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PANAMA CANAL EXPANSION CONTRACT DISPUTE
Image: CIA WORLD FACT BOOK
Image:Wikipedia Commons (PD) by Biberbaer
According to a story carried by Retuer's recently the contract for the anticipated expansion of the Panama canal has gone off track. The U.S. has a big stake in this expansion which would allow larger LNG carriers to reach the Gulf South for LNG export cargos for Asian markets. Additionally a number of U.S. East Coast and Gulf Ports have already expended millions of dollars on improvements that would allow them to handle larger container ships. Unfortunately , the Panama Canal is no longer owned or operated by the United States nor does it appear that the U.S. is a major component in the expansion project or contract.
"The Panama Canal expansion project (also called the Third Set of Locks Project) is intended to double the capacity of the Panama Canal by 2015 by creating a new lane of traffic and allowing more and larger ships to transit.
The project will:
- Build two new locks, one each on the Atlantic and Pacific sides. Each will have three chambers with water-saving basins.
- Excavate new channels to the new locks.
- Widen and deepen existing channels.
- Raise the maximum operating level of Gatun Lake."
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The Expansion project contract is an agreement between the Panama Canal Authority (PCA), an administration of the Panamanian government and various companies mostly of Spanish and Italian origin. the PCA recently failed to meet a $50,000,000 interim invoice causing wages to go unpaid and construction has stopped. In all it appears that the project will run $1.6 billion in additional costs. The Canal was built by the United States in 1914 , and underwent over $1 billion in improvements before handing it over to Panama in 1999. Panama almost immediately selected a Chinese operating company as daily operations contractor.
U.S. Gulf Coast and East Coast ports will be the primary beneficiary of the expansion project in terms of increased exports and imports. China and Panama will make the direct revenue in terms of increased toll revenue from larger tolls for larger ships and general traffic. But China may not want to foot the bill for the expansion. Nicaragua has signed an exclusive contract with China to build a competitive canal.
So as usual China is in the driver's seat. The Dragon benefits from the Panama Canal expansion but probably won't pay for it, increasing its revenues from control of the Atlantic and Pacific connection while their own canal is under construction. If the Dragon plays its cards right it can operate the Panama canal as an auxiliary and stand by resource once its own canal is built, semi starving it for revenues in favor of the greater revenues of its own canal. If Nicaragua thinks it will ever own, or even control the canal that will cut through its territory it doesn't know the Dragon. This entire situation by the way was the direct result of decisions made by President Jimmie Carter to relinquish to Panama the canal we built and paid for virtually without conditions.
To read an article with the full details of the present contract disagreement click here: Reuters