For the benefit of the world – really?

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To contribute this special essay, COHA has called up the highly regarded Dr. Miguel Antonio Bernal, Professor of Constitutional Law at the University of Panama.

Letter from Panama

Panama Canal bleeds, Washington preens over one of its favorite Latin American pals, Panama. President Martinelli goes up and the nation’s master plunderers thrive. Will the Isthmus nation survive its torments?

COHA is pleased to detail the skullduggery that rips through the nation. The Bernal account and ancillary information coming from other sources cited below, is based upon a trunk load of correspondence with Professor Bernal of the University of Panama, and from other sources, such as the blessed Panama News, as well as by the words of Washington D.C.-patriot Marcos Wilson. Not to be overlooked as major students of Panamanian realities Eric Jackson and Kevin Harrington-Shelton also contributed to this document.

But at the end of the day our gratitude must be aimed at Professor Bernal, who unlike the rest of us, his concerns over Panama destiny are not a part-time business.

For the benefit of the world – really?

“For the benefit of the world,” is emblazoned –in Latin– on the Republic of Panama’s coat of arms. This appearance may have been appropriate enough in 1903 when the tiny country finally achieved independence from Colombia (with a little help from a friend who was also interested in what was to become its international waterway). But the motto may not have the same importance today. When Panama finally came into its own management of the Canal in 2000, its people thought Canal income would cure many of the nation’s social economic ills while providing the nation with a capacity to accumulate profound power that could challenge weighty social contemporary problems. The result is proving to be otherwise.

Early in 2009, Ricardo Martinelli, then candidate to be President of Panama, sent a trusted associate on a sensitive mission. Although Martinelli had finished last in the previous election, he was up in the polls by 2009, and must have felt already on the throne. This was because he was about to tinker with his country’s most precious and vulnerable asset: the Panama Canal.

The associate was the 47-year-old Colombian-born Salomon Shamah, who had proved himself already invaluable in the Martinelli playbook, while producing highly effective TV and radio spots.  Armed with a law degree, Shamah never has practiced and had no visible means of economic support from the time he left university in the 1980s to Martinelli’s spectacular rise to the presidency in July 2009.  In December, 2009, a secret cable sent to Secretary of State Hillary Clinton’s office and subsequently leaked by WikiLeaks, the U.S. Ambassador to Panama, Barbara Stevenson, described Shamah as having “suspected links with drug traffickers,” while Colombian media reports that Shamah had been fingered by that country’s intelligence services for trafficking weapons to paramilitary groups. ­Despite this murky background (or perhaps because of it) Shamah was soon to become Panama’s head of tourism. Apparently, having no problems with that country’s bilateral ingress and egress. At the time, Shamah was only speaking to Martinelli.

Shamah’s intial mission apparently took him to Madrid, for discrete meetings with Luis del Rivero, the then-president of the mammoth construction conglomerate, Sacyr-Vallehermoso. At the time, Sacyr was heading a consortium bidding for a multi-billion dollar contract for a third set of locks for the Panama Canal.  At the same time, Sacyr was then on the brink of bankruptcy; the locks contract was its sole hope to bail itself out.  According to the website of the Spanish El Confidencial dated 4th January 2014, and citing sources close to the bidding process on that occasion, Shamah’s mission was “to close a deal on the details” of the contract.  The following day, the disclosures on Spanish online publication “Kaos en la Red” shed light on certain details:  “The operator . . . [picked] to negotiate the bribes that were being payable directly to the President of Panama was the arms trafficker Salomon Shamah.”  While the formal bidding process carried on with a patina of transparency, Martinelli was secretly rigging it backstage.

Fast forward to July 2009.  The Sacyr consortium landed the contract with a bid one billion dollars below that of Bechtel, its nearest competitor, as well as being under the presumably-secret amount the governmental Panama Canal Authority, which it was willing to honor without hesitation.  Fast forward again to February 2014. Work ceases on the new locks.  Sacyr, which in the meantime had sacked del Rivero, suddenly refuses to pour one more pound of concrete, unless and until it was paid $1.6 billion to cover presumed cost-overruns. The Canal Authority insists Sacyr stick to the existing contract, but strangely enough, the largest public works contract in Panamanian history, has yet to be publically released.  Perhaps this is due to the case that some of its details might prove to be seen.

No one who is closely following the expansion project is at all surprised at these events.  Once again, Wikileaks’ findings proved quite illuminating in hindsight.  On 30 June 2009, one month before sealed bids were opened, U.S. Ambassador Stevenson warned Secretary Clinton, that the tender “may choose a consortium that provides the ‘best value,’ on paper, but may not be capable of completing the project.”  On the day Sacyr won, she reported that certain Canal Authority Board members were doubtful that the Sacyr consortium commanded the “financial ability to complete the project.” And, in a fascinating cable dated 8 January 2010, she quotes Juan Carlos Varela, Panama’s incumbent Vice President and then-Foreign Minister, as saying that “the Canal expansion project is a disaster.” She adds that President Martinelli “feared that Canal Administrator [Alberto] Aleman Zubieta might have tipped the bid toward the [Sacyr] consortium that included CUSA,” a local construction company owned by Aleman’s family.  Apparently, Martinelli, who was aware of Varela’s spilling the beans, was now shifting the blame to Aleman.

Meanwhile, Shamah’s mission insured that the centerpiece of the Canal expansion project fell to the wrong people. The project was already underway, for the wrong reason, and in the wrong direction. For words on the subject, we go first to Professor Bent Flyvbjerg of Oxford’s Saud Business School and his book “Megaprojects and Risk: An Anatomy of Ambition.”

According to Flyvbjerg, whose ideas on the subject have earned him worldwide recognition, more and more multi-billion-dollar infrastructure project–“megaprojects” — are being undertaken as vehicles for economic growth, only to become obstacles to real growth, through cost overruns and lower-than-predicted revenues.  Why is this so?  Common-sense approach might argue that the bigger the project, in terms both absolute, and relative, to the sponsor nation’s economy, the more careful its promoters should be prepared to go about estimating its risks and benefits.  Flyvbjerg’s research, however, demonstrates exactly the opposite.  “Costs are systematically underestimated and benefits overestimated” through “the use of deception and lying as tactics aimed at getting projects started.”

What happened back in Panama tends to bear Flyvbjerg out.  The Canal consists of a man-made lake 85 feet above sea level  (a seasonal average), with steps down to either ocean via sets of locks at both ends.  Ships now will be able to sail across the isthmus on a water bridge.  The locks used at the time which opened for business a hundred years ago next August, are 1050 feet long and 110 feet wide.  The largest ships they can handle –“Panamax” size– are about 950 feet long and 106 feet wide, and can carry up to 5000 containers.  Larger vessels do exist, particularly when it comes to container ships and oil tankers, and talk of expanding the Canal to accommodate larger sizes now has gone on for some years.  However, at the end of 1999, almost as soon as Panama took over the Canal, the country’s political class began speaking of expansion as though expansion were a given and favorable, solution of proven cost-effectiveness.

Actual studies, funded by the Canal Authority, began surfacing during the run-up to the 2006 constitutionally-mandated referendum. However, these were laden with “deception and lies.”  U.S. imports from China were projected as continuing to increase, indefinitely, at the then-current, unusually-high rates, with future revenues coming from an expanded Canal projected accordingly. The original cost of the project was put at an unrealistic $5.2 billon, by using low figures and keeping important construction costs off the table.  The number of jobs the project was capable of creating were grossly overstated at 250,000.

State monies were spent with largesse to promote a “yes” vote.  Then President Martin Torrijos and his First Lady toured the countryside, passing out free medicines labelled with the message to vote “yes”.  Sundry fora on the referendum were packed with Canal employees, who attended on the prospect of the loss of their jobs at the country’s highest-paying employer. Nearing the end of the campaign, when it appeared that the “yes” vote might be in for trouble, the general manager of a major bank hosted a breakfast meeting for business leaders at which he raised substantial sums of private sector money and urged the President, who was present, to employ the instruments of state violence to the discomfit those citizens who marched through the streets to protest against the project.  And the President listened.  Police used clubs and tear gas to break up a teachers’ march, who thought that before expanding the Canal, the government ought to consider raising their salaries.

In the end, the “yes” won by a large margin.  However, In supporting the project, the charmed circle who had the tendency to decide issues in Panama’s government, and in the Canal Authority, and in the business community at large, did everything in their power to prevent the proposal’s being considered on its true merit. Who knows? Solely on its own terms, it might be rejected. If it went ahead, merits or not, it would lay on a banquet of goodies, while being weighed by insiders on the table, worthy of being devoid.

Carrying out the expansion project for the wrong reason led on to doing it the wrong way.  Insuring that the project would be accepted meant keeping its projected cost as low as possible, and lying about it could only do so much. To do more, the design would have to be altered in two crucial facets which greatly increased the riskiness of the project.

 The present Canal operates without pumps.  Millions of gallons of fresh water will be released from Gatun Lake with each lockage.  A new set of larger locks will require more water, and the first thought of those designing the expansion was to enlarge the Canal watershed by creating a second artificial lake.  However, in the meantime squatters in the area have been allowed to settle within the watershed’s catchment zone, and the cost of relocating them was considered too high. So new locks were designed to include basins with which to collect and recycle some of the polluted lake water discharged in the lockages.  This approach comes with the risk of dangerously salinating the lake, which also provides drinking water for the cities of Panama and Colon. Pandering brackish water potable is expensive.  Salination would also bring the transfer of marine flora and fauna between the Atlantic and Pacific Oceans.  These populations had been separated for upward of three million years since the Isthmus of Panama surfaced from the ocean floor. Mixing them now would create enormous ecological havoc!

The present Canal uses electric locomotives, with retractable cables to keep ships under control, whilst dragging them into and through the lock chambers.  The Expansion’s locks dispense with them as too costly.  Tug boats will be used instead.  In a letter published in January this year by the online journal “The Panama News”, Captain Douglas Olsson, a recently-retired Canal pilot, raises serious questions regarding this innovation, drawing on his own experience and that of other pilots and tugboat masters who are currenty employed on the Canal and thus may be reluctant to speak out. According to Captain Olsson, the tugs the Canal Authority is purchasing for the project have a pulling power of from 75 to 90 tons.  A vessel 1100 feet long, carrying 10,000 containers, such as the new locks are designed to handle, presents a profile of at least 100,000 square feet, against which the 25 knot winds common in Panama’s dry season would exert 400 tons of lateral pressure, which four tugs would make it barely be adequate to offset.  How many would it take to maneuver the ship into a lock chamber when contending as well with sea-entrance currents should well be asked?

How, Olsson asks, would such a ship be secured, once in the chamber?  Whenever a ship displacing 120,000 tons traverses its own length, the same number of cubic meters of water has to get out of its way, so a great force predictably will be required to get her moving or to keep the vessel going onward.  Olsson doubts that a tug at the bow and another at the stern, as in the Canal Authority’s projections, “would be able to exert sufficient force continuously to have the required controlling element of the locomotive system in the older locks, in a timely manner.”  When discussing the new locks, Canal pilots worry about ships crashing into lock doors and tugboats being crushed between the chamber wall against a ship forced laterally by wind pressure.

Captain Wilbur Vantine, also retired and perhaps the most experienced living Canal pilot, is even more explicit, in another letter published by “The Panama News.” “They [the Canal Authority] will have to retrofit approach walls and locomotives at great expense and delay.  Big ships can not be routinely, expeditiously and safely, lined up from an open bay for entry into the locks.”

Here we see clearly the huge difference between those who make the Canal work, and those who are responsible for the expansion project.  One group, moved by pride, respects reality.  The other, perhaps driven by greed, can only deal in make believe.

For a hundred years the Panama Canal’s been a “path between the seas” along which day and night, in peace and war, through fair and foul weather ships have moved routinely, expeditiously, and safely.  The sole discernible difference since the changeover from U.S. to Panamanian administration is that the rhythm of transits has sped up a bit, because the U.S. ran the Canal as a public utility, whereas Panama is running it as a business.

The Canal’s marine traffic controllers know how long such-and-such a vessel will have to spend in the middle chamber of Gatun Locks, up to the minute.  The knowledge helps keep the ships moving and makes shipowners happy (for ships don’t earn a penny idling at anchor).  The Canal’s Hydrographic Branch knows how deep Gatun Lake will be, to the nearest inch, three weeks into the future, when a given vessel loading in Shanghai will actually allow it to be in transit.  That knowledge would allow her to load up the maximum cargo, thus making another shipowner predictably happy.

The Canal’s chief pilot of a Panamax ship approaching the Pacific entrance at Miraflores stands on the starboard side of the bridge.  Behind him stands the ship’s first mate, translating the pilot’s commands into Chinese or Japanese or Korean.  Behind him is a sailor at a console with a wheel and engine room telegraph, executing the commands.   The chief pilot can’t see the bow two football fields ahead, or the port side of the ship, because of the containers piled up on the deck — so assistant pilots are there with walkie-talkies to do his bidding for him.  The masters of tugboats nuzzled alongside also have radios, as do the ten men running locomotives that hitch up as the ship moves forward.  There is usually wind of some sort and always internal currents.  Fresh water from the previous lockage flows from the chamber, heavier and colder than sea water, under which it tries to slip, thus causing turbulence.  And ten months of the year a rain squall can blow in at any minute, chopping visibility down to a few meters.  The chief pilot directs his group, much as in a chamber orchestra.  Only that any false notes that once they resound could cost human life and/or hundreds of millions.

In recent years, at the peak of his performance, the Canal has accomplished 40 transits a day –20 each way — without a single dissonant note to speak of.  Because of this record, the world took the expansion project seriously, and that could be lamentable. The Port of New York Authority, for example, is spending $4 billion to handle the Post-Panamax vessels, which made the expansion into a serious undertaking, would allow such megaships to steam in from Panama, bulging with cargo.  The Bayonne Bridge in New Jersey is also being raised; an immense job, because Post-Panamax ships sit too high in the water to sail beneath it, but none will be forthcoming this year, nor next year either. Because of Panama’s current expansion project, other cities along the US’s Gulf and East coasts have spent comparable sums on analogous improvements; but whether it will ever be completed or not remains an open question.

Up to now the Panama Canal expansion can be considered a botched megaproject –designed in the wrong way, by the wrong people, for the wrong reasons, and good only for Professor Flyvbjerg to put his waggish pen into his next book yet. It has cost the people of Panama billions of dollars.  All they are likely to get in return is a monument to the criminal negligence of many of their leaders who worked so hard to misspend so much of their hard earned currency.