Broader, Deeper, Faster: the Canal 2.0

Since its transfer from the US to Panama on the 31st of December 1999, Panama City has experienced a complete metamorphosis. The Pacific coastline boasts ultramodern offices and top rated hotels. The ancient city centre that looks down on the ocean is currently being upgraded. The traffic burden on the centre is huge due to the abundance of cars and the many works simultaneously occurring: bridges and new motorways are being built, and a first subway line is being developed. Panama City seems to be one big construction site, collectively aiming at the 2015 deadline. This is when the extended Panama Canal is to become operational and directly lead to further commercial growth that is expected to boost the country’s overall economy. Panama’s economy is growing by 10 per cent per year - a rate that old Europe can only dream of as it sinks further into crisis. In order to have its pied-à-terre in this promising tropical paradise, our country is moving its Embassy from nearby Costa Rica to its southern neighbour Panama.

Megaproject

A building excavation of one and a half kilometres long and 50 metres wide has now been dug out alongside the Canal. On the bottom of the building pit is the constant activity of tower cranes, the coming and going of lorries, engineers executing check-ups and workers on scaffolds and in tunnels. Davy Spriet is an engineer for the Belgian Company Jan De Nul Group (JDN) and he showed me this giant construction site on the Pacific. JDN is one of the four companies forming the GUPC consortium, which in 2009 was awarded the contract to build a double set of three locks and chambers, one on the Atlantic coast, and the other on the Pacific coast.

New Panamax ships (larger than the current Panamax standards for the size of ships that can travel through the Panama Canal) passing through the broadened Canal may be up to 1,400 ft (427 m) long, 180 ft (55 m) wide and carry a total weight of up to 120,000 tons. These ships surpass today’s Panamax standard in length by 40 percent and in beam by 60 percent.

Besides JDN, the GUPC consortium (Grupo Unido Para el Canal) also consists of Spanish Sacyr Vallehermoso, Italian Impregilo and Panamanian Cusa. These four partners have taken over the new locks project for 3.4 billion dollars (2.6 billion Euros). They carried out the order instead of American Bechtel, which was also keen on the project. After all, it was Americans who built the first Canal.

Nearly everything on the building site takes on surreal dimensions: there are 120 building sites staffed by eight thousand builders who are handling tens of thousands of tons of steel, concrete and enormous quantities of water. And yet, every single detail is scrutinised carefully: each square metre of mixed concrete is electronically tracked on its way to its final destination.

Making concrete in itself is not easy here, at a temperature of 32° Celsius. To avoid cracking as it dries, it can only be cast at a temperature of 13° Celsius. The only solution to this problem is to pre-cool all aggregates to the mixture, such as gravel and sand, and then mix them with ice. This process consumes huge amounts of energy, which is generated on the spot by enormous diesel engines. Each part is subject to a quality standard of a guaranteed lifespan of one hundred years to ensure its durability.

All Power to the Builders

GUPC has been confronted with a number of unpredicted circumstances. Poor quality basalt was ground to gravel to be mixed into the concrete. This formed a foundation for the locks that proved too moist. New calculations and new tests by the engineers slowed down the project by half a year. ‘Due to this miscalculation, we have to address a very unpleasant damage claim by the commissioning Canal Authority’, says Jan Kop, project manager for JDN in Panama and an old hand in building projects.

But is probably the workers’ union that is causing most trouble to Kop: ‘My Spanish is not very fluent, but the word “chantaje” [blackmail] I understand all too well,’ sighs Kop. Yves Rasschaert, his co-worker at JDN shares his frustration. ‘The union is my daily struggle.’ He predicts: ‘Another two years to carry on with this project, means another eight strikes to reckon with.’

8,000 builders, 100 foremen, and dozens of engineers (expats and Panamanians) are working day and night, seven days a week. 90 per cent of the builders are Panamanians. This is prescribed by Panamanian law, but it also has to do with the power of the workers unions. For the locks project, GUPC was forced by the Panamanian Chamber for Building Company (CAPAC) to sign a contract with Suntracs, one of the builders’ unions. Suntracs managed to call a halt to the works in order to claim a wage increase: the workers refused to work for a whole week, demanding a wage raise of no less than 12.5 percent (from 2.21 to 2.56 Euros).

Saúl Méndez, Secretary General at Suntracs, is proud of the industrial actions. ‘A wage scale should be adapted to the importance of the project: this is a huge project, and the workers’ wages should be proportional, as is the case in other countries. We are negotiating for these conditions to be applied outside of the Canal area too. Méndez finds relations between Suntracs and GUPC to have stabilised, but he still bears a grudge against Belgian companies Jan De Nul and DEME. For those projects connected to the locks, such as the dredging of the approach channels, both Jan De Nul and DEME refused to allow a workers’ union. According to Méndez, one might expect Jan De Nul to maintain the same working conditions at all of its building projects. ‘This is an important matter to us, because they are still tending a number of other contracts.’

To Jan Kop, the unions’ demands in the GUPC locks project are exorbitant: ‘We invest massively in training our personnel. All overtime hours are being paid according to an ever-growing wage scale. Those who work at a height of three metres and more, and those working underground, are paid more. It has become difficult to estimate our labour costs with these ongoing wage increases. Each builder leaving this project is bound to find himself heavily deprived, because nowhere in Panama he will find a job with the same labour conditions.’

The workers have found a way to benefit from this ongoing negotiation. An unskilled labourer has an average monthly pay of 500 dollars (380 Euros). At the Canal wharf, wages are traditionally higher and fluctuate around 1,000 dollars, but due to overtime, weekend hours and compensations, workers are sometimes paid up to 3,000 dollars, for the duration of the project, of course.

39 Nationalities

I am taking the train to travel from Panama City on the Pacific Coast to Colón on the Atlantic. The 90 km trip takes about an hour on the railway line built in 1850 by - amongst others - Chinese workers for the Canal Railway Company. At the time, Panama was still a province of Colombia. It was built in response to increasing commercial interest in California, where the gold mines were being exploited, and secondly in Europe.

In the Canal Zone in Colón I have an appointment with José Reyes, engineer of the Canal Authority - ACP (Autoridad del Canal de Panamá). This is an independent state organisation that controls the Canal (much like the Port of Antwerp [Antwerpse Havenbedrijf]). It was introduced in 1977 by the Torrijos Carter Treaties.

Engineer Reyes, who is in charge of the co-ordination of the locks project on the Atlantic Coast, clearly understands the historic responsibility he is shouldering. ‘Everyone who is here to work on this project today, has come with the same commitment as in the early days of the French and later on, the Americans. The big difference today is that the Panamanians are now in charge: it is a unique chance to boost our own professional capacity and hopefully to export this talent to surrounding countries.’

Panama may be responsible for the expansion project, however expertise from no less than 39 different countries is still required. Belgium is well represented in this assembly: the locks’ design is inspired by the Berendrechtsluis in Antwerp. Flanders Hydraulics Research (Waterbouwkundig Laboratorium van Antwerpen) made preparatory studies for navigation to and fro, and in addition to JDN, the Belgian dredging company DEME was contracted for the dredging of the Pacific approach. The idea of recycling reservoirs is German, the lock gates are based upon Dutch and Italian expertise, and produced in Italy. The supervising technologies are American and there are Chinese, Korean, Croatian and Latin-American parts in the production process.

‘This wide array of different nationalities makes efficient communication as essential as the technology itself,’ says Reyes. ‘This type of project is not being executed by machines but by men. It is no easy feat to make Chileans, Koreans, Croatians and Panamanians understand each other: If correct communication is neglected, things will go wrong.’ English is the language of the project’s communication, but on the building site, Spanish in dominant. Another issue is logistics: to keep the supply chains going and to make the right decisions at the right moment. Millions of dollars depend on the balance between taking decisions early enough to keep the works going, and slowly enough to inform all partners and obtain their financial support.

‘As to ecology, no risks are being taken, since this is one of the two greatest liabilities: not following the safety procedures and violating environmental legislation are the two things that can put a halt to the whole project.’ says Reyes. ‘Our ecological criteria have become the benchmark for the whole country.’

This is not an overstatement. The installation of new locks required cutting down 64 hectares of jungle. To compensate for that loss, 625 ha of land have been reforested in national parks and 2.7 million Euros have been paid to the national environment authority ANAM. All fauna, including dozens of crocodiles and other aquatic animals, have been carefully caught and transferred to a similar biotope. Corridors have been made so as to allow animals that show up around the building sites to find their way back to a nearby habitat. There is also an animal shelter where animals can be transferred any time of the day or night.

In 2000, when plans for the Canal expansion became known in the region, indigenous and farming communities expressed their concern about its impact on the soil hydrology of the Canal basin. Ecological organisations insisted on the locks’ water being recycled - a demand that has been respected in the project. As a consequence, these elaborate sets of locks will consume seven per cent less water than today’s smaller locks. Some think that the ACP is exaggerating: ‘this is the most intensely monitored project of Panama.’ Reyes explains. ‘We make these choices because we are being closely watched by the whole world, but also because international financiers insist on it. If we do not keep these engagements, funds will be cut off.’

‘The world can count on us’

The Canal expansion will come none too early. The locks have become too small for part of the world’s fleet, and some ships have to wait for days to pass through the locks, which is especially painful if they are carrying fresh products. The 2008 economic crisis slowed down the growth of world trade, which gave the project a few years’ delay until 2015.

However, there is another challenge lurking over the Panama Canal. Will it maintain its importance when global warming will allow for a northern passage? Reyes refuses to consider this as a real danger: ‘That route will always remain unpredictable, because there is no logistic support nearby.’ According to Reyes, the Suez Canal should be considered as a rival. ‘It is possible that China will search for new export territories in South Asia, India and Bangladesh. It is much easier to reach these countries through the Suez Canal than by way of the Pacific. The only disadvantage is the region’s instability and pirates in the Horn of Africa. Hence, exorbitant insurance premiums favour the Panama Canal route.’

Nevertheless, climate change does have its impact on trade. Last year’s drought in the US meant that wheat, which used to be exported to China, is not passing through the Panama Canal today. China purchases its wheat from Argentina now, which is transported along Cape Horn. ‘But in a world which is globally organised, I do not think that the Panama Canal will have to wait for customers. As Panamanians, we are responsible for managing this Canal at our best, and the world community should know that it can count on us,’ says a confident Reyes.

Ports in the rest of the world, especially in North and South America are currently preparing to host New Panamax ships. There is also an increasing interest in new products and markets, such as shale gas from the ports of Texas to be exported to Japan, or Colombian black coal from the Caribbean shores to China, or Brazilian iron ore to China.

The expansion described in this article, the ACP realises, will be obsolete by 2025, and ready for another upgrade.

Global Intersection

The Canal is Panama’s umbilical cord, its reason to be. Since Panama acquired its management in 2000, it has become the country’s major economic pole. The Canal Authority turns over one billion dollars (765 million Euros) to the state. It is hoped that this amount will grow to four billion dollars (3.05 billion Euros) due to the Canal expansion project. One passage of a container ship costs between 150,000 and 250,000 dollars or more. New Panamax ships, which are able to transport 12,000 to 13,000 containers instead of 4,000 today, will easily pay 400,000 dollars (305,000 Euros) per passage. These prices are comparable to international tariff rates.

Furthermore, the Canal also attracts other economic activities. Panama - a country the size of the Benelux with its 3.6 million inhabitants - aims at presenting itself as an intersection for international conferences and luxury tourism. Panama City, with its state-of-the-art skyscrapers has a skyline that is more modern than that of New York or Rio de Janeiro. Some of them wear bank logos, but most are anonymous and empty, due to laundering mechanisms. The President of Panama, Ricardo Martinelli, travelled to Paris last May to plead for Panama to be withdrawn from the OECD list of tax havens.

Last year, Panama’s building industry grew by 30 percent; its banking sector, and tourism by nearly 50 percent. Among all Central American countries, Panama attracts the most foreign capital. According to the UN Economic Commission of Latin America (CEPAL), this growth rate reached 3.2 billion dollars last year, even if part of that sum was only in transit. These capital flows mostly concern the service sector, logistics, energy and the building industry. CEPAL does state, however, that there is insufficient information about the money entering and leaving the country. Last year, economic growth reached 10.7 percent, this year’s expected growth is estimated at 8.5 percent.

These economic dynamics have not passed unnoticed in Belgium, and it is opening an Embassy in Panama in September. The Costa Rican and Venezuelan Embassies have been closed, and the current Caracas Ambassador is moving to Panama. This decision by our Ministry of Foreign Affairs has been inspired by the commercial relations existing already between Belgium and Panama, the economic importance of the Panama Canal and the country’s growth potential.

Many Panamanians however fear the downside of this economic dynamism: ‘Pan para hoy, hambre para mañana’ (‘bread today, hunger tomorrow’), it is said every now and then. They fear another Spanish scenario, a collapsing economy as soon as the bills of all these ambitious projects of President Martinelli will be presented.