Panama Feels Squeeze Over Canal Expansion

When President Theodore Roosevelt directed an army of engineers and Caribbean laborers to build the engineering masterpiece known as the Panama Canal, inhabitants of the isthmus weren’t consulted.

Now, after 90 years of serving as home to the maritime industry’s favorite pathway, Panama alone will decide whether to expand its man-made wonder to meet the demands of 21st-century shipping -- an undertaking as momentous as the original excavation that linked two oceans and transformed world trade and travel.

A master plan for widening and deepening the slender channel and building bigger locks is due at the end of June, and the compilation of $30 million worth of engineering, economic and environmental studies will be debated for the rest of the year. But the deliberations are likely to focus more on how to expand the canal than on whether it should be done. Pro-expansion sentiment appears to prevail in this nation of 2.8 million people, inspired by the promise of tens of thousands of construction jobs that would greatly ease an unemployment rate of 14%.

From the teak-lined offices of the Canal Administration Building in Panama City to the 19th-century slums of Colon, there is enthusiasm for the colossal undertaking and confidence that modern technology will allow expansion with a minimum of environmental perils.

There are, however, worries. Rare birds turn languidly over the verdant jungle and turtles paddle through the grassy shallows of Gatun Lake, gifts of nature that environmentalists have warned could be at risk if the nation opts to flood additional territory to collect more water for moving more and bigger ships. Some proposals also envision displacing as many as 9,000 people, mostly indigenous groups who were relocated in the 1970s to allow construction of the Bayano dam and hydroelectric project, to make way for new reservoirs.

Also of concern is the expected cost of the envisioned construction, estimated at as much as $5 billion. Panamanians, already carrying $9 billion in debt from decades of populist spending, are being urged by the fiscally conservative to avoid mortgaging the country’s future for a short-term job boom. Some studies project that it would take at least 20 years to generate enough extra toll revenue to recoup the cost of expansion.

In fact, a host of questions will be debated in the National Assembly, in cantinas and at dinner tables until Panamanians are asked to vote on the matter in a referendum expected next year: How big is big enough to remain the most cost-effective route for interoceanic shippers? How much will it cost in dollars, environmental destruction and human displacement? Can and should tiny Panama take on the financing burden of a mega-project to benefit international markets?

“The driver for all of these projects -- the foremost driver -- is that it has to bring direct benefits to the country of Panama. If it doesn’t, it’s not going to happen,” asserted Alberto Aleman Zubieta, administrator of the Canal Authority, the state-owned corporation that has run the waterway since the U.S. handover of the canal in 1999.

While the question of whether expansion is good for Panama may be central to voters, political and economic leaders are mindful of the canal’s importance to global commerce.

“Who’s to stop the times?” Deputy Commerce Minister Romel Adames said of contemporary shipping’s demands. “The canal is a very old piece of infrastructure; it’s 100-year-old technology. We need to bring it up to the needs of another century. With this we can prosper for another 100 years.”

The canal functions as efficiently today as when it opened in 1914 -- the same electro-mechanical works control the original 690-ton steel lock gates that were forged in Pittsburgh.

But the shipping industry is changing.

“Since 1998 we’ve been told by our customers that ‘we aren’t going to fit our ships to you, you have to accommodate us,’ ” said Dinnick Salerno, a dredge engineer on an interim maintenance project that is deepening the channel by 2 feet and widening the cut’s curves to allow simultaneous two-way traffic.

Culebra Cut is usually limited to access from the Pacific side in the morning and the Caribbean entrance in the afternoon to prevent collisions in the channel that, despite its new 630-foot width, is vulnerable to winds.

Those revisions are baby steps in modernization.

Container shipping, which accounts for the biggest and fastest-growing sector of canal business, is moving to larger ships, called post-Panamax vessels because they are too wide and draw too much water to pass through the canal.

When the canal opened, every ship then afloat could fit through its locks and shallowest sections. Today, the jungle passage can still accommodate 92% of the world’s ships, but that figure will shrink over the next decade as shipping giants like Maersk Sealand and China Ocean Shipping Co. replace canal-size ships with post-Panamax vessels.

Panamax ships -- those that can fit thought the canal’s smallest-point 106-foot breadth and 39-foot draft -- carry up to 2,200 containers, while dozens under construction and already in service can move 3,300.

Maersk Sealand, the canal’s biggest corporate customer, already has 24 ships in service that are too big for the canal and takes delivery of a new vessel every three months.

“Panama would without doubt benefit greatly from the expansion, as would the facilitation of world commerce,” said Hans Stig Moller, Maersk’s Panama director, noting that container cargo is projected to grow 9% to 11% annually for at least the next decade.

The 9-mile-long Culebra Cut was, is and always will be the crux of the matter. To accommodate post-Panamax vessels, the cut will have to be deepened to allow the behemoths whose keels reach 50 feet below the water’s surface, Salerno said.

Expansion could influence world trade almost as dramatically as did the original construction. Chilean shippers have to limit dry bulk loads to about 70% of vessel capacity to avoid running aground in the cut, according to Aleman of the Canal Authority. Colombian coal can’t be delivered to Asia at a competitive price if shipped in canal-size vessels, so the neighboring country ships its coal to Europe. Brazilian iron ore and soybeans likewise can’t make Pacific inroads because of the prohibitive per-load costs of transporting them on canal-size ships.

Going around Cape Horn is expensive for post-Panamax vessels because of crew and fuel costs. The cruise ship Coral Princess last year paid the highest toll ever levied to transit the canal, $226,000, but that’s still only one-tenth what it would have cost to take the ship around South America, said Dazzell Marshall of the Canal Authority information office.

Even with the canal’s expansion, daily transits are unlikely to grow much beyond 50 from the current average of 35. But tonnage could go up significantly as shipping lines rely more on the post-Panamax giants, and tonnage is the basis on which tolls are determined.

“If you have 50% post-Panamax ships with 20% more capacity, that’s a 10% increase in the amount of goods going through the canal,” said David Hunt, Panamanian-American Chamber of Commerce director, projecting the income boost that could be expected.

Expansion boosters estimate $3 billion to $5 billion will be needed for the improvements, but Hunt contended that “the only guarantee is that if they think it will cost $5 billion, it’s going to be more.”

The original canal cost more than three times the 1879 estimate of Ferdinand de Lesseps, the celebrated French builder of the Suez Canal whose dream of cutting a path across Panama was dashed by bankruptcy and disaster.

A nation for 100 years, and most of those under U.S. occupation, Panama, some worry, may lack the world-conquering spirit that drove Roosevelt to see the canal through to completion. Roosevelt first had to instigate Panama’s secession from Colombia in 1903 to buy the rights to take on the project.

Still, this small country’s vision could prove as outsized as its business management skills. In less than five years, since the canal reverted to Panamanian control on Dec. 31, 1999, the new managers have transformed it from a veritable subsidy to U.S. exporters to a profitable international service.

“Transit time in canal waters has been reduced significantly in the last several years. The accident rate is down. Toll revenue is up. Panama has been a very effective steward of the environment in the watershed,” said U.S. Ambassador Linda E. Watt.

The few market studies taking a dark view toward expansion warn of the cyclical nature of shipping and the vulnerability of a small economy like Panama’s to the vagaries of major exporting nations like the United States, whose cargo accounts for half of the canal’s tonnage.

“This is a small country that really moves with the winds of the international economy,” said Marco Fernandez, political analyst with opinion research firm Indesa, which estimates public support for expansion well over 60%. “Most people are in favor of expansion but probably because they don’t know the [debt-projection] figures.”

Those dedicated to safeguarding Panama’s unique environment acknowledge the steamroller of support behind expansion but say they hope to convince countrymen that a balance can be struck between maritime advancement and environmental protection.

Several proposals call for new dams and reservoirs to increase the amount of water available to move more ships through the locks. Each passage of the 50-mile canal flushes 52 million gallons of fresh water through the locks from man-made Gatun Lake to move the ship up from one ocean and down to the other. The challenge, say scientists including Stanley Hackedon of the Smithsonian Tropical Research Institute in Panama City, is to ensure that the expansion plans include water-recycling systems so that the fresh water stored in the elevated reservoir and pumped into the locks isn’t flushed out to sea with the ships, as is now the practice.

A drive along the trans-isthmus highway exposes the ravages of past industrial projects. Desiccated forest surrounds a cement plant where ash choked the life out of the jungle. Weather patterns -- altered by the vast water containment that turned jungle valleys into 170 square miles of Gatun Lake -- drop so much rain on the coastal highland that people call it “the weeping mountains.”

“Project promoters seduced the government and population with the promise of jobs. But their track record has been poor,” Hackedon said, pointing out the 30% jobless rate in Colon, home to the busiest port in the Americas. “They say there has been $8 billion put into this business, but look, there’s not one single flower.”

Expansion boosters like the Canal Authority’s Aleman insist that the next era of canal works will be different, that concern for all aspects of social well-being will be considered during what he expects to be a lively and protracted debate. Once the discussion gets going, he predicted, “We will have 2.8 million experts on the Panama Canal.”