Business | 2/25/2011 12:00:00 AM
Will it be possible?
The idea of a ‘dry canal’ to compete with the one in Panamá has been on the table for nearly fifty years. Now there is the option that the Chinese will finance the work. It would be a great opportunity, but there are many questions that should be answered first.
The press in Panama put a lot of interest in this case because the dry canal is proposed as an alternative route to the Panama Canal. In Central America drew attention because the idea of building a dry canal, as it is called, has been raised for years in the region and several Chinese and Russian investors have said they want to support this mega project that would benefit Guatemala, Costa Rica, Honduras and Nicaragua. It also raised hopes in South America, as countries like Brazil and Venezuela are interested in a canal to facilitate maritime trade between the Atlantic and the Pacific.
In Colombia, the news revived the old dream that governments have had to connect the Pacific to the Atlantic. Belisario Betancur (1980-1986) proposed it with the Atrato-Truandó Inter-Oceanic Canal; Virgilio Barco (1986-1990) with the Inter-Oceanic Land Bridge; Ernesto Samper (1994-1998) with the idea of using the flow of Chocó’s rivers; and Álvaro Uribe (2002- 2010) also included the idea in his plans.
The governor of Antioquia, Luis Alfredo Ramos, recalled that the idea of building a dry canal have been on the table for nearly fifty years. For that matter, 25 different routes have been studied. “In Antioquia we have received multiple missions of Koreans and Chinese interested in investing in infrastructure. In 2008 we signed with the Chinese a memorandum of understanding for the development of strategic projects, including an Inter-Oceanic connection”.
Now the idea raises again with Santos’ government. Last year, the president of the Development Bank of China and a group of businessmen of Railways (the national railway operator in the Republic of China), met with Santos and expressed their interest in building a 250 km railway between the Pacific and the Atlantic.
Last week Santos gave further details. He explained that the idea of the Chinese is to create a fortress south of Cartagena, where it could operate a manufacturing and assembly facility for exports to the rest of Central and South America and the United States.
The proposal was really interesting for the government because it would clear the roads, it would be a 2.7 billion dollars investment and would allow Colombia to take advantage of its strategic location to improve foreign trade.
However, beyond the benefits for the country, that are clear, the proposal raises skepticism among experts that have already heard of this issue in the past and reopens a debate on the economic, social and environmental aspects of the project.
For Julián Palacio, manager of the Port Multimodal Society for the Magdalena River and an expert on ports, the work would be very good for the country, but make it real is much more complex than many imagine, starting with the costs. In matters of shipping there is a rule that says the more you handle the load, the higher the cost. In this case of the dry canal, the merchandise would have to be unloaded at a port in the Pacific or the Atlantic to be taken to the trains that will transport it by rail to the other side. The containers would have to change twice and that will make the transport more expensive.
Skeptics believe that it is much more expensive this way. Some estimates indicate that moving a container through the Panama Canal costs 100 dollars, while moving it by the dry canal would cost 500 dollars. Loading a single ship of about 12.000 containers would require about 30 trains to carry it trough the railway line.
Another question, according to Palacio, is that the country needs better infrastructure in ports in the Pacific Region. They don’t have appropriate depth or the ability to receive large ships.
Government officials in Panama told the web page www.dinero.com
The reason is that the load is highly monopolized by very few ports, and the Panama Canal has been, for years, the logistics center for Latin American trade coming from Asia. The expansion of the Panama Canal in 2014 will allow the passage of large vessels and its capacity will increase from 300 million tons of commercial load annually to 600 million, while the Colombian channel will only have capacity for 40 million tons each year. In addition, the neighboring country is expanding its three ports: Colón, Balboa y Manzanillo, and improving the quality of the rail that goes trough the country.
Additionally, the Panama Canal already has agreements with ports in the eastern United States to mobilize Asian load, so when the dry canal project is ready, there will be many compromises signed.
The administrator of the Panama Canal Authority (PCA), Alberto Alemán, cited by the digital media Panama America, minimized the impact of the possible dry canal in Colombia, and the Vice President of Research and Market Analysis of the PCA, Rodolfo Sabonge, told EFE that the Panama Canal will always offer competitive advantages over other modes of transportation, such as a safe, reliable and efficient route.
Some people argue that if the dry canal project has failed to progress in Central America, where the way to invest is smaller, there is no hope that in Colombia it could have a happy ending.
The difficulty is not just financial issues. Some experts believe the real obstacle is environmental. The potential impact of this route along the corridor where it goes through, especially if it affects the virgin forests in Chocó and Urabá, is a major obstacle for the project.
The Chinese Strategy
Manuel Felipe García, chief investment officer of the Old Mutual-Guodian Insurance in Beijing, believes that the Chinese proposal is not as outlandish as some people think. “China wants to have influence in all the world and has the wallet to invest wherever they want and whatever they want”. The numbers speak for themselves. Capital investments for the domestic railways in China are equivalent to 450.000 billion dollars, which would be similar to what Colombian economy produces in about eighteen months of operations. Plans in terms of miles are no less striking: in five years China hopes to expand the rail lines from 91.000 kilometers (about 57.000 miles) to about 120.000 km (about 75.000 miles). This means they will have to construct 6.000 km (about 3.700) of railways per year.
The dry canal in Colombia makes a lot of sense for the Chinese, because they need natural resources found in the Atlantic, which have to go to the Pacific. In particular, Venezuelan oil and Colombian coal, two elements that they need urgently to continue their expansion.
As García says, if the Chinese are serious about the initiative that they proposed to Santos, it could be very possible that before 2015 there is an inter-oceanic route running. China has made impressive things concerning railways in recent years, and there is no doubt that it would continue to do the same in the long term. For example, the new high-speed railway linking Shanghai and Hangzhou, 220 km (136 miles), was completed within two months. In Colombia, the Chinese have also raised an investment plan which, in addition to the rail, includes the expansion of the Buenaventura port in the Pacific.
Definitely, if the Chinese can have an exclusive line that gives them an easiest way to get closer to the Atlantic and allows them to reach markets that right now are more complicated and expensive for them, there is no doubt that the dry canal in Colombia would be a matter of concern for economies that have dominated the Atlantic, especially United States and Europe.