PANAMÁ CANAL EXPANSION PROJECT
Panamá City, Panamá, Saturday, September 26, 2009

The only thing most foreigners ever associate with the Republic of Panamá is, of course, the Panamá Canal. It opened in 1914 just as the First World War was beginning and has remained essentially unchanged in concept and construction ever since. In the era of globalisation and mega-ships, all the preconditions for an expansion, indeed a doubling of Canal capacity, have been met: the design and build-contracts have been let; and, preliminary excavations and dredging already begun.

Prior to the Panamá Canal, ships, both naval and merchant, were required to round Cape Horn, so a mid-continental canal would shorten shipping distances and therefore shipping times and costs. The choice of the Isthmus of Panamá appealed because it is the narrowest part of the Western Hemisphere. The Atlantic and the Pacific are separated here by only 50 miles (80 Km). But, it was and is not necessarily the only location for such a canal. An alternative route is (still) through the lakes of Nicaragua. The travelling distance between the oceans are longer there, but there would have been far less digging to do. A Nicaraguan canal would have also have been significantly closer to US harbours (such as New Orleans, and Mobile as well as San Francisco and San Diego) and ports in Europe.


The idea for a canal across the isthmus had been around for centuries. One of the big motivating factors in mid-nineteenth century was the California Gold rush and the great U.S. drive into Central America (e.g. Texas and Mexico) and towards the Spanish Pacific coast, particularly California, and the Oregon Territory. At one point a railway was built to transport cargo and passengers across the Isthmus of Panama; this was in itself a great engineering challenge.

De Lesseps’ Canal 1881-1888

The Panamá Canal as we now know it was initiated by the famous French engineer and builder of the Suez Canal, Ferdinand de Lesseps. The Panamá Canal was to be his second great opus vita. Although there was much to recommend the Nicaraguan route and although the U.S.A. supported that one, de Lesseps was the first into the canal-building fray and his tremendous reputation helped to raise the necessary private funding. Work was begun in 1881.

Unfortunately, his concept proved to contain major miscalculations. Contrary to de Lesseps original beliefs, Panamá was no sea-level channel across a flat, easily-excavated, sandy dessert. Critically, it was not after all possible as advertised to investors and governments to build a canal between the Atlantic and the Pacific Oceans without first constructing locks to carry ships over the Continental Divide.

The sheer size and difficulty of the project was also completely underestimated by the French engineers. Especially the so-called ‘Culebra Cut’, i.e., the portion of the Canal to be excavated through the moderately-high range of hills (maximum 110 metres/361 feet) that make up the Continental Divide in the Isthmus. The highly unstable soil mechanics (slippery mud in places, various rock formations in others) combined with the enormous amounts of rainfall proved insurmountable challenges for de Lesseps. Moreover, they did not have the equipment heavy enough to handle the job. In the rainy season the Chagras River flows so intensely that it would have been a serious hazard to shipping if allowed to flow through the Canal. It would have to be diverted. Finally, the French also had no concept of how to deal with such devastating tropical diseases as malaria, yellow fever and dengue; the science here was simply not available when they began. The death rate amongst the largely Caribbean and Southern-European workers was high. By all measures therefore, Suez was a snap by comparison to Panamá. The French were simply not up to it as engineers, equipment manufacturers, scientists, doctors and managers.


The result was that, although it was actually begun physically, the whole French effort collapsed under the weight of its own deficiencies. By 1889, after eight years of work, construction costs had far exceeded the funds available. The bankruptcy exposed not only the inadequacies of both de Lesseps and his management; it also threw light on the many national politicians who were corruptly involved with the Canal. A huge scandal with strongly anti-Semitic overtones was unloosed in France. Work on the Canal ground to a halt with only about two-fifths of the project completed and after expenditures of a little over one quarter of a million dollars.

A re-structured company raised more money and re-designed the project to include lift locks and dams. But the French bolt had been shot. Under the pretext of continued work in order to prevent a Nicaraguan alternative from gaining the upper hand and to keep the Columbian concession alive (Panamá was an integral part of Columbia back then), a buy-out were being secretly canvassed. The new engineering studies were useful for the U.S.A. when it bought the assets for $40 million in 18XX and of course the French had actually done a lot of digging already.

The American Canal Project 1904-1914

The ascession of Theodore Roosevelt to the presidency in 1901 changed the U.S.A.’s attitude to Panamá. Roosevelt was an imperialist at heart and viewed Latin America as strategically vital to the U.S.A.’s economic and political future. He blocked the Nicaraguan alternative, the preferred route in America until then, and pushed for Panamá. Negotiations were conducted with Columbia leading to a concession treaty. Meanwhile, however, Washington secretly encouraged local Panamanian-independence advocates and offered them U.S. Navy assistance if they revolted. When Columbia sent troops to suppress the rebellion, the USN blocked their landing. In return and for a payment of $10, a now independent Panamá granted the U.S.A. the Canal Zone in 1904.

It was in May 1904 that the U.S.A. took control of all the French canal assets. The whole project required a complete re-think. Washington wanted a lock-free canal, but the chief Army engineers convinced him that locks were essential. These however required a huge system of dams and artificial lakes. Despite much pressure for civilian contractors, Roosevelt, always strongly behind the project (he even visited Panama in 1906), himself wanted project design and management left solely in the hands of the U.S. Army Corps of Engineers, in other words, it was to be a completely government/military job. In addition to superior design and engineering, better management (e.g. it was completed $23 million under budget, perhpas because the project did not have to pay corporate taxes, dividends or obscene bonuses to senior management) and extremely solid financing (the American taxpayer, after all), a critical success factor was also the victory over tropical diseases. American equipment was much stouter in build and therefore up to the job. In August 1914, just as World War I was breaking out in Europe, the SS Ancón became the first vessel officially to transit the Panamá Canal.

It cost the taxpayer $375 million including the $10 million paid to Panamá and the $40 million paid to the French. On the other hand, a further $12 million was later spent on fortifications. More than 75,000 persons worked on the project, at the peak 40,000. 5,609 workers died from disease and accidents.

The Panamá Canal was not only a technological marvel, it was a very important strategic and economic asset for the U.S.A. The Canal saves about 7,800 miles (12,500 Km) on a voyage between New York and San Francisco. In World War II it was an important naval and military asset. The Canal became and remained a major military and naval base for the USA until the handover at hte end of the twentieth century.

In the face of increasing demands by Panamanians for control of the Canal and despite tough conservative resistance in the U.S.A., President Jimmy Carter finally signed a highly controversial treaty in 1977 whereby control of the Panamá Canal would pass to the Republic of Panamá at the end of 1999. Since then the Canal has been run by the Panamá Canal Authority (ACP). (Professional management of the two ports, Colón and Balboa, was awarded competitively to a Hong Kong harbour-management company, Hutchinson Whampoa. This caused conservatives to suspect Chinese Communist intrigue.)

At the time, many Americans were also contemptuous of Panamanian management ability and of the rampant political corruption: a fiasco was therefore predicted. In fact however, ACP has run the operation exceedingly well. Average transit time is still at about 30 hours but income has doubled; profits have increased disproportionately; traffic has increased; accidents are down. Obviously, much of this improved income has to do with buoyant world markets, the increase in the China-and Far East-trade to the eastern-American seaboard and Europe. This has permitted ACP continually to increase tolls. The Canal represents, dircdtly, about 12% of Panama's GNP and is the source of another similar amount indirectly. Without the Canal living standards would be much lower. Indeed there would be no Republic of Panama at all.

The Panamá Canal Expansion Mega-Project

The structure of global trade and worldwide shipping has forced a new look at the Panamá Canal. More and more trade is being conducted with the Far East and marine architects are designing and building ever bigger ships for all purposes (container and bulk carriers, huge tankers, car carriers, etc.) The old alternative route through Nicaragua was being discussed again.

As result, a new project has been approved by the Panamanian Government, the National Assembly and the people (by means of a referendum carried in 2006 by 77% of the voters) designed to accommodate the super carriers of which there are already some three or four dozen in operation and many more on the books. Two new locks,which will double the size of ships permitted, and a new traffic lane are to be completed by 2014 (100th anniversary of the opening in 1914).

In July 2009, the design and build contract was awarded to a Spanish-led consortium (Sacry Vallehermoso/Spain, Impregil/Italy and Cusa/Panamá; dredging is by Jan de Nul of Belgium) beating out groups led by companies like Bechtel. The project will cost $5.25 billion, all of which must be financed by Canal tolls. The government of Panamá is providing neither funding nor guarantees. Borrowings will total about $2,3 billion and is to be provided by a consortium of quasi-government lenders , mainly various development banks (World Bank, IDB, etc.)with a tenor of twenty years and a grace period of ten years (final repayment by 2029).

There are risks, of course, and critics are keen to point them out.

1.
Faulty design. Bechtel, who admittedly lost out on the bidding, has made this claim in a letter to ACP.
2.
Unreliable forecasts of toll revenues. Revenues and tolls are calculated on tonnage and not Canal passages. ACP’s pro forma cash flows assume a steady increase of income at 3.5% until 2025 both from higher tolls and increased usage once the new locks come into operation. An internal rate of return of 12% has been forecast. Despite a world recession and declining traffic, Canal tolls were in fact raised again in June of 2009. However, ACP has announced that traffic has been stagnating since 2007, a record year. While still insisting on the new tolls, ACP has actually been cutting side deals with individual shipping lines. No one really knows how long the recession will last and its overall impact on the China Trade. Ship-hire stats show a serious decline in demand and many container ships are now being laid up (80 in number as of last January). Worldwide orders for raw materials are off significantly too. New ships under construction are due to come online this year and next and the world’s fleet is expected to increase by 13% over 2008.
3.
Cost overruns. Mega projects have a terrible propenisty to become a lot more expensive than forecast.
4.
Critics say the financing costs (e.g. interest) have not been included in the cash flow forecasts. They (including leading labour unions) also claim that the increased employment figures for the construction ignores the fact that many of the better-paid jobs will go to foreigners. The ACP employs currenlty 35,000 - 40,000. Only 6,000 new positions are to be expected in total.
5.
As fuel prices rise once again after the recent price slump, shippers are looking at different routes round-the-world. Shiplines are beginning to re-route even Panamax-sized carriers (i.e., ships that fit into the present locks) more fuel-efficiently around the Cape of Good Hope on the way back from Asia. Returning to the U.S.A. from Asia via Suez is also an alternative. Even a Northwest (i.e., Arctic) Passage is not out of the question: with global warming now increasingly likely, it would shave 5,800 miles (9,300 Km) off the trip between Asia and Europe. Further increases in fuel prices will only exacerbate this trend. Nicaragua is still talking about a post-Panamax canal costing approx. $20 billion and shaving a day and 800 miles off the NYC-SF run (not to mention that it would double the GDP of Nicaragua and create transiting over-capacity in Central America). The bottom line is that the Panama Canal may not be able to realise toll increases or even keep up the necessary traffic to pay off the debt and make the profits forecast.
6.
Already shipbuilders are bringing new super-carriers - tankers and container ships, bulk carriers - into service that already exceed the new lock sizes. This seems to be a trend. An construction of even bigger locks then now planned would require removal of the current high-level bridges over the Canal and require more dams.
7.
The new double-sized locks are designed to use a minimal amount of freshwater. Nevertheless, freshwater-lake levels are scheduled to go up by 1.5 feet. Ecological critics claim that this brings with it a serious risk of saltwater contamination of Lake Gatun, Panamá's premier source of drinking water. El Niño and global warming will also have impacts, say critics. This year (2009), for example, rainfall is half of normal. Is this a longterm trend?

Conclusion

It looks like the mega project will now go forward whatever the risks. If the world recession carries on or oil prices or some other risk increases, it should be possible to stretch the project; repayment of the $2.3 billion in borrowings does not actually begin for ten years in any case. Borrowings are only half of the projected costs, the remainder being ACP's equity. Of construction costs can be containeed, the project is fairly soberly calculated (less than 50% borrowings). Interest rates down the road are an open question; they are very low at present. AS the original French version of the Canal showed, privately financed mega-projects are inherently riskier and there ususally needs to be a government backer somewhere. Time will tell. Certianly, the Panamanian government would not likely have the resources by itself to pull the ACP's nuts out of the fire in an emergency.

The Nicaraguan card is now highly unlikely to be played given the uncertainties surrounding demand for global shipping and the NW Passage is still along way in the future, one would think. A greatest variables presenting risks to the Panama Canal's financial viability will be the price of oil versus Canal charges and whether the trend to ever-larger sea-borne carriers continues.

THE ENGINE (AND THE TRANSMISSION) WORKS!
Las Brisas de Amador anchorage, Panamá City, Panamá, City, Tuesday, 22 September 2009

Tom has taken a job at Las Brisas “marina” working weekdays on the owner’s large but derelict cabin cruiser. So we were really pleased when he devoted his weekend to getting our Lister put back together and re-installed. He seemed indeed challenged by the whole thing, and it was fun working with him while he figured it all out. After all, he had not taken the engine apart. Putting it back was the real challenge.

His first job was to re-assemble the small hydraulic pump inside the Lister Reverse Gear. I had located the replacement part by internet in the UK. But they wanted around $350 for the little, two-inch-long spindle. So instead, I had it made at Taller Alfredo in Panamá City for $25. It took a little filing, but eventually the two “keys” and the gear wheels had been re-assembled and the pump put back into the transmission.

Attaching the transmission to the engine had long puzzled Tom, more particularly how to get the pump gears to mesh with the drive gears while avoiding breaking something again. The trick, as it turned out, lay in turning the whole engine cum transmission crankshaft a bit at a time using the flange at the back where the prop shaft attaches. This had to be done a couple of times since the original gasket we had hand-made last week became damaged, and we had to fabricate a new one. Practice makes perfect! We are getting better at this!

After a short-ish workday on Saturday, by late mid-day Sunday the transmission was attached and the whole aggregate of engine and transmission had finally been lifted back onto the mounts. It weighs nearly 700 lbs without fluids or the heavy-duty starter and is very bulky (not to mention noisier and hotter) compared to newer diesel engines; on the other hand, these Listers are said to be virtually indestructible). Dangling (and sometimes swinging) as it was from a come-along attached to the main boom, there was a lot of jiggling and juggling to get it all to settle precisely on the bolts. I operated the come-along from the bridge over the engine room, whilst Tom shoved and pulled to get the whole thing turned 180 degrees and then dropped onto the bolts. In the heat and humidity of a Panamanian rainy season day, sweat was much in evidence.

The connection of the ‘umbilicals’ began again: oil and fuel lines; starter and solenoid; instruments; exhaust pipe. I didn’t mention it to Tom, but I recalled that we had had to re-attach everything only to find out ten days ago that, while the engine now worked, the transmission was pfutsch and the whole lot had to be fetched out again and taken apart. Moreover, Vilisar being an old boat now, we managed to break off the dry-exhaust pipe at the hull flange. This had to be repaired before we could start the engine. (I had spent a gruellingly hot day in Panamá City getting a 2-inch, galvanised pipe cut and threaded at both ends as a replacement.)

It was just shortly before 1800 as it was beginning to get dark when Tom finally checked off all the systems on his fingers (fuel, oil, gear oil, starter, alternator, etc., etc.) and announced that we should crank the Lister to life. My heart was thumping a bit, I have to admit; the last time we did this, the engine worked fine, but we were locked by the defective transmission into forward and we almost hit the anchored boat nearby before we realised it and could shut the engine down again. Oh, ye of little faith! This time everything worked just fine. Including the transmission. The transmission goes easily and smoothly into forward, reverse and neutral. What more can you ask?

The only thing not working properly is now the alternator: it does not seem to be providing power to the batteries. But, as Tom says, everything got badly beaten up when the engine was lifted several times and replaced on the mounts. The switch and instrument panel was thoroughly trashed and the wiring probably screwed up permanently. With various mechanics and me crawling into the tight engine room, some wiring was probably damaged. It was already dark, however, and Tim said he wanted to stop for the day. He will come back later to fix it.

We two sat in the dark still surrounded by the tools and instruments and rags and trash of an engine-repair job while we smoked a cigar and drank vodkas with beer chasers until Kathy arrived back from shore. Although Tom had done the heavy work, I still felt drained and the vodka on an empty stomach didn’t do me much good either. But, I also felt very relieved that (nearly) everything is back in place and working. What a saga! I also enjoyed working with Tom. He is a natural philosopher and likes to present his thoughts on everything from the innate differences between the genders to life after (and before) death. He is a natural talent with engines and electricals. He studies the engine until he has it figured out and then starts assembling things. Whereas with other mechanics, either my view was blocked as they worked in the narrow confines of the “engine room” or they worked in total silence except for saying things like “Oh, that’s easy!” Not helpful. So, this time I actually feel I have learned a lot and was even able to contribute one or two useful things to the project beyond just handing in the correct wrench or cleaning casket sealant off the rims.

I deliberately try not to reflect that we had just spent nearly $800 and six weeks to replace a $4 oil seal, and that we still do not know for sure whether the new seal is actually doing the job. It would have been a lot more expensive except that, in Tom’s case, we are exchanging work by writing and editing the texts for his Round-the-World Sailing Rally-project. (You can visit his blogsite at www.soloaroundtheworld.com ).

Fatalistically, we have purposely left off discussing any immediate plans between Kathleen and me until we knew the engine was really working again. We still have six weeks on our visas and three weeks on our Cruising Permit. Since we had not actually taken Vilisar out of the country but returned with a broken motor, we only get month-by-month extensions on the Cruising Permit. We have more or less given up plans to sail to Polynesia before Thanksgiving: we could have been there easily by now, Kathleen points out. But the SE Trades will start to weaken now and, since it is now officially an El Niño Year, with less reliable winds and a greater chance of bad weather, we shall probably instead start up the Pacific coast of Central America towards Costa Rica, Nicaragua, Guatemala and even Mexico, secure in the knowledge that the farther NW we go, the closer we actually get to Polynesia anyway. The rainy season and the threat of hurricanes will wane and disappear by the end of November so we could dawdle in Islas Las Perlas and Western Panamá until it is safe to move on.

GOOD NEWS! BAD NEWS! GOOD NEWS! BAD NEWS!
Las Brisas de Amador anchorage, Panamá City, Panamá, Monday, 14 September 2009

Tom the Pole has worked diligently to re-install an engine that he did not himself take apart. He also had never worked on a Lister engine before. Although he has had to do it slowly and figure out everything a step at a time, the Lister engine was re-installed and running last week. That’s the first bit of good news.

The bad news, however, is that the transmission seemed to be locked in forward. When the engine started, Tom and I were in the main cabin and giving each other the high five until we realised we were going forward on the anchor chain and damned close to a neighbouring boat. The whole engine has had to be pulled again and the transmission removed once more. I suppose the fact that we did not have to crack open the actual engine again could be regarded as good news. But it hardly compensates, does it?

As the transmission was pulled off (again!), a gear fell out the bottom. Klink! More bad news. Amazingly, it did not, fortunately, fall into the bilge (Splash!). So, I suppose that’s good news, right? The part is a portion of the drive gears that operate the hydraulic pump in the transmission which is needed to shift gears. This I guess explains why the transmission is locked in forward.

The spindle that the gear was on has fractured through. That’s bad news. I spend a few hours on the internet and Skype calling Lister Petter’s parts centre in Olahe, Kansas. More bad news! They don’t carry that part. I Skyped to Lister Petter in the UK and am referred to Sleeman & Hawken in Teignmouth, Devon. Sleemans are major parts distributors and will even source parts for you for old engines. They at least have some good news for me in response to my urgently-emailed request: Yes, indeed! They do have the little spindle (smaller than my little finger), only one of them in stock. Please tell us where to ship it. The bad news is that it will cost approx $350 including a 25% discount (for what?) and $20 for shipping to our Airbox address in Florida. This is a real downer. $350! Bad news!

But there is good news! I get the names of several machine shops in Panamá city. There is some quite advanced stuff done here thanks to the long presence of the Canal and associated repair yards. I get a lift into town this morning with a fellow cruiser with his wife own a computer store in El Dorado, they drop me right in front of Taller Alfredo, a very efficient and modern-looking operation indeed. So, two good news items for this morning! That’s a good start, at least. The first bad news, however, is that Alfredo’s doesn’t do things as small as this small spindle. Huh? But, then the owner/manager, a friendly fluent English-speaking engineer named Alfredo Young, starts chatting with me and tells me all about his trips to Vancouver and Frankfurt (to the Automechanica trade fair) and then he re-considers. The good news is that Alfredo’s will do the little job. And there is even more good news! It will be ready tomorrow before noon and will only cost $25.

OK! Maybe it will not fit when it is done or it won’t be ready when promised or there may be some other hitch. But, we deserve a little good news once in a while. Maybe Tom can get the whole thing working again before he leaves for the islands next week.

On another front, we managed to extend our Cruising Permit for another month on the grounds that our engine is still not repaired. $20 + $9 admin fee. No bribery required this time. Good news again.

I report all of this because doing repairs on a boat in a foreign port can be such a frustrating and frequently expensive proposition. We had to pull the engine in order to replace a $4 oil seal. So far we have invested about 12 working days, have had to replace two or three people who have worked on the project successively, we have been living in squalor for weeks now. I can only laugh ironically when I recall we told our friends a month ago that we would be out to The Perlas by the weekend. LOL!

In the anchorage, the cruisers are once again being charged $5 to use the dinghy dock, a seriously outrageous price considering that there are no showers, toilets or the like. There is, at least, a tap at the dock for drinking water. Jakob took his small yacht in for the day in order to unload his old engine and load the new one for later installation at anchor. The “marina” charged him $100! Wow! I also talked a few days ago to a yacht captain from BVI whose boat has been on a buoy here for the last few weeks. He has been paying $700 a month! I was bowled over. He asked where else he could go, and I suggested he could get the same for $230 at Taboga Mooring. He was gone from here two days later. The good news is that so far they are not charging if someone just drops somebody off at the dock without stopping. So, the cruisers are sharing rides and costs.

Tuesday, 15 September 2009

The good news today is that I picked up the newly fabricated part. Alfredo is a really nice guy and his machine shop would be a credit in any country. And $25! What a relief. Now we only have to get it installed on the weekend when Tom is available. He is worried about how to slip the transmission onto the holding bolts without damaging the spindle again. There is some good news here too, though. We met Deenys Guzman of Field Engineering Services on the dock yesterday evening. He has been refitting a couple of pilot boats in our anchorage. He says he knows Listers and can give us some help. Let’s hope!