The Panama Canal expansion project stands out on many aspects. The project spanned seven years and stands out as the largest infrastructure project in the Caribbean and Latin America, costing more than $5 billion. It adds 22% of Panama’s national GDP and allows the country to make a growth of six percent in one year when other countries in the region are slowing down. The canal expansion aims to triple its capacity. This project is run by a state-owned sophisticated enterprise. This article provides lessons for state-owned and private firms in Latin America and beyond on how the Panama Canal Authority managed the project.
Prioritize Good Governance
Ensure that the control and management does not depend on interests. However, where state-owned enterprises can remain autonomous probably to avoid corruption. The management of the Authority has developed an independent board of elects and directors that votes on the selection of directors after three years. The authority has administrative and financial independence that includes its equity.
Leverage Your Strengths
From the start of the expansion project, the Authority identified where it could succeed and where it needed to collaborate. For the construction and design, the Authority required proposals. After a process of procurement, the contract was provided to four contractors: Sacyr, Impregilo, Jan, and Constructor.
Leveraging its commercial and dredging experience of operations, the Authority managed a part of the dredging directly for the project, and the training. For instance, local Panama pilots have expertise in navigation through a 48-mile canal and operators around the world started seeking their advice. This resulted in the creation of a center. The Center includes a practice lake and a virtual reality experience to simulate extreme weather, tugboat captains, and train pilots. The authority invested in its strengths and transformed them into leadership.
Tailor Financing to Your Needs
The Panama Canal Authority was generating income and was already operational for more than ten decades, it had a solid financial and operating track record. Given the strong performance, in addition to solid projections for demand in the future, the IDB Bank Group structured a US$400 million corporate loan for a tenure of 20 years.
Have a Plan B
The Panama Canal Authority showed they had plan B to strengthen the negotiations. During the canal expansion, construction was not executed as planned. There were leaks and other challenges.
For instance, when issues with the consortium construction became complicated, the Authority developed an alternative with new contractors and vendors. The authority accepted that the change might lead to cost overruns and delays. They showed a preparedness to comply with the resolution processes. Given they had a contingency plan, the Authority was capable of implementing its Plan B. After solving with the contractor, the Authority was not required to implement Plan B.
Look Towards the Future
In 2015, the Authority generated $2.6 billion while keeping the costs at $1.2 billion. It’s tricky to get this equation for a company that transports 14,000 ships per annum to triple its capacity.
There are state-of-the-art pricing methodologies behind these numbers. The Authority makes a significant analysis of resources to analyze factors such as cargo, time of year, and weights.
For instance, analysts initially developed an estimate according to which the canal would mainly transport containers, vehicle carriers, and dry bulk and did not include Liquid Natural Gas. The Authority’s model allowed a price adjustment quickly to client needs and market trends. Originating and monitoring the administration of the Authority has taught the Inter-American Investment Corporation, lessons about corporate governance, infrastructure finance, and effective management.
5 Lessons from the Panama Canal Expansion- FAQs
What difficulties occurred when building the Panama Canal?
The conditions were worse at the Isthmus and workers had no choice but to work in rain, brutal heat, and unsafe conditions for a low pay.
Why did the Panama Canal need to be expanded?
The project objective was to double the waterway capacity and satisfy the demand of trade. The expansion project was a big infrastructure project since the original construction.
How many ships use the Panama Canal today?
The 13.7 kilometer long segment was excavated through limestone and rock from the Cordillera Central. Ships from across the world transit through the canal on a daily basis. Around 14,000 ships use the canal every year.
Who is controlling the Panama Canal?
The Panama Canal is operated by the government owned Panama Authority.
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