EVER WIDER

Panama 2016 | TRANSPORT | VIP INTERVIEW

TBY talks to Jorge L. Quijano, Administrator of the Panama Canal Authority, on the history of the expansion and what to expect in the future.

Why was a dedicated authority, separate from the government, established to manage the Canal?

This organization evolves from the fact that the US managed the canal as a public utility for the better part of 85 years. The Panamanian people wanted to make sure that the canal would operate outside the political sphere and therefore decided that it needed to be totally independent both financially and operationally, unlike the other government institutions. We resorted to a constitutional amendment, which took place in two different legislatures, 1993 and 1994. The success of the Panama Canal has had to do with this marked independence from government rooted in the constitution, but contingent that it would be operated safely, uninterruptedly, efficient, and that it must be profitable. Thus in addition to maintaining, conserving, and investing in the Canal's modernization and expansion, a definite goal of the Panama Canal Authority is to ensure the Canal's profitability for Panama, which is a different focus from that of the US, and one that has worked well for the last 16 years.

What does the Canal expansion mean for Panama?

There have been several efforts in the past to expand the Canal. The first was in 1939, but this was suspended in 1942 at the outset of the Second World War. In the 1960s there was an effort to study if the demand for an expansion was there. At one point, engineers looked at several alternatives for a new canal through the Central America isthmus with the emphasis that it would be a sea level canal. During these latter studies excavations using nuclear explosives were considered. The studies were concluded and published in 1970 but nothing actually evolved from them. Panama was focused in 1972 on trying to regain sovereignty over the Canal Zone and embarked on a process to garner support around the world, leading to the signing of the 1977 Torrijos-Carter treaties. On October 1, 1979, the Torrijos-Carter treaties set forth the transitional period and the administration of the Canal would remain basically under US administration all the way until December 31, 1999 at noon, when the transfer officially took place. During this long process, all expansion efforts were paused. The US, knowing that they would be turning over the Canal, decided there was no need to take on the effort and cost of an expansion. However, additional Panama Canal alternative studies were performed between 1985 and 1993. In the meantime, we relied on the same original canal, yet ships kept getting larger. The Universal Congress on the Panama Canal held in 1997, as well as additional studies from abroad, showed that the Panama Canal had to be expanded if it was to grow in the future. This led us to look again in 1998 at what was needed and how we could get the expansion done. By 2001, we were clear that the container segment that had reached 50% of our revenue stream from transit operations were shifting to much larger vessels that could not fit in the present lock system. We worked on studies for five years to produce a proposal leading up to the October 22, 2006 favorable referendum, with 77% of the people of Panama voting in favor of expansion. We started executing the expansion program on September 3, 2007, and we are now nearing completion within the next few months. It has been a great enterprise defying many challenges over the past eight years to get us where we are today. This is a complex project that required engaging top international dredging and construction contractors that would bring in the latest designs and construction technologies, as well as manage the intricate logistics. Over 90% of the people that worked on the project were of course Panamanian. A substantial amount of the dredging was performed by the Panama Canal employing its own equipment and dredgers.

What spillover effects will the expansion have?

The spillover effect has already been felt. The construction of a project of this magnitude requires that many workers mobilize to the project, both from different areas of Panama and abroad. That in itself has been a positive injection into the economy. At the peak of the construction some 14,000 workers were being employed on the many Panama Canal expansion projects. This significantly increased consumption in goods and services including housing in Panama. We have already spent about $5 billion in the project, much of which has been pumped into Panama's healthy economy. Moving forward, the expansion will not only allow our present customers to benefit from the economies of scales provided by the larger vessels that will soon be able to transit the Canal, but will also allow the Canal to exploit opportunities for growth in another segment, such as new LNG vessel traffic from the US, which recently became a net exporter of gas. That will become an important new product that we will use the canal, and which we anticipate will progressively reach three Post Panamax LNG vessel transits a day by 2020.

What are your expectations for 2016?

Our outlook is that 2016 will probably be similar to 2015. We are finishing the third set of locks, and our expansion should be operational by the end of 2Q2016; every effort is focused on not missing that deadline. This of course is not entirely in our hands since we are dependent substantially on our contractors' ability to execute. With regard to contractor claims, they will take some time to resolve and we have a very strong team that represents us well in these processes. In the meantime, we are concentrating on getting the construction completed with the required quality, and to begin to see our customers making use of our new locks and channels . The pressure is on us, both locally and from abroad. This project is the largest expansion of the Panama Canal ever—it will be done when it is done, and we want it done right.