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The expansion of the Panama Canal (Third Set of Locks Project) is a project that will double the capacity of the Panama Canal by 2014 by allowing more and larger ships to transit. Then-Panamanian President Martín Torrijos presented the plan on April 24, 2006, and Panamanian citizens approved it in a national referendum by 76.8 percent of the vote on October 22, 2006.
The project creates a new lane of traffic along the canal by constructing a new set of locks. The project include the following integrated components:
On September 3, 2007, after approval by the Cabinet, National Assembly, and referendum, the Panama Canal expansion project officially started. Panama's then-president Martín Torrijos stated that the canal would generate enough wealth to transform Panama into a First World country. The project is also expected to reduce poverty by about 30 percent, resulting in an 8 percent poverty rate in Panama afterwards.
Outside Panama, the expansion will create demand along the US Eastern Seaboard for ports to handle post-Panamax ships; as of November 2012, although ports are considering renovations including dredging, blasting, and bridge-raising, only Baltimore, Maryland, Norfolk, Virginia, and Miami, Florida will be ready for these larger ships. The UK port of Liverpool is also undergoing massive expansion to take post-panamax vessels.
The capacity of the Panama Canal is determined by a number of factors, the most important of which is the size of the locks that raise and lower ships as they pass through the canal. The smallest dimensions of the locks are 110 ft (33.53 m) wide, 1,050 ft (320.04 m) long, and 85 ft (25.91 m) deep. Because of clearance issues, the usable sizes are somewhat smaller (e.g., the maximum usable length of each lock chamber is about 1,000 ft (304.8 m). The maximum size of the ships that can transit the canal is known as the Panamax.
All of the canal widening studies since the 1930s have determined that the most effective and efficient alternative to enhance capacity is the construction of a third set of locks, with larger dimensions than those of the locks built in 1914. In 1939, the United States initiated the construction of locks designed to allow the transit of commercial vessels and warships, whose dimensions exceeded the size of the existing locks. In 1942, after advancing the excavations significantly, the Americans suspended the third set of locks project after they joined the Allies in World War II.
In the 1980s, the tripartite commission formed by Panama, Japan, and the United States took up the issue again and, like the Americans in 1939, determined that a third set of locks with larger lock chambers was the most appropriate alternative for increasing capacity. Today, the studies developed by the Panama Canal Authority (ACP) as part of its master plan, with a horizon to the year 2025, confirm that a third set of locks, larger than those existing now, is the most suitable, profitable, and environmentally responsible way to increase canal capacity and allow the Panamanian maritime route to continue to grow.
Then-President Torrijos, in an April 24, 2006, speech announcing the project, said that "to say it in a graphic manner, [the canal] is like our 'petroleum'. Just like the petroleum that hasn't been extracted is worthless, and that in order to extract it you have to invest in infrastructure; the canal requires to expand its capacity to absorb the growing demand of cargo and generate more wealth for Panamanians".
According to projections of the Panama Canal Authority (ACP), cargo volume transiting the canal will grow at an average of 3 percent per year, doubling the 2005 tonnage by 2025. As such, providing the canal with the capacity to transit larger vessels will make it more efficient by allowing the transit of higher cargo volumes with relatively fewer transits and less water use.
Historically, the dry and liquid bulk segments have generated most of the canal's revenues. Bulk cargo includes dry goods, such as grains (corn, soy, and wheat, among others), minerals, fertilizers, coal, and liquid goods, such as chemical products, propane gas, crude oil, and oil derivatives. Recently, the containerized cargo segment has replaced the dry bulk segment as the canal's main income generator, moving it to second place. On the other hand, the vehicle carriers segment has become the third-largest income generator, replacing the liquid bulk segment. Shipping industry analyses conducted by the ACP and top industry experts indicate that the canal expansion would be beneficial to both the canal and its users because of the demand that will be served by allowing the transit of more tonnage.
The question, however, is whether the trend on which the ACP makes those projections can continue for a generation.
|This article may contain original research. (May 2010)|
The growth in usage of the Panama Canal over the past few years has been almost entirely driven by increased U.S. imports from China passing through the canal en route to ports on the U.S. East and Gulf coasts. But it is increasingly recognized in both the United States and China that this imbalance in trade is unsustainable and will be reduced via some sort of adjustment in the coming years, although such an imbalance need not be made up by physically shipped goods, but could be made by other trade such as intellectual property as China upgrades its intellectual property protection laws. The ACP, however, presumes not only that trade will not be adjusted, but will continue to grow for a generation as it has for the past several years.
One of the central points made by critics of canal expansion, most prominently former canal administrator Fernando Manfredo, is that it is unrealistic to attempt to predict canal usage trends over a generation, most improbable to expect that U.S. imports from China will continue to grow as they have the past few years over a generation, and irresponsible to bet Panama's financial future on such a projection.
The most direct competition to the canal is from alternative routes that present options for the transport of cargo between the same points of origin and destination.
The opening of the Northwest Passage to commercial traffic could pose an alternative to the canal in the long term. It is thought[by whom?] that global warming is likely to open the passage for increasing periods, making it attractive as a major shipping route. However, the passage through the Arctic Ocean would require significant investment in escort vessels and staging ports. The Canadian commercial marine transport industry does not anticipate that this route will be a viable alternative to the Panama Canal within the next 10 to 20 years.
The two main current competitors of the Panama Canal are the U.S. intermodal system and the Suez Canal. The main ports and merchandise-distribution centers in these routes are investing in capacity, location, and maritime and land infrastructure to serve Post-Panamax container ships and handle their cargo volumes. According to the ACP, the growing trend to use such ships in transcontinental routes competing with the canal is irreversible. If so, by 2011, approximately 37 percent of the capacity of the world's container ship fleet will consist of vessels that do not fit through the current canal, and a great part of this fleet could be placed in routes that compete with Panama.
The proposal states that strengthening the canal's competitive position will allow it to accommodate demand and serve its customers. If the canal were to have the capacity to serve the growing demand, Panama could become the most important connectivity hub on the continent by joining together at the isthmus the north–south continental routes with the east-west transcontinental routes. Accordingly, the canal will continue to be viable and competitive in all of its routes and segments, and contribute significantly to Panama's development and growth while maintaining its position as one of the main world trade routes.
According to the ACP, the canal will reach its maximum sustainable capacity between 2009 and 2012. When it reaches this capacity it will not be able to continue to handle growth in demand, resulting in a reduction in the competitiveness of the Panama maritime route.
As approved by the Panamanian people, construction for the expansion project is slated to conclude by 2014. The ACP will use all possible means to stretch capacity until the construction is completed.
The proposed expansion of the canal by the construction of a third set of locks will allow it to capture the entire demand projected through 2025 and beyond. Together, the existing and new locks will approximately double the capacity of the present canal.
Critics such as former legislator Dr. Keith Holder, co-author of the legislation that created the ACP, point out that canal usage is seasonal and that even during the few months when it is most crowded, the bottleneck that slows traffic is not the locks but the narrow Culebra Cut, which has a limited capacity for large ships to pass one another.
Although the canal is reaching its maximum capacity, the ACP clarifies that this does not mean that ships will be unable to transit it. However, it does mean that the canal's growth capacity will stagnate and that it will not capture additional cargo volumes.
The former head of the Panama Canal's dredging division, Thomas Drohan, a critic of the expansion plan, discounts allegations that this is a problem in the short term. He argues that if the supply of any good or service becomes short, businesses can raise their prices; this would apply to Panama Canal tolls as much as it does to petroleum.
|Panama Canal map|
The canal today has two lanes, each with its own set of locks. The expansion project will add a third lane through the construction of lock complexes at each end of the canal. One lock complex will be located on the Pacific side, southwest of the existing Miraflores Locks. The other will be located east of the existing Gatun Locks. Each of these new lock complexes will have three consecutive chambers designed to move vessels from sea level to the level of Gatun Lake and back down again.
Each chamber will have three lateral water-saving basins, for a total of nine basins per lock and 18 basins total. Just like the existing locks, the new locks and their basins will be filled and emptied by gravity, without the use of pumps. The location of the new locks uses a significant portion of the area excavated by the United States in 1939 and suspended in 1942 because of World War II. The new locks will be connected to the existing channel system through new navigational channels.
The new lock chambers will be 1,400 ft (426.72 m) long, 180 ft (54.86 m) wide, and 60 ft (18.29 m) deep. They will use rolling gates instead of miter gates, which are used by the existing locks. Rolling gates are used in almost all existing locks with dimensions similar to those being proposed, and are a well-proven technology. The new locks will use tugboats to position the vessels instead of locomotives. As in the case of the rolling gates, tugs are successfully and widely used for these purposes in locks of similar dimensions.
The new locks have Water Saving Basins (WSB). These are basins to reduce the volume of water that is needed in lock operation. All lock operation, now and in the future, is using gravity and valves. There is no pumping involved.
Standard operating of the locks, old and new, will cost (use) water from the high level Gatun Lake. Even in the current situation with two lock lanes, water supply can be limited when at the end of the dry season the lake water level is low. So when a third lock lane is added this water supply issue must be addressed.
Water usage is calculated per full single lock cycle. It is determined by the water volume in a lock chamber between the levels it handles. Basically, each cycle costs the volume of water that the lock chamber discharges. That is: the plan area times the elevation height. When lock are in stairs, as in the Panama Canal, only the first, highest, lock chamber matters. All lower locks just follow and do not cost extra water (they are designed to have the same volume to discharge: same area and elevation height). Also, the ship's underwater volume does not matter, because that volume is present both before and after (high level and low level) the operation, it is part of the non-moved volume.
So to know the water cost per lock operating cycle we only need to look at a single lock, the highest lock chamber. The volume to be lost is exactly the amount of water that flows into it when filling from the lake. For convenience, this is to be seen as the starting point in the continuous lock cycle. To reduce this volume, one can reduce the chamber area (and so reducing the maximum ship's size), and reduce the outer levels somehow (reducing the lock's elevating height). Interestingly, the elevating height already has been reduced by staging the total 85 ft (26 m) elevation into three locks. Were it done in one lock chamber, the water volume lost would be three times as much.
Now this is what the WSBs do. The lock chamber moving water volume (say 30 ft (9 m) height) is divided into five equal slices by levels, 1.8 m each. At inauguration day, the lock chamber is filled from the lake, once. Then when emptying the lock chamber, the top three slices (1, 2, 3) are let out, one by one, into to three basins, each at a lower level. So water slice 1 is let into a basin with bottom at level 2, using gravity and valves. Then water slice 2 is let into the basin with level 3, and slice 3 is let into the basin at level 4. Slices 4 and 5 are let into the next lock gate, old style operation: these are lost. The next job for the lock is to move a ship upward. So when the chamber is closed, the water from basin at level 4 is let into the chamber, filling slice level 5. Then basin level 3 fills level 4, and basin 2 fills level 3. After this from the high lake, levels 1 and 2 are filled (the cost), a volume of 12 ft (3.6 m) instead of 30 ft (9 m) over the chamber area (2/5 of the elevation height). Now the ship is at lake level, and can cross the Gatun Lake.
Notes: The three WSBs are working with a single lock chamber. Neighbouring chambers are not relevant. The volume lost per cycle is 2⁄5 of the "moving water" chamber volume. The other 3⁄5 is reused. Interestingly, a same water saving, based on the same principle, would be reached by adding more lock chambers. Constructing a stair of 8 chambers to elevate 85 ft (26 m) (instead of three chambers), would use a 26⁄8=11 ft (3.25 m) water slice per cycle. Of course this would increase ship handling, passing 8 locks.
According to the plan, a 3.2 km (2.0 mi)-long access channel will be excavated to connect the new Atlantic locks with the existing sea entrance of the canal. To connect the new Pacific-side locks with the existing channels, two new access channels will be built:
All canal elevations are referred to Precise Level Datum (PLD), which is close to the mean sea level of the Atlantic and Pacific entrances. The maximum operational level of Gatun Lake will be raised by approximately 0.45 meters (1.5 ft)—from the present PLD level of 26.7 meters (87.5 ft) to a PLD level of 27.1 meters (89 ft). Combined with the widening and deepening of the navigational channels, this will increase Gatun Lake's usable water reserve capacity and allow the canal's water system to supply a daily average of 165,000,000 US gal (625,000,000 L; 137,000,000 imp gal) of additional water. This additional water volume is enough to provide an annual average of approximately 1,100 additional lockages without affecting the water supply for human use, which is also provided from Gatun and Alhajuela Lakes.
The construction of the third set of locks project is slated to take seven or eight years. The new locks could begin operations between fiscal years 2014 and 2015, roughly 100 years after the canal first opened.
In June 2012, a hundred-foot-tall reinforced concrete monolith was completed, the first of 46 such monoliths that will line the new Pacific-side lock walls. By early July 2012, however, it was announced that the process of expanding the canal had fallen six months behind schedule, pushing the opening date back from October 2014 to April 2015.
The main purpose of the canal expansion program is to increase Panama's ability to benefit from the growing traffic demand. This growing demand is manifested in both the increased cargo volumes and the size of vessels that will use the Panama route. In this sense, with a third set of locks, the canal will be able to manage the traffic demand forecast beyond 2025; total inflation-adjusted revenues for that year are predicted to amount to over USD $6.2 billion.
ACP estimated the cost to construct the third set of locks at US $5.25 billion in 2006. This figure includes design, administrative, construction, testing, environmental mitigation, and commissioning costs. It also includes contingencies to cover risks and unforeseen events, such as accidents, design changes, price increases, and possible delays. The cost of interest paid on loans during construction is not included. The most relevant program cost is that of constructing the two new lock complexes–one each on the Atlantic and Pacific sides–with estimated costs of US $1.11 billion and USD $1.03 billion each, plus a USD $590 million provision for possible contingencies during their construction.
Opponents contend the project is based on uncertain projections about maritime trade and the world economy. Professor R. N. Mendez, an economist at the University of Panama, alleges that the economic and financial projections are based on manipulated data. Independent engineers, most notably Humberto Reynolds and Tomas Drohan Ruiz, the former head of engineering and dredging of the Panama Canal, say that the project will cost much more than currently budgeted and that it is too risky for Panama. M. A. Bernal, professor at the University of Panama, argues that confidence in the Canal Authority's budget is undermined because of the involvement of engineering and consultancy firm Parsons Brinckerhoff. Parsons Brinckerhoff is best known for the Big Dig in Boston, which ended up costing three times the estimated amount, with several structural and safety concerns.
According to the ACP, the third set of locks will be financially profitable, producing a 12 percent internal rate of return. Its financing is separate from the governmental budget. The state, which has a lower credit rating than the ACP, does not guarantee or endorse any loans borrowed by the ACP for the project. Assuming that tolls increase at an annual average rate of 3.5 percent for 20 years, and according to the traffic demand forecast and construction schedule deemed most likely by the ACP, the external financing required will be temporary and in the order of USD $2.3 billion to cover peak construction activities between 2009 and 2011.
The ACP's revenue projections are based on questionable assumptions about increased canal usage and shippers' willingness to pay higher tolls instead of seeking competing routes. With the cash flow generated by the expanded canal, investment costs are expected to be recovered in less than 10 years, and financing could be repaid in approximately eight.
The $2.3-billion financing package for the canal expansion, signed in December 2008 in the midst of the global financial crisis, includes loans from the following government-owned financial institutions:
The financing is not tied; that is, contracts can be awarded to firms from any country. The loans are for 20 years, including a 10-year grace period. Under a common terms agreement, the five financial institutions have agreed to provide the same loan conditions to the ACP. Shortly before, credit rating agency Moody's gave the ACP an A1 investment grade rating. Mizuho Corporate Bank and the law firm Shearman & Sterling helped to put the financing package together.
The ACP's proposal claims that the third set of locks project is environmentally viable. It finds that all possible adverse environmental impacts can be mitigated through existing procedures and technology, and anticipates no immitigable or permanent adverse impacts on the population or the environment. There are no elements within the scope of the project that will compromise its environmental viability, such as communities, primary forests, national parks or forest reserves, relevant patrimonial or archaeological sites, agricultural or industrial production areas, or tourist or port areas.
The proposal also concludes that the project will not cause permanent or irreversible impacts on water or air quality. The proposed water supply program fulfills the objectives of maximizing the water capacity of Gatun and Alhajuela Lakes, and applies the most efficient water utilization technology at the locks so no new reservoirs will be required. Consequently, it will not be necessary to relocate communities. The entire area directly affected by the project is located within the ACP's operational and administrative areas.
Critics of the project contend there are many environmental topics to be considered, such as the link between El Niño (ENSO) and the global warming threat to water supplies. The ACP has commissioned studies by a number of consultants about water supply and quality issues; some, like Eric Jackson (editor of the Panama News internet newspaper), Gonzalo Menendez (former head of the National Environmental Authority, or ANAM by its Spanish initials), Ariel Rodriguez (University of Panama biologist), former Vice Minister of Public Works Grettel Villalaz de Allen, and others are some of the most prominent critics of the canal expansion plan from the point of view of water quality issues.
Jackson contends that the ACP's public statements often do not match the findings of their studies. He argues that studies by Delft Hydraulics, WPSI Inc., and DHI all say that no matter what is done to mitigate the problem, the water-saving basins of the proposed new locks will increase the intrusion of salt water into Gatun Lake, from which about half of Panama's population takes its drinking water. The chosen method to partially mitigate this problem is to "flush" the new locks with fresh water from Gatun Lake, but this defeats the proposed new locks' water-saving feature and raises questions about the security of the urban water supply.
However, one of the leading environmental organizations in Panama, ANCON (the National Association for Nature Conservation), says that the studies and projections of operations of the third set of locks, including the water-saving basins, credibly state that there will be very low levels of salinization of waters of Gatun Lake and that these levels will preserve the biological separation of the oceans while safekeeping biodiversity and water quality for human use.
According to the ACP, the canal expansion's impact on employment will first be observed in jobs directly generated by its construction. Approximately 35,000 to 40,000 new jobs will be created during the construction of the third set of locks, including 6,500 to 7,000 additional jobs that will be directly related to the project during the peak years of construction.
However, officials state that the most important impacts on employment will be medium and long term, and will come from the economic growth brought about by extra income generated by the expanded canal and the economic activities produced by the increase in canal cargo and vessel transits.
The labor required for construction of the third set of locks will, in its vast majority, be done by Panamanians. To ensure the availability of Panamanian labor necessary for the third set of locks project and its connected activities, the ACP and public and private authorities will work jointly to train the required workforce with sufficient lead time, so that it has the necessary competencies, capabilities, and certifications. The costs of these training programs are included in the cost estimates of the project.
Critics dismiss this as pure demagogy, noting that by the ACP's own studies, at the peak of construction there will be fewer than 6,000 jobs created, and that some of these will be highly skilled posts filled by foreigners because there are no Panamanians qualified to fill them.
Among those who oppose the canal expansion proposal is Panama's construction workers' union, SUNTRACS. The union's secretary general, Genaro Lopez, argues that while some construction jobs will be created by the project, the debt that Panama incurs to build a third set of locks will not be defrayed by increased canal usage and thus an increased part of canal revenues will go toward paying the debt, reducing the waterway's contributions to the national government's general fund, in turn reducing money for road projects, public schools, police protection, and other government services.
Critics also claim that the project lacks an accompanying social development plan. Then-President Torrijos has since accepted the request to develop one with the mediation of the United Nations Development Programme.
ANCON (the National Association for Nature Conservation) has approved the environmental studies of the proposal and given some recommendations if the project is approved. The following have also endorsed the proposal:
Former President Jorge Illueca, former sub-administrator of the Panama Canal Commission Fernando Manfredo, shipping consultant Julio Manduley, and industrial entrepreneur George Richa M. say that the expansion is not necessary; they claim that the construction of a mega-port on the Pacific side would in itself be sufficient to meet probable future demand. Such a port would be the second (the first being Los Angeles) in the American Pacific deep enough to handle post-Panamax ships. As Panama is already a natural trading route, it would be able to handle the movement of containers from the Pacific to the Atlantic side via railroad, where containers would be reloaded to other ships for worldwide distribution. In addition, the following organizations and people oppose the project: