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Panama to vote on canal expansion

The $5.2-billion project is expected to pass. Critics find their voices drowned out by the government campaign.

October 22, 2006|Chris Kraul | Times Staff Writer

PANAMA CITY — Voters are likely to approve a $5.2-billion project to expand the Panama Canal today, according to polls, despite warnings of an accumulation of debt, competition, technical miscalculations and possible environmental damage.

Only scattered opposition has developed to the proposal to expand the 92-year-old canal to allow transit of a new generation of larger container ships. If voters approve, construction will begin next year, with completion expected in 2014, in time for the 100th anniversary of the canal's opening.

Opponents, who include a former Panamanian president, a onetime canal administrator and a number of engineers and financiers, say the expansion amounts to fixing something that isn't broken, and that the nation is risking its most important asset on dubious engineering and financial assumptions. Revenue from the canal accounts for 8% of the national budget.

The contrarian views have been obscured by the well-oiled campaign by the government of President Martin Torrijos to sell the expansion as a competitive necessity. Polls indicate that support for expansion has grown and that the referendum could pass by a as much as a 2-1 margin.

Canal administrators and many shipping experts argue that the canal could become irrelevant unless it is modernized, because of the enormous increase in container cargo traffic bound to and from the U.S. East Coast since the emergence of China as a world trader.

The growth in volume has lengthened the waiting time for ships at either end of the canal. Alternative projects, including a waterway in neighboring Nicaragua, have been proposed to handle the extra traffic. An expansion of the Suez Canal is also being considered, as are several projects to hurry freight across North America from new Canadian and Mexican ports.

If the referendum passes, the canal expansion will involve digging a third shipping lane and construction of a parallel set of locks for ships 50% larger than those that currently travel the 51-mile canal.

The project would be entirely self-financed by doubling tolls over the next 20 years, said Francisco Miguez, master plan coordinator at the Panama Canal Authority, the quasi-independent body that has run the canal since the United States turned it over at the end of 1999. The authority would manage the expansion as well.

But skeptics say that cost overruns are inevitable and that they will be shouldered by taxpayers. Walter Molano, an analyst with BCP Securities in Connecticut, said Panama was already burdened with high debt and poverty and was underestimating the pressure from competition to keep prices down in coming years.

"This is an extensive project with limited payoff for all but a small group of people involved in the construction," said Molano, a specialist in Latin American bonds.

Carlos Guevara-Mann, a Panamanian who is a political science professor at the University of Nevada in Reno, said the project still lacked a thorough economic impact study or final construction plans.

"I was a credit manager at an international bank before I became a professor, and if someone sent me a proposal like this for a loan, I'd have turned it down," Guevara-Mann said. "The whole plan is sloppily done, poorly prepared."

Several experts doubt that the expansion can be done for $5.2 billion. A previous plan for expansion developed in the early 1990s envisioned the construction of new reservoirs west of the canal. The current plan, however, avoids those reservoirs, and the displacement of about 8,000 people, by recycling 60% of the water needed to fill the new locks. The plan also foresees raising the level of Gatun Lake, the main water source for the canal's locks, by a foot and a half.

Paul Labonte, a Tustin civil engineer who helped develop an alternative canal water recycling plan financed by the Inter-American Development Bank, said the final plan badly underestimated the amount of water the new locks would require.

The canal authority vigorously disputes the criticism, saying technical and financial assumptions were given three rounds of independent scrutiny and that the $5.2-billion cost estimate includes a margin for "everything going wrong," in Miguez's words.

The canal authority talked to all the operators who use the 114 shipping routes that pass through the canal and came away convinced that its competitive position was strong and would remain so, Miguez said.

Fare increases totaling 60% since Panama took over the canal operation have failed to dent market demand, he said.

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