Take it to the Panamax: the megaproject to build a second interoceanic canal

You know that an engineering project will be big when the surveys carried out to determine its viability alone come with a $900m price tag.

That is how much Morten Nygart, CEO of Danish consultancy firm Global 2020, estimates the Chinese firm tasked with getting the job done has spent so far on feasibility and environmental impact studies that stack up over a metre high.

Global 2020 is advising European companies looking to participate in the megaproject. Boldly dubbed by the Nicaraguan government 'the biggest engineering project in human history', it calls for the design, development and operation of a second interoceanic canal in a Central American country.

If completed, it would provide an alternative shipping shortcut to the Panama Canal, which recently celebrated its 100th year of operations: on 15 August 1914, the SS Ancon became the first vessel to officially transit from the Atlantic to the Pacific oceans without having to circumnavigate the entire South American continent through the usual Cape Horn route.

Calling the opening of a passage the greatest engineering feat in human history will at the very least be subject to argument when humans have also put people on the Moon (and brought them back alive), robots on other planets and are even ready to land a high-tech laboratory on a comet speeding at 135,000km/h.

But while it might not involve rocket science, the scale of the task ahead is nonetheless astronomical for the Grand Canal of Nicaragua.

For a start, at 278km (173 miles) long, it will be over three times longer than the Panama Canal. A century ago, it took the Americans – following failed attempts by the French – ten years and the equivalent in today's money of $8.7bn to complete the project.

This time round, the Hong Kong Nicaragua Canal Development Investment Company (HKND Group) insists it can finish the new waterway in half the time. With an expected $40bn of financing required, it would also be over four times more expensive. And, one would expect, with health and safety practices having moved beyond recognition over the past 100 years, the 27,500 workers that died building the Panama Canal (between the French and American efforts) would be reduced by several orders of magnitude.

Refloated plan

The idea of cutting Nicaragua in two to link the Caribbean Sea and the Pacific is not new. Studies dating back as early as the 1830s proposed the construction of a canal using two existing prominent bodies of water in the country: Lake Nicaragua and the San Juan River.

This was, and still remains, the most logical route in terms of taking advantage of what Mother Nature has already provided. Located in the southwest corner of the country, Lake Nicaragua is only 20km away from the Pacific coast at its closest point, separated by the Isthmus of'Rivas.

Technically, these 20km would be the only stretch of land that would require land-based excavation. This is because Lake Nicaragua's primary outflow, the San Juan River, runs all the way east to discharge into the Caribbean Sea.

In fact, it is well documented that, during the California Gold Rush in the 1840s, ships coming from the US east coast and Europe would sail upstream via the San Juan River, then cross Lake Nicaragua from southeast to northwest and leave adventurers at the lakeside port of Granada, where they would continue by stagecoach to the Pacific coast before jumping onto another vessel headed northwest.

That route made so much sense for an interoceanic waterway that, even after the Panama Canal was inaugurated, its construction would have allowed ships travelling from New York to San Francisco to shorten the trip by roughly 800km (equivalent to a full day of sailing by today's standards).

However, in order to eliminate the threat of competition, a few days before declaring the Panama Canal open for business the US signed a treaty with Nicaragua under which the US was granted exclusive and perpetual rights to build and operate an interoceanic canal anywhere in Nicaragua. In exchange, the Central American nation received $3m, which was used to reduce Nicaragua's foreign debt with US creditors.

The Bryan-Chamorro Treaty, as the ignominious document came to be known, was mutually rescinded in 1970. Since then, the idea of building an alternative canal in Nicaragua has resurfaced on several occasions. The main hurdle was always the same: where would the funds come from? And there was of course another burning question: was there really enough demand to support two simultaneous Central American canals operating at a profit?

In September 2012, President Daniel Ortega announced he had found an answer for at least the first of those questions. A memorandum of understanding was signed with a company that had been created specifically for the project. The HKND Group, owned by Chinese entrepreneur Wang Jing, would be responsible for financing and building the canal.

Following that announcement, things have moved relatively fast. On 13 June 2013, the Nicaraguan Congress ratified the deal, granting HKND exclusive rights over the project for up to 100 years. Such rights include the construction and operation of not only the canal itself, but also a series of associated infrastructure projects, such as two deep-water ports (one on the Pacific, the other one on the Atlantic), an international airport, the establishment of one or more free-trade zones, the construction of power generation, cement and steel manufacturing plants, as well as the construction of a dam, new motorways and bridges. Even a new, fully functional city able to accommodate 140,000 people who will work in the megaproject is included in the plans.

On 7 July 2014, the definitive route was chosen by HKND. Eventually, it did not include any section of the San Juan River. While that might have proved less capital intensive, it would almost certainly have met international resistance from Costa Rica, whose northern border with Nicaragua coincides in a large section with the course of the San Juan River – itself the centre of a historical territorial dispute between the two nations.

From west to east, the selected route starts at the mouth of the Brito River in the Pacific Ocean, bisects the Isthmus of Rivas, then navigates through the freshwaters of Lake Nicaragua for 105 km, partially uses the Tule River as it continues eastbound and ends at the mouth of the Punta Gorda River in the Caribbean Sea.

Largest ships

As for the second burning question, proponents of the new Nicaragua Canal are convinced that some of the technical features that will differentiate it from its Panamanian counterpart will increase the market appeal of the newer waterway.

Chief among those features will be the size of the canal's locks. HKND has been extremely reticent to release technical data about the project. So much so that not even the exact number of locks that will be built has been confirmed. While some unofficial reports mention that 12 locks will be used, others put the figure at three (the same as the Panama Canal), while others put it at just two – a number that Nygart says is definitely too low.

What we do know is how big each lock will be. Lock dimension is a critical factor in the design of a canal, as it determines the maximum size of the ships that will be able to pass through it. With a maximum depth (draught) of 27.6m and width (beam) of 83m, the locks of the Nicaragua Canal will be nearly 10m deeper and 28m wider than even the as-of-yet unfinished third set of locks that are being retrofitted to the Panama Canal.

One cannot really blame the original designers of the Panama Canal for failing to predict that, 100 years down the line, ships would get as big as they did. But the reality is that even after spending over $5bn to expand its capacity, the channel won't be large enough to take some of the modern giants of the seas.

Beginning to be known in the shipping industry as 'post-post-Panamax ships', these extremely large container vessels, super-tankers and passenger cruisers, weighing over 120,000 tonnes, will, however, be welcome in the Nicaragua Canal.

The world's largest ship currently in service is the Maersk Triple-E Class cargo vessel, which can carry 165,000 tonnes in over 18,300 TEU (20 foot equivalent unit) containers.

Asked about the prospect of having a new sea lane large enough to accommodate ships like these in Central America, Ariel Frías Ducoudray, the Maersk Line Caribbean Sea Cluster's marketing and communications manager, says: "As a maritime shipping company, we always welcome infrastructure projects that facilitate the connectivity and commerce between nations, especially in emerging markets. We have been using the Panama Canal for 97 years. In the past few years we have averaged between 400 and 500 transits per year."

Interestingly, after several years of being the canal's number one user, Maersk is no longer so. The reason? "A little over a year ago we moved some of our services that connected the Asian continent with the US East coast via the Panama Canal to a different route. Existing restrictions on ship sizes in Panama only allow us to transit with ships carrying a maximum of 4,500 to 5,000 TEU. However, with only four additional transit days, we can use the Suez Canal with vessels carrying up to 10,000 TEU, which allows us to lower the cost per unit shipped."

Frías Ducoudray is keen to point out that, once the expanded Panama Canal is completed in 2015 and its third set of locks can fit vessels carrying between 12,500 and 13,000 TEU, "the existing restrictions to a certain extent will disappear."

In addition, although the Maersk Triple-E monsters still won't be able to fit in the Panama locks, he stresses they were never intended to anyway: "These vessels were designed from the outset with the commerce between Asia and Europe in mind. They were not designed to cross the Panama Canal. Infrastructure projects, such as the Panama or the Nicaragua Canals, are platforms that facilitate global commerce. But what ultimately dictates the size of the ships that will use them is the demand and commerce between nations."

As long as China continues to rely on oil imports from the Gulf of Mexico and Venezuela, and as long as New Yorkers keep on buying Chinese manufactured goods, the Grand Canal of Nicaragua will stand a chance.