Nicaraguan Canal Project Still Draws Skepticism

Despite outcry from environmentalists and locals skeptical tones from market analysts and a dearth of details from project leaders the Interoceanic Grand Canal officially broke ground in December.

If completed the project would cut a canal through Nicaragua an endeavor that would represent the largest dredging undertaking in history. The route would carry ships from the mouth of the Rio Brito through Lake Nicaragua and to the mouth of the Punta Gorda River as part of a 172-mile channel connecting the Pacific and Atlantic oceans. Several new ports would also be constructed along with an airport a railway and a resort and free-trade zone.

But analysts say that despite the ceremonial groundbreaking the project is still far from becoming a reality.

This is hardly the first time that the idea of building a canal through Nicaragua has arisen. In the 19th century entrepreneurs and governments frequently considered Nicaragua for a potential canal and in some ways it was a more obvious choice than Panama: Nicaragua’s low altitude narrow width and wealth of water in the massive Lake Nicaragua made it an attractive option. It is also farther north than Panama. Even after construction finished on the Panama Canal in 1914 there was continued consideration of a similar public works project in Nicaragua.

The conversation was reinitiated a few years ago when Nicaraguan president Daniel Ortega made a connection with the Hong Kong-based firm HK Nicaragua Canal Development Investment Co. or HKND an investment firm backed by a Chinese telecom mogul the billionaire Wang Jing. Like Nicaraguan leaders of generations past Ortega has said the canal could be an economic boon to the struggling nation which counts among the poorest nations in the Americas. In June of 2013 without hiring any outside consultants to evaluate the project Ortega’s government signed a 50-year renewable concession agreement with HKND paving the way for investments.

The vision is grand: the Nicaraguan canal would be 755 feet wide and 100 feet deep allowing it to accommodate the world’s largest ships carrying in excess of 18000 containers. The current Panama Canal is 110 feet wide and 39.5 feet deep and the locks limit ships’ length to 965 feet. The Nicaraguan Canal would even dwarf the expanded Panama Canal whose new locks will be 180.5 feet wide 60 feet deep and 1401 feet long when then come online next year.

When the project was first announced many outside analysts were skeptical that it would move forward. Ortega capitalized on the national dream of a canal and described the endeavor as a way to lift his country out of its crushing poverty but market analysts were uncertain there was enough demand in the shipping world to support a massive canal through Central America. The project is now estimated to cost $50 billion nearly an order of magnitude more than the Panama Canal expansion has cost. It would require far higher tolls than the Panama Canal’s to break even.

“Even if it required just $20 billion instead of $50 billion it’s hard to imagine it being feasible” said Asaf Ashar a research professor at the National Ports & Waterways Initiative.

Market analysts are not the only ones raising eyebrows at the proposal. Environmentalists have said the canal could have an appalling effect on the ecosystem of Lake Nicaragua which much of the country now relies on for its water supply. The canal will also require deforestation of millions of acres of wetlands. And depending on the route the project could displace as many as 30000 residents. Workers for the Chinese firm have begun collecting details on those residents and their property but they have faced opposition and protests from the locals. German publication Spiegel reported that protesters have been marching with signs reading “No Chinos!” and Nicaraguan police and military members have been deployed to protect the Chinese engineers.

FEW DETAILS; MORE STUDIES NEEDED

But it’s hard to know the exact environmental and social toll the project will take because the Nicaraguan government and its investors have released virtually no details about it. HKND did not respond to a request for comment for this story. The HKND website states that an Environmental and Social Impact Assessment is underway but it has not been completed.

In early January the U.S. Embassy in Nicaragua released a statement saying it was “worried about the lack of information and transparency that has existed and continues to exist over many of the important aspects of this project” and urged disclosure of more information.

HKND responded with a statement saying it is committed to being open and transparent and listing its efforts so far to do that including holding meetings with the World Bank the International Finance Commission environmental groups and local stakeholders. It said that it would release more information as it becomes available.

According to the website several companies – mostly Chinese – have been enlisted to work on the canal and its subprojects. The release said HKND has recruited China Railway Construction Corporation to undertake technical feasibility studies McKinsey & Company to provide data and analysis and Environmental Resource Management for social and environmental evaluations and impact assessments. XCMG SBE from Belgium and MEC Mining from Australia have been “invited to help with the project” and are expected to provide support on construction equipment and techniques standards scale and route selection. And China Railway SIYUAN Survey and Design Group is the lead design contractor on the project while CCCC Second Harbor Consultants will design the ports’ sub-project. The Civil Aviation Engineering Consulting Company of China will design an airport sub-project and the Shenzhen LAY-OUT Planning Consultants will design the free trade zone and holiday resort sub-projects.

Project leaders have given the appearance of moving forward. Wang Jing told a Reuters reporter last May that he had invested $100 million so far and expected to continue to invest at a rate of $10 million a month. In December they held an official groundbreaking ceremony in Managua where Wang Jing described the canal as “the most important in the history of humanity” and Ortega extoled its potential to improve the country’s economic wellbeing.

Ashar was skeptical that the groundbreaking will convert to a real venture. He said few analysts believe it can viably move forward.

“All of it is ceremony obviously” he said. “At the beginning people would say who knows maybe it will happen. But they don’t even have the money to do a big study which is needed. So the idea looks more and more farfetched.”

If analysts are wrong however it would be the largest dredging undertaking ever. Lake Nicaragua is deep but tremendous amounts of material would have to be removed from both rivers. The endeavor would not be technically challenging but it would likely be logistically challenging because of its magnitude.

“This is probably the best project for the dredging industry in history” Ashar said. “I don’t believe we have ever had a project like this.”

It’s not so clear that it would be the best project for Nicaraguans. He said it’s unheard of for a public works effort of this magnitude not to have an outside group study it.

“You would expect the government would hire a third party to do a small study before granting such a major concession but in Nicaragua it’s like they didn’t do any homework” Ashar said. “Nicaraguans are poor and if you are poor then people take advantage of you. Instead of taking care of the existing ports and improving them and getting new equipment their government is toying with all this.”