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Hong Kong Company to Start Construction of Nicaragua Canal

Aug 11 , 2014

Panama is wrapping up its project to widen its canal to accommodate even larger ships, as cargo vessels keep growing larger as they seek to drive down the costs for hauling freight in that very competitive business. Now Nicaragua is building its own canal to tap into the lucrative business of providing ships a shortcut across Central America to reach the Atlantic Ocean from the Pacific thus avoiding a very long trip around South America, or as is possible now, an ice-breaker-escorted journey through the Northwest Passage.

The company that has stepped up to undertake this massive project is the Hong Kong firm HK Nicaragua Canal Development Investment Co. (HKND), whose President is Wang Jing. Mr. Wang also is head of Xinwei, a telecommunications firm who The Financial Times reports holds the license for 3G wireless technology in China. Xinwei is building or has built telecommunications networks in different countries, including Nicaragua. HKND has also invested $10 billion to build a deep-water port in the Crimea, a project whose status in unclear at the moment due to Russian annexation of that region.

On July 7, HKND held a press conference to announce that it will start building what is to be called the Great Interoceanic Canal of Nicaragua in December. 

If the idea of building a 278 km canal across Nicaragua, seems far fetched, it is not, if you consider that Central America’s largest lake, Lake Nicaragua, covers 158 km of that. The lake is ringed with picturesque volcanoes and is home to the world’s only freshwater sharks.

Still, the lake will not provide smooth sailing for cargo vessels in its natural state. At some points the lake is 85 feet deep, but HKND will need to dig a channel there to a consistent 90 feet depth. This will allow deep draft vessels, even larger than the so-called Panamax ships, to pass. Panamax ships are those whose beam and draft are larger than the existing Panama Canal, but will be able to pass through the enlarged Panama Canal when that project is complete. That project recently was put on hold when the contractors held out for increased payment. Some said they underbid that project and such a standoff was part of their plan. An agreement having been reached, work is underway in Panama again.

Digging a canal across Nicaragua would have been easier had HKND chosen to use the San Juan River, which forms the border between Costa Rica and Nicaragua. But that would have required the cooperation of the Costa Rican government and no doubt some kind of revenue sharing model.

At the July 7 press conference, HKND presented a map of the route it chose among the 7 routes under consideration. The canal will start at the mouth of the Punta Gorda River on the Caribbean, will be dug overland, cross Lake Nicaragua, and empty into the Pacific Ocean at the Rito River.  The construction will include a deep-water port at either end of the canal, an airport, a free trade zone, a hotel, and a highway.

The announced $40 billion project is four times the GDP of this poor Central American nation.  Nicaragua President Daniel Ortega has said that this project will boost the incomes and livelihood of the Nicaraguan people. You might be old enough to remember President Daniel Ortega when he was a guerrilla fighter and a thorn in the side of President Ronald Reagan. Daniel Ortega was president of Nicaragua from 1979 to 1990. This feisty relic of history came back into power again in 2007 where he continues to rule today. The former leftist rebel Daniel Ortega has turned decidedly capitalistic and has gained the confidence and cooperation of businessmen in that country.

The canal will allow one ship to pass at a time, a journey that will take 30 hours. 5,100 ships will be able to cross per year.  If you have flown into Panama City and seen the long line of ships waiting to cross into the Panama Canal then you can see for yourself that there is certainly enough traffic to warrant two canals in the region. So there is business enough for both. Prices to cross the canals could drop due to competition.

HKND says on their web site, “HKND Group’s mission is to oversee the design, construction, operation and maintenance of a new canal and transportation hub in Nicaragua. The Nicaragua Grand Canal and Development Project will provide shipping companies and customers with a compelling option for trade and transport that will enhance the efficiency and cost effectiveness of global trade.”

The company adds that this project will, “Deliver significant benefits to Nicaragua and all of its people, generate local training and job growth, and promote local and regional economic development.” That is what President Ortega is counting on.

Nicaragua has granted the company a 50-year concession over the Canal.

There are certainly political implications for US-Chinese relations with a Chinese company building a canal right in America’s back yard. America after all built the canal at the turn of the 20th century and handed it over to Panama under President Jimmy Carter. Many Americans who were formerly employees of the Panama Canal Zone have retired from there and still live in the region.

Asked about the impact on Chinese-American relations, Yun Sun, an East Asian Fellow at the Stimson think tank, said, “From the deal at this stage, it is hard to tell what the implications for the U.S. commercial and political interests might be from the canal. But if the canal is to be built according to the current plan, it would signify a leap-forward of the Chinese presence in the region. China does not have diplomatic relations with Nicaragua. But the project suggests an expansion of Chinese influence. That by itself has implications for the United States. We will have to see what else is there.”

Asked the same thing, David Dollar, a Senior Fellow at the Brookings Institute said, “If the new canal is a successful project that speeds the movement of goods between the Atlantic and Pacific, then it will be a boost to the economies of the Americas including the U.S. economy.”

When Mr. Wang announced the project in July, some journalists in the audience questioned Mr. Wang as to his ability to raise the money to complete the project and about his relative inexperience in construction. The South China Morning Post also asked Mr. Wang about financing. He said, “Our talks with international investors have been very smooth; we have reached agreements with some investors. By December, we plan to announce who has invested how much, and what stakes and responsibilities they have.”

Some in the US media have also questioned whether Wang Jing has the construction expertise and financial backing to complete the project.

One thing is certain, Mr. Wang’s construction crews will not have to worry about the death and illness that led the French to abandon their work on the canal they started in 1881 and the Americans ultimately finished in 1914, as medicine and technology have improved much since then. Plus the ground is somewhat more solid in Nicaragua than the quagmire of Panama’s marshes. 

Walker Rowe is a Publisher at Southern Pacific Review. He is currently working on a book on pollution in Chile, where he resides.

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