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Nicaragua OKs rival to Panama Canal; study begins

Friday - 6/14/2013, 7:34am  ET

A cargo ship moves through the Panama Canal's Miraflores Locks in Panama City, Wednesday, June 12, 2013. Nicaragua is plowing ahead with a plan to dig a Chinese-funded rival to the Panama Canal across the midriff of the country, fast-tracking a proposal through the ruling party-controlled congress despite a lack of details about the $40 billion project. (AP Photo/Arnulfo Franco)

LUIS MANUEL GALEANO
Associated Press

MANAGUA, Nicaragua (AP) -- In a matter of weeks, a little-known Chinese tycoon has hired some of the world's top experts in mammoth infrastructure projects and pushed through Nicaragua's congress a bill granting him the exclusive right to develop a multibillion-dollar rival to the Panama Canal.

Now, the real work begins.

Thursday's vote may have given Wang Jing the concession to build a canal across this Central American nation, but his HK Nicaragua Canal Development Investment Co. still has to study whether the idea is truly economically viable.

Spokesmen hired by the company say they believe that rising world trade means it is highly likely that a new canal could be profitable. Yet they acknowledge that what will be a months-long feasibility study could prove just the opposite.

The project has generated deep skepticism among independent shipping experts. At the same time, environmentalists are worried about the impact on Lake Nicaragua, the country's primary source of fresh water.

The legislation approved by a 61-25 vote in the National Assembly dominated by President Daniel Ortega's Sandinista Front contains no specific route for the canal and virtually no details of its financing or economic viability. It simply grants the Hong Kong-based company 50 years of exclusive rights to study the plan and build and operate a canal in exchange for Nicaragua receiving a minority share of any profits.

Ortega's backers say the Chinese will transform one of the region's poorest countries by turning a centuries-old dream of a Nicaraguan canal linking the Pacific and Caribbean into reality. They say it will create tens of thousands of jobs for the country and fuel an economic boom that would mimic the prosperity of nearby Panama and its U.S.-built canal.

"One of Nicaragua's great riches is its geographic position. That's why this idea has always been around," Sandinista congressman Jacinto Suarez said during debate Thursday. "Global trade demands that this canal is built because it's necessary. The data show that maritime transport is constantly growing and that makes this feasible. Opposing it is unpatriotic."

However, Bill Wild, chief project adviser for HK Nicaragua, said a detailed study is needed to determine if a canal would provide enough profit to attract the international investors who will be needed to finance the project.

"There's a compelling commercial reason to build the canal," he said. "We have to prove now that the actual rate of return that the investors will get is adequate."

Wild, who is one of a number of Western experts hired by HK Nicaragua to provide advice ranging from engineering and environmental planning to public relations, also said it's too early to say if a widely reported project cost of $40 billion is accurate.

There are serious questions about whether there will be enough increase in shipping between Asia and the Western Hemisphere to justify a new canal, experts said.

North American companies are increasingly looking to factories and suppliers in the U.S. and Latin America rather than in Asia, where rising salaries in China are making manufacturing less appealing for foreign companies.

In addition, the global economic slowdown of recent years has resulted in large numbers of ships sitting unused, perhaps 5 percent of the global fleet. Many vessels are scheduled to be completed in coming years, and the percentage of idled ships could grow to more than 20 percent, experts said.

Global warming means that even the Arctic may become a viable alternative to crossing Central America by canal.

"Looking at the changing flows and where the growth is in the world economy, personally I'm not seeing it. I wouldn't invest my money in it," said Rosalyn Wilson, a senior business analyst at Delcan Corp., a Toronto-based transportation consultancy and author of the U.S. logistics industry's annual report.

"It's addressing a need that definitely is not here now, and I'm not sure if it's a 'Build it and they will come' sort of thing," she said.

Paul Bingham, head of economic analysis at the engineering planning firm CDM Smith, which specializes in large water and transportation infrastructure, had similar concerns.

"There's going be some growth in world trade. The big question is: What routes is that trade going to move on? That's the real challenge that Nicaragua faces," he said. "It's very easy to say trade is going to grow, but that doesn't mean that Nicaragua is going to be in a competitive position to take advantage of it ... I'm not convinced right now."

Backers of previous proposals for a Nicaragua canal have argued that the route would prove more economical than Panama's more than century-old canal because it could handle ships with far larger cargo capacity.

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