I'm from Nicaragua. This project is managed as a private business. No one knows nothing except for the president and his family. What the article says are some of thousands speculations. Telemaco and his kinds only repeat what they are instructed to say. Pure bullshit that only dump people believe. Here, most people believe that with this project Nicaragua will become a first world country. But also, here most people are not that bright.
I think that this project is not really about a canal. That's a mouse trap. It's about a possible oil in the atlantic coast what Ortega and Co. are seeking. The treaty that was signed between HKND and Nicaragua gives the right to HKND to appropriate "any land" it may require for the project. Few days later of the singing, a British oil explorer announced a "very possible" presence of oil in the atlantic coast of Nicaragua.
A Chinese man, who makes a living building various forms of infrastructure, is willing to put $300 million of his own money of $50 billion required into building infrastructure in Nicaragua. Meanwhile Nicaragua is willing to accept $50 billion of infrastructure investment. Sounds like wishful thinking from both sides.
As far as Oil, building a canal is not the way to reap rewards from oil. Here is a more relevant quote "U.S. firm, Noble Energy has given up on an exploratory oil well in Nicaragua, dubbed “Paradise 1,” after spending $90 million at the site. The firm concluded that there was not oil in sufficient quantities to justify further investment in the site." November 15th, 2013
Also, to further clarify from an investor perspective:
Let's say the canal is able to generate twice the income (revenue minus costs) that panama canal currently generates indefinitely, which comes to 2.8 billion every year forever.
Let's assume the cost of capital for this project is 10% (a standard amount depending upon the investors).
With a 50 billion dollar initial investment the Net Present Value of the project is -22 Billion. In other words, in an ideal scenario the investors are better off lighting 21 billion dollars on fire right now than investing in the project...run.
The weird thing is despite those numbers I'm looking at a $50bn construction cost and thinking "that sounds cheap". The UK and California propose to spend more on building rail lines of a similar length.
Obviously labour and land costs are and order of magnitude or two lower in Nicaragua, but $50bn still sounds like a low-end estimate for an engineering project of that scale.
Dr * (1 – EQ) + Er * EQ
Where: Dr = the appropriate return for debt funding invested
Er = the appropriate rate for equity funding invested
EQ = the proportion of funding invested as equity
While it does not take into account risk it separates out private equity vs loans. If you get a loan at 6% for 90% of a project's costs and that project returns 6.5% then your private equity return is 6.5% + 9 * .5% = 11%.
Thus, if you can get a vary low interest loan say 2% your private return can be high even if the project barely breaks 2%. Why might he be able to get a loan for 2%, well China might look at having an alternative to the panama cannal in another country as worth a vary low interest loan.
Or far more likely IMO the project might be building more than just a canal as infrastructure projects often make other local investments vary valuable. AKA build a subway and now every apartment within walking distance is suddenly worth significantly more.
>> "willing to put $300 million of his own money of $50 billion required into building infrastructure"
I would expect his funding expectations are based on what he could borrow in China to finance this. Based on the number of "ghost cities" that have been constructed - not just buildings, but entire cities with no occupants or revenues - it's not out of the question.
I think this gives us a sense of how bad banking problems are in China.
China's ghost cities are unrelated to this. When China invests in ghosts cities their GDP goes up based upon infrastructure spending. In other words, one of the reasons why China invests so much in infrastructure, some of which is never used, is because it pushes their GDP numbers higher.
That being said, the Canal Project would affect Nicaragua's GDP and would have no bearing on China's. Nicaragua's GDP is roughly $10 billion, so it would have a very large impact.
There is no financial benefit for the Chinese government to back up such a project, and the political benefits seem dubious.
This project will not happen, and its unfair to the people of Nicaragua to give them false hope of better economic prosperity from the project.
I am a bit confused by the article - because this is not mentioned at all - I am no history buff so happy to be corrected here:
But haven't there been wars to avoid that Nicaragua gets an own canal (afair even supported by the USA and later by the CIA. Eg their Civil War or before that the US occupation [1])
Back then mainly to avoid having such important routes in the hands of pro-communist states, later to keep their financial interest in Panama in check.
Wasn't the last state the the USA got the exclusive right to build such canal - basically just to allow nobody to do it.
How come that this isn't mentioned at all in the article?
(As said before all cited from vague history memory. Happy to get a correction/update on that.)
They hint at US opposition in the article but they don't come out with all the history behind it...
"Some opponents of the canal worry that the financing will actually come from the Chinese government itself, which Richard Feinberg, a fellow at the Brookings Institution, describes as "the Chinese planting their flag right in the heart of the Western Hemisphere.""
NPR is a news outlet funded in part by the US government it isn't particularly surprising that they aren't going to delve into history that makes the US look bad.
Barely any of NPR's funding is from the US government:
"While NPR does not receive any direct federal funding, it does receive a small number of competitive grants from CPB and federal agencies like the Department of Education and the Department of Commerce. This funding amounts to approximately 2% of NPR’s overall revenues."
Dunno. That's an awfully high capital cost to compete with the Panama Canal--which will have a lot lower cost to expand its capacity to match a competitor's features (mostly extra size) if they turn out to be in high demand. The current Panama Canal expansion project is a $5B operation. No doubt another expansion (the "gargantuan locks project" or something) would cost more, but certainly not in the $50B ballpark.
Panama seems to make $1B/yr on the canal, even restricted as it is, so I can see where they're coming from if you believe in a strong and growing unmet demand (for very large ships). But with the existing competition you really have to believe in a level of traffic that will saturate the Panama Canal in any reasonable expanded configuration. And probably the Suez as well.
And I'd be very worried about the Northwest Passage.
It has nothing to do with economics. It is about strategy.
US is the US of America because of the Panama channel, without it transporting something from coast to coast is so expensive.
That is the reason they basically invaded Colombia and make independent Panama (from Colombia, it made it dependent of the US).
Now, while in theory Panama is now independent from the US, in practice it is not.
If the US wants to create sanctions to those that treat the petrodollar or US hegemony, like Russia(now) or China(tomorrow), and make their commerce with West Africa-Europe and Brazil way more expensive, they could simply close the Panama channel to those countries.
This is unacceptable for China. So China (and Russia) wants an alternative.
It is also a good way to spend their huge stockpile of US dollars China has that loses value with each Quantitative easing.
>If the US wants to create sanctions to those that treat the petrodollar or US hegemony, like Russia(now) or China(tomorrow)...
I think saying that Russia is an economic threat to US hegemony is a bit misplaced. In international trade, Russia has as much trade volume as Spain (which is around 1/5 of the trade volume of China/EU/US).
In the one area it does dominate (Natural Gas), basically all of it goes to the EU anyways. So at best Russia could help create a petroeuro (because Russia certainly doesn't have the international trade necessary to cancel out energy price volatility,so using the rouble would be very dangerous)
Besides, Russian use of the Panama canal is practically nil (they don't show up in the top 25 countries using it, in country of origin or destination). They have enough land routes to most of the big economies already.
Canada has a large, defensible landmass, vast oil reserves, and cutting edge technology. North Korea has a huge army and nuclear weapons. Together, they form a powerful adversary.
The article suggests that the money is actually being supplied by the Chinese government - $50B is nothing to establish a strong political foothold in the area. Or even provide a rationale for military bases to defend such expensive infrastructure.
The headline number certainly jumps out, but $50b spaced over, say, ten years is definitely no particular problem for China (or any major economic power for that matter).
The Panama Canal cost between $7b and $10b in today's dollar ($375m originally), and of course thousands died in the process of construction. Between higher labor and material costs, making this much larger, nicer, and avoiding thousands dying, a $40b or $50b cost wouldn't be surprising.
So I had read that this guy the point person from China had a dubious history of floating giant infrastructure projects that never materialized. The Nicaraguans I've spoken too think the project is all BS. However once you pay off enough locals, consider it more likely.
Big issue is that this will take 120 miles to cut, will they be able to recoup their investment if their fees to traverse are lower than panama, because they have to be to compete. Time crossing this canal has to be slower than panama's 48 mile long canal. So assume 2.5x travel time, you have to charge lower fees because of the travel costs associated with the extra distance etc. time = fuel
How is there an increased distance of overall travel time? Does it matter significantly if the ship is travelling across the ocean or through a canal? From China to Europe is likely quicker from a more northerly canal, I'd guess by looking at maps.
Nicaragua canal would be 120 miles long vs 48 miles of panama. But canal travel is much much slower than open ocean travel. Panama takes 8 hours to traverse the canal, imagine one 3x as long would take almost 3x as long to cross. So 24 hours.
Some stories have the farmer plowing the initial fissure open. If only he'd left that dirt alone, right?
Volcanic activity can lie very close to the surface, but I'd imagine that opening one by accident wouldn't make much difference. If a volcano's coming, it coming, and there can't be much in the way of human activity that'll make a real difference.
Anyway, it's really the Balrogs you gotta watch for. Those can be a real problem.
> And there was that pit on Dionisio Pulido’s farm. It had been there a long time. Señora Severina Murillo had played around it as a girl, fifty years before. It was maybe five meters (16 feet) in diameter, and maybe a meter and a half (5 feet) deep. It made strange noises, underground noises, sounds like rocks falling. The kids found it warm, and their sticks never reached the bottom. Storm waters drained through it in the winter, and sometimes there would be a mist, but it was never hot, not so Sr. Pulido noticed. He’d stash his yoke and plow there, sometimes, when he didn’t feel like hauling them all the way back to Parícutin village. He and his brother would sometimes try to fill in the hole, but no matter how much material they threw in to it, they could never fill it. A depression had formed around it the previous August. But no one thought much of it.
I love how they went to the church for information, as they were desperately in need of a scientist.
> They hurried back to San Juan Parangaricutiro to report. After hearing their description, the priest consulted the church’s book on Vesuvius. After reading up on that volcano, they were all pretty certain they’d just seen one.
Poor / developing countries don't have the infrastructure or standards to avoid disasters so I'm sure 'we' could indirectly cause a fire or a landslide or something that overwhelms their emergency services. Nicaragua's capital has been destroyed twice in the last century by situations like that.
Whenever there are ambitious plans for a poor country, people think of all kinds of reasons not to - the environment! the culture! the local economy! people's family homes! But they forget "these people are already screwed!". This canal is a risk with a bigger upside than doing nothing.
> Whenever there are ambitious plans for a poor country ...
... outsiders impose their ideas on the locals, deciding what is good for them. This project should be entirely up to the people of Nicaragua, especially those who will lose land or livelihood.
Is the environmental risk really serious or is the poverty going to cause people to damage the environment anyway? Perhaps the money would bring more resources to protect the wildlife?
The main source for the country is lake Nicaragua (which has bull sharks btw!) and they would be dredging this too. This would cause massive amounts of silt to cloud the water which would kill a lot of the fish/fauna. Not to mention there are going to be a lot of corners cut on this since it's Latin America and bribes will get paid (I'm Panamanian, I know how this stuff works).
It'll certainly destroy a few if not hundreds or thousands of species. Transoceanic ships will bring strange species, displacing natives. The environmental studies will, among other things, try to model which species will be able to fend off the new competition, but ecologies can be chaotic (in the mathematical sense).
I would think the environmental strain will be significantly higher with the construction and eventually ships - this is a country where most people don't own cars and shared modes of transport are used by everyone.
For those who wonder how Panama Canal opened up (how hard it is to open a canal at that geography due to diseases, soil, water), you may want read The Path between the Seas
The ports at either end of the Panama Canal are controlled by a subsidiary of Hutchison Whampoa Limited a Hong Kong based company. Wonder if there's a connection to this project.
I think that this project is not really about a canal. That's a mouse trap. It's about a possible oil in the atlantic coast what Ortega and Co. are seeking. The treaty that was signed between HKND and Nicaragua gives the right to HKND to appropriate "any land" it may require for the project. Few days later of the singing, a British oil explorer announced a "very possible" presence of oil in the atlantic coast of Nicaragua.