Panama sees profitable passage

SUN JOURNAL

Canal: Expectations of wealth are running high as Panamanians prepare to take control of the 50-mile link between two oceans.

June 28, 1999|By John Otis | John Otis,HOUSTON CHRONICLE

BALBOA, Panama -- To Americans, the Panama Canal is an icon of progress and engineering know-how. But to Panamanians, who are about to start running it, the canal represents a spillway of wealth.

Since the canal opened in 1914, more than 700,000 ships have passed through its locks, shelling out billions of dollars in user fees. The 50-mile transit can cost ships as much as $100,000.

Panamanian officials, who begin operating the canal Dec. 31, believe it will become an even bigger moneymaker. They plan to streamline operations and push for higher earnings.

"Profit is not a nasty word," says Mercedes Morris Garcia, a representative of the Panama Canal Commission, the U.S.-Panamanian agency that has run the canal since 1979. In its first year of ownership, Panama expects to earn $30 million from the canal.

Analysts warn, however, that Panama must not treat the waterway like a money machine. If too many corners are cut, they say, the canal will lose its hard-earned reputation for safety and service.

"A lot of people watch this place and think they can make it into a real cash cow," says George Markham, the canal's transit operations director. But, he adds, "the Panama Canal is a plant coming up on 100 years old, and it needs a lot of maintenance. You can't screw around with it."

The United States set up the Panama Canal Co. at the turn of the century as a nonprofit federal utility with an army of employees.

One early canal worker quoted by historian David McCullough in his book "The Path Between the Seas" described the company as "a bureaucracy that's got Russia backed off the map."

Yet hulking as it was, the system worked. Canal company employees religiously followed a costly schedule of repairs and maintenance. The number of ship-transits through the canal multiplied. Accidents were rare. Maritime traffic ran on time.

"The primary function wasn't efficiency, but to keep it operating in a safe manner," says a Western diplomat.

From 1914 to 1974, tolls were frozen at 90 cents a ton for laden ships. Such charges were calculated to cover salaries, maintenance, capital improvements and an annual stipend to Panama.

Experts say that the canal's U.S. administrators could have charged much more in tolls, because for decades the waterway was a trade-artery monopoly. Ship captains preferred the canal to the expensive, month-long voyage around the tip of South America.

But Panamanians have long complained that the low tolls subsidized the canal's main clients, U.S. shippers, and short-changed their own government. Of the $10 billion in revenue collected since the canal opened, Panama has received $1.69 billion.

"The economy that benefited the most from the canal was the U.S. economy," says Charles Langman, director of Associated Steamship Agents, a Panama firm that represents canal users.

Adds Fernando Manfredo, a former canal executive: "Panama was just getting crumbs."

Such resentments as well as growing nationalism drove Panama's leader in the mid-1970s, Gen. Omar Torrijos, to seek a new deal with Washington. In 1977, Torrijos and President Carter signed the Panama Canal treaties, which mandated the gradual transfer of the waterway to Panamanian control by the end of this year.

Since 1979, more than 95 percent of the canal's work force has been Panamanian, including the top administrator of the Panama Canal Commission.

At noon Dec. 31, the newly formed Panama Canal Authority, an autonomous Panamanian board made up of business executives and canal veterans, will begin operating the waterway.

Expectations are enormous.

"The canal has an incredible future," says Marco Gandasegui, a Panamanian political analyst. "Sea commerce is growing. We're in the middle of a great bonanza."

Indeed, annual revenues have jumped from $329 million in 1989 to a record $545 million last year. Panama's share of 1998 earnings was $118 million.

With 38 ship transits a day, the canal is running at full capacity. But a project to widen the waterway's narrowest section will allow for two-way traffic along the entire length of the canal and increase transits to 43 ships a day by 2003.

Panama has told clients that no new toll increases are in store in the immediate future. But Langman says canal officials are considering a new toll structure under which cargo with a higher value would pay more.

At the same time, the canal's operators are trimming expenses. In the past year, hundreds of the waterway's 9,700 employees have accepted buyouts and retired The canal commission expects to stabilize the number of workers somewhere between 7,500 and 8,500. Other savings could come from privatizing nonessential canal operations.

Still, it's unclear just how much more money Panama can realize.

The diplomat says he has heard some Panamanian politicians talk of nearly doubling profits to $200 million annually -- a figure that many analysts call unrealistic.

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