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Dreams of a New Atlantic-Pacific Passage

Wednesday, June 19, 2013

Nicaragua’s legislature has approved a plan for a canal to rival Panama’s. But with challenges including financial viability and seismic stability, the canal may be more valuable as a radiant future than as a reality.

Earlier this month, the Nicaraguan legislature approved the latest version of a project that has been under consideration for more than a century — a canal connecting the Atlantic and Pacific Oceans, with a railroad, pipeline, and ports that will, backers hope, compete successfully with the Panama Canal, which is being widened to accommodate a new generation of extra-large container ships.

For Nicaraguan President Daniel Ortega’s Sandinista government, the estimated $40 billion project is a national imperative and opposition is “unpatriotic.” For Wang Jing, the head of the highly profitable but previously little-known Chinese telecommunication equipment firm granted license to build the canal, the project opens the possibility of creating one of the world’s leading transportation companies. How the project would be financed and who will actually build it remain unclear, but the Wall Street Journal believes most of the financing will probably come from China. Ortega claims that a feasibility study by McKinsey and Company has endorsed the idea, but he has not released the report and McKinsey has declined to comment, citing client confidentiality. The new act did not authorize a specific route, but it did take a significant step in granting a 50-year concession to Wang’s HK Nicaragua Canal Development Investment Company, based in Hong Kong, which will be studying the project’s engineering and financial feasibility.

The Obama administration has wisely declined to comment on the plan. The United States turned over the Canal Zone to the Republic of Panama in 1979 and phased out its management role by 1999, so it no longer has a direct financial interest, and opposition to the new scheme would only galvanize anti-American sentiment.

Failed Past Plans

To consider the Nicaraguan canal’s prospects, it helps to look backward as well as forward. It’s unlikely that the new project could ever be as disastrous as the original French Panama Canal project, spearheaded by France’s greatest engineering organizer, Ferdinand de Lesseps, who had built the Suez Canal but foolishly ignored the unique challenges of the Isthmus of Panama. Rain, disease, and the mighty Chagres River halted the project in 1888 after a horrendous loss of life — 20,000 laborers, by some estimates. Almost overnight, de Lesseps turned from national champion to scapegoat, detested not only for the deaths but also for the financial losses to 800,000 French investors, including many of limited means who forfeited their life savings in the 19th century’s greatest financial calamity.

Given the first Panama debacle, it’s no wonder that a blue-ribbon commission appointed by President William McKinley in 1899, known as the Second Walker Commission, initially favored a Nicaraguan route over buying out the French interests in Panama. After McKinley’s assassination, his successor Theodore Roosevelt gave his support to the Panama route for both economic and strategic reasons, and in 1902 persuaded the Walker Commission to reverse itself. But Congress still had to approve.

The seismic stability of Nicaragua remains in question.

Philippe Bunau-Varilla, de Lesseps’s engineering lieutenant and a major shareholder in the failed Panama company’s successor, found a public-relations angle. One of Nicaragua’s dozen major volcanoes, the iconic Momotombo, had erupted in the spring of 1902, spewing ash and lava. There were no convincing photographs available in Washington, and it was a challenge to dramatize this event. Bunau-Varilla discovered, however, that Nicaragua had issued a 5-centavo stamp at the turn of the century imaginatively depicting the mountain as an active, smoking crater. In the absence of quick printers or e-mail attachments, Bunau-Varilla distributed the stamps accompanied by a warning to every member of Congress. That visual coup was not the only reason for Congress’s switch to favor the Panama route — but it helped. Bunau-Varilla even represented the new separatist Republic of Panama in the 1903 treaty with the United States that allowed the project to go forward.

But the Nicaragua plan never died; the possibility was even recognized in the 1916 Bryan-Chamorro treaty with the United States, mutually abrogated in 1970, which gave the United States a perpetual option on construction of a canal. While Momotombo was 100 miles from the original planned Nicaragua route, and there were small earthquakes on the Isthmus of Panama itself, the seismic stability of Nicaragua remains in question. In 1931, two thousand people were killed in an earthquake in the nation’s capital, Managua. Forty-one years later, in 1972, another quake struck Managua, killing 5,000, injuring 20,000, and leaving 250,000 of the 400,000 residents homeless. Almost exactly 41 years have passed since then, and Managua is preparing for an encore.

Today’s Prospects

Since official sources list six possible routes for the new canal, all through Lake Nicaragua, the geological risks are still unknown. And it is possible that the risks do not really matter to the Sandinista leadership as long as construction money pours into the nation’s economy.

In fact, the economic value of the Panama Canal during its U.S. era — from its opening to traffic in 1914 to the transition to Panamanian control in 1979 under the Torrijos-Carter treaty — is also surprisingly ambiguous. One of the project’s leading scholars, the historian Walter LaFeber, acknowledged in his 1989 book The Panama Canal: The Crisis in Historical Perspective that it is an “unanswerable question” whether the $400 million investment had been amortized. The project was a “thousand-piece jigsaw puzzle which has important pieces missing,” he wrote. Construction was really about national strategy, especially East Coast access to California’s booming oil fields, which increased production from 4 million to 77 million barrels between 1900 and 1910, and mobility of the Navy. (The sea power strategist Alfred Thayer Mahan, admired by Theodore Roosevelt, had been a firm supporter of the Panama option.)

It is not clear that we will need more capacity than the widened Panama Canal for decades to come.

Could the Nicaraguan canal — with its railroad, pipeline, and ports — be financially viable? Backers are counting on projections of continued increase in container traffic between Asia and North America. But there are reasons for skepticism. It is not clear that we will need more capacity than the widened Panama Canal in the next few decades. Geographer Jean-Paul Rodrigue told the Wall Street Journal that the Nicaraguan canal is possibly “the biggest white elephant in human history,” and noted in an interview last year that Nicaraguan political instability made the project doubtful. The Northwest Passage and even the Suez Canal might have a growing role, Rodrigue added. For its part, the HKND Group is still free to decline construction after a new round of reviews. The company’s advisers proclaim optimism while acknowledging they still have not worked out the economics of the proposal. The HKND website promises not just a thorough engineering and economic studym but a full review of natural and social impacts by Environmental Resources Management, a major international sustainability consulting company.

At first glance it looks odd that the Nicaraguan legislature’s far-reaching concession should be granted before such studies are complete. Add the complex legal claims of Nicaragua’s southern neighbor Costa Rica to the San Juan River, warnings from environmental advocates, and possible seismic issues, and the excitement over the project seems, at best, premature. The most celebrated recent international transportation link, the Eurotunnel, took 26 years to reach a profit in 2012. In Megaprojects and Risk, the Danish economic geographer Bent Flyvbjerg and his co-authors observed that the real risks of the Eurotunnel had been “several times higher than those communicated to potential investors” in the prospectus, surely a warning regarding any big new project’s assumptions. Yet the proposal does have a domestic political function for Ortega, while for China and for Wang it promotes an aura of global influence. Surely Wang and Ortega sincerely believe in the project, but they must also be aware of the downside. Just as it is sometimes far more enjoyable to contemplate a big-ticket consumer purchase like a luxury car than to confront all the unexpected bills that come with ownership, the canal may be more valuable to the Nicaraguan government as a radiant dream than as a reality.

Edward Tenner is the author of Why Things Bite Back: Technology and the Revenge of Unintended Consequences and Our Own Devices: How Technology Remakes Humanity. He is an affiliate of the Princeton Center for Arts and Cultural Policy Studies.

FURTHER READING: Tenner also writes “The Perpetual Passion for Paper,” “How Economic Nationalism Bites Back,” “An Unnatural History of the Electronic Mouse,” and “Apple, Disney, and Dreams of Corporate Utopias.” Jaime Daremblum argues that “Democracy is Under Attack in Nicaragua,” while Roger Noriega details “Obama in Latin America: Flipping the ‘On’ Switch,” and “Mounting Challenges to U.S. Interests in the Americas.” Margaret McCarthy highlights “Nicaragua and Venezuela’s Well-Oiled Relationship” and Alex Brill writes “A Victory Celebration and a Wake for Free Trade.”


Image by Dianna Ingram/Bergman Group. Photo by Chris Howey.

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