Latin Finance - March/April 2011 - 34

central america-china

dynamic,” said Honduran president Porfirio Lobo at the announcement of the pact in September. “One of the plans we laid out in the Plan for the Nation [of January 2010] was to initiate a relationship with the brother nation of China.” Construction on the first stage of the mega-project, Patuca III, began February 1 in Olancho, in western Honduras. Total investment for the Patuca III plant is estimated at $300 million and it is expected to be completed by 2014. Sinohydro estimates the total investment needed to construct the three hydroelectric plants will be around $1.0 billion. The primary source of the funding for the project is a $1.2 billion loan from the IDB, which was approved in October. When completed, Patuca I-III are projected to give the nation an estimated 524 megawatts of energy, according to National Electric Energy Company of Honduras, ENEE. Sinohydro, which has hydro projects in 50 nations, is eyeing another potential deal in Panama through US energy company AES Corporation. In March 2010, AES Corporation closed an equity sale with a wholly owned investment subsidiary of the China Investment Corporation (CIC). CIC acquired 125.5 million shares of AES stock for $12.60 per unit in exchange for an approximate 15% stake. AES Panama operates four hydroelectric plants in Panama and is the country’s largest power generator. As a result of CIC’s purchase of a 15% stake in AES, Sinohydro used the Chinese connection to initiate talks with AES Panama in October about the potential creation of a Panamanian hydro project, says an AES Panama spokesman. In late 2010, Panama’s National Authority of Public Services (ASEP) projected that national energy investment from 2011-2016 would top $4.37 billion. ASEP says a likely $2.6 billion of that would go to hydro generators.

Canal. With construction underway for expansion, shipping capacity should double by 2025, according to the Panama Canal Authority (PCA). As Chinese trade throughout the Americas booms, the passage of larger ships could reduce export costs by up to 30% when locks grow by an estimated 40% in length and 60% in width, according to the PCA. The increase in dimensions is expected to triple the amount of freight that can be transported through the canal. According to Wei Jiafu, president and CEO of the China Ocean Shipping

According to Luca Versari, CEO of Panama Ports Company, the Balboa port on the Pacific side has already completed an over $1.0 billion expansion project that added 25 hectares of container yard space. Further expansion should start this year. “During 2011 we will continue with additional investments for several million dollars,” Versari tells LatinFinance. “That will include large port [gantry] cranes for post-panamax size ships, gantry cranes for the shipping yard, tractor trailers and trucks, and more than five hectares of yard space to store containers.” The Port of Cristobal on the Atlantic side will complete a $200 million expansion that creates 3,731 meters of new docking space in July of this year, says Versari. The second phase of expansion, at an investment of $300 million, will begin immediately after the first phase is completed.

Out With the Old

Honduras inks Sinohydro pact Company (COSCO), the canal expansion will also enable more direct shipping of Chinese goods to the US East Coast. In place of unloading on the West Coast and being driven across country, larger ships would be able to navigate the canal and make direct drop-offs in Boston and New York. Wei also expected more Chinese vessels to use the Panama Canal to access the Caribbean and Eastern coast of South America. The canal project will be also observed closely by Hong Kong-based Hutchinson Whampoa Limited (HWL), the world’s leading port investor. HWL operates two ports on the canal, one on the Atlantic entrance and another on the Pacific. Both ports are currently undergoing expansions to accommodate the impending arrival of larger ships.

Cornering the Canal

Of all the Chinese developments in Central America, perhaps the Asian giant’s most valuable asset will be found at the base of the isthmus along the Panama

Economic representatives of several Central American nations have mastered the craft of tip-toeing around the idea their nations should consider severing diplomatic ties with Taiwan to establish them with China, as was the case with Costa Rica. “El Salvador has had a long, successful relationship with Taiwan,” Flores, of ASACHI in El Salvador, tells LatinFinance. “But we, like the other nations of the region, have to be aware of the economic benefits of a relationship with China. It is the world’s fastest growing economy. It would be a great error to avoid improving relations.” In Costa Rica in 2007, then-president and Nobel Peace Prize winner Oscar Arias, cut relations with Taiwan after 63 years of friendship. This was just four years after $26 million in Taiwanese funding was used to create the “TaiwanCosta Rica Friendship Bridge” in the west of the country. “The reasons are very obvious,” Arias said the day of the decision to drop Taiwan and welcome China. “This will bring greater well-being and development for Costa Rica, which cannot remain static in a changing world.” LF

34 LatinFinance

March/April 2011

Latin Finance - March/April 2011

Table of Contents for the Digital Edition of Latin Finance - March/April 2011