The New Panama Canal: A Risky Bet : VIDEO

The New Panama Canal: A Risky Bet

How a $3.1 Billion Expansion Collided With Reality

WALT BOGDANICH, JACQUELINE WILLIAMS and ANA GRACIELA MÉNDEZ JUNE 22, 2016

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.

The unlikely victors toasted their win at La Vitrola, a sleek restaurant in an upscale neighborhood east of downtown Panama City. Within days, executives of the four-nation consortium, Grupo Unidos por el Canal, flew to Europe to begin planning the project.

This time, there would be no champagne. 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 finally 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 on 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 American 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 of a lifeline in the hyperglobalized 21st century as it was in the last.

Hundreds of passenger ships, cargo ships and tankers cross through the Panama Canal’s original locks every month.

Source: IHS Maritime & Trade | Map by Larry Buchanan and Jeremy White

But when the speeches and the celebrations end, one inescapable fact will remain: 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, as well as a review of public and internal records.

The low winning bid, a billion dollars 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.

Last summer, water began gushing through concrete that was supposed to last 100 years but could not make it to the first ship. The Hill analysts had warned that the consortium’s budget for concrete was 71 percent smaller than that of the next lowest bidder. The budget also allotted roughly 25 percent less for steel to reinforce that concrete.

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 obtained by The Times, 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, mostly for the expanded locks. 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, the head of the tugboat captains’ union. Confidential documents obtained by The Times show that the canal authority bought the tugboats for $158 million from a company later represented by the son of Jorge L. Quijano, the canal’s administrator.

http://www.nytimes.com/interactive/2016/06/22/world/americas/panama-canal.html?_r=0

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