Panama Investor Blog

Reuters say's Panama harbors ambitions beyond its canal

Overall a very positive article about Panama's economic future. They do express some debt concerns but based on a diverse economy they don't think it will be a problem.

Excerpts:

"What's striking is that this is such a broad-based economy," said Boris Segura, an economist with the Royal Bank of Scotland. "Yes, they have the canal but there is also tourism, construction and a growing financial services sector."

With a population of just 3.4 million, Panama will never be a China or a Japan but local leaders say it can aspire to become like Singapore, an affluent and diverse crossroads for international finance and trade.

"Nobody is going to come to Panama to sell to the domestic market. We tell investors 'Come to Panama and sell to the world'", Trade Minister Roberto Henriquez told Reuters. He sees the small isthmus nation's future as a boutique exporter of high-margin goods and services.

"The numbers tell us that we can continue stepping on the pedal without going into profound financial problems in the country," said Henriquez.

But with a capital skyline that resembles Dubai of yesteryear and politicians promising to pour even more concrete in a building spree, some fret that spending or growth could spin out of control.

Panama will get a prolonged boost from the canal upgrade and is reaping a modest windfall too as wealthy economic refugees arrive from other Latin American countries like Venezuela, Ecuador and Bolivia, where left-wing governments have spooked business leaders and investors.

Two new Megaports announced for the Pacific side of the canal

The rate of announcements for more major infrastructure projects in Panama is astounding as this article points on from La Estralla. It reminds me of the pace of announcements of high rise condo's in 2007-08. The question is who will pay for it all? Yes the new tax reforms are bringing in much needed revenue, but I would like to see a balance between infrastructure and debt reduction. It would also be refreshing to hear about some major investments into education.

PANAMA.  The development of mega-infrastructure in the country continues at a dizzying pace.

And yesterday, as part of a press conference to publicize the results of the National Economic Council, the Minister of Economy and Finance, Alberto Vallarino, announced that the government is considering the competitive bidding construction and management of two new megaports in the Pacific area.

  The minister explained that his firm is in talks with Panama Canal Authority (ACP) and the Panama Maritime Authority (AMP) to evaluate the details of both projects.

  The official said the first of these terminals would be located north of Panama Ports and the second would be built in the area of Rodman.

  This latest project, the minister said Vallarino, would be built with materials from the land extraction of enlargement of the canal.

COMPETITION

These two megaports would join Manzanillo International Terminal (MIT) and Panama Ports.

MIT started operations on April 16, 1995 at a location near the Atlantic entrance of the Panama Canal, immediately adjacent to the Colon Free Trade Zone (FTZ).

  This company provides port services to shipping lines transiting through the Panama Canal or serving the Caribbean region. It currently has 700 employees.

  MIT is a partnership between Carrix, Inc. and families Motta and Heilbron.

 SSA Marine, the main division of Carrix, is the marine terminal operator, stevedore and rail largest United States.  Carrix is a privately held company based in Seattle, Washington.

  Panama Ports Company (PPC) operates two ports, one on each side of the Panama Canal.  The port of Balboa is located on the Pacific side and the port of Cristobal Colon.

The company began operations in Panama through a renewable 25-year concession (Law 5 of January 16, 1997) that the State gave to the administration of both ports.

  Within the Strategic Plan 2010-2014 drafted by the national government set out the intention of investing in that period one billion dollars to stimulate greatly value-added logistics activities.

Weeks ago, after a visit to the country, Carlos Gallegos, secretary of the American Committee on Ports of the Organization of American States, said "progress has been been made at Port Panama in recent years and should be considered by other countries in the Americas as a model, combining logistics, port security and competitiveness, especially as a machine that, despite the global economic crisis, has remained a productive sector that represents a significant economic boost. "

Canal does NOT raise tolls and shippers are not happy about it.

An article came out in Break bulk about Panama freezing canal tolls, which is much appreciated by the shippers, but that freeze is only for the month of May. In June they are scheduled for another rate hike and the shipping industry is concerned as expressed by the headline "Lost cause in Panama" in Lloyds list.

The Lloyds article goes on to say "SHIPPING will receive news of further hikes in the cost of transiting the Panama Canal with its usual relish.

The International Chamber of Shipping, the World Shipping Council and container lines in particular will be sharpening their knives for the latest round of sabre-rattling in Panama in June."

This is an extremely important issue for Panama  In essence it is kind of like a Mexican standoff. Shipping is threatening to reroute and bypass the canal if they continue to raise rates and the Canal Authority needs the rate hikes in order to pay for the canal expansion and are holding their ground. The shipping industry continues to have tough times with idle ships and deepening losses just at a time when the canal needs increased revenue in order to reach its goals. It should be interesting to see who wins out.

Canal revenue to increase 150% ($5 billion) by 2014?

Panama bond sales have not gone to well lately, but maybe with their new investment grade rating by Fitch, things will go better this time around. Morgan Stanley will be offering these notes at a slightly lower rate than before, 6.1% versus 6.7%. But .6% on $100 million is certainly not chump change. 

Everyone is in the selling mode in Panama including the politicians, and like most salesman, they tend to exaggerate, embellish reality and paint a very rosy forecast of the future.

Here's an example from Panama minister of finance in the article below: The country plans to slash its public debt to 35 percent of gross domestic product from 45 percent by 2014 as collections from the upgraded Panama Canal rise to $5 billion a year from about $2 billion, Finance Minister Alberto Vallarino said at a conference in Panama City March 24.

So much of their planning hinges on additional canal revenues, yet revenues are going in the opposite direction and ocean shipping companies are in dire straights and balking at toll increases. A number of them have decided to take the longer route below South America. Yet they expect to increase volume and tolls enough to increase revenue 150% in four years. Who would like to take bets on that?

Bloomberg

Panama Taps Morgan Stanley to Sell Bonds Through Fund

(Adds comments from finance minister in final paragraph.)

By Drew Benson and Veronica Navarro Espinosa

March 29 (Bloomberg) -- Panama hired Morgan Stanley to sell $95.9 million of bonds due in 2036 through a state development fund after pulling the transaction in December, according to a filing with the U.S. Securities and Exchange Commission.

The country scrapped a plan to sell $760 million of bonds due in 2036, 2027 and 2034 through the development fund in December after the offer sparked a rout in the country’s debt. The fund, which holds the government bonds as assets in its portfolio, has sold this year more than $500 million of securities due in 2027 and 2034.

The fund’s sale comes a week after the Central American country’s credit rating was raised to investment grade by Fitch Ratings. Fitch lifted Panama’s foreign- and local-currency debt to BBB-, the lowest investment-grade level, with a positive outlook, citing low debt levels and a resilient economy.

The yield on the 6.7 percent notes due in 2036 has fallen to 6.1 percent from 6.28 percent on Jan. 1, according to Bloomberg data.

Panama included documentation today from a previous shelf filing that had authorized it to sell the bonds. Dario Espinosa, the sub-director for public credit at the Finance Ministry, said in a telephone interview that the government has no plans to issue bonds in international markets in the “near future.”

The country plans to slash its public debt to 35 percent of gross domestic product from 45 percent by 2014 as collections from the upgraded Panama Canal rise to $5 billion a year from about $2 billion, Finance Minister Alberto Vallarino said at a conference in Panama City March 24.

--Editor: Glenn J. Kalinoski, David Papadopoul

Panama Canal sees slow rebound for 2010

World shipping continues to be slow and although the canal had a slowdown in 2009 it was fortunate that revenues were not down too significantly. The canal commission has come forth with their expectation for 2010 to be flat or the same as 2009. But their gross revenues should exceed 2008 due to significant increases in tolls.  They expect to make a profit of about $900 million, a tidy sum.

Panama Canal Sees Slow Revenue Rebound As Sea Trade Lags
By Inti Landauro, Down Jones Newswires

PANAMA (Dow Jones)--After weathering the financial and economic crisis that crippled global trade, the Panama Canal expects to see a modest rise in revenue this year as the recovery takes time to filter through to the shipping industry.

"This year will be flat, it will be very similar in terms of volume," Alberto Aleman, the chief executive of the Panama Canal Authority said in an interview. "We are seeing the same tonnage."

The Canal's revenues fell to $1.96 billion in the fiscal year 2009--which ran from October 2008 to September 2009--down from $2.01 billion in 2008. The forecast for this year is $2.02 billion, Aleman said.

The canal's net profit will probably fall to around $960 million from $1.01 billion in 2009 and $1.03 billion in 2008.

Despite the world economy's recovery, the canal's business will take time to pick up, Aleman said. The shipping industry always lags the rest of the economy as orders take several weeks to reach ports, and it takes companies time to get enough confidence to increase inventories, Aleman said.

The canal's fiscal year also includes the fourth quarter of 2009, when a recovery wasn't obvious in countries trading through the canal.

Although the global crisis caused a sharp drop in overall trade, the Panama Canal suffered only modestly. About the same number of ships moved through the waterway in 2009 as in 2008, but tonnage fell 3%.

Transportation of bulk loads has already improved, while shipping of containers and vehicles is still low, Aleman said.

Canal revenue last year was affected by rebates the canal gave to its customers, included considering as empty container ships that were less than 30% full.

The rebate is scheduled to end in May, when a new fee structure is expected to be announced following discussions between the Canal Authority and industry players.

About 5% of all the world's seaborne goods pass through the Panama Canal, which joins the Atlantic and Pacific oceans.

The canal is expanding its capacity to allow more and wider ships to cross the Central American isthmus. The project includes the construction of two new sets of locks and two new short stretches of canal parallel to the existing one.

The expansion was initially estimated to cost $5.25 billion, but it's now likely to be about $380 million less than that because of competitive bids by private contractors, Aleman said.

Just over $1 billion of the investment is earmarked for unforeseen events, so it's likely at least a portion of this figure won't be spent.

The official said the expansion will be ready in 2014, as scheduled.

The Canal Authority has secured $2.3 billion in loans for the expansion from the European Investment Bank, the Japan Bank for International Cooperation, the Inter-American Development Bank, the Andean Development Corp. and the World Bank's International Finance Corp.

The rest of the money will come from the canal's own cash flow. In 2012, the most active year, the Canal Authority will transfer around $1 billion to the expansion contractors.

The largest of them is the group formed by Spanish construction firm Sacyr Vallehermoso (SYV.MC), Italian firm Impregilo (IPG.MI), Belgium's Jan de Nul Group NV and Panama's Constructura Urbana SA. The group has started construction of the new sets of locks, which will cost $3.12 billion.

Delusion and Deception in Large Infrastructure Projects

Panama is ranked as the busiest of the worlds sea faring ports based on a study of global shipping and published in the Journal of the Royal Society :Interface. The graphic image at right provides interesting information as to the way that goods are moved around the globe by sea. Although we often hear that Panama handles 5% of the worlds shipping the relatively small percentage does not put its roll of importance in true perspective. Click image to enlarge. Panama's position in global shipping is expected to strengthen significantly with the addition of the expansion which will allow the worlds largest ships to pass. Even so, there are significant hurdles that must be overcome in order to accomplish this feat and the largest one right now is financing.

This week the Financial Times carries an article about Panama's canal commission vowing to hold the line on toll increases while Mearsk shipping, one of the largest users of the canal, is demanding a slow down of the scheduled increases. The statistics of the canal over the past year or so of economic turmoil is interesting. Although container traffic is down a staggering 27%, bulk shipping has been strong owing much to Chinese demand for raw materials, making over all transits down only 2% over previous the year. Imports to China surged 56% over the 2008 level. Base metals, precious metals, and virtually the entire commodity complex rallied on surging Chinese demand.

The canals income was up due to increases in tolls, but one has to wonder how long this balancing act can continue.

Panama is certainly doing better than Egypt's Suez canal which saw a 20% decrease in canal traffic over the same time period and a corresponding decrease in revenues. But how long Panama can maintain the traffic and income levels depend on more than just toll increases.

The Chinese are heading for troubled water according to this recent report from Stratfor and there is little sign that American consumption is regaining  any of its previous levels.

Due to the worlds economic turmoil shipping demand is still very anemic at a time when the real cost of money is going up. Panama's desire for AAA sovereign debt is nowhere in sight and Sovereign bond sales are challenged which means the $5.5 billion dollar estimated cost of the project is going to be a lot more expensive than originally planned. An almost perfect storm of adversarial circumstances have gathered together to possibly make this a major boondoggle. It is not that I doubt that the project will be completed, but I am very concerned about who will actually own the canal when it completed. I am not the only one voicing concern about the storm. Joseph Keefe is the Editor in Chief of THE MARITIME EXECUTIVE and posted this story on their website today.

"At the moment, and while significant diversions of traffic through Arctic waters are no longer a pipe dream, they are perhaps not as close as one might think. On the other hand, the net effect of the sagging global economy on shipping, however, is very real. And both variables will have a palpable effect on how much traffic goes through the canal for the not-too-distant future, and beyond. Once completed, the expanded Panama Canal is expected to make a profit for its operators. At least, that’s what the studies and models projected a mere five years ago. That was then; this is now. – MarEx"

A quick online search of "mega project problems" turns up this interesting study titled "Delusion and Deception in Large Infrastructure Projects". The last two words play a big part in a country's fortunes in such an endeavor. Just ask the French.

Summary:

The article discusses infrastructure project planning, examining the complex principal-agent relationships that are involved with the approval and construction of large infrastructure projects. Such projects are usually finished with time delays, with large cost overruns, and benefit shortfalls, the article indicates. The authors explain why costs, benefits, and time forecasts for complex projects a systematically over-optimistic in the planning phase. Topics include forecasting errors based on delusional thinking, honest mistakes, deception, strategic manipulation of information, and bad luck.

For the latest report from the Canal Commission go here.

Canal expansion to become tourist attraction

During the original construction of the Panama canal, tourist flocked to see this incredible undertaking by the boat load. With easy, fast and inexpensive air travel and cruise liners, the construction could  become an attraction again, especially to the engineering minded. Of course back then the engineering feat caught the public's imagination as an incredible undertaking that had been contemplated since the conquistadors first saw the relatively short distance between the seas in the mid 1500"s. Although I doubt if the traveling public would make a special trip to Panama just to see it, the addition of the canal expansion to other Panama itineraries should be a boost.

Machine translated from La Prensa

Two visitor centers are being planned so that tourists can see the progress of the work of enlarging the locks,  the Panama Canal Authority (ACP), confirmed.

  A center will be built in the Atlantic and one in the Pacific, but so far they have not defined where the sites will be located.

  The main market that could be captured and has shown interest, "he added are cruise tourists, with whom already have been some talks.

  Besides the tourist attraction that represents the existing canal, there are high points on the banks of the canal where you can watch the construction of the third set of locks. The ACP has a visitor center, located on the east side of the Miraflores Locks, which allows visitors to observe the transit of boats a few feet away and learn about the various operations of the Canal and the history of its construction, among others.

What the Climate Treaty would do to Panama

My friend Ron de Haan has spent a great deal of time researching climate change and was closely monitoring the shenanigans of the U.N.s climate conference in Copenhagen. Here is what he has to say about the treaty and what it would mean to Panama.

What the Climate treaty would do to Panama

Anyone who has read the original draft of the Copenhagen Climate Treaty knows that the world made a narrow escape from a total economic, political, ecological and humanitarian disaster as the conference ended in failure.

Not because Copenhagen failed to save our planet because, contrary to all the alarmist reports you hear from the media, everything is fine with our climate.

But because the signature of President Martinelli under the proposed Climate Treaty would have ended the sovereignty of the Republic of Panama, transferring all governmental powers to a new World Government supervised by the corrupt United Nations.

The Copenhagen Treaty would give the new World Government unprecedented powers to take control over the world’s entire financial systems, the banks, the economy, the free market, all our natural resources, the energy markets, our intellectual properties and total control of humanity.

All the world’s democracies would cease to exist, including the United States.

From that moment on Cap & Trade would push energy prices through the roof.

Prices for fuel, electricity, transport, distribution, food, industrial goods, cars, air travel, everything would become more expensive, much more expensive.

Tocumen International Airport and the Panama Canal would become desolated as travel restrictions would eradicate the number of tourists and the collapse of world trade would reduce the number of ships crossing the Panama Canal.

Besides this biggest tax increase in human history, the steady process of obligatory reduction of the use of carbon fuels would force the Government of Panama to make massive investment in useless alternative energy projects that would further sky rocket your electricity bills as already happened to consumers in Denmark, Germany and Spain.

Thousands and thousands of jobs, especially in the tourist, banking and distribution industry would be lost and international trade would be reduced with catastrophic effects for the economy and the number of opportunities to make a living.

The world and Panama would remain in a permanent state of economic crises.

But that’s only the beginning.

You would be forced to participate in a personal carbon-rationing scheme and become the subject of total state control.

The World Government would dictate every aspect of your life, what you do for a living, the number of children you are aloud to have and what they have to learn at school.

The explosive demand for agricultural produced bio fuels would trigger a relentless competition with the production of food.

At the same time the need for additional agricultural land would impact the natural environment and destroy our last remaining forests.

High food prices and the reduced output of food crops out would trigger massive famines in third world countries and millions would die from starvation.

This brings us to the true objective of the totalitarians, the planned reduction of the world population.

This time the Copenhagen Treaty failed to materialize because ClimateGate provided the final evidence that the scientists who provided the UN IPCC climate data had been corrupting the world temperature data. But behind closed doors, the perpetrators  and stakeholders behind the biggest scam in the history, continue their quest for total control of the world.

So contact your Government and tell your President not to sign any treaty with the United Nations because they pose a much bigger threat to you than the communists and fascists put together or any rise in global temperatures.

Besides that, satellite measurements show that our planet is cooling, not warming.

Tell him you don’t want World Government.

 

Download Climate treaty nightmare

Download Climate chaos for Panama

Ron de Haan

Canal Expansion helps U.S. lessen unemployment

Well, it is true. Several ports in the U.S. have announced major expansions of their own because by 2014 Panama's canal will handle larger vessels that need ports on the east coast in which to offload their goods. Before it was the west coast that saw this benefit of all that plastics and electronics from Asia, but soon it will be the gulf and east coasts turn at bat. Billions of dollars are being spent in ports east of the Rockies which means that more freight will travel by water instead of rail and truck from the west coast. One coasts gain is another coasts losses, all because of a new set of locks in Panama.

Excerpts from ABC news.

Houston Eyes Asia Trade as Panama Canal Expands

LA PORTE, Texas (Reuters) - Warehouses holding everything from beer kegs to frozen chickens crowd the roadside along Highway 146 south of Houston, and a ferocious building boom is adding acres more, thanks to an even bigger project 1,800 miles away in Panama.

A $5.25 billion plan to triple the Panama Canal's capacity finishes in 2014, opening the way to Houston for mega-sized cargo vessels that can't squeeze through the canal's current locks and don't want to steam around South America.

The prospect of bigger ships, and more of them, could be a boon for the Port of Houston, which already handles more foreign tonnage than any other U.S. port.

With an eye toward feeding the U.S. consumer's insatiable demand for Asian-made goods, U.S. retailers like Wal-Mart Stores Inc and Home Depot have built millions of square feet (hundreds of thousands of square meters) of warehouse space around Houston ports.

"They're popping up every place," said Jimmy Jamison, director of operations at the Port of Houston Authority, referring to the warehouses. "If they wait until the Panama Canal expansion, that property won't be there."

Many such warehouses were built on "spec," or without a dedicated tenant, and many are vacant.

Port officials expect spare capacity to disappear once the Panama Canal opens two new sets of locks -- the first major expansion since the canal opened in 1914. The locks will give massive container cargo ships from giant Asian exporters like China an all-water route to Gulf Coast ports like Houston.

At present the biggest cargo ships from Asia must unload their goods onto trucks or rail cars on the U.S. West Coast, or travel via the Suez Canal to the East Coast.

After the expansion, shipping containers unloaded onto Houston's docks -- which now go mainly to other Texas cities like Dallas and San Antonio -- could end up in U.S. Midwestern cities like Chicago. Houston is the closest U.S. port to the Panama Canal.

read more here....

A plan to unlock prosperity-Economist

The Economist has a positive article about the prospects for the future of Panama. Most of the focus is on the canal expansion, but the expected positive effects are country wide in scope. It pays to be small!

Excerpts:

On top of this, social services, primarily health care and education, also need improvement. Although Panama’s social spending per person is among the highest in Latin America, its students’ standardised test results rank near the bottom. Both Mr Martinelli’s ministers and independent analysts attribute this disappointing showing to a powerful teachers’ union and an inefficient civil service.

The government could use its extra income to foster rural development in any number of ways. It could also build more schools, universities, clinics and hospitals, or hire more or better teachers or doctors.

But money is only part of the equation. If the public sector is inefficient and prone to graft, as Panama’s is—the country ranks joint 84th cleanest out of 180 in Transparency International’s index of perceptions of corruption—the cash may be wasted or end up in the wrong hands. Moreover, canal profits may blunt the incentive to spruce up a tax system that collects a paltry 11% of GDP. Countries with bountiful natural resources have often been poorly governed because leaders who do not rely on tax revenues are not held to account by the public, and are thus free to misbehave.

Read the rest here at the Economist website