Panama owes $3,300 million for canal expansion

After the opening ceremony of the expanded Panama Canal, the Panama Canal Authority (ACP) faces the challenge of increasing its income to pay the debts. The administering institution needs additional revenue to meet the multi-million-dollar debt assumed after completing the greatest engineering feat so far in this XXI Century.

Speaking to journalists covering the expansion of the Canal, Oscar Bazan, Vice President of Planning and Business Development of the ACP, explained that the mega-structure had a cost of $5,450 million. Of this amount, 39% was paid with the Canal’s own reserves, while the rest are debts with multilateral organizations.

Based on these figures, it is concluded that the ACP debt assumed for the expansion project is around $3,325 million, i.e., 61% of the total.

The expanded canal.

The expanded canal.

According to the Vice President, payments are scheduled to start in 2019, for a period of 10 years.

Creditors are the Japan Bank for International Cooperation, the European Investment Bank, the Inter-American Development Bank, the International Finance Corporation and the Andean Development Corporation.

Bazan did not specify what the amount the ACP must pay each of these multilateral organizations.

It is noteworthy that in 2008, when the ACP signed the loan agreement with creditors, the amount was $2,300 million, but over the nearly nine years it took to build the project, the amount increased by more than $1,000 million.

Size does matter

The Panama Canal expansion project seeks to respond to a shipping context in which shipping companies decided a decade ago to increasing “exponentially the average size of their ships,” said Bazán.

The vessels that did not fit in the old locks transport 45% of global cargo, according to the US Army Corps of Engineers, quoted by the website of the Public Radio of San Diego, California (KPBS).

This situation made large shipping companies, such as Maersk and Evergreen, redirect their largest ships via the Suez Canal.

With the expansion of the Panama Canal, this situation changes. “We are happy to say that many of these shipping companies are going to offer services on this route today,” said the deputy administrator of the canal, Manuel Benitez.

The Lycaste Peace.

The Lycaste Peace.

After its expansion, the Panamanian interoceanic route can cater to 98% of the world shipping fleet. The rest are ships so large they can not fit even in the new locks, such as those carrying up to 18,000 container equivalents (TEUs).

Bazan explained that there are three elements in the ACP commitment to increase Canal revenues, not just to pay the debt, but also to continue generating profits.

One of these elements is that, as part of the realignment of their networks, shipping companies are consolidating their operations and the port conglomerate of Panama is one of the most attractive in the world, argued the deputy administrator.

In addition, the population in the countries of America is growing and their demand for goods will generate an “organic growth” for the Canal.

The third point is that to accommodate vessels up to three times the capacity of those that previously transited, the waterway will increase its tonnage, which is one of the factors that their toll charges are based on, which will lead to an increase in income, said Bazán .

One day after his inauguration of the new locks, the Panama Canal served two huge ships carrying Liquefied Petroleum Gas (LPG).

The transit of these vessels is a positive sign for the administrators, because transport of this fuel is one of its main commitments to increase revenue.

Both ships are classified as “neopanamax” because their dimensions exceed those of the old lanes of the Panama Canal. Each of them paid a toll of approximately $400,000, it was reported. The transit of gas tankers represents an important line in business projections of the ACP for the expanded canal, said Bazán.

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