Trade expansion will pay for canal upgrade, Panama says

23/03/2010 | Lucien Chauvin

Officials say that recent trade figures justify their confidence that the canal expansion, due to be completed in 2014, will pay for itself

Panamanian officials say that recent trade figures justify their confidence that the canal expansion, due to be completed in 2014, will pay for itself.

Despite the drop in world commerce last year, revenue from the canal was up 4%. Volume was off slightly for the year, but did increase by 3.5% in the final three months of the year.

More encouraging, according to Deputy Finance Minister Dulcidio de la Guardia, are numbers for volume at the Colon Free Zone, which were up 17% at the start of this year compared to 2009.

“Trade will continue to grow. This is a trend that is not going to change,” de la Guardia said. “The all-water route is much cheaper than land-water routes, and we are going to take market share from them.”

The canal expansion, which is in full swing with the construction of new locks, will require $5.2 billion in investment by its 2014 completion. The largest component, $3.2 billion for new locks, was awarded in July 2009 to a four-member consortium. It is on time and new estimates actually have the cost at around $290 million lower than forecast.

Panama is financing the expansion with loans from five development agencies: the IDB ($400 million), Andean Corporation for Development ($300 million), European Investment Bank ($500 million), Japan Bank for International Cooperation ($800 million), and the International Finance Corporation ($300 million). The rest is being paid for by users through an increase in rates.

The US is the canal’s largest user, followed by China and Chile. De la Guardia said China’s continued appetite for raw materials will guarantee increasing volume flows with the new canal “lane.”

But there are big investments in alternatives to – and competition for – the Panama Canal. Brazil and Peru, for example, are concluding several projects that will connect the Atlantic and Pacific oceans.

The most watched is an all-weather highway that will connect Sao Paulo with ports in southern Peru. Brazil is financing most of the $1.5-billion project, which should be concluded early next year.

This will give Brazil opportunities to move products overland through Peru and then on to China, and ease Chniese exports of manufactured goods to Brazil. There are two other inter-oceanic links, which will use highways and rivers to move goods.

Peru is offering concessions this year to build ocean and river ports, and President Alan Garcia has invited Brazilian and Chinese investors to use Peru as a “platform” for trade. Brazil and Ecuador have a similar plan to create a river-highway intermodal link, but this is not as advanced as the Peruvian projects.

De la Guardia said Panama is not concerned. “The expansion will let larger ships move raw materials from Argentina, Brazil and the US to China at costs much lower than any other routes.

“This is a benefit that is already recognized and can be seen in the investment in port along the US eastern seaboard to receive larger ships.”

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