A Panama Canal Update

Robert McMillan
Former Chairman of the Panama Canal Commission

My memories of Panama and the Panama Canal go back some fifty years when, as Counsel to Senator Kenneth B. Keating, I was part of a Congressional tour through Central and South America.  Little did I know at that time, I would be named to the Board of the Panama Canal Commission by President George H. W. Bush in 1989 and move on to be elected as the first and only Chairman of the Commission who was not an official of the United States Department of Defense.

Even after the transfer of the Canal to Panama, I kept close to my friends in Panama through my service on the Board of the U.S.-Panama Business Council and as a lecturer on cruise ships transiting the Canal.

Attending the transfer ceremonies in December of 1999, I could not help but reflect on how the Canal would operate after the transfer.  Could a nation with a population of around 3.5 million and a GDP of less than one percent of the GDP of the United States take on the management of the Canal?  Did Panama have the caliber of executives to manage the Canal?

The answer to all of these questions today is a resounding, “Yes!”  Under the leadership of Alberto Aleman Zubieta, the Panama Canal has been run just as efficiently and as effectively as when the United States was responsible for the Canal.  In fact, Panama, beyond the enlargement of the Canal, which I will cover later, has taken steps at a cost of some $1.5 billion, to add new mechanisms for the locks and purchase new locomotives and tugboats – all which add to an even more efficient operation for ships transiting the Canal.

That leads me to the current expansion project which was announced by President Martin Torrijos in April of 2006 and overwhelmingly approved, in a vote, by Panamanians in October of 2006.  The $5.25 billion project is currently underway and should be completed by early 2015.  The expansion projects will more than double the capacity of ships currently passing through the Canal.  The construction process has been totally transparent.  It has been managed effectively by Jorge Luis Quijano who has been designated to take the place of Alberto Aleman Zubieta on his retirement in September of this year.

First of all, the Panama Canal Authority selected The University of Texas at Dallas to train its executives and staffs to better handle all aspects of the expansion effort.  Some 145 Authority employees received extensive training in Panama.  There is no doubt that this program has contributed significantly to the effective implementation and management of the expansion effort.

In addition, two world class law firms were selected to oversee construction contracts and loan agreements.  Mayer, Brown, Rowe and Maw has handled general legal advisory services for construction contracts, and Sherman & Sterling has provided international legal advice for financial matters related to the project.  Deloitte, one of the world’s largest accounting firms, has worked closely with the Canal Authority’s staff to insure that the Third Set of Locks Evaluation Committee follows the rigorous guidelines established for the selection process relating to contractors and equipment suppliers.

With the expansion underway, one other important issue has to do with the financing of the project.  While a portion of the expansion will come from an increase in Canal tolls, some $2.3 billion will have to be borrowed.  Fortunately, the Panama Canal Authority has a very good credit rating.  An international grouping of organizations has already committed the funds for the construction.  Included in the financing arrangement are the Inter-American Development Bank, International Finance Corporation, European Investment Banks, Andean Development Corporation, and the Japan Bank for International Cooperation.

All of this leads me to the recent toll increases announced by the Canal Authority and approved by the Government of Panama.  First, it is important to understand that tolls for the Canal are established and based on the true value of the “all water-route” with full participation from the users of the Canal.  Also, please note that the Canal does not require contractual commitments from its clients.  So, there is no doubt that the flow of traffic is based on the quality of service and the economics of using the Canal instead of other routes.  Since the transfer to Panama in 1999, Canal traffic has steadily increased – to me a signal that maritime interests fully respect the way Panama has managed the Canal’s operations.

The increase in Canal tolls is logical and, in the short and long term, will benefit the marine industry and the people of Panama.