Nicaragua Sticks to $50 Billion Canal Plan as Setbacks Pile Up

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February 8, 2016

By Michael McDonald

(Bloomberg) — Manuel Coronel Kautz isn’t a man who’s easily deterred. Good thing. Because as head of Nicaragua’s Canal Authority, he’s seen the $50 billion, Chinese-backed project suffer setback after setback. The latest: 12 months of construction delays on a key port just as financial turmoil in China deepens speculation the funding won’t come through.

“Skepticism about the canal will fade as things start happening,” Kautz said. “We see everything in such a macro way that I don’t worry about the stock market. It changes everyday.”

Three years after President Daniel Ortega awarded the 170- mile long project to Hong Kong-based HKND Group, topographical and archaeological studies are nearing completion, Kautz said. Chinese officials who traveled to Nicaragua last month visited the Pacific Coast town of Brito, where construction on the port is now scheduled to begin in December, about a year behind schedule.

The viability of the project, which would be 300 miles (480 kilometers) from the century-old Panama Canal, has been questioned by shipping experts and engineers since Ortega first announced his plans and the Central American country’s legislature awarded the contract without accepting competing bids.

Panama’s Expansion

Backers say the waterway will attract larger vessels that won’t fit through a new set of locks on the Panama Canal — a $5.3 billion project that is nearly two years behind schedule — and provide a significant boost to Nicaragua’s $12 billion economy.

In 2015, officials in Nicaragua said financing for their canal could be secured through a share sale in Hong Kong. Kautz said that most of the financing would now probably come from private capital. He said the project could be divided into several phases so smaller sums of money can be raised for each portion.

Anti-canal protests continued in January as marchers push to annul the 50-year concession granted to HKND. A survey by Cid Gallup and published in newspaper Confidencial showed that 34 percent of respondents considered the canal to be “pure propaganda.” Skeptical residents say the canal is a plan by Ortega to drum up support ahead of November’s presidential election. A separate study published by the government said that 81 percent of Nicaraguans support the canal.

“I think the canal only exists in Ortega’s head,” said 24- year-old university student Yader Sequeira, who lives in the town of El Tule near the canal route. “Absolutely nothing is happening.”

Kautz doesn’t see it that way.

“Things are being prepared to start at the end of this year, starting with the port on the Pacific coast,” he said. “Things are moving forward.”

©2016 Bloomberg News

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