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(04/18/06) -

Panama seeks a new, improved canal

A multi-billion expansion plan could become the key venture for the Torrijos government.
(Angus Reid Global Scan) Gabriela Perdomo – There was a time when the Panama Canal was the centre of worldwide maritime commerce.

(Angus Reid Global Scan) Gabriela Perdomo – There was a time when the Panama Canal was the centre of worldwide maritime commerce. In the 1980s, the new container ships where called the Panamax. These vessels delineated the maximum size of a ship so it could still fit perfectly through the Panamanian waterway. While currently more than half of all ships that cross the Panama Canal are still the famous Panamax, a new generation of bigger vessels is forcing a change.

Since the 1930s, talk about an expansion to the Panama Canal has been slowly brewing. Still, the engineering feat that was completed in 1914 was so ideal that these discussions began to be taken seriously only a few years ago. Now, the government of Mart­n Torrijos is planning to hold a nationwide referendum at the end of this year, to ask Panamanians to approve the renovation of the waterway. In accordance with the country’s constitution, the plebiscite is the last step to permit any alteration to the canal.

There are plenty of reasons to think that the voters will wholeheartedly endorse the expansion plan, yet two issues might endanger the operation: the monumental construction cost and the political ramifications of a successful referendum under Torrijos’ watch.

The need for expansion is evident. On the one hand, the new Post-Panamax and Post-Panamax Plus ships simply cannot pass through the canal. While Panamax vessels will not be decommissioned any time soon—since not all companies will be looking for bigger ships—the new generation has proved ideal to transport large quantities of oil and liquefied natural gas. The Panama Canal is losing the opportunity to cater to these rewarding clients.

According to the state-administered Panama Canal Authority (ACP), the canal’s expansion is not only justified by size, but also by volume. The ACP estimates that the canal will work at full capacity by 2012. At this time, the canal taking in more than 12,500 ships each year. By 2012, the number of vessels is expected to reach 13,500—more than the waterway can handle.

Another factor that must be addressed is that, if the canal is unable to operate perfectly, the ACP fears that companies will start looking either into alternative methods or transport, or different routes. This possibility looms large if the traffic keeps growing as it has over the last few years. More than half of all the ships that reach Panama have a previous reservation and are given a specific time slot to make their way through the canal. This is a profitable service for the ACP, as the price is higher. Every other vessel simply queues and waits for its turn. The ACP claims that, after 2012, it will be impossible to guarantee that all ships would go through. Wait times will become unbearable, and some clients might be put off.

The Torrijos administration has not delivered its estimates regarding the cost of the operation, which will include a third set of bigger locks. The International Monetary Fund (IMF) believes the overall construction cost might be as high as $7.5 billion U.S.—roughly half of Panama’s Gross Domestic Product (GDP). There are few details on how financing will be achieved.

All details related to the expansion plans were supposed to be released by the end of March, but Torrijos did not deliver a document. This has not only caused great strife, but also hinders the government at a time when the enthusiasm over the modernization of the canal appears to be dropping, according to the polls. Torrijos says he is working on the last few details. If the president wants the project to be approved soon, he should also review his approval numbers, since voters could end up punishing his actions on other fronts with a “No” when the referendum takes place.