The Panama Canal is vital to global trade, but a troubled seven-year project to build new locks has left the future of the canal in doubt, a New York Times investigation found.
PANAMA CITY —
On July 8, 2009, the Champagne finally flowed.
After an intense two-year competition, a consortium led by a Spanish company in severe financial distress learned that its rock-bottom bid of $3.1 billion had won the worldwide competition to build a new set of locks for the historic Panama Canal.
Not an ideal market for opening of larger canal
The expanded Panama canal is set to open at a difficult moment for the international commercial-shipping market.
The drop in world oil prices, an economic slowdown in China and other factors have been affecting the canal’s traffic and income.
About one-third of the canal’s traffic is between U.S. East Coast ports and northern Asian ports. But that cargo traffic dropped 10.2 percent in 2015, and lower oil prices have allowed some shippers to use longer routes. Because of the canal’s size limits, some shippers now go through the Suez Canal.
Canal Administrator Jorge Quijano said the shipping market is cyclical and will rebound. There are 162 reservations for large-ship voyages through the new locks through December, and the new locks are expected to earn between $400 million and $450 million in their first year of operation.
“Things won’t stay at zero. The world will continue to grow,” Quijano said.
The Associated Press
The unlikely victors toasted their win. Within days, executives of the four-nation consortium, Grupo Unidos por el Canal, flew to Europe to begin planning the project.
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Disputes quickly erupted over how to divide responsibilities. Some executives appeared not to fully grasp how little money they had to complete a complex project with a tight deadline and a multicultural team whose members did not always see things the same way.
Internal arguments soon gave way to bigger problems. There would be work stoppages, porous concrete, a risk of earthquakes and at least $3.4 billion in disputed costs: more than the budget for the entire project.
Seven years later, and nearly two years late, the locks have been declared ready to accept the new generation of giant ships that carry much of the world’s cargo but cannot fit in the original canal. To mark the occasion, Panama has invited 70 heads of state to watch Sunday as a Chinese container ship becomes the first commercial vessel to attempt the passage from the Atlantic Ocean to the Pacific through the larger locks.
For more than 100 years, the canal has been a vital artery nourishing the world economy, a testament to U.S. engineering and one of the signature public works of the 20th century. The new locks, built by Panama without help from other governments, were sold to the nation and the world as a way to ensure that the canal remained as much a lifeline in the hyperglobalized 21st century as it was in the last.
How it falls short
But the expanded canal’s future is cloudy at best, its safety, quality of construction and economic viability in doubt, an investigation by The New York Times has found.
In simple terms, to be successful, the new canal needs enough water, durable concrete and locks big enough to safely accommodate the larger ships. On all three counts, it has failed to meet expectations, according to dozens of interviews with contractors, canal workers, maritime experts and diplomats, and a review of public and internal records.
The low winning bid, $1 billion less than the nearest competitor’s, made “a technically complex mega-project” precarious from the outset, according to a confidential analysis commissioned by the consortium’s insurer. “There is little room in the budget for execution errors or significant inefficiencies,” the analysts, from Hill International, wrote in 2010, adding, “This is a high-risk situation.”
Among the biggest risks is the concrete that lines the walls of the six mammoth locks punctuating the path between the seas.
Then there is the lock design. Tugboat captains say they cannot safely escort the larger ships because the locks are too small with too little margin for error, especially in windy conditions and tricky currents. In fact, in a feasibility study, the Panama Canal Authority had earlier concluded that the tugs needed significantly more room.
The tugboats themselves are a problem, especially the 14 new boats purchased from a Spanish company. To maneuver safely, they must be precisely controlled, but according to captains, they are so unstable that they operate best going backward, something that cannot be done while towing ships through the canal.
“The Spanish tugs are perfectly awful,” said Iván de la Guardia, head of the tugboat captains union. Confidential documents show that the canal authority bought the tugboats for $158 million from a company later represented by the son of Jorge Quijano, the canal’s administrator.
The new locks exist for one reason: so that huge “neo-Panamax” ships can move far greater quantities of cargo through the canal. For them to do that, the waterway must remain deep enough so that fully laden ships do not hit bottom. But canal officials discounted warnings that they needed new sources of water, and during a recent drought, shippers had to significantly lighten their loads.
At the center of the story is the Panama Canal Authority, which oversaw the design of the new locks and chose the winning bidder. In a small country dominated by an old-money elite, where the lifeblood is the canal, the authority is a power center unto itself, a government within a government.
The old and the new
Grand in scale and beautifully imagined, the original Panama Canal is an engineering marvel. Ships glide through on a 50-mile water bridge. The lock gates, some weighing more than 700 tons, are watertight and buoyant, so finely balanced that should the power fail, a single person can manually open and close them.
Three locks raise the ships 85 feet to Gatun Lake, which supplies water for the canal and drinking water for much of the country. Three more locks lower them back to sea level. All of the locks are filled and emptied by gravity, without pumps.
Over the decades, the canal made Panama, with few natural resources, a key square on the economic chessboard.
China’s economic ascent ushered in a new era. Ships became bigger. The more cargo they carried, the lower the cost. By 2000, ships were being built that could not pass through the canal. Fearing its waterway might end up like the long-outdated Erie Canal, the canal authority set out to build a bigger one.
Just as it was about to solicit bids, the canal authority received some frightening news in November 2007. Jonathan Harris, a geologist working for the authority, reported that Panama’s earthquake risk was far greater than previously believed. By his assessment, the area is vulnerable to earthquakes of up to 8.0 magnitude, according to a diplomatic cable released by WikiLeaks.
Even so, three consortiums — including one led by Bechtel, a U.S. company with an international reputation for taking on big, difficult projects — pursued the contract. The financially weakest consortium was led by a Spanish company, Sacyr Vallehermoso, which U.S. officials called “nearly bankrupt” in one cable and “technically bankrupt” in another.
Sacyr’s consortium included a Panamanian company owned by the family of the canal administrator at the time, Alberto Alemán Zubieta. The company, Constructora Urbana, in which Alemán previously owned stock, had already done millions of dollars in business with the canal. The other two members were Impregilo, a large Italian contractor, and Jan De Nul, a Belgian company that specializes in dredging and excavation.
In March 2009, after 15 months of contentious negotiations, the three consortiums submitted their sealed bids. The one with the best price and design would win.
That July, the result was a shocker: The underdog Sacyr group had won.
Bechtel and U.S. diplomats were incredulous. Sacyr could not even “pour the concrete” for that amount, a Bechtel representative told the embassy, according to a diplomatic cable.
While Sacyr’s low offer meant Panama received a bargain on price, some viewed it as too good to be true.
A few days after Christmas 2009, at lunch with Barbara Stephenson, the U.S. ambassador, Panama’s vice president, Juan Carlos Varela, confided his fears. He elaborated later: “You don’t mess around with something as important as the canal. When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong,” he said, according to a diplomatic cable.
Too short, too narrow
The canal authority made one fact abundantly clear: The new canal would operate differently from the old one.
This weighed on de la Guardia, the stocky chief of the tugboat-captains union, as he sat in a Panama City cafe one afternoon in December 2015. “We don’t think it is going to work,” he said.
His opinion carries weight. A native Panamanian who graduated from the U.S. Merchant Marine Academy, de la Guardia has spent 20 years running tugboats in the canal. “We think it’s going to be a real mess,” he said.
His concern stems from the canal authority’s decision to abandon locomotives to guide the ships. Tugboats will now push and pull vessels stacked with up to 13,000 containers, nearly three times as much as the old, smaller ships.
The size of the locks is the captains’ biggest concern. The new locks are 1,400 feet long and 180 feet wide. Big container ships are 1,200 feet long and 160 feet wide. Tugboats fore and aft measure nearly 100 feet each. Do the math, they say.
A feasibility study done by the canal authority in 2003 concluded, “for the tugboat system to work safely and efficiently in the locks,” the locks needed to be 328 feet longer and 40 feet wider than the big ships passing through. By that standard, the new locks should have been 1,528 feet long and 200 feet wide.
Quijano said the captains had received proper training, including classes and simulations. He added that the locks could be made longer by using a backup gate; that would not, however, increase their width.
To assess the safety and efficacy of the canal authority’s plan, the International Transport Workers’ Federation hired experts to conduct simulations involving neo-Panamax ships. The study, released this year, concluded the ships could pass through the locks under perfect, windless conditions, but would have trouble on windier days.
By the middle of last year, the end was in sight.
Then, during water tests in the canal, a public-relations disaster: photographs and video showing water gushing from concrete in one of the Pacific locks — the same locks near the earthquake faults.
The problem had remained a secret for more than a week. But the images, posted anonymously Aug. 23 by a canal worker, seemed to confirm everyone’s worst fears.
This was no small leak. Water spurted from cracks extending across nearly the entire width of the lock, according to Ilya Espino de Marotta, executive vice president for engineering at the canal authority.
Some days later, a consensus emerged: The design, not the concrete, was at fault. Marotta said in an interview that the leak had occurred only because the concrete was subjected to extreme pressure when one chamber was empty and the next was full. During normal operations, both chambers would contain water.
To fix the problem, the authority had two options: Tear down the concrete and rebuild it, an expensive remedy that would cause further delays, or drill holes and insert steel reinforcement bars. The decision was made to reinforce.
Canal officials said all the problems had been properly repaired. “We are confident the concrete will last 100 years,” Quijano said.
On June 9, the training wheels came off as the first neo-Panamax ship, the Baroque Valletta, entered the first of three locks on the Atlantic side. With the official opening just two weeks away, canal officials wanted to be sure their locks worked as planned.
History was made, as the Baroque passed through all three locks before anchoring in Gatun Lake. Leading the way was a familiar tugboat, the Cerro Santiago. A second Spanish tug was in the rear. The applause on shore was acknowledged with blasts from the ship’s horn.
The degree of difficulty for Baroque’s passage was actually quite low. The ship fit easily in the 1,400-foot lock because it is only 836 feet long, roughly two-thirds the length of the larger vessels. And it presented a small profile in the wind because it had no stacked containers.
The canal authority’s plan to move about 12 neo-Panamax ships a day now appears unrealistic — at least for the time being, according to shippers, given that many East Coast ports are still preparing the infrastructure to accommodate the big ships.
The authority now says that, during the rollout period, it expects the new locks to handle no more than three ships a day.
There are other loose ends, including assessing the project’s final cost.