Latin Finance - November 2008 - 59

Panama Spending in the Balance ith presidential elections scheduled for May 2008 and Panama’s ruling Revolutionary Democratic Party hoping to reap the benefits of the economic boom at the polls, a plethora of infrastructure projects should be advanced in the next few months. Many have yet to be fully financed, and they hang in the balance due to rocky market conditions. Still, projects potentially worth $17 billion in the near term have been tabled across a range of sectors. They are part of Panama’s dream of becoming the logistical and business center for LatAm, which may well end up being shattered by global crisis. A few government-funded infrastructure projects are certain to be completed because of their high political profile, including a $200 million motorway between Panama City and the downat-heel second city of Colón. A $190 million venture to reclaim a strip of land from Panama bay for road and park development should also go through. They are slated for completion before May, and both are being led by Brazilian construction firm Odebrecht. W Jumbo Refinery While the canal gets most international attention, the value of investment on paper pales against proposals in the energy sector. Before the end of this year, Occidental and Qatar Petroleum are expected to announce results of a feasibility study for construction of a $7 billion refinery at Puerto Armuelles, near the Costa Rican border. According to Occidental, the facility could refine 350,000 barrels of heavy crude a day, producing petrol, jet fuel and diesel bound for the US West Coast. If approved, it would be completed as soon as 2012, according to statements made at the signing of a memorandum of understanding between Panama and the two firms in May 2007. Financing needs to come from private capital, bank loans and international markets, raising doubts about feasibility in the current climate. Observers say a recent decision to push back publication of the feasibility study had much to do with fluctuations in commodity prices and capital markets, despite cash-rich Qatar Petroleum’s involvement. There are also concerns about supply of labor in the area. But according to one high-ranking Panamanian official, the government remains confident the project will go ahead and not suffer the fate of the Mexican-backed $7 billion Pemex CentAm refinery, a project that appears close to collapse despite the instance of the Mexican government that it would go ahead. Panama is still being considered as a possible site for the project. With an initial investment of $1 billion, the project which includes refineries, pipelines, tanker docks and chemical production facilities could be worth a staggering $40 billion over 20 years and refine as much as two million barrels of oil a day sourced from South America for markets in the US, China and India, according to Energias vice president Luis Marin. It could also produce 3 million tons a year of petrochemicals, including polymers and fertilizers. Marin says BP, Total, Petrobras, Samsung, Bechtel, UBS and PetroChina have been involved in exploratory talks on the project. None has yet agreed publicly to be involved. Because of Panama’s ongoing economic boom, there has also been a slew of oversubscribed tenders in the electricity sector. This is particularly busy for hydroelectric projects in the west of the country, and established firms like AES jumping in. BP has also announced plans to reverse a trans-isthmian pipeline to bring West African oil to the West Coast of the US. With government backing and BP’s contracts for West African oil in place it seems unlikely this project will falter. The 81 kilometer long Trans-Panama Pipeline, which transports Alaskan crude from the Pacific port of Charco Azul to the Caribbean port of Chiriqui Grande, if reversed would take 65,000 barrels per day of Angolan and other crudes to US. Shipping, Real Estate Boom There are also continued expansion plans for the shipping sector, with Hutchison Port Holdings and SSA Marine lining up expansion of container terminals on either side of the Panama canal worth around $400 million. But the biggest question mark in the shipping sector concerns government’s negotiations with Cosco to construct a mega-port on the pacific coast at Farfan, which could be worth around $1 billion, according to the Panamanian government. Government sources say that with legal problems out of the way, the project may now move ahead rapidly. They will be hoping Cosco’s financial clout ameliorates any funding troubles. Meanwhile, aside from the hundreds of apartment blocks transforming Panama City’s skyline, a number of mega projects in the real estate sector have attracted investor attention. London and Regional Properties has begun work to overhaul what was once Howard Air force base, investing $400 million in developing a 2,750 acres area over the next four years. It is currently looking for joint-venture partners. According to the company, the master plan includes 20,000 homes, more than 1,000 hotel rooms and refurbishment of an on site airport. The total project is expected to be worth $750 million and is already underway. It will receive funding from London and Regional, the Panamanian government as well as a loan from the IFC. With a good number of multinationals companies signed up to establish a regional base at the site under special tax incentives – including Dell Cabo Drilling, Singapore Aerospace, 3M and Caterpillar – it seems that the commercial aspects of project will remain sound. However, tightening credit markets may undermine the ability of individual buyers to snap up residential property. LF Powering Up Another hugely ambitious proposal comes from Energias, a joint venture between Spanish engineering firm Tecnicas Reunidas and Singapore’s Jurong Consultants. Put forward in less risk averse times, the project has the tacit support of the Panama government, but sheer scale makes it less likely to implemented in full, if at all, despite some big-name backing. 2008 November LATINFINANCE 59

Latin Finance - November 2008

Table of Contents for the Digital Edition of Latin Finance - November 2008