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Panama Set to Plunge Into Big Public-Private Project

Investment: Nation needs a home for its assembly. Southland firms offer expertise--and risks too.


Innovative financing techniques similar to that used by some California cities and school districts can also help small countries solve their own problems of scarce resources, he said.

No Commitment

But Wildman has found serious problems along with the innovation in California. In Belmont's case, construction has begun on the project without a commitment from a state oversight committee to pick up half the tab, as the state customarily does for all high school projects.

The purpose of Wildman's investigation is to create guidelines for modernizing and tightening up California's school construction laws because of concerns over projects like Belmont, the assemblyman said. "There are systemic problems that allow people with expertise to take advantage," he said.

Opposition legislators in Panama have similar concerns about the Assembly building contract awarded in November to the consortium of five Orange County companies.

For the Record
Los Angeles Times Wednesday September 2, 1998 Home Edition Part A Page 3 Metro Desk 2 inches; 64 words Type of Material: Correction
Panama legislature--An article in the July 27 editions of The Times reported that a range of accusations had been printed in Panamanian newspapers involving a $30-million building project in that country. The specific accusation reported in the newspaper La Prensa was not included. La Prensa reported that a construction inspector had calculated that a similarly equipped building could cost about $24 million, leaving $6 million with no explanation.

"They used a mechanism, a special law, that broke with the entire scheme of public contracting," said Arturo Vallarino, an assemblyman who has been among the most vocal critics of the project. "All of the controls that are used to construct public works projects disappeared."

The special law circumventing the normal bidding practices was needed to provide the flexibility to make the project work, asserted Jose Daniel Alvarado, executive coordinator of the legislature's modernization program, which oversees the development project.

"This is a unique, first experience for this country," he said during an interview in one corner of a crowded conference room, a haven he chose because the air conditioner in his office was not working. "As governments become smaller . . . and with the potential to obtain more agile financing, these kind of turnkey projects are ideal."

Current laws on competitive bidding do not work for turnkey projects, he said. Competitive bidding was never even considered for the Assembly building because the procedure is too cumbersome and conditions in the current building make the need for new facilities urgent, he added.

So, five international contenders, all with politically well-connected local representatives, presented alternative proposals to a committee of Assembly members and representatives of the Treasury and Planning ministries.

That committee evaluated the proposals, giving HNTB the highest overall ranking. Then, in October 1997, their findings were presented to the Assembly.

The financing scheme was not part of the committee's evaluation. But it became an important part of the legislative debate.

"They told us the building was not going to cost the Assembly anything," Vallarino said. "Besides, we were going to have an income from leasing the [adjoining] land for a tourism project."

But opponents are worried that the private hotel-business center may not be successful enough to provide the $54.8 million in rent over 28 years that Panama has been promised. And lawmakers are counting on that rent to pay off their debt plus interest for the assembly complex.

"There is a lot of suspicion and a lot of doubt about the process for [approving] this building, where there is $30 million at stake," Vallarino said. "All this has created the sensation that there have been bribes."

Undocumented accusations printed in Panamanian newspapers, including La Prensa, one of the country's most reputable papers, have ranged from allegations that Jorge Chandeck, HNTB's representative in Panama, handed out $5 million in bribes to lawmakers to claims that this country is being overcharged by $10 million and that key officials are splitting the money with developers.

Chandeck scoffs at the notion of bribes. "If I had been given $5 million in bribes to distribute, as they are saying, I wouldn't be sitting here having coffee," he declared. "I would be on an island in the Caribbean spending my $5 million."

Ignacio Mallol, the Panamanian architect subcontracted to design the Assembly complex portion of the project, bristled at a colleague's accusation that the building will actually cost only $20 million and that the rest of the money is being skimmed.

"That is ignorance," he said. "It will cost every penny of $30.4 million to construct what I have designed, and that is a bare minimum. I would need $100 million to do it right."

The allegations add to the uneasiness of legislators in both Panama and California when they evaluate public-private projects, especially the most ambitious, innovative ones. But even without those factors, the problems of such associations may ultimately outweigh the potential advantages, some observers fear.

"There is a difference involved in evaluating risk in private investment and public funds," Wildman said. "Companies can go out of business if they make bad decisions. We, as the state of California, do not have that option."

Ultimately, the viable public-private partnerships may be more modest undertakings. For example, the alliance to build Panama's new baseball stadium has hardly raised an eyebrow.

The government donated land in the old Canal Zone and $3 million. The remaining $8-million cost is being raised by selling 90 suite-style box seats, offering concessions and requesting donations.

Some sophisticated Panamanians have criticized the lack of innovation in the design, which was the undergraduate thesis of Carla de Bello, daughter of Baseball Federation President Eduardo de Bello. But no one questioned the financing or feasibility.

"There are world-class stadiums that cost $200 million," Mallol said, "but this is the kind of facility that Panama needed. . . . I always tried to be realistic, to think of what we needed and what we could pay for."

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