Latin America Report
12:16 pm
Tue August 12, 2014

Canal Quarrel: How PortMiami's Future Is Tied To Tiny Panama

Epic Endeavor: Building the Panama Canal's wider locks.
Credit Panama Canal Authority

The original version of this report was published on May 13 2014.

PortMiami has finally opened its new, billion-dollar tunnel. It’s the jewel of a $2 billion port makeover, which includes a major dredging project and skyscraper-size loading cranes for sending a lot more auto parts to Brazil and getting a lot more handbags from China.

But the long-term success of that effort may depend to a large extent on whether a quarrel gets solved a thousand miles to the south. In Panama.

Friday marks the 100th anniversary of the opening of the Panama Canal. When the United States built this maritime marvel, it faced harrowing obstacles, from mudslides to malaria. But history doesn’t appear to show a financial dispute with contractors – at least not one that halted construction.

Fast forward a century, to a more than $5 billion expansion on both the Pacific and Atlantic ends of the isthmus waterway. It looks like a digitally created Hollywood epic, an army of trucks and cranes erecting concrete walls more than two miles long and more than 100 feet high. The wider, deeper channels and locks are aimed at serving more massive vessels known as Post-Panamax ships. Over the next decade they should almost double the 330 million tons of cargo the canal moves in and out of our hemisphere each year.

As a result, says Jorge Quijano, who heads the Panama Canal Authority, or ACP, “Panama is essentially going to be the largest port in Latin America.”

RELATED: Should The Panama Canal Join Classes As Well As Oceans?

Yet earlier this year the expansion work stopped for two weeks. The reason: a disagreement between the ACP and a consortium of European construction firms, the GUPC, over who should pay for a $1.6 billion cost overrun.

They’ve since agreed on some stopgap financing to keep the project running – the entire canal expansion is about 75 percent complete, and is slated to be finished by the end of next year – and they’ve agreed to international arbitration, some of which is now playing out in Miami this summer.

But until the two sides get this settled, a cloud of uncertainty hangs over the project’s final stretch. And over many U.S. ports, including Miami’s, which have laid big bets on the Panama venture by investing billions in their own expansions in order to profit from the increased Post-Panamax traffic.

Says Carlos Urriola, executive vice president of the Manzanillo International Terminal (MIT), a major port at the Panama Canal’s Caribbean entrance: “We’re all too aware that ports like Miami are definitely waiting to see when we’re going to be ready with our canal.”

Odds are that arbitration will cut through the dysfunction and that the canal expansion will be ready on time. No project of this magnitude is ever immune to snags; but given the hemispheric if not global importance involved in this one, the alleged $1.6 billion spillover is alarming. It represents a full half of the GUPC’s original $3.2 billion contract – and almost a fifth of the entire expansion budget.

So was the GUPC’s bid simply too low? And if so, why did the ACP – which since taking control of the canal from the U.S. in 2000 has run it in otherwise stellar fashion – accept it? Did the GUPC do a lousy job of pre-construction planning? Or did the ACP fail to disclose important data?

"Their behavior is definitely disappointing." – Jorge Quijano

I spoke in Panama with both Quijano and Jan Kop, the GUPC’s deputy project director.

Kop insists the consortium has run into “surprises that we could not have foreseen.” He argues it’s had to dramatically adjust its costs for circumstances like concrete costs, rare soil conditions and higher-than-expected earthquake potential along the canal. Things, Kop adds, that the ACP “should have known about since 1914.”

"These are things the Authority should have known about since 1914." –Jan Kop

Quijano, a U.S.-educated engineer, calls the claims either false or exaggerated – if not the GUPC’s attempt to scapegoat the Canal Authority for its own derelict due diligence.

“Even if [the GUPC’s claims were] fact,” Quijano says, “the [cost] amounts they are claiming are outrageous. They’re not even within the ballpark.” He adds: “[Their] behavior is definitely disappointing.”

HONG KONG OF THE AMERICAS

Kop says the ACP is sticking “too rigidly, given the project’s scale,” to the contract. But shipping analysts tell me there’s a broader reason for Quijano’s hard line.

Namely, the Canal Authority’s earnest desire to prove itself a reliable institution in contrast to Panama’s notoriously corrupt political and judicial systems. Which means making a point of holding to business agreements that all too often get cavalierly dismissed outside the ACP’s walls.

Arbitration will decide if the ACP is being too inflexible in this case. But making Panama more transparent is in fact key if the tiny Central American country (pop. 3.5 million) wants to realize its outsize ambitions. One is to compete with Miami to be the commercial “gateway to the Americas.” The other, larger goal is to become the Hong Kong of the Americas – a global maritime and financial hub.

“We’re selling Panama now more than the Panama Canal,” says Quijano.

“We do want to take away a little bit of the business from Miami,” he adds. “With an expanded canal and all the [business] diversification it envisions…our thrust is to make Panama a [hemispheric] logistics center.”

As a result, says Urriola of the MIT, the canal “is the religion that unites all Panamanians.”

Which is why those Panamanians – and not a few Miamians – are praying for light at the end of the canal expansion’s tunnel.

Tim Padgett is WLRN's Americas editor. You can read more of his coverage here.

The Latin America Report is made possible by Espirito Santo Bank

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