Panama Canal expansion project
The Third Set of Locks Project is a plan to expand the Panama Canal’s capacity, presented on April 24, 2006 by President Martín Torrijos to the panamanian people after years of study by the Panama Canal Authority (ACP) and its composed of three integrated components:
- the construction of two lock facilities – one on the Atlantic side and another on the Pacific side – each with three chambers, each which include three water reutilization basins;
- the excavation of new access channels to the new locks and the widening of existing navigational channels; and,
- the deepening of the navigation channels and the elevation of Gatun Lake’s maximum operating level.
By the Panamanian Constitution, any project to expand the Canal has to be approved by the Cabinet, the National Assembly and by a referendum. The Cabinet sent the project to the National Assembly that approved it unanimously on July 14, 2006. The referendum is set for October 22, 2006.
Background
Since the 1930’s all of the Canal’s widening studies have agreed that the most effective and efficient alternative to enhance Canal capacity is the construction of a third set of locks of bigger dimensions than those of the locks built in 1914. Thus, in 1939, the United States initiated the construction of locks designed to allow the transit of commercial and war ships whose dimensions exceeded the size of the existing locks. In 1942, after advancing the excavations significantly, the Americans suspended the third set of locks works due to the outbreak of World War II. In the 1980’s, the tripartite commission formed by Panama, Japan, and the U.S. took up the issue again, and like the Americans in 1939, determined that a third set of locks with larger chambers was the most appropriate alternative for increasing Canal capacity. Today, the studies developed by the ACP as part of its 2005-2025 Master Plan confirm that a third set of locks, larger than those existing now, is the most suitable, profitable, and environmentally responsible way to increase Canal capacity and allow the Panamanian maritime route to continue to grow.
Throughout its history, the Canal has continually transformed its structure and adjusted to trade requirements and international maritime transport technologies. In this manner, the Canal has managed to increase its competitiveness in a sustainable manner.
President Torrijos on his speech on April 24, 2006, announcing the project, said that "... to say it in a graphic manner, [the Canal] is like our "petroleum". Just like the petroleum that hasn't been extracted is worthless, and that in order to extract it you have to invest in infrastructure, the Canal requires to expand its capacity to absorb the growing demand of cargo, and generate more wealth for the panamanians".
Demand opportunities
In the most probable demand scenario, during the next twenty years, cargo volume transiting the Canal will grow an average 3% per year, duplicating 2005’s tonnage by 2025. Providing the Canal with the capacity to transit larger vessels will make it more efficient by allowing the transit of higher cargo volumes with relatively less transits and water utilization.
Historically, the dry and liquid bulk segments have generated most of the Canal’s revenues. Bulk cargo includes dry goods, such as grains (corn, soy, wheat, among others), minerals, fertilizers, coal, and liquid goods, such as chemical products, propane gas, crude oil, and oil derivatives. Recently, the containerized cargo segment has replaced the dry bulk segment as the Canal’s main income generator, moving it to the second place. On the other hand, the vehicle carriers segment has become the third income generator, replacing the liquid bulk segment.
Containerships operate with regular itineraries, which follow a predefined series of port calls, similar to airline stops. Each itinerary is called a Liner Service and operates with a permanent rotation of vessels, usually weekly or biweekly. In order that a weekly service operator may avoid incurring additional expenses due to delays or the need to use additional vessels, reliability of service becomes one of the most important factors in the selection of the itineraries and routes to be used. In short, delays and interruptions in Canal traffic cause the Panama route to become more expensive and affect Canal competitiveness. Therefore, in order to maintain the reliability of the Panama maritime route and the value added to its users and the transportation.
Competition
The most direct competition to the Canal is from alternative routes which present options for the transport of cargo between the same geographical points of origin and destination. Among these competitors are the U.S. intermodal system, the Suez Canal and the maritime routes through the Cape of Good Hope and Cape Horn. Today, the two main competitors of the Panama Canal are the U.S. intermodal system and the Suez Canal.
The growing trend to use Post-Panamax (ships bigger than the current locks) containerships in transcontinentalroutes competing with the Canal is irreversible. The main ports and merchandise distribution centers in these routes are investing in capacity, location, and maritime and land infrastructure in order to serve these vessels and handle their cargo volumes. If this trend continues, for the year 2011, approximately 37% of the capacity of the world’s containership fleet will consist of vessels that do not fit through the Canal, and a great part of this fleet will be placed in routes that compete with Panama’s route, such as the transpacific-intermodal route and the Suez Canal route.
Strengthening its competitive position will increase the Canal’s market share in regard to its competitors, such as the Suez Canal and the U.S. intermodal system, and will also discourage new potential competitors from entering the business. If the Canal were to have the capacity to serve the growing demand, Panama would be transformed into the most important connectivity hub in the continent by joining together at the isthmus the North-South continental routes with the East-West transcontinental routes. Accordingly, the Canal would continue to be viable and competitive in all of its routes and segments, and contribute significantly to Panama’s development and growth while maintaining its position as one of the main world trade routes.
The capacity challenge
The Canal will reach its maximum sustainable capacity between the years 2009 and 2012. Once it reaches this capacity it will not be able to continue to handle demand growth and service quality will deteriorate, resulting in a reduction in the competitiveness of the Panama maritime route.
The proposed expansion of the Canal by the construction of a third set of locks will allow it to capture the entire demand projected through the year 2025 and beyond. Together, the existing and new locks will have approximately double the capacity of the present Canal.
The Importance of Expanding the Canal NOW
The Canal’s reaching its maximum capacity will not mean that ships will not be able to transit the Canal. It means that the Canal’s growth capacity will stagnate and that it will not capture additional cargo volumes, thereby subjecting all revenue increases to toll increases, which bring with it the risk of driving clients away. It means service will deteriorate to non-competitive levels for those users who risk waiting for their turn to transit without a booking slot, with the aggravating circumstance that there will not be sufficient slots for all those who require them.
The longer it takes to start the construction of the third set of locks, the harder it will be for the Canal to maintain its competitive position. This is so because Canal users, if exposed to uncertainty regarding whether Canal capacity will be expanded or not, will have to make decisions and investments to increase their use of existing and potential alternative routes in order to guarantee the continuous and uninterrupted flow of the trade that they serve.
The Project
The Locks
The Canal today has two lock lanes. The proposal consists of adding a third lane, through the construction of two lock facilities, one at each end of the Canal. Each of the new lock facilities will have three consecutive chambers, designed to move vessels from sea level to the level of Gatun Lake and back down again. Each chamber will have 3 lateral water reutilization basins, for a total of 9 basins per lock and 18 basins in total. Just like in the existing locks, the new locks and their basins will be filled and emptied by gravity, without the use of pumps.
The location of the new locks uses a significant portion of the excavations of the third set of locks project started by the U.S. in 1939 and suspended in 1942 when the U.S. entered World War II. The new locks will be connected to the existing channel system through new navigational channels.
The new lock’s chambers will be 427 m (1,400’) long, by 55 m (180’) wide, and 18.3 m (60’) deep. They will use rolling gates instead of the miter gates used by the existing locks. Rolling gates are used in almost all existing locks with dimensions similar to those being proposed and are a well-proven technology. The new locks will use tugboats to position the vessels instead of locomotives. As in the case of the rolling gates, tugs are successfully and widely utilized for these purposes in locks of similar dimensions.
Navigational Channels
A 3.2 km-long access channel will be excavated in order to connect the new Atlantic locks with the existing sea entrance of the Canal. To connect the new Pacific-side locks with the existing channels, two new access channels will be built: (1) the north access channel, which will connect the new Pacific-side lock with the Gaillard Cut, circumventing Miraflores Lake, and which will be 6.2 Km long; and, (2) the south access channel, which will connect the new lock with the existing sea entrance on the Pacific Ocean, and which will be 1.8 Km long (see figure 5). The new channels will be at least 218 m (715’) wide, both on the Atlantic and Pacific sides, which will permit Post-Panamax vessels to navigate in these channels in a single direction at any time.
Elevation of highest operational level of Gatun Lake
The maximum operational level of Gatun Lake will be raised by approximately 0.45 m (1.5’), from the present 26.7 m(87.5’) PLD level to a 27.1 m (89’) PLD level. Combined with the widening and deepening of the navigational channels, this component will increase Gatun Lake’s usable water reserve capacity and will allow the Canal’s water system to supply a daily average of 165 million gallons (625 million liters) of additional water. This additional water volume is enough to provide an annual average of approximately 1,100 additional lockages without affecting the water supply for human use that is provided from Gatun and Alhajuela Lakes.
Construction Schedule
The construction of the third set of locks project will take between seven to eight years. The new locks could begin operations between fiscal years 2014 and 2015, assuming the project is approved in the required national referendum on October 22, 2006.
Estimated cost
The construction cost of the third set of locks is estimated at approximately $5,250 million US dollars . This estimate includes design, administrative, construction, testing, environmental mitigation and commissioning costs. Additionally, this cost includes contingencies to cover risks and unforeseen events such as those that might be caused by accidents, design changes, price increases, and possible delays,among others.
The most relevant program cost is that of constructing the two new lock facilities – one on the Atlantic side and the other on the Pacific side – with estimated costs of approximately $1,110 million USD and $1,030 million USD each, plus a $590 million USD provision for possible contingencies during their construction.
Profitability and financial results
According to the Panama Canal Authority, the third set of locks is financially profitable, producing a 12% internal rate of return. The third set of locks project is self-financiable and its financing will be separate from the Government’s financing. The State will not guarantee or endorse any loans undertaken by the ACP for the project’s execution. With the increasing of tolls at an annual 3.5% average rate for twenty years, and according to the most probable traffic demand forecast and the construction schedule, the external financing required will be mainly temporary and in the order of $2,300 million USD to cover peak construction activities between 2009 and 2011. With the cash flows generated by the expanded Canal, investment costs will be recovered in less than ten years and financing could be repaid in approximately eight years.
Environmental and social aspects
The third set of locks project is environmentally viable. It will be developed totally within ACP previously-intervened patrimonial areas. It has been found that all possible adverse environmental impacts can be mitigated through existing procedures and technology and no immitigable or permanent adverse impacts on the population or the environment are anticipated.
There are no elements within the scope of the project that will compromise its environmental viability, such as communities, primary forests, national parks or forest reserves, relevant patrimonial or archaeological sites, agricultural or industrial production areas, or tourist or port areas,and the project will not cause permanent or irreversible impacts on water or air quality. The proposed water supply program fulfills the objectives of maximizing the use of Gatun and Alhajuela lakes’ water capacity and applying the most efficient water utilization technology at the locks, so that that no new reservoirs will be required. The operation of the third set of locks will not require additional reservoirs. Consequently, it will not be necessary to relocate communities. The entire area directly affected by the project is located within ACP operational and administrative areas.
Canal Revenues
The main purpose of Canal expansion program is to increase Panama’s ability to benefit from the growing traffic demand. This growing demand is manifested both in cargo volume increases as well as in an increase in vessel sizes that will use the Panama route. In this sense, the Canal with a third set of locks will be able to manage the traffic demand forecast beyond 2025, and total revenues for that year, adjusted for inflation, will amount to over $6,200 million.
Employment generation
The Canal expansion’s impact on employment will first be observed in the jobs directly generated by the economic boom that will be experienced during the years of the construction. In that respect, 35,000 to 40,000 new jobs will be created during the construction of the third set of locks. These include 6,500 to 7,000 additional jobs that will be directly related to the works during the construction’s peak years.
However, the most important impact on employment will be medium and long term, and will come from the economic growth broughtabout by the extra income that will be generated by the expanded Canal and the economic activities produced by the increase in Canal cargo and vessel transits, all of these contributing to fully leverage the advantages of Panama’s geographical position.
The labor required for construction of the third set of locks will, in its vast majority, be Panamanian. In order to ensure Panamanian labor availability necessary for the third set of locks project and its connected activities, the ACP and the competent public and private authorities will work jointly to train the required workforce with sufficient lead time, so that it has the necessary competencies, capabilities and certifications. The amounts necessary to carryout these training programs are included in the cost estimates of the project.
Critics of the project
Since its unveiling, and even before then, the project has had opposition. Opponents contend the project is based on uncertain projections about maritime trade and the world economy. They claim the project lacks an accompanying social development plan and will put the country in debt. They say also that the expansion is not necessary; they claim that the construction of a mega-port on the Pacific side would by itself be sufficient to meet probable future demand.
These arguments appeal largely on an emotional level and are not supported by the preponderance of facts.
Polls
According to Ditcher and Neira, polling agency for La Prensa, panamanian newspaper, on its poll for May 15, 2006 the support for the propossal is 57.3%, with 15% undecided. Most of the ones that support this project do so because of the jobs it can create (30%).
Currently there is an intensive program to spread the project amongst the Panamanians and to raise awareness of its importance.
References
- Panama Canal Expansion Proposal by the Panama Canal Authority
- Oposition to the Project Template:Es icon
- La Prensa Polls Template:Es icon
- President Martín Torrijos's speach at the unveiling of the project Template:Es icon
- Panama to Vote on Canal Expansion Oct. 22, Washinton Post