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Nicaragua Canal

Nicaragua on December 22, 2014 announced the start of work on a $50 billion shipping canal, an infrastructure project backed by China that aims to rival Panama's waterway and revitalize the economy of the second-poorest country in the Americas. The groundbreaking was largely symbolic, as work began on a road designed to accommodate machinery needed to build a port for the canal on the Central American country's Pacific coast.

In late February 2018, the administration of the "Great Transoceanic Canal through Nicaragua" informed reporters of "France Press" that the de facto construction has been stagnating since the summer of 2014. And from the middle of March the agreement "On the fundamentals of relations between the Russian Federation and the Republic of Honduras", concluded in 2017, came into effect. Tegusigalpa has unsettled territorial disputes with its southern neighbor. Therefore, many experts consider it unlikely that the agreements reached in 2012-2014 in Moscow, Beijing and Managua on the construction of the Nicaraguan Canal.

"The Sandinists have repeatedly invited Moscow to take part in the construction of the canal, but there was no reaction. Earlier it was envisaged that it would be put into operation no later than 2019, and up to 65 percent of investments and equipment will come from the PRC, Russia will provide mainly security of construction and operation. But the increased capital intensity of the project (about $ 52 billion in 2017 versus $ 45.5 billion three years earlier), coupled with the financial problems of the investor, the Hong Kong-based Hong Kong corporation HKND, was unlikely to be completed.

By Suzanne Daley wrote in the New York Times 03 April 2016 that "... 16 months later, Mr. Wang’s project ... is shrouded in mystery and producing angry protests here. President Daniel Ortega has not talked about the canal in public for months. And there are no visible signs of progress. Cows graze in the field where Mr. Wang officially began the project. Experts say they are baffled by Mr. Wang’s canal. It may be backed by the Chinese government, part of its growing interest in Latin America, or may simply be a private investment cast adrift by the convulsions of China’s stock markets and its slowing economy.... Mr. Wang’s recent setbacks — he has reportedly lost about 80 percent of his $10 billion fortune — make some experts say the deal is probably dead." In April 2016 the farmers from the National Council in Defense of our Land, Lake and Sovereignty presented their proposed bill for the repeal of law #840 before the Secretariat of the Nicaraguan National Assembly. Their initiative was backed by seven thousand notarized signatures plus 21,698 others. All the signatures supported the call to repeal this onerous law awarding Chinese businessman Wang Jing the concession for the Canal project.

Wilfredo Navarro, deputy for the Liberal Constitutionalist Party, currently staunch allies of the Ortega led Sandinista faction, catalogued the farmers and rural residents that oppose the expropriations for the canal as a ”manipulated minority”. Navarro grumbled “You should remember that surveys show over 70% of the population is in agreement with the Canal. These are a manipulated minority that receive financing from outside the country and from organizations within Nicaragua to generate a climate of opposition for the canal”.

In 1850 the United States and Great Britain negotiated the Clayton-Bulwer Treaty to reign in rivalry over a proposed canal through the Central American Republic of Nicaragua. The Anglo-American canal, however, never went beyond the planning stages. French attempts to build a canal through Panama (province of Colombia) advanced further, and eventually the Hay-Bunau-Varilla Treaty of 1903, which provided the United States with a 10-mile wide strip of land for a canal.

The Nicaraguan government has granted a 100 year concession to HK Nicaragua Canal Development (HKND) Investment Company, a Chinese firm to explore development and construction of a 90 foot deep, 130 mile (to 180 mile1) long canal, through Nicaragua. While this canal was roughly three times longer than the Panama Canal, it was 500 miles further north and provides a shorter transit, potentially. Cost estimates for the project range from $40 billion to $60 billion, twice the size of the country's economy. The project was estimated to take up to 11 years to finish.

The discussion of construction of a transoceanic canal had been previously proposed periodically in the 1500s (Spanish), 1800s (Napoleon III) and in the late 19th century to the 21st century (before the Panama Canal). Although initially supported by President McKinley, it never went beyond plans and studies. In accordance with Public Resolution no. 99 (70th Cong.), approved March 2, 1929, a survey and investigation of a proposed canal in Nicaragua was made. In connection with that report, there was also submitted a report by the Governor of the Panama Canal on a project for an additional system of locks at the Panama Canal.

HKND Group was a privately-held international infrastructure development firm headquartered in Hong Kong and with offices in Managua, the capital of Nicaragua. HKND Group has extensive experience in construction management and infrastructure development. HKND Group was led by its Chairman and Chief Executive Officer, Mr. Wang Jing, businessman and investor who also heads Chinese company Xinwei Telecom Enterprise Group. In partnership with the government of Nicaragua, HKND Group was focused on the development of the Nicaragua Grand Canal and Development Project.

In July 2012, Nicaragua parliament passed Law 800 (a law regarding the Nicaragua Interoceanic Canal legislation and the establishment of the Interoceanic Canal Committee) providing a legal foundation for the construction of the Interoceanic Canal. On 06 September 2012, the Nicaragua Interoceanic Canal Committee (hereafter ‘Committee’) signed a memorandum of understanding with the HKND Group, establishing the project scope.

On the 31 October 2012, both parties signed the Deed of Cooperation, further explaining the project details. The Committee agreed to give sole rights to the HKND group to plan, design, construct and thereafter to operate and manage the Nicaragua Grand Canal and other related infrastructure projects. On 13 June 2013, the Nicaraguan parliament gave its approval for the government to sign the Master Concession Agreement (hereafter ‘MCA’) with the HKND Group. The agreement formally granted the sole rights to the HKND Group to plan, design, construct and thereafter to operate and manage the Nicaragua Grand Canal and other related projects, including ports, a free trade zone, an international airport and other infrastructure development projects.

The integrated Nicaragua Grand Canal project will include 6 sub projects: Canal (including locks), 2 Ports, a Free Trade Zone, Holiday Resorts, an International Airport and several roads. In addition, there will be construction of a power station, cement factory, steel factory and other related facilities to ensure the successful completion of the canal within 5 years.

From the mid-90s onward, container vessel sizes have increased some three fold, contributing not only to the rapid growth of maritime trade and containerization but also to continued revolutions in the lowering of transportation costs per unit and, as a result, lower costs for consumer goods around the world. This culminated in the rationale for a third set of locks for Panama Canal in 2006. And, when these locks are complete, the Panama Canal would be able to accommodate vessels up to about 13,000TEU. The Panama Canal Authority has already committed over $5.3 billion in the development of the third set of locks, with additional funds now expected to be disbursed to complete the project, potentially by 2016.

The largest vessels to be received on the US West Coast can now range up to about 14,000 TEU, while vessels to about 13,000 TEU would be able to transit the Panama Canal by 2016. The fact that the US can receive more and more larger vessels was itself already a big leap for US ports. the Triple E2 class of ships that have the capacity to handle 18,000 TEUs are too wide to get through the Panama Canal locks. The name “Triple E” comes from the new class of ships design principle – “Economy of scale, energy efficient, and environmentally friendly.” The Nicaragua Canal will be able to accommodate Super Post Panamax ships up to about 23,000TEU, and will offer the shortest shipping route between Asia and many US East Coast ports.

Equally, the dimension constraints of the Panama Canal restrict the transportation of rapidly growing crude oil production in the Caribbean and Gulf of Mexico and the transportation of new light grade crude oil from the oil fields in the heart land of America. The heavy grade crude oil produced in Venezuela was not best suited to the refinery requirements in Asia. America was currently developing sources of new light grade crude oil to suit the refinery requirements in Asia. The rapidly increasing shale oil production will soon render America a net energy exporter. Therefore allowing super tankers a high efficiency route to the Asian refineries may generate commercial interest from North American and Asian markets. In particular China may be an importer for this American light grade crude oil.

Some shipping executives have voiced skepticism about whether there will be enough container shipping trade in the coming decades to support a second passage from the Atlantic to the Pacific. Others say there was enough trade to warrant a second canal on the continent. Jason Bittner, director of the Center for Urban Transportation Research at the University of Southern Florida, said the demand will probably be there by the time the Nicaragua project was finished. It was estimated to be 11 years. “I don’t anticipate there being any reduced demand in trade between the global trading partners, so East Asia and the eastern United States will continue to have significant trade,” Bittner said. “If you make this large public sector investment, it will be used, as long as it’s priced properly, as long as the Panama Canal isn’t significantly undercutting it.”

Environmental groups say they are worried about the canal's likely path through Lake Nicaragua, the country's main fresh water source. Details of the possible route have yet to be disclosed, though it was thought likely that it will run through Lake Nicaragua, the most important source of freshwater in the country and major source of drinking water and irrigation, and home to rare freshwater sharks and numerous other species, and through a tropical forest. The area also encompasses one of the largest coral reefs in the Americas and was home to endangered marine species. It was also an area of volcanic and seismic activity. The list of concerns was long: hurricanes, earthquakes, salt-filtration into Lake Nicaragua, volcanic and seismic activity, degradation of the environment, denude shorelines of rivers leading inland from the new ports, invasive species from container bilge water, and sedimentation.

Critics of the project say China may have a strong influence on it because the company was headed by a Chinese national. Some worry China's influence in the region was growing. Evan Ellis, who teaches at the National Defense University in Washington, said, "What we undervalue is things like this, in which, little by little, our political maneuvering space is being lost, and at least for me as a strategic analyst, I mean, that’s a concern."

According to a study by the Nicaraguan research institute CINCO, resettlement and expropriation would directly affect around 120,000 people. Opponents of the contract protest that the president and his son negotiated it with the Chinese in secret, without public involvement. Environmentalists are also sounding the alarm about the planned construction, and human rights activists and political observers regard the whole process as dubious.

By October 2015 the net worth of Chinese entrepreneur Wang Jing, the driving force behind the proposed canal across Nicaragua, had fallen $9.1 billion since mid-June, when China’s stock market collapsed. No other individual in the Bloomberg Billionaires Index during this period has lost a greater proportion of assets, 84 percent in his case.

Russian economic structures and companies are ready to participate in the construction of the Nicaraguan Canal project as soon as progress was seen, the director of the Russian Foreign Ministry’s Latin American Department said.

“We know that steps are being made by the Nicaraguan government and we know that all of the plans that exist have been confirmed. And from our side, we confirm the readiness of a number of Russian economic structures and companies to participate in the realization of projects tied to the development of the infrastructure, but so far we don’t see any sort of a principle quality move,” Alexander Shchetinin told RIA Novosti in an interview 27 October 2015. He said that Russia would continue to follow and monitor the situation and that Russia “would be ready to join once we see that there’s something.”

Iran's offer to help Nicaragua build a bigger, better rival to the Panama Canal was a political proposal intended to diminish US influence in the region. Iran's Foreign Minister Mohammad Javad Zarif visited Nicaragua, during a tour of Central and Southern America in September 2016. After meeting with Nicaraguan counterpart Samuel Santos Lopez, Zarif said that Iran greatly values ties with the country and its Latin American neighbors. "The people of Iran and Nicaragua are known in the world for their revolutions and resistance against pressure from outside," Zarif said, IRNA reported. "I hope that Tehran and Managua will be able to enhance their economic relations in addition to their diplomatic ties."

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Page last modified: 10-12-2021 13:48:06 ZULU