Panama Canal To Undergo $7.5 Bn Expansion

by Leroy Baker, Tax-News.com, New York

06 April 2006

The Panama Canal Authority (ACP) has approved plans for a $7.5 billion expansion project that will increase the capacity of the famous waterway which, as China and India boom as major exporting nations, is already at full stretch.

Under the plans, two 3-chamber locks will be constructed at both ends of the canal. This will create a third lane of traffic wide enough to handle the largest of modern container ships and tankers. New approach channels will also be prepared, whilst existing channels will be dredged to ensure large craft can enter the system.

The project will take about seven years and employ up to 8,000 people.

Current projects under development within the program include: the deepening of Gatun Lake and the Atlantic and Pacific entrances, the construction of a second Tie-up station in the Gaillard Cut and the further widening and straightening of the Gaillard Cut. With these projects, the ACP is maximizing the Canal’s resources with the goal to attain 330 million PC/UMS tons over the next two years.

In the years since its construction by the US marine corp in 1914, the canal had dictated the size of ships so that shipbuilders had built vessels, known as 'Panamax' ships, just large enough to navigate the 60km long canal. However, since the mid 1990s a new generation of supertankers and container vessels up to 160 feet wide have been constructed, and these have been too large to negotiate the canal's lock system - meaning that the canal authority has been losing out in revenue terms.

Nonetheless, despite its constraints, the canal has been operating close to full capacity, and it handles some 5% of global trade annually. Last month, the canal authority announced that two records were broken during the third week of March: one in total Panama Canal/Universal Measurement System (PC/UMS) tonnage and another when 27 “super” vessels, those ships 91 feet or more in beam, transited through the canal, beating the previous record of 26 set in May 2005.

The authority also announced that a third record was nearly equalled when 23 Panamax size ships transited the waterway, just shy of the current record of 24.

“We have assigned additional crews to the locks to continue to achieve daily maximum capacity, and have deployed all available tugs, linehandling crews and Pilots to guarantee the waterway’s reliability. The workforce has responded in unison and with resolve to meet the challenge,” explained ACP Maritime Operations Director Jorge L. Quijano.

Panama intends to pay for the mammoth cost of the undertaking through a combination of canal fee increases and borrowing. It will also sell a form of 'transit futures' meaning that shipping lines will be able to buy transits for use in several years, but at current prices.

The plan must first be approved by the government of Martin Torrijos - which is expected - before being put to a referendum, likely to be held in the latter half of the year.

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