Panama Forgives Canal Fees To Hutchison Whampoa

by Mike Godfrey, Tax-News.com, New York

05 June 2002

Hong Kong-based Hutchison Whampoa's subsidiary, Panama Ports Company, has seemingly won its battle for changes to the contract under which it runs concessions at ports Cristobal and Balboa, positioned at either end of the Panama Canal.

Despite having previously said it would not give way to pressure, President Mireya Moscoso's administration has agreed, to lower the company's payments for its concessions at the ports, giving the company an annual discount of about $28m from its current deal, under which the company has to pay $22.2m per year in fixed rent, plus 10% of its gross revenues. Since the concession has nearly 50 years to run, the give-back is worth nearly $1 bn.

The company had said it couldn't make money on the original terms of its concession, and asked why the operators of competing ports Manzanillo International Terminal and Colon Container Terminal should receive tax benefits and subsidies.

The answer, says Panama News, may be that the two other ports were built nearly from scratch by private investors, while Hutchison Whampoa took over two ongoing and money-making concerns when they got their concessions, so that it's not fair to compare the various ports' benefit packages.

However that may be, the Government has given in, perhaps because it badly needs Panama Ports to complete improvement works at the port of Balboa, which are crucial to its plans for a multimodal container handling system from which large parts of the Canal's infrastructure will benefit, including the Panama Canal Railroad, the Manzanillo and Coco Solo Norte ports and the CEMIS project at and around France Field airport.

Panama's Congress and US officials have criticised the financial giveaway for the Hong Kong-based conglomerate that was awarded the right to operate the ports in 1996, fearing other port operators could demand similar changes.

The Panama Canal Authority has submitted its fiscal 2003 budget to the Legislative Assembly, projecting a small rise in spending and income to $807 million. The authority predicts that it will transfer $226 million in canal profits to the Panamanian government's general fund in the next fiscal year, so the Government probably calculates that it can well afford the gesture to Hutchison in the best interests of the overall canal operation.

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