Panama Stumbles on Canal Takeover
Oct. 02, 1997
BALBOA, Panama (AP) _ An abandoned military airstrip, rusting rail cars and a few shipping containers stacked by the port are the only indications of human activity along a little inlet of the Panama Canal.
But this corner of a former U.S. military base will soon be one of the most bustling spots in Panama _ too bustling for some investors, who say Panama's government has leased the same land to different companies and keeps changing the rules of the game.
Panamanian authorities have agreed on projects for a major port, an airport, a railroad terminal, a bus station, a shopping center and the outlet of a highway. Three of the projects are planned on the same land. Three others are right next door.
The lack of coordination goes to the heart of a burning question for many investors: Can this country of 2.5 million people successfully take over the Panama Canal and the 560 square miles of prime property that surround it?
At issue now is the government's handling of Albrook Air Station, the last pieces of which reverted to Panamanian control Thursday as part of the U.S. military pullout that started in 1979.
Albrook is only a small piece of the property that Panama has been taking back and parceling out, and other business concessions have been auctioned off with little public outcry.
But as one of the most lucrative plots, Albrook is seen as a test case, and some investors who have watched the process closely say it raises questions about Panama's ability to manage the rest.
Panama will probably spend at least $60 million to pull itself out of the mess it has created in leasing overlapping concessions. And, what may be worse, it could alienate a lot of foreign investors along the way.
In a little more than two years, Panama will take over operation of the Panama Canal, one of the world's most lucrative shipping routes, and the land that surrounds it. The country is seeking foreign investment to develop that property.
The United States built the canal and opened it in 1914. In exchange for an annual fee, Panama gave the Americans the canal and a 10-mile-wide strip of land running along it. The Americans built 10 military bases and civilian colonies, enforcing their own laws on what was U.S. soil.
But in 1977, the Carter administration agreed to gradually turn over the canal and the surrounding land to Panama by Dec. 31, 1999.
Among the most valuable properties were ports on either end of the canal, which Panama offered as business concessions last year.
Panama canceled the results of the first two contract bids, irritating some investors, who dropped out.
After a third round, Panama announced that Panama Ports Co., a subsidiary of the Hong Kong shipping firm Hutchison Whampoa Ltd., would develop the two ports for $22.2 million a year for 25 years.
The figure astounded some other shippers. In the previous round, Panama Ports had bid only $9 million a year, said Wally Abernathy, vice president of a rival bidder, Bechtel Enterprises of San Francisco.
Panama Ports, which has not yet begun construction, plans to use the leased areas, including Albrook on the Pacific side, to stack containers being transferred between ships.
Starting at the Albrook port is a railroad track that stretches along the canal through the jungle and mangrove swamps to the Caribbean port city of Colon.
Panama took over the railroad in 1979. But lack of maintenance and derailments discouraged passenger and freight traffic and it shut down in the late 1980s. Its cars have since rusted where they were left in the tropical air.
When Panama offered a concession to restore and operate the line, a U.S.-based railroad company, Kansas City Southern Railway, was the only bidder. It agreed to take over the railroad and invest at least $60 million to get it working again.
But when the Panama Ports deal was signed, Kansas City Southern didn't like what it saw.
``It took a project we were real excited about and put a real damper on it,'' said William Galligan, a spokesman for the American company.
The Panama Ports contract said no one could use any Albrook port land without its permission. Kansas City Southern's tracks end smack in the middle of the port concession.
What's more, Kansas City Southern had negotiated to build a rail loop to turn trains around _ also on land that now belongs to Panama Ports. And to build the loop it would need to relocate Gaillard Avenue, a major thoroughfare _ also now on Panama Ports land.
``When we expressed our surprise to the government, they said it was just a mistake and would be taken care of,'' Galligan said. ``Unfortunately, things have not progressed very much.''
A few miles to the east in downtown Panama City, a Mexican construction firm is starting to build a 10-mile toll road to Tocumen International Airport.
Its path takes it right through Paitilla Airport, a strip for small airplanes in a ritzy downtown neighborhood. According to the contract, the construction company is supposed to restore Albrook's abandoned airstrip to take over Paitilla's operations.
But both the port company and railroad assumed the airstrip would be scrapped. In addition to taking a piece of the railroad line, Panama Ports' concession also included a portion of Albrook's runway, where it plans to stack cargo containers.
And Kansas City Southern had planned to relocate Gaillard Avenue right across the runway. Unless it passes through Panama Ports land, it will still have to.
Panama is now negotiating with Panama Ports to buy back two pieces of land to fulfill promises made to Kansas City Southern and to the airport developers.
Paul Rickmers, head of Panama Ports, refused to discuss the negotiations. But a Panamanian opposition leader, Victor Juliao, claims Panama Ports has turned down a $60 million government offer, a figure confirmed by other sources.
``In my opinion, there was incompetence, (and) clumsiness'' in letting the contracts, Juliao said.
The area also would be crowded with other government-planned projects: a luxury shopping center, a bus station and a toll road meant to connect with Gaillard Avenue right at the tip of the airstrip.
Hugo Torrijos, director of Panama's port authority, refused to discuss the projects. But in early September, he told the newspaper El Universal that officials were so eager to get Hutchison Whampoa's port bid signed that they didn't want to bring up the land problems.
In an interview with Channel 2 television earlier in September, President Ernesto Perez Balladares shrugged off the problem of overlapping business concessions. He portrayed the projects as a success because they attracted foreign investment.
``No public employee should be punished for what happened with the land at Albrook. On the contrary, they should be rewarded for the extraordinary execution of an idea,'' he said.
Nicolas Barletta, the head of the agency overseeing the conversion of the former U.S. land, also refused to discuss the Albrook problems.
Instead, he happily detailed Panama's plans for developing the rest of the Canal Zone into tourist centers, shipping businesses and industrial parks.
Few doubt the problem with Albrook will eventually be solved.
But as Panama looks abroad for private industry to develop the Canal Zone, it may be dogged by broader questions about the safety of investment in the nation.