The Panama Canal expansion is advancing on schedule, despite early signs of a slowdown in international shipping, the Canal’s CEO Alberto Aleman Zubieta has told Emerging Markets.
The $2.3 billion financing for the expansion should be in place by the end of this year, Aleman said. The remainder of the total $5.25 billion cost will come from tolls. A third lane of locks will be added to the canal, enabling it to handle 12,000 shipping containers at a time and to take post-Panamax vessels. Four international consortia have been short-listed for the project, which will be awarded in October.
The slowdown in shipping will not affect the financing, Aleman said. “This year is going to be flat in tonnage moving through the Canal [and] maybe a few points below last year.”
The slowdown has been felt most strongly on the busy Asia-US East Coast route, which carries enormous volumes of Chinese manufactures to consuming centres in the US.
The impact will be limited, Aleman said. The 2001 recession was worldwide, he said, alluding to the fact that this year financial troubles in the US have not spread to other countries.
Canal revenues will increase in 2008 despite a reduction in traffic, Aleman said. Tolls should reach about $1.3 billion this year, up from a record level of revenues of $1.18 billion in 2007, Canal sources say. Recent toll increases have raised Canal revenues.
Aleman said that the Canal is in discussions with multilaterals and private sector banks on the financing. It has been looked on favourably by financiers since winning approval in a popular referendum in November 2006.
Initial dredging work is going ahead. “Excavating is proceeding in good time”, Aleman said. The Canal Authority last week awarded a $177 million contract – its biggest yet, for dredging and deepening navigation channels at the Pacific entrance of the Canal – to Dredging International of Belgium.
Dredging International will deepen the entrance to 15.5 metres, widen the channel to 250 metres, and dredge the new south access for the construction of the third set of locks. The work will take four years.
Analysts are optimistic about the prospects for the financing. “Current financial conditions are not positive but the canal is a good long-term asset, and I don’t think they’re going to have any problem,” says Carl Ross, emerging markets research director at Bear Sterns in New York.
The Panama Canal has no debt, and tolls are collected before ships enter the Canal. The expansion project, slated to hit peak activity in 2009, could wait a bit to go to market when there is a more favorable climate, Ross suggests.
“If they have to postpone financing for six months, that is not a problem,” Ross said.
New and expanded ports in Mexico and along the Pacific coast of South America do not pose a competitive threat to the Canal, Aleman said.
Mexico is soon to launch an $8 billion project to develop a megaport at Punta Colonet on the Baja California peninsula
that would ease congestion at the Los Angeles-Long Beach port and connect by rail to the US inter-modal system.
But “Panama offers something no-one else has. We are the only port with terminals in both oceans, and we are a distribution centre ourselves,” Aleman said. Punta Colonet, a greenfield port to be built at a now-empty and unpopulated harbour, would require establishing “a lot of logistics that have to do with ports and connectivity between ports and distribution centres,” he said.