Building and Rebuilding of Panama Canal

1. Building and Rebuilding of Panama Canal Paul Miller Shanjiang Zhu Susan Sloper CE5212 CS5

2. History of the Panama Canal • Vasco Núñez de Balboa was the first European to cross the Isthmus of Panama, 1513. Village of Panama established 1519. • El Camino Real built across isthmus, 1550s • Taken by pirate Henry Morgan of England, 1671, but were forced out by disease and Spaniards in 1700 • Liberal trade laws, as well as a war between Spain and Britain, then rendered Panama irrelevant for the next 150 years • Panama became part of Columbia in 1821 • Simon Bolivar convened a congress of other liberated Spanish colonies at Panama, 1826

3. Panama Railroad • 1849, gold found in California • Railroad built across isthmus 1847-1850, became shortest transit from US East Coast-California • New port on east end of railroad, Colon • In some spots, swamps 180 feet deep • High fares to fund construction • January 28, 1855, line officially opens Colon-Panama City • Europe-Asia trade became popular over isthmus • Wildly successful until completion of trans-continental railroad in U.S., 1869 • Critical to construction of Panama Canal

4. Early Canal Ideas • Ferdinand de Lesseps (FRA) proposed sea-level canal • Deadly construction attempted by French, abandoned • Contract to build canal bought by U.S. in 1899 for $40 million • Plans were modified so that the ships would be raised 26 meters (85 feet)

5. Construction of the Canal • Culebra Cut • Gatun Dam • Locks • Opening

6. Affects of the Canal • Direct Incomes of the Canal • Indirect Impacts for American Market • Income Allocation After 1977 Treaty • Economy of two Panamas • Sustainable development of the Canal

7. Total Cost for the Canal • 40 Million for Compagnie Universelle • 10 Million for Republic of Panama • 250,000 Annual Stipulation • $397 Million of Total Investment

8. Direct income from the Canal • $1.20/Ton of Earning Capacity, or $0.90/Ton of Cargo

9. Rate of Return for Toll • 1924, A rate of return of 3.58 percent • US Treasury bonds---4.09 percent • Railroad---4.85 percent • Opportunity Cost---Negative!

10. Travel Saving

11. Direct Saving due to Travel Time Saving • Import and Export Saving • East US-West S. America $4,722,420 • Coastwise Shipping Saving • East US-West US $32,780,675 • Total Saving all water $45,016,426 • Compared to Rail $121,107,327 • 50%by Rail and 60% from New Orleans $69million

12. Indirect Saving • Expansion of Market • Use Gravity Model • Use 1912 as basic year to predict 1924 • $864million due to the Canal, 0.99 Percent GNP in 1924 • Pro-competitive Saving • 1915, railroads petitioned the ICC to lower freight rate for coast-to-coast hauling • 0.87-0.01GDP

13. Revenue after 1977 Treaty • Relative importance of Panama Canal reduces. • Two-thirds of the tonnage transiting the canal had either a U.S. origin or destination.

14. Economic Impact for Panamanian • Canal Zone • 1760 km^2 • Population 21,000(1950)-153,000(153000) • Republic of Panama • 72000 km^2 • 75% Gross Internal Revenue from service sector, 10% from industry,15% from agriculture • Cattle and Horses---1.5 billion in 1980 • Forested Land 93%---38(1970) • 37% population in poverty, or 64% in countryside

15. For the Future Sustainable Development?

16. Future of the Panama Canal • Threats to the Canal • Water supply • Increased ship size and # traveling • Search for alternatives • Problems?

17. Canal’s water is supplied from Lake Gatun • The canal’s operation of locks requires a continuous supply of water to operate Source:worldatlas.com

18. The destruction of the Central American Rainforest is reducing Panama’s water supply • The health of Gatun Lake depends on the health of the surrounding watershed forest • In the past few decades, ½ of the forest has been lost to over-logging & slash/burn agriculture

19. Each ship that goes through the canal requires 52 million gallons of freshwater from Gatun Lake • Reservoir also serves as a water source for many people of Panama • With a rapidly growing population and an increasing # of canal transits, there is an increased demand on the reservoir • 1990-1991- a drought prevented the usual # of ships from passing because of insufficient water • Less than 30 ships were allowed, normally there are 40 ships on a busy day

20. Modern shipping has increased the size of ships • Oil supertankers- nearly 50 ft. too wide to fit inside the locks of the canal • “post-panamax” • Increased size means increased tonnage

21. Canal is also approaching its daily transit capacity limit • Current canal capacity constraint of about 47 transits per day and 17,000 per year is expected to be reached by 2012

22. Proposed Alternatives • Expansion of the canal • Nicaragua • Mexico

23. Expansion of the Panama Canal • Autoridad del Canal de Panama (ACP) –panama canal authority– proposed the construction of a 3rd set of larger locks • Deemed essential by the ACP in order to remain competitive and foster continuing economic growth for Panama

24. With expansion- commercial growth of canal is projected to increase 400% between 1990 and 2060 • Problem: Lake Gatun does not have sufficient water to supply an expanded canal • Solution: construct a new dam on the Indio River

25. Effects of expansion • Estimated that at least 3500 people living in the region-mostly poor farmers will have to be relocated as their lands will be flooded by the new dam

26. Opposition- rural peasants organization, La Coordinadora Campesina Contra Las Embalses (CCCE) is opposing any construction of new dam in watershed • Claim never to have seen any benefits from the current canal

27. Projections for expansion range from $2 billion to $12 billion USD Panama’s population- 3 million and annual GDP is $12 billion USD QUESTION: Should the people of Panama be solely responsible for financing the canal expansion? If so, how will they pay for it? Investment opportunities for International Business? Cost

28. Other Alternatives • Nicaragua • wet and dry canal • Mexico • Isthmus of Tehuantepec Railroad

29. Nicaragua • 4 proposals • 2 dry canals • Eco-canal • Grand Canal

30. Dry Canal • High speed railways designed to carry containers from deep water ports at either end • Double decker trains up to 23 km long • Difference is in the cost- 1.4 billion v. 2.6 billion

31. Eco-canal • Priced at $50 million • Low-impact use of San Juan River and Lake Nicaragua • Instead of traditional locks, air-powered moveable dams would be used to assist cargo barges to pass through rapids • Has approval of Nicaragua’s congress, but has struggled to raise $4 million for the feasability study

32. Grand Canal • This proposal is very extensive and expensive • Canal would be 172.8 miles long and would follow the San Juan River • Proposed by a public private partnership called the Grand Canal Foundation • Would create jobs and be wide and deep enough to handle the “post-panamax” container ships

33. Issue of Cost • QUESTION: Would would truly reap the profits from the megaprojects, and who would suffer? • Many are skeptical about the proposals, they wonder who will benefits. • They often see it as a foreign benefit

34. MEXICO • Isthmus of Tehuantepec • Shortest distance between the Gulf of Mexico and the Pacific Ocean • Considered a favorable route for an interoceanic canal and since the 19th Century for an interoceanic railway • Benefits from its proximity to the axis of International trade

35. James B. Eads • Proposed to construct a quadruple track ship-railway in the 1800’s

36. Issues/concerns with proposals • Cost • Economic winners and losers • Environmental concerns • Many of proposals are located in the heart of tropical jungles and forests • Biodiversity

37. QUESTIONS: • What are the benefits brought by the Panama Canal for the U.S. How does the Canal influence the life of a Panamanian? • How much political influence did the U.S. yield in Central America while controlling the Panama Canal? • Should alternatives be looked at for a new canal? If so, is it possible to ensure that the problems that have faced the Panama Canal do not occur in a new canal?