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Nicaragua, one of the poorest countries in Latin America, plans to construct a $20 billion rival to the Panama canal to enable the largest tankers and container ships in the world to pass between the Pacific and Atlantic oceans.
The mega-engineering project is expected to take more than 10 years to build but could redraw the map of world trade by opening the east coast of North America, Europe and Brazil to large-scale sea traffic from burgeoning Pacific rim countries including China, and South Korea.
The new route would cut 800km — or at least a day — off the route between California and New York, and could considerably shorten and cheapen the journey from China to Europe for large ships.
A formal announcement of what is known as the Grand Inter-Oceanic Nicaragua Canal was greeted with trepidation by nearby Panama, which is also planning to widen its canal. It fears that its main source of income will be seriously affected if Nicaragua builds a rival.
If built, the Nicaraguan canal would allow 250,000-tonne tankers and container ships to pass through the isthmus that divides the two oceans, compared with the Panama canal’s 79,000-tonne boats. Even if an expected $5 billion upgrade of the Panama canal goes ahead, it is expected to only accommodate 120,000-tonne boats.
However, analysts and politicians are divided over whether there is enough traffic for two major canals in the region, despite a great increase in world trade over the last decade.
The Nicaraguan president, Enrique Bolanos, said at the weekend that there is room for two major canals. “There’s a lot of business to share. We know that for every 100 ships that come to the Americas, only seven use the Panama canal. If a Nicaraguan canal were built, it would bring an economic effervescence never seen before in central America,” he said.
But a spokesman for the Panama Canal Authority, the semi-independent body that runs the Panama canal, said there was insufficient ship traffic to support both a widened Panama canal and a canal through Nicaragua. “If the widening goes forward, [the Nicaraguan project] is not feasible,” he said. “Our analysis shows that if our project is approved, there would not be enough demand to pay for the two, and they would have to have a cost structure much higher than ours.”
The project, which has been backed vigorously by Bolanos, has been under active consideration for at least a decade, but has been held up by financial negotiations. Nicaragua, whose GDP is only five per cent of the expected cost of the venture, is expected to have to link up with major global companies, including Chinese and Japanese banks, which stand to gain the most by exporting more easily to the West.
Ambitious project
In engineering terms the new waterway would be one of the most ambitious attempted anywhere in the last 20 years. The route is expected to take ships in a series of giant locks 32 metres up to Lago Cocibolca (Lake Nicaragua), the second largest lake in Latin America. In total, the route would be about 270km long and would largely follow the San Juan River, requiring massive cuttings and earthworks. It would also have to negotiate Mt Momotombo, an active volcano. It is thought that a major new port and tourist developments would be built at both ends.
A canal through Nicaragua has been a dream of many countries and entrepreneurs for more than 400 years, since the Spanish conquistadors saw the potential of a sea route to the East Indies.
The idea was raised by businessmen in 1849 during the California gold rush and then again in 1884 when political agreement was reached between the US and Nicaragua. American business owners invested in land, expecting a canal to be built in the country, and in 1916 the US paid Nicaragua $3 million for an option in perpetuity but the deal was never signed after the Panama canal was chosen.
Ten years ago, the idea of a rival to the Panama canal surfaced again when a consortium of eight large European, North American and Japanese construction companies and ports, including the British firm Wimpey, carried out feasibility studies. It was estimated then that 20,000 workers would be needed.
The Nicaraguan canal would need to take much of the Panama canal’s traffic to be remotely profitable. The Panama canal currently carries about five per cent of world shipping, handling 14,000 transits and shipping over 275 million tonnes of cargo in 2005, mainly between Asia and the east coast of the US. The canal earns Panama eight per cent of its revenue but is now near its capacity, with freight traffic sometimes backing up for days or weeks during maintenance.
Environmental fears
More recently, attention has turned to a “dry” canal across Nicaragua. This would be a high-speed railway or a motorway. Considered less ecologically controversial, and far cheaper, they would however, require time-consuming and expensive loading and unloading of containers.
Nicaraguan environmentalists and grassroots groups played down the plans, saying there had been a long history of plans for routes between the Pacific and Atlantic but no action. “A canal, a rail, a road link and a pipeline link have all been proposed, but nothing ever happens. If this ‘wet’ canal does ever go ahead we would expect it to provide a few temporary jobs but little long-term benefit for the ordinary Nicaraguan,” said Katherine Hoyt of the Nicaraguan network in Washington.
“The bankers love the idea. It is using Nicaragua’s strategic position to benefit world trade. But it would be an ecological disaster, destroying large areas of forest. It would also open up the interior of the most forested country in central America to exploitation,” she said.
“There are also security implications. I cannot imagine the US wanting Chinese or foreign investors having a controlling share in a canal so close to its border.”
Others maintain that the proposed deep-water ports would ruin magnificent coral reefs and fishing grounds, distort sea turtle breeding and migratory patterns, and occasion widespread poisoning and pollution through oil spills and waste discharge.
