The Panama Canal, the 80-kilometre waterway that connects the Pacific and Atlantic Oceans, is set for expansion, pending legislative and public approval. The move will help admit wider post-Panamax container ships and meet increasing demand for transits as global trade continues to grow.
"We think it is the most important public works project in logistics and transportation that there will be in this decade," says Alberto Aleman Zubieta, administrator of the Panama Canal Authority. He will present during the IDB meetings "the concept and alternative of expansion through [building] a third set of locks" that would be parallel to the existing ones, he says.
The Panama Canal Authority (ACP) is completing a series of more than 100 technical studies related to the engineering and design of new locks and hydraulics as well as modeling the demand, price and other financial aspects of the expansion project. "The impact in the region is very important – for users of the Canal, it would be very convenient to getting their products to market," says Aleman Zubieta.
Big South American users of the Canal such as Chile, Ecuador, Peru and Venezuela, ship mining and refined oil products, fruit and vegetables through the Canal to markets in the US and Europe. Panama's Manzanillo port moves half of the container cargo that ships to Central America.
IDB president Enrique Iglesias emphasizes the importance of the future development of the Canal. "We are following very closely the important works to expand the capacity of the Canal, a waterway that is important worldwide," Iglesias tells Emerging Markets. "The Canal has very good administration," he says. The IDB already supports environmental projects in the zone that borders the waterway.
Interest in the expansion is keen, even though the project lacks formal approval. Once all the technical studies are rolled out, they must be approved by the Panamanian executive, then by the legislature. Finally, the public must vote in a referendum in which a simple majority must give the nod to the project.
According to some sources, Chinese authorities were supposed to meet with the Canal Administrator in Okinawa, but Aleman Zubieta said that report is false. "No-one has called me or requested an appointment," he says. In recent years, China has surpassed Japan to become the second biggest user of the Canal after the US, which accounts for 65% of all shipping through the passageway. Japan is the third largest user of the Canal.
How the work will be financed is a matter of speculation. "Panama as a country will not give sovereign guarantees" for the expected future expansion, says Aleman Zubieta. "We have no decision about financing" at this point, he adds.
"The IDB has shown an interest in the importance of this infrastructure project for the region, the importance of Panama as a point of interconnection for the region," says Aleman Zubieta. Given its strategic location, the Panamanian isthmus also serves as a trans-shipment route allowing materials to be carried by rail or truck to either coast.