Archives for 2014

Instapundit links to a post on the proposed Nicaragua canal, and, since his website rejects my comment on the grounds that “Your comment currently includes words that are not allowed,” I’m posting it here (links added):

I’m very skeptical on the proposed project.

So far the only investor is Wang Jing’s HKND Group, which may (or may not) be a cover for the Chinese government, a company that made a $300 million telecommunications contract with Nicaragua.

For the Canal deal, “HKND would raise the $40 billion needed to build the canal and would have the right to operate and manage it for up to 100 years before turning it over to Nicaragua. In the meantime, Nicaragua would have a controlling interest in the canal and receive income from it.”

A final route for the canal has not yet been announced.
The following have not been made public:
No details on where the funds come from.
No feasability studies.
No environmental impact studies.
Indeed, no studies for the project have been made public.

Additionally, “it appears that the project would also include an oil pipeline, two deepwater ports, an airport, a railway, and two free trade zones. With a projected total price tag of $40 billion, the overall project would cost four times Nicaragua’s 2011 gross domestic product ”

The expansion of the existing Panama Canal cost $5.7 billion. The Nicaraguan canal would be 3 1/2 times longer over an existing shallow lake, & is estimated to cost only $40 billion? On the Country of Lakes and Volcanos?

While i agree that “a healthier Latin America, both economically and politically, is very much in our interest”, Nicaragua, hostile to the US, is following the Venezuelan model, not the healthiest economically and politically.

Until all these items are clarified, my advice is “don’t be the next Lord Crawley.”

UPDATE
Comment from Doug Wenzel,

Jorge Luis Quijano, Administrator of the Panama Canal Authority says in an interview granted to La Estrella de Panamá that ACP experts estimate this as being a $65-70 billion project, and that five years is way too optimistic. There are also many questions about Environmental mitigation.

http://laestrella.com.pa/panama/nacional/quijano-invertiria-solo-real-canal/23831295

My personal focus is not on that, but on OpEx for this canal. First, the much longer time in canal waters at slow speed mitigates some of the distance advantage for certain port pairs, and has the largest effect on time-sensitive cargoes, which may be willing to pay the highest tolls per ton.

More importantly, the route will require triple the maintenance dredging, as well as triple the piloting and tugboat hours. Those will all affect what the canal can charge for a transit, and therefore the gross margin per transit.

Furthermore, of all the ships that could only use this canal, and not the one in Panama, most transport low value, time-insensitive cargo. (bulk carriers and VLCC’s). The Maersk EEE and larger container ships can call on only a few dozen ports worldwide, not just because many ports can’t physically handle their size or draft, but because most ports can’t produce enough demand to justify a weekly or even biweekly port call.

This canal is obviously a threat to the tolls that Panana could charge. However, in a race to the bottom, the low cost provider usually wins, and Panama will have lower costs because the Panama Canal is so much shorter.

Panama’s neighbor to the north, Nicaragua, is hoping a transoceanic canal and similar prosperity are in its near future; now that Venezuela’s oil money dries up, does this mean China is willing to prop up the Nicaraguan economy?

From back in 2008, China’s Control of the Panama Canal Revisited.