The Expansion Of The Panama Canal

The Expansion Of The Panama Canal: An Opportunity For Triumph Or A Perilous Blunder?

• Canal expansion project well underway, however benefits remain questionable
• Skepticism coupled with environmental and social concerns cloud project
• Accountability in social programs needed to ensure citizenry benefit from expansion
• Bernal has fought for civic rectitude when it has come to contesting canal expansion plans

The Republic of Panama, a mountainous isthmus located in Central America, is most notably recognized for its canal connecting the Caribbean Sea and the Pacific ocean. The passage was transferred from U.S. to Panamanian control on December 31, 1999, and has since been managed and operated by the Panama Canal Authority (ACP), a Panamanian government entity. In addition to providing a major source of the country’s gross domestic product (GDP), the canal continues to function as an invaluable maritime passageway handling 5 percent of worldwide trade, with approximately 14,000 ships passing through its channels every year. Considered by many as being one of the most elaborate engineering projects ever undertaken, the future success of the waterway is largely contingent upon the facility being widened, which will enable it to keep pace with the enormity of modern day cargo vessels and oil tankers.

Overwhelming Public Support for the Expansion
In an October 2006 nationwide referendum, Panamanians overwhelmingly approved (by a 76.9 percent vote) an ambitious plan to widen the canal. According to Panamanian president, Martin Torrijos, an outspoken supporter of the canal expansion project, “never in the history of the country have we Panamanians taken a decision of this magnitude.” Torrijos stresses that the expansion of the canal, which is expected to cost at least $5.2 billon, is vital because the waterway is currently inadequate to accommodate both modern tankers and big cargo vessels. The project began in September 2007 and is expected to double the conduit’s capacity, enabling it to accommodate ships that are currently too large to navigate its 108 foot-wide locks. Furthermore, the Torrijos administration claims that the project will create tons of thousands of jobs and will bring a much needed boost to the country’s ailing economy. Of course, not all Panamanians were ebullient after the Canal’s expansion. Some, like Dr. Miguel Antonio Bernal, a distinguished professor at the University of Panama, sought the expansion as a boondoggle bound to throw open the door to major acts of corruption. Bernal is now running as an independent candidate in Sunday’s election for the mayor of Panama City.

Although the expansion was passed by a large majority, the plan has been a source of much disagreement. Many skeptics are concerned about who the actual beneficiaries of the project will turn out to be. There are still those that vehemently believe that the canal project will be detrimental to Panama’s well-being, such as the National Front for the Defense of Economic and Social Rights (FRENADESO), an organization that represents trade unions, grassroot organizations and civic groups, as well as the Peasant Coordination Against Artificial Ponds/Dams (CCCE) an organization representing the rights of rural peasants. “They claim that if they don’t enlarge the canal, it’ll become obsolete. So what? The canal has been obsolete for small farmers like us since the very start, since we haven’t received any benefits from it,” argues CCCE leader Francisco Hernández. When asked during a television interview whether or not farmers are willing to sacrifice themselves for the will of their country, Hernández responded, “I ask the viewers, how and when has the average citizen felt the benefits of the canal? When someone can answer that, or when a group of average working people tell us, ‘we benefit from the canal,’ then we can talk about the kind of sacrifice farmers would be willing to make.” With the proposed plans to expand the canal not calling for the construction of new dams, it appears that the voice and central concern of the CCCE and their supporters have been heard.

Those resisting the development also fear that the project will exceed the expected $5.2 billion, exacerbate Panama’s environmental degradation, and undoubtedly increase the country’s already steep debt. Skeptics also argue that only the elite will reap major benefits as a result of the surplus from the expansion. They raise a valid argument that those living below the poverty line — approximately 40 percent of the population — will be adversely affected because they suspect that canal growth will not generate a significant number of jobs to compensate the country for its expenses and various disconformities.

Panama Canal Authority’s Expansion Project
After replacing the Panama Canal Commission in 1999, the Panama Canal Authority (ACP) became the autonomous governmental agency responsible for the operation and maintenance of the canal. According to the ACP, without an expansion, the canal would cease being the country’s most viable vehicle of sustainable economic growth. Already having secured loans from such agencies as the European Investment Bank, the Japan Bank for International Cooperation, the Inter-American Development Bank, the International Finance Corporation and the Andean Development Corporation, the ACP contends that the rest of the development venture will have to be funded by increasing the cost of tolls required to traverse the canal and anticipates having to absorb more than $6 billion annually in revenue by 2025.

The ACP reports that the expansion project, slated to be completed at the time of the canal’s centennial in 2014, includes the construction of two new lock facilities. One lock will be located at on the Pacific end, southwest of the Miraflores Locks, while the other will be situated to the East of the Gatun Locks, with each new lock having three chambers and their own water reutilization basin. The project also includes the construction of access channels for the locks, both the widening as well as deepening of existing water channels, and the elevation of Gatun Lake’s water operating level. The expansion project will create a new lane via the construction of a new set of locks which will contain environmentally friendly basins. These troughs will allow for the reutilization of 60 percent of the water used during a transit through the canal and remove the need for the construction of dams that could potentially flood and displace communities making up part of the canal watershed.

Expansion Perceived as an Economic Stimulus
Both the ACP and Panamanian officials assert that the canal project would be an economic stimulus for the country. They also expect that the expansion would help address the growing problem of unemployment in Panama, claiming that the project will create approximately 35,000 to 40,000 jobs as a result of the construction-related activities during the execution of the project. By the year 2025, the ACP projects that between 150,000 and 250,000 jobs will be created. Moreover, they add that the existing locks will continue to operate during the expansion project and that the operational functions of the canal will not be disturbed.

As of early March, the ACP has been in the process of reviewing bids from Consorcio C.A.N.A.L, Consortium Bechtel, Taisei, Mitsubishi Corporation and Consorcio Grupo Unidos por el Canal, three organizations who have submitted their pricing and technical proposals. They will be competing to design and build the new locks of the canal. During this period, the ACP also received proposals for the dredging of the canal’s Atlantic entrance; additional proposals can be submitted until this July 15. “This is an exciting time for the Canal and for Panama as we move forward with the single most important expansion project. We stand committed to hiring a consortium that meets all technical requirements and provides the best value for the project,” said ACP CEO Alberto Alemán Zubieta.

Social and Environmental Concerns
From an environmental perspective, the ACP claims that no communities will be displaced during the project because all expansion activities will occur within the confines of the agency’s operational areas. In addition, both Gatun and Alhajuea Lakes will maintain their exceptionally stable ecosystems. The fact that the Panamanian Environmental Protection Agency (ANAN) has approved the project gives increased credibility to the proposal. Latin News reports that such approval was based on criteria accepting ecological responsibility for the canal’s surrounding areas, taking precautionary measures to prevent risks to animal life, the rescuing and relocation of species, and the implementation of a reforestation plan in the areas impacted by the canal project.

However, critics such as former president, Guillermo Endara, argue that the project creates a sense of false hope, as it promises Panamanians a rise in employment rates that will subsequently create a surge of people coming towards the city in search of jobs that, according to some, simply won’t exist. As a top-level banker explained to the Panama News, on the average, one should expect five applicants for every single job. He also pointed out that both the Panama City metro area and the city of Colon on the Atlantic side of the canal, are not adequately prepared to accommodate the influx of so many people, which in turn, will likely further exacerbate the area’s social problems. According to a Credit Suisse report entitled “Emerging Markets Economics: Panama,” the expansion project does entail some degree of risk. In spite of the fact that the national poverty level in Panama has declined by 28 percent since 2008, the unemployment rate remains staggeringly high. Panama historically has ranked as having the second most unequal income distribution in all of Latin America. Thus, the Credit Suisse report raises a valid concern when observing that the development could potentially send the country into further debt.

In addition, the increase in toll prices faces opposition from the shipping industry, whereby several companies have claimed that they would be motivated to find alternative navigational routes should the expansion be realized. Some shipping companies have already noted that the current economic crisis has severely affected them, so much that they may not be able to remain in business, and a surge in tolls will further intensify their economic woes.

Destiny of the Canal Must be in the Hands of Panama’s Citizenry
According to the Panama News, Egypt’s Suez Canal, which links the Mediterranean Sea with the Red Sea and provides an alternative shipping route, has even lowered its fares, allowing it to more effectively compete with the Panama Canal. Furthermore, as the impact of global warming puts the Arctic Ocean on thin ice, many specialists are beginning to wonder if the Northwest Passage will soon become a navigable shipping route. To boot, it even provides a more direct route from Asia to Europe compared to its Panamanian isthmian counterpart.

There is no doubt that the expansion of the Panama Canal is a massive undertaking, and as such, the transformation and concerns associated with the project will surely remain. Aware that the country’s main economic resource will have a direct impact on Panama’s future and the role it will play in the global economic system, both the ACP and the incoming Panamanian government that will be elected on May 3, would be well advised to tread carefully when dealing with the canal’s future management, as any misstep could bring about dire consequences to the country’s future development and environmental viability. Perhaps more importantly, Panamanian authorities must ensure that the benefits of the revenues achieved from the canal are ultimately fairly allocated to legitimate and accountable social development programs to ensure that all Panamanians benefit, and not just a select, well connected few.

This analysis was prepared by COHA Research Associate Maya Wilson

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