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Nicaragua Takes Steps Toward Long-Time Canal Project; Experts Say Feasible but Unlikely

The government of Nicaragua has fasttracked a canal project that, if it goes forward, could be the largest dredging project in history.

But that’s a big if, experts say.

In June, the impoverished Central American country’s National Assembly granted a Chinese company a 50-year concession to construct and operate a canal and rail system that would connect the Pacific and Atlantic oceans, directly competing with the Panama Canal some 400 miles away. The exact route of the estimated $40 billion project has yet to be determined, but is likely to be at least three times as long as the Panama Canal, requiring the construction of more than 150 miles of waterway over the course of six years.

Details about the project are still hazy—a fact that drew protesters to the National Assembly hall, while it was being considered. Protesters disputed the quick approval of something that has yet to be thoroughly studied. However, Nicaragua’s President Daniel Ortega pushed hard for the bill to be passed, arguing that it was crucial for the country’s future development.

The discussion of a canal through Nicaragua began centuries ago, because of the country’s low altitude and the massive and water-rich Lake Nicaragua. Repeatedly during the 19th century the project was seriously considered by several entities, including the U.S. federal government. Even after the Panama Canal opened in 1914, periodic discussion and study of a second canal continued through Central America, via Nicaragua. However, these discussions have remained hypothetical, much to the frustration of Nicaraguan leaders, who hope such a project could help pull the nation out of its devastating poverty. In recent decades, Nicaraguan leaders have periodically announced deals with various investors to construct and operate a channel, but so far, each of these deals has fallen through due to lack of financing.

The most recent deal, approved by Nicaragua’s National Assembly on June 11, was made with a Hong Kong-based fi rm called the HKND Group, backed by billionaire telecom mogul Wang Jing. Wang said the project will be supported by Chinese investors and international banks, and asserts he has no relationship with the Chinese government.

Experts agree that such a project would be technically possible, although it is likely to become embroiled in environmental battles. It’s not clear yet which route the canal would take; several have been posited in the past. Probably the shortest and easiest technically would be to follow the San Juan River, but that route is the most difficult diplomatically, since the river marks the border with Costa Rica, and the two countries have a history of disputes over the river and its management. Nicaraguan leaders have said that route is not under consideration. Several other routes would follow rivers or build canals up to Lake Nicaragua; these options are all challenges environmentally, because the lake is the prime source of drinking water in its region.

In many ways, the project would be technically simpler than the Panama Canal was, said Asaf Ashar, a research professor at the National Ports & Waterways Initiative. He noted that the country is at a lower altitude than Panama, so one or two sets of locks would suffice, rather than the three necessary to cross Panama. Also, the main technical obstruction in Panama is the lack of available water—a barrier that Nicaragua doesn’t have.

“It’s not technically challenging,” Ashar said. “There’s lots of water. It’s a soft area, not too much dynamite would be needed. The only problem will be environmental.”

He noted that much of the region through which a waterway could be cut is jungle marsh area that is easy to dredge but environmentally sensitive.

“Probably the entire world would jump on them in the name of the environment,” Ashar said.

But even if such concerns were overcome, the larger question remains whether a second canal through Central America could be viable economically.

Jean-Paul Rodrigue, an expert in transport economics at Hofstra University, was highly skeptical that such a project could be fi nancially feasible.

“It’s the type of high-profile thing that triggers the imagination when they talk about it. But if you build it it’s going to be a huge white elephant,” Rodrigue said. “It’s technically feasible—you can build it without too much of a problem—but commercially and fi nancially it doesn’t make sense.”

Ashar noted that the new expanded Panama Canal will essentially double the number of ships that can traverse through Central America, and it’s still not entirely clear that there is enough of a market to even fully support that expansion. So yet another canal is likely to find the demand much lower than it is today.

Further, the cost of the project may be prohibitive, Rodrigue said.

“How much are they saying it will cost? $40 billion? And with any mega-project, when they say $40 billion it’s going to wind up being $60 billion,” he said. “The Panama Canal expansion project is about $5.3 billion, so we’re talking about something that could be 10 times more expensive than the Panama Canal. Can you imagine the tolls? No way. It doesn’t make any sense at this point.”

The demand for traffic through Central America would have to double or triple to support such a project, said Rodrigue. And both he and Ashar noted that global shifts in the shipping market do not support such a projection. More shipping has been flowing through Suez, and also around South Africa lately, and some manufacturing has been returning to the U.S. from Asia – a trend that, if it continues, would affect the need for shipping between Asia and the U.S. East Coast.

Ashar said that Panama depends on container shipping, and is built for that. Nicaraguan leaders and HKND have said the Nicaragua Canal could focus more on bulk cargo, Ashar said, but bulk is far less profitable to ship than containers, so shippers are unlikely to want to pay the tolls through a Nicaraguan the canal to save just one or two days of navigation.

The Panama Canal Authority put out a statement about the proposed Nicaragua Canal that avoided mentioning Nicaragua at all. Instead, it asserted its own strengths and experience, pointing out the competitive advantages it has acquired over the last 100 years.

“Any competitive analysis of the Panama route must take into consideration not only the activity of transiting through the Panama Canal, but also the current strengths of the maritime and logistic hub in the country,” said the official statement.

With all the question marks surrounding the project, one certainty is that if it were to happen, it would be a boon for the international dredging industry, experts said. The construction of a 150- plus mile canal, plus multiple supporting ports, would require billions in dredging work.

“For the dredging industry, if this were to come to be, it would be mouthwatering for sure,” said Rodrigue. “But I don’t have too much expectation that it will happen.”

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