- The Guardian, Saturday 11 July 2009
Panama has steamed ahead with a massive expansion of its canal to keep trade between Asia and North America flowing through the waterway.
It has revealed bids for the main contract in a $5.25bn plan to widen the canal, clearing the way for one of the world's largest and most lucrative infrastructure projects.
The Panama Canal Authority, an autonomous government agency, ended months of speculation last week by determining the "best-value" bid from three rival consortiums, signalling the almost certain winner.
The consortium, led by Spain's Sacyr Vallehermoso and Italy's Impregilo, significantly undercut its rivals with a $3.12bn bid to build new locks that will double the canal's capacity and accommodate a new generation of super-size container ships.
The bid was well under the canal authority's target price of $3.48bn and appeared to meet technical requirements. A technical board will verify the canal authority's assessment before the deal is confirmed.
"This event marks a critical milestone for the Panama Canal Authority and Panama," said Alberto Aleman Zubieta, the authority's chief executive. "We look forward to awarding the contract in the coming days."
The new locks, one on the Atlantic entrance, the other on the Pacific Ocean, will consolidate central America's isthmus as a gateway for global trade.
"As far as shipping is concerned this is massively important," said Mark Page of Drewry Shipping Consultants in London. "It is the single biggest shipping infrastructure project since they built the original canal."
The project, which needs 5,000 workers, is due for completion in 2014 to coincide with the 100th anniversary of the original inauguration of the canal, an engineering feat considered one of the modern wonders of the world that cost more than £600m to build. More than 25,000 workers died in its construction over 10 years.
A $50m bonus will be paid for meeting the deadline. Despite the global economic slowdown, the 50-mile waterway needs widening. Burgeoning traffic levels have left long lines of vessels queuing to cross from either side in recent years. Some ship-owners pay huge sums to jump the queue. A US cruise ship, Disney Magic, last year paid a record $331,200 for the privilege.
The canal, which moves about 5% of the world's cargo, relies mainly on container traffic between Asia and the US eastern seaboard. But the new generation of so-called post-Panamax vessels, which are 1,400ft long, cannot fit and Panama risked losing them to the Suez canal and US railways which transport containers coast to coast.
Panamanian voters overwhelmingly backed the expansion in a 2006 referendum. The canal authority is borrowing $2.3bn, including $400m from the Inter-American Development Bank.
Work is well under way. Hillsides have been blown up and a four-mile access channel on the Pacific side, which will permit passage of vessels three times heavier than the current limit, is nearly completed.
The biggest logistical challenge is building a third set of locks. They will measure 1,400ft long, 180ft wide and have a 50ft draft, all significantly bigger dimensions than currently. Catch basins will recycle 60% of the water used to fill the locks, in contrast with the present system which flushes it all out to sea.
The three consortiums submitted proposals, costings and technical designs in March. To allay concerns over corruption the cost estimates were kept in sealed envelopes in a vault at the government-owned Panama national bank along with the project's target price. Deloitte was hired as a contracting auditor to monitor technical evaluation.
The envelopes were opened in a ceremony in Panama City broadcast live. A computer and projector were used to tally points for each bid based on cost and technical specifications.
The front-runner scored marginally better than its rivals on technical issues and, with a bid of $3.12bn, emphatically better on cost.
A group led by Bechtel, the San Francisco-based construction giant, which included Japan's Taisei and Mitsubishi corporations and China's Wuchang shipyard, bid for $4.18bn.
A consortium led by Spain's Grupo ACS bid for $5.98bn. It was the only group to include a UK sub-contractor, Mott MacDonald, a London-registered engineering consultancy.
Panama's president, Ricardo Martinelli, said he was "pleased" the lowest bid was below the canal authority's target price.
The biggest losers from the canal's expansion are expected to be US west-coast ports and railways. Another casualty will be Nicaragua's dream of building a rival canal, always a long shot for Central America's poorest country.
The strait story
Linking the Atlantic and Pacific was first mooted in the 16th century by the conquistador Vasco Núñez de Balboa, who reported to the Spanish king that if a natural strait was not found "it might not be impossible to make one".
Ferdinand de Lesseps, the French builder of the Suez Canal, tried in the 1880s but marshy terrain doomed his sea-level plans, and malaria and yellow fever killed thousands of labourers.
The US, thanks to locks and drugs to combat disease, succeeded in 1914. Its military kept control of the canal zone, a sore point in Latin America, until President Jimmy Carter signed a treaty in 1977, ceding control to Panama in 2000.