

I was fascinated by the history of the Canal, which is summarized in Wikipedia (and Caterpillar with some interesting images): France began work on the canal in 1881, but had to stop because of engineering problems and high mortality due to disease. Later on, the US took over the project and needed a decade to complete the canal in 1914. One of the largest and most difficult engineering projects ever undertaken, the Panama Canal shortcut made it possible for ships to travel between the Atlantic and Pacific Oceans in half the time previously required.

Will the Chinese-Nicaragua rival to the Panama Canal materialize? Will it be able to rival the Panama Canal which is considered one of the seven wonders of the modern world? - What was your impression when you visited the Panama Canal?

You may also be interested in this June 2014 update about our involvement in a wind farm project in Panama, and postcards from Portugal (AA1000-based sustainability reporting assurance engagement) and Burkina Faso (visit to a gold mining project).

7 Comments to Postcard from the Panama Canal

  1. Eric Howard says:

    The other interesting part of the story is the politics of 110 years ago. The US Government was keenly interested in maintaining the “neutrality” of the isthmus where Panama is located so that US troops, equipment, and military supplies could be transported from the Atlantic to the Pacific. How to preserve “neutrality”? Send in the troops and bribe the officers of the opposition.

    “When Colombia grew reticent in its negotiations, Roosevelt and Panamanian business interests collaborated on a revolution. The battle for Panama lasted only a few hours. Colombian soldiers in Colón were bribed $50 each to lay down their arms; the U.S.S. Nashville cruised off the Panamanian coast in a show of support. On November 3, 1903, the nation of Panama was born.”

    http://www.pbs.org/wgbh/americanexperience/features/general-article/tr-panama/

  2. Terry Nelidov says:

    It’s not like Nicaragua’s competitive canal is a surprise to anyone. I remember discussions of a “dry canal” through Nicaragua when I used to live in Costa Rica back in the 1990s. No one from the Americas has shown the initiative to take the project forward, and now the Chinese/Nicaraguan coalition will. It was inevitable that someone would. It’s essential that the Panama Canal show similar leadership in its expansion, to assure that it not become the missing link in global marine transportation.

  3. Thanks for your comments Eric and Terry. Yes, the history of ‘neutrality’ of the Panama Canal provides an interesting context, one that is visible each time you pay using US currency in Panama today. – I can also see how there may eventually be two competing canals, despite the major costs involved. I can think of similar situations with oil & gas pipelines…

  4. Adam McEniry says:

    If the Nicaraguan canal does come to be, it will be interesting to observe the economic effect on Panama. I understand Nicaragua’s would be 1000km north of Panama’s and save about a day’s travel time. Is there enough demand for both, and is Panama’s status as a financial center and economic diversification broad enough to withstand the effects of competition in maritime trade through the isthmus? Time will tell.

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