Nicaragua Canal May Face Additional Roadblock

Lake Nicaragua

Published Oct 16, 2015 4:48 PM by The Maritime Executive

The Nicaragua Canal project, which has been plagued by environmental setbacks and delays, may have been dealt another blow.

The $50 billion project is led by the Hong Kong Nicaragua Canal Development Group (HKND), a privately-held international infrastructure development firm headquartered in Hong Kong and with offices in Managua, the capital of Nicaragua.

HKND Group’s Chairman and Chief Executive Officer is Wang Jing, a businessman and investor. Wang has previously been tight-lipped regarding how the project’s financing, which has led to skepticism that HKND had sufficient financial backing, and it appears Wang is facing his own financial troubles as well.

According to reports, the Chinese stock market crash wiped out almost 90 percent of Wang’s net worth. Wang was worth more than $10 billion prior to the crash, but has fallen to about $1.1 billion.

While it is still unclear what impact, if any, this will have on the construction of planned 173-mile canal, this development appears to cast further doubt. Especially considering HKND’s lack of transparency regarding its funding. Additionally, in December 2014, Wang had only identified about $200 million in funding.

Nicaragua announced its plans to build the canal in June 2013 and construction was scheduled to commence in early 2014. That projection was eventually pushed back to 2015 due to delays in identifying the waterway’s path. In September, Nicaragua said construction would not begin until 2016’s first quarter.

Despite these complications, HKND officials remain steadfast that the project will have the appropriate financing in place by early 2016.

Some have speculated that the mystery behind the canal’s financing is a result of Chinese involvement.

“If the canal goes ahead, it will be because the Chinese government wants it to, and the financing will come from China's various state firms,” said Arturo Cruz of the INCAE business school, an ex-Nicaraguan ambassador to the United States.

Nicaragua hopes its canal to compete with the Panama Canal, which is undergoing an expansion expected to be completed in April 2016, and provide a boon to its sluggish economy.

The Nicaragua Canal project has faced many critics who may have hope that the latest setbacks may bring an end to its planning. Some critics have speculated if a second canal in Central America is viable or necessary.

The Panama Canal currently accommodates vessels capable of carrying 5,000 TEUs and will able to handle ships transporting 13,000 TEUs when the project is completed. But Nicaraguan officials contend that its canal will accommodate ships up to 23,000 TEUs.

Furthermore, an international consortium of environmental scientists have recently raised concerns over the potential effects the canal could have on the ecological health of Lake Cocibolca.

In order for the Nicaragua Canal to connect to the Atlantic and Pacific oceans, it must intersect Lake Cocibolca, which is the main freshwater reservoir of Central America and the ninth-largest tropical freshwater lake of the Americas. The lake is also home to some of the region’s most fragile ecosystems.