July 11, 2014

NICARAGUA: A Little-Known Chinese Tycoon Is Preparing To Build A Canal Across Nicaragua

The Global Post
written by James Griffiths
May 12, 2014

SHANGHAI, China — Does the world really need another canal allowing freighters to travel from the Pacific to the Atlantic?

Nicaraguan President Daniel Ortega thinks so. In June 2013, he signed a deal to grant a 50 year concession to a Hong Kong-based company to build a rival to the Panama Canal across his country. Construction is due to begin in December 2014.

There’s a lot about the project that’s likely to make hawks in Washington, DC lose sleep — not the least of which is the partnership between Russia and a somewhat mysterious Chinese entrepreneur, on a strategic project right in America’s backyard.

Here’s what you need to know.

1. A canal across Nicaragua? Sounds big.

Yes, the proposal for the Nicaragua Canal is ambitious. Very ambitious. It involves constructing a waterway stretching from the Caribbean to the Pacific, along with two deepwater ports, two free-trade shipping zones, an international airport, a railway, and an oil pipeline.

The canal would be about 175 miles (282 kilometers) long, with an average (and some say impossible) width of 1,700 feet (520 meters). By comparison, the Panama Canal is 48 miles (77 kilometers) long and 110 feet (33 meters) wide.

Construction is due to begin in December 2014, with an estimated total cost of $40 billion — equivalent to about four years of its host country’s GDP.

2. Who’s behind it?

The Hong Kong Nicaragua Canal Development Group (HKND) won a no-bid, 50 year renewable concession to build the canal in June 2013. Another Chinese company, construction equipment manufacturing giant Xugong, holds a minority stake in the venture; and the Russian government has talked of investing in the project.

Under the terms of the deal, HKND pays Nicaragua $10 million per year for 10 years as well as a percentage of ownership, with 100 percent being handed over after a century. However, payments and transfer only begin when and if the canal begins operation. According to the Associated Press, HKND can skip building the canal altogether and instead focus on lucrative, tax-free side projects in the country without breaching the terms of the agreement.

3. Who is Wang Jing?

Not a great deal is known about Wang Jing, the 41-year-old CEO of HKND. Prior to the canal project, Wang shied away from the public eye, and frequently describes himself as “very ordinary.”

Wang, ranked number 1,210 on the Forbes list with a fortune of $1.4 billion, is chief executive of Beijing Xinwei, a government-backed telecoms manufacturer. He also has interests in gold and diamonds in Cambodia and Burma, and, according to HKND’s website, sits on the board of 20 companies (very ordinary indeed). Wang has said he is prepared to spend as much as $300 million of his own money on the Nicaragua project.

4. Is the Chinese government involved?

That’s a good question. Wang insists not. “There is no Chinese government involvement, no guidance, no one saying we should cooperate with this firm or do that. The money we have spent so far, several millions, has come from me personally,” Wang told the Telegraph.

However, analysts say that there is no way HKND, a firm with no proven record in large scale engineering projects, would have landed the concession if it wasn’t backed by Beijing.

“I can’t imagine [Wang] would have gone forward without at least coordinating with the Chinese government,” R Evan Ellis, assistant professor for Hemispheric Defense Studies at National Defense University in Washington, told Reuters. “Big Chinese companies don’t just parachute down into Latin America.”

5. Is this a good deal for Nicaragua?

It depends. The Ortega administration sees the project as a desperately needed boost to the economy of the second poorest country in the region. Officials say the canal will increase annual economic growth to a world-beating 14.6 percent, triple employment, and lift more than 400,000 people out of poverty by 2018.

No economic feasibility studies have been released to the public however, and all are dependent on the canal actually being finished. For the period of the 50 year lease, HKND keeps all income from the project, is exempt from taxes for a century, and enjoys a “breathtaking degree of legal immunity.” In addition, the Nicaraguan government has assumed liability for any cleanup costs or environmental damage and has waved sovereign immunity, meaning HKND is free to sue for any loss or damages.

“This is a worse deal than the original Panama Canal deal, which was not a good deal and not a deal that Panama voluntarily signed,” Noel Maurer, a Harvard Business School expert on Latin American development, told AP.

6. Is the project feasible?

HKND claims that the “growth of global trade, evolving trade routes, and the dramatic increase in the size of ships transporting commodities and goods around the world” shows why a second canal is “becoming increasingly important.”

Experts disagree. The Panama Canal is nearing the end of a $5.25 billion expansion project which will allow ships with three times the cargo capacity to pass through, as well as an increased total capacity of 16,000 ships. “It’s going to take a while for this capacity to be absorbed, if it ever is,” Jean-Paul Rodrigue, an expert on transportation economics at Hofstra University, told Wired.

For the Nicaragua Canal to make a profit, it would have to earn around $1 billion annually, which means taking half of Panama’s current ship traffic immediately upon completion. That might be difficult, since there is no geographic advantage to the proposed waterway, which, despite being a few hundred miles farther north, is more than three times as long as the Panama Canal and slower to traverse.

7. What about the environment?

Writing in Nature, Axel Meyer and Jorge Huete-Perez describe the proposed canal as an “environmental disaster” which will destroy around more than 1,500 square miles of rain forest and wetlands. The proposed route passes through Lake Nicaragua, the region’s largest fresh-water reservoir and home to rare sharks and other fish. Dredging for the canal would “create a huge sediment issue that would be bad for water quality in the lake and the wetland around it.”

Unlike the Panama Canal, which is freshwater, the Nicaraguan canal will be far closer to sea level and potentially filled with saltwater, meaning it may form a conduit for invasive marine species from the Pacific Ocean to Lake Nicaragua and the Caribbean Sea beyond, a potentially disastrous outcome for Caribbean fisheries.

“Changes in chemical composition and disruptions to dissolved oxygen levels in the water from pollutants and construction could harm numerous populations of freshwater and marine fish found nowhere else in the world,” Meyer and Huete-Perez write.

Out of the water, construction poses a risk to the habitats of multiple endangered species, including spider monkeys, harpy eagles, and jaguar, as well as uprooting thousands of indigenous peoples from their ancestral lands.

The Nicaraguan government has not solicited its own environmental impact assessment and will instead rely on a study commissioned by HKND, which the company is not obligated to make public. No independent study is due to be carried out.

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