Contributed by: AnonymousThe National Assembly of Nicaragua approved on Thursday a concession for 50 years to a Chinese company based in Hong Kong to promote, design, build and manage an ambitious canal project in the Central American country, which would cost 40 billion dollars.
The project, which would compete against the Panama Canal, contemplates the construction of a canal to join the Caribbean coast with the Pacific, a deepwater port on both coasts, a rail corridor or dry canal for cargo transportation between the two coastlines, free trade zones, airports and an oil pipeline for hydrocarbons, parallel to the canal.
The concession favors HK Nicaragua Canal Development Investment Co. Limited (HKND Group), chaired by the Chinese lawyer Wang Jing, who is also head of Xinwei Telecom Enterprise Group, company who was awarded the concession to operate cellular telecommunications.
According to the Special Law for the Development of Nicaraguan Infrastructure and Transportation relevant to the Canal, Free Trade Zones and Associated Infrastructure, the company HKND Group may concession the subprojects to other companies. The concession is renewable for another 50 years.
The law was passed with 61 votes from the deputies out of a total of 89 votes from the Assembly.
This week, the spokesman of HKND Group, who is the former official of the World Bank, Ronald McLean-Abaroa, told reporters they hired the British consultant Environmental Resources Management for the study of environmental and social impact of the project.
They have also hired the U.S. firm McLarty Associates to look for investors all over the world. (Mi Diario)
Editor's Comment: Question: Do you think this new canal in Nicaragua will ever actually be constructed? I don't. There are several problems with this proposal, most of them having to do with the math, numbers, and profitability. The Chinese might have a lot of money to spend, but that does not make them stupid. There has to be enough of a demand to require the construction of such an ambitious project, to guarantee a return on investment for any potential investors.
The Nicaragua proposal has one major stumbling block - the Panama Canal already exists, and it was recently expanded to allow for the passage of larger vessels. The managers of the Panama Canal will easily be able to compete when and if the new Nicaraguan canal ever opens, simply by dropping their tolls to the point where they will be first choice. By the time the proposed Nicaraguan canal has been build, the expansion of the Panama Canal will have already been paid for. Panama won't have a need to suck up additional revenue (like they have right now) so they will be able to reduce tolls. By comparison, the managers of the Nicaraguan canal will have a responsibility to their investors to recoup the initial $40 billion dollar investment, and to show a return or profit on that investment. That means they won't be able to drop their toll rates in order to compete with Panama. Panama can just do the math, figure out their competitive price points, and reduce the tolls to the point where they are the obvious first choice. Once all of Panama's spots are filled, then Nicaragua will be left with the dregs. And being left with the dregs is not a great position to be in, when you're fighting to recover a $40 billion dollar investment.
Another serious problem is Nicaragua's history with large earthquakes. There have been several earthquakes measuring greater than 7.0 on the Richter scale in the past 100 years, including a 7.6 in 1992, a 7.3 in 1956, and a 7.1 in 2004. Another earthquake measuring 6.2 in 1972 leveled Managua and killed more than 5,000 people. The last thing an investor wants to hear is "sorry, your $40 billion dollar investment was destroyed by an earthquake last night..." The higher levels of seismological activity in Nicaragua was the primary reason why Panama was chosen over Nicaragua in the first place, more than 100 years ago. At the very least, the greater earthquake threat will make the construction much more expensive.
Anyway, my bottom line analysis always ends up with the same conclusion. This new Nicaraguan canal will probably never be built, regardless of the efforts by the government of that country to promote the idea. Issuing a concession is one thing. Raising the $40 billion dollars to actually get it done is another. But hey, why not? At least they are generating some headlines.