Panama Canal to secure $400 million loan, sees flat volume for 2008

The Inter-American Development Bank said Tuesday that it has agreed in principle to loan the government of Panama $400 million for expansion of the Panama Canal.



Work began last year to build a third set of locks on both sides of the strategic isthmus that can accommodate 12,000-TEU vessels, more than double the size of vessels that can currently transit the 50-mile canal. The project is estimated to cost $5.2 billion and be completed by 2014.



The expansion is based on long-range forecasts of continual growth in trade and container traffic, but Panama Canal Authority Chief Executive Alberto Aleman Zubieta told Bloomberg Television on Monday that overall canal volumes will not grow this year for the first time since 2002 as the soft U.S. economy reduces demand for imports.



The Panama Canal volume is expected to remain flat at 312 million tons of freight this year, he said. U.S. exports heading back to Asia have helped balance the canal's business and revenues will grow beyond $1.7 billion on higher shipping fees, Aleman said.



The Inter-American Development Bank (IDB) announced its financing plan during a breakfast meeting in Washington with Panamanian President Martin Torrijos, who is in town with a delegation and the Panama Chamber of Commerce to promote business opportunities in the country.



The IDB board of directors will vote on the loan proposal at its October meeting.



IDB President Luis Alberto Moreno stressed Panama's strong economic performance, sound financial management and the technical quality of the canal expansion program as factors leading to loan consideration, according to a news release from the Panama Canal Authority. 



The canal administration last week received an A1 investment grade rating for its bonds from Moody's Investors Services, and has a tentative A2 investment grade rating to help finance $2.3 billion of the project. The A rating classified the authority as upper-medium grade and subject to low credit risk.



The Panama Canal Authority is approaching financial institutions around the world to help finance the rest of the project.



The canal expansion is a massive undertaking that also involves widening and deepening existing navigation channels, digging new access channels and elevating the water table of Lake Gatun, which supplies fresh water to operate the locks.

Source: American Shipper