Expanded canal ‘vital to Panama’s prospects’

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Panama’s centre-right government has said that unless citizens support an ambitious project to expand the canal linking the Atlantic and Pacific oceans it will be difficult to continue effectively to tackle poverty.

Samuel Lewis, the vice-president and foreign minister, told the FT: “No matter how good our country ratings are or how much people praise Panama for its prudent financial management, we wouldn’t have achieved anything if we do not reduce poverty or create jobs – and the expansion of the canal is essential for that.”

Mr Lewis made his comments as Panama, which has poverty rates of about 60 per cent and acutely high levels of income-distribution inequality, is gearing up for a referendum on the most ambitious expansion project for the canal since it was completed in 1914.

A victory for the government of President Martín Torrijos on October 22 would give the green light to a proposal to add a third set of locks, cut access channels to the new locks and deepen the existing canal.

The plan, which the government says would cost $5.25bn (€4.2bn, £2.8bn) – more than a third of the country’s gross domestic product – and take at least seven years to complete, would roughly double its present capacity of 330m tons a year. In particular, it would allow wider, so-called post-Panamax vessels to pass through the canal.

The latest opinion polls suggest that most Panamanians will support the project: a poll by the Dichter & Neira company puts the Yes vote at more than 66 per cent, compared with less than 16 per cent for those against the plan.

But opposition leaders say those figures are not representative and argue that there are serious problems with the proposal. These include insufficient detail in the plans, high risks of going over budget, doubts over future funding and significant environmental threats.

Mr Lewis rejected such criticism. He said, for example, that about 30 per cent of the project’s $5.25bn budget was accounted for by “contingencies” and that the final cost could be significantly lower if those contingencies did not arise.

“There will be no surprises,” he said.

He also stressed that the Panama Canal Authority (ACP), the state-run company that has operated the canal since the US handed it back in 2000, would put up about 60 per cent of the equity, reducing the level of debt to a maximum of $2.3bn. “We feel very comfortable with the numbers,” he said.

On the environment, Mr Lewis said that the risk of falling water levels in Gatún lake were minimal and that claims that the extra set of locks could cause harmful salt water to contaminate fresh water reserves inland were overplayed.

“The water system we are contemplating is nothing different from what we have today. The only difference is a much more rational use of the water because we are going to recycle it.”

For example, the new locks are designed to use adjacent tanks to raise the water level. The result, said Mr Lewis, would be much bigger locks that use 7 per cent less water than the smaller ones in use at the moment.

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