Panama: Expansion plan puffs canal


Chloe Hayward
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Despite a collapse in bank financing lines and the export markets, the Panama Canal expansion project will be an attractive investment in 2009, according to the Panama Canal Authority.

The project secured funding from five multilateral agencies in November and strong competition is expected for the coming licence auctions.

In March 2009, the Panama Canal Authority (ACP) will finally award the new locks contract to a consortium of constructors. Four different groups are fighting for the contract: "We don’t see any problems ahead that could jeopardize this expansion project. The four groups confirmed again in November that they are committed to putting together a bid and they are all diligently working to meet the deadline," says Franciso Miguez, executive manager at the ACP.

In addition, the ACP has managed to raise $2.3 billion in 20-year loans with a 10-year amortization and a 10-year grace period from multilateral agencies, including the Inter-American Development Bank, the Andean Development Corporation (CAF) and International Finance Corporation, making it clear that these banks are confident about the project. Mizuho Corporate Bank is exclusive financial adviser on the agreement.

The loans are unsecured, and untied, therefore the money can be drawn down gradually when required, and no single loan is tied to any specific part of the project. This is despite the Baltic Dry Index, which measures world-shipping charges for raw materials, plummeting from a high of 11,793 in May to a lowest point of 672 in early December. The canal is running at 97% capacity with a three-year price increase programme in place, meaning this sum is basically secure despite the global economic downturn.

Surprisingly, Miguez is quite positive. "When we started planning this project in 2004 we were looking at rates of 6.25%," he says. "Today, despite the economic problems, Libor exchange is closer to 4% and we are getting financing on better terms than we planned." ACP revenues will provide the final $3 billion needed for the project.