The Nicaraguan Connection

Projects, Slider 02 Jul 2013
The Nicaraguan Connection

Danny Chung:

 

The Central American country of Nicaragua with its (until recently) history of revolutions, brutal dictatorships and right wing death squads may seem an unlikely place for a Hong Kong company looking to build one of the world’s most expensive infrastructure projects.

However the unruly politics not to mention its unenvied reputation as one of the world’s most corrupt countries has not deterred mainland billionaire Wang Jing, the man behind the plan to link the Pacific and Atlantic Oceans with a canal across Nicaragua, from pressing ahead with the project as he emerged in Beijing to give a press briefing last Tuesday.

“Our construction of this canal should, within the context of the expansion of the Panama Canal, further promotes sea-borne trade and can be regarded as a viable supplement to the Panama Canal,” Wang said at the press briefing.

Concrete (pun unintended) details though were few and far between apart from a guesstimate of US$40 billion (HK$312 billion) and a seemingly ambitious construction period of six years.

The route of the 268 kilometre canal will take it through Lake Nicaragua, the country’s largest freshwater lake.

According to the company video shown, the canal will be 27.6 metres deep by 520 metres wide and be able to handle very large ships such as the post-Panamax size.

Earlier on 13 June, Nicaragua’s National Assembly gave its blessing and more importantly ratification to the project, awarding a 50-year concession to Wang’s firm, HK Nicaragua Canal Development Investment Company (HKND), to design, develop and manage the canal.

Not only will there be a canal, but also a pipeline, two ports, an airport, two free trade zones and according to one disgruntled local lawmaker, “whatever investment project that is considered necessary in whatever part of the country”.

No details on the amount of funds raised have been given although Wang said the project has attracted interest from investors keen to provide finance.

A search in the Companies Registry shows that the company was set up in Hong Kong last August with Wang as sole shareholder and sole director.

One lender presumably watching the latest developments with keen interest is the Hong Kong and Shanghai Banking Corporation, the local subsidiary of banking giant HSBC Holdings (0005), which has registered a charge against the company’s deposit account starting with an initial sum of HK$500,000.

From left: Nicaraguan president Daniel Ortega, HKND Group chairman and chief executive officer Wang Jing   (HKND)

Nicaraguan president Daniel Ortega (in brown jacket) and HKND Group chairman and chief executive officer Wang Jing (HKND)

The company may still be waiting for the investment cash to roll in but the canal certainly seems worth doing though.

In a report to US Congress in June last year, the US Army Corps of Engineers said post-Panamax vessels made up 16 percent of the container fleet worldwide but accounted for 45 percent of the fleet capacity.

“Those numbers are projected to grow significantly over the next 20 years,” USACE deputy commanding general for Civil Works and Emergency Operations major general Michael Walsh said.

In particular, over the next 30 years imports to the US would grow more than fourfold and exports by more than sevenfold.

A report by consultant Colliers last year noted that the expansion of the Panama Canal to accommodate 12,500 container capacity ships would alter global trade routes.

Trade between the US East Coast and Asia made up 39 percent of the total cargo volume through the Panama Canal, according to a report by Barclays Capital last April.

The eastbound and westbound trade isn’t just container cargo but also grains, coal, ores, chemicals, petroleum products, lumber, cars, food and agricultural products and salt.

Certainly traffic jams are a regular occurrence according to numerous reports on the Internet with ships having to wait about two weeks to go through the Panama Canal, itself undergoing a US$5.25 billion (HK$41 billion) expansion plan.

All this appears to point to a need for a second canal.

While Wang may not have an engineering background – he said he studied Chinese medicine before going into business – he has enlisted construction industry veteran Bill Wild, former CEO of Australian contractor giant Leighton Holdings, to help out as chief project advisor.

Chief project advisor Bill Wild  (HKND)

Chief project advisor Bill Wild (HKND)

So far a contractor with a connection to Hong Kong is already involved.

According to HKND’s website, China Railway Construction Corporation (CRCC), either the state owned parent or its Hong Kong listed subsidiary, has been conducting feasibility studies on the canal.

Wild said HKND was waiting for all the results of the technical, commercial and feasibility studies to come back first before proceeding with construction.

With feasibility studies still ongoing, a final route cannot be selected meaning a final detailed budget is not available as yet.

For the same reasons, the procurement exercise for the canal would have to wait until all the facts and figures are in.

For CRCC, being involved at an early stage is no guarantee of eventually bagging the construction contracts.

“There will be competitive tendering processes consistent with international best practices for fairness and openness for each phase of work,” Wild said.

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