"Dry canal" across Nicaragua breathes new life into old dream

International consortium plans mega-project

MANAGUA, Half-buried in the sand of an isolated, palm
-fringed Caribbean beach, a few old railroad wheels lie
rusting. They were left at Monkey Point in 1903, local
people say, by some Germans who started building a
railroad across Nicaragua. They never got far, though.
The project foundered, and in 1910 the U. S. Marines
landed to put an end to Nicaragua's commercial flirtations
with Europe and Japan.

This summer, nearly a century later, U.S. engineering firm
Parsons Brinckerhoff began a $20 million feasibility study
of a "dry canal" or "land bridge" across Nicaragua. The $1.4
billion project, scheduled to break ground next year, will
construct deep-water container ports and free-trade zones
on the Caribbean and Pacific and connect them with a 210-
mile high-speed railroad. The Caribbean terminus will be
located at Monkey Point.

"Nicaragua is open for business with the rest of the world,"
said Don Bosco, president of the private consortium that will
build and run the system. The project reflects Nicaraguans "
hopes and aspirations for the future," he said. For North
Americans, it should reduce shipping costs and thus "benefit
the consumer and important export companies."

Since 1567, when King Philip II of Spain ordered a study of a
wet canal across Nicaragua, the idea has resurfaced repeatedly.
As prospectors en route to the California gold fields in the 1850s
traveled up the San Juan River and across Lake Nicaragua, the
U.S. military considered digging a canal there. In 1902, however,
Panama won out over Nicaragua after a Panamanian lobbyist
mounted a scare campaign in the U.S. Senate featuring a
Nicaraguan stamp of a volcano erupting. Recent proposals for a
Nicaraguan wet canal have been rejected as too costly and
environmentally damaging.

In contrast, the current dry canal proposal looks less
controversial. Although it faces competition from proposed
land bridges across other parts of Mesoamerica, it enjoys
support across the Nicaraguan political spectrum and indifference
in Washington. "If you get an economically viable dry canal that
reduces transportation costs, that creates jobs and employment
in a place like this, what's there to be against?" said a U.S.
diplomat in Managua, speaking on condition of anonymity. "It's
good for trade, it helps prevent illegal immigration to the States."

Once again, financial backing for the project is coming mainly
from European and East Asian firms. But this time, the riptides
of global trade have eroded the Monroe Doctrine, which claimed
Latin America as the United States' "backyard." Latin America
countries are increasingly looking east and west for trade and
investment.

The Nicaraguan plan may reap advantages from the geopolitical
and economic competition between the People's Republic of
China and Taiwan, which has invested heavily in Central America.
Chinese and Hong Kong port, construction and shipping firms
have joined the dry canal consortium, which could offer China an
economic counterweight in the region.
The seeds of the dry canal plan germinated in the fertile container
tradebetween Asia, North America and Europe, which since 1990
has increased 6 to 8 percent yearly. The aging Panama Canal,
which still carries five percent of world shipping, will revert to
Panamanian management in 2000. It has become a bottleneck,
with waits of several days common. The bigger container ships
now being built, known as post-Panamax, are too big to fit through
the Canal's locks.

ÔThe international interests that are moving cargo between the
Far East and the U.S. and Europe see that the opportunity to
have alternatives to the Canal is really critical. Because the
canal has some major inefficiencies in it.Õ
Ñ Emil Combe economic consultant.

For container traffic, which tends to carry higher-value and
more perishable cargoes, the U.S. land bridge has grown in
the last twenty years into a faster but more expensive alternative
to the Canal. Depending on the route and the cargo's shelf life,
shippers can save time by using more rail or truck, or save money
by going further on water. Consumer electronics from Korea, for
example, can appear on shelves on the East Coast up to a week
earlier Ñ for about $500 more per container Ñ if shipped to Tacoma
or Oakland and rapidly loaded onto double-stack railcars for the rest
of the trip.

Bosco said the route across Nicaragua to the U.S. East Coast could
cut the U.S. land bridge's $1,500 to $2,000 per container price tag
nearly in half, while remaining "competitive" on shipping time. Some
transport analysts, though, said U.S. railroads are in strong financial
shape and will be formidable competitors.

Over the past ten years, explained economic consultant Emil Combe,
a lot of manufacturing and commerce has migrated southward from
Japan to the booming region from Shanghai south to Indonesia. For
containerized cargo heading from southeastern Asia to the eastern
U.S. and Latin America, he said, a sea-land-sea route across Central
America might prove profitable. Shippers could gain economies of
scale by moving product across the Pacific in big post-Panamaxes,
transferring it into smaller feeder vessels at both ends of the dry canal
for journeys north, south and east. This is the market of which the
Nicaraguan dry canal hopes to capture a slice.

The dry canal consortium, known by its Spanish initials CINN, claims
as members major construction, railroad, port operations and shipping
firms from seven European countries, Brazil and east Asia. Parsons
Brinckerhoff of New York, which calls itself the world's largest
transportation engineering firm, is heading the feasibility study.

A strong signal

Bosco said he envisions the railroad as "kind of a
spinal cord across the country," along which commerce and light
industry can develop. If successful, the dry canal will send a strong
signal to foreign investors that Nicaragua welcomes them, said Juan
Carlos Rivas, a Nicaraguan then executive director of the consortium.
"It will change forever the image of Nicaragua as an unstable, conflict-
plagued country, to one of a country at peace and in full development."
Rivas has since left the consortium.

While neither opposing nor supporting the dry canal, Hector Mairena of
the Nicaraguan Environmental Movement faulted both CINN and the
government for failing to encourage more public participation on the
issue. Because the project transcends the interests of one government
or generation, he said, the whole society needs to be involved in
examining the social and environmental costs, perhaps through a
national referendum.

"Poverty is Nicaragua's principal environmental problem," Mairena said.
"Neither the Suez Canal nor the Panama Canal solved the problems of
poverty in those countries. Poverty plus the resulting destruction of the
environment and natural resources to survive equals more poverty.
So it turns into a vicious circle, which we have to break."

The planned railroad will pass through a volcanic zone and near a rain
forest preserve, and the ports will be located not far from coral reefs in
the Caribbean and sea turtle nesting beaches on the Pacific. According
to Parsons Brinckerhoff vice president Paul Gilbert, the feasibility study
will address economic, social and environmental impacts, along with
engineering and market issues. And the consortium, he said, will work
to minimize the project's negative side effects.

The Escondido River coils through the Nicaraguan jungle. The proposed
route of the dry canal railroad passes to the south.

The United Nations Development Program has agreed to work with the
consortium and the Nicaraguan government to facilitate studies of the
project's environmental, economic and social consequences, said
Nicola Harrington, UNDP deputy director in Managua. According to
Bosco, the collaboration will be the agency's first with a private firm.

After years of dictatorship followed by land reforms, unclear land
ownership complicates the leasing or buying of land in some areas.
"I'm looking for a clear, unambiguous right-of-way," said Gilbert.
"At the peak of construction, which will last about two years, we'll
be putting between one and two million dollars a day in the ground.
So we want it clear."

Skepticism about project's chances

Beyond environmental concerns, some analysts are skeptical
about the project's economic prospects. "There's an unfortunate
tendency in Central America to look very strongly at their
comparative advantages," said Costa Rica-based transport
economist Warren Crowther. "From this point of view Nicaragua
sounds like a dream. But when you get to see what all the other
players are doing and what your competitors can come up with,
I really wonder."

"These same outfits came here with the idea of selling the Costa
Ricans big on this," he said. "My own hypothesis is that these
guys are really more interested in getting feasibility studies
done and getting consulting fees than in getting any dry canal
done." Responded Bosco: "I don't make any money on the studies.
I have to break my tail to go out and raise the money for the studies."

Mexico and Panama are upgrading their infrastructure, Crowther
observed, and U.S. land bridges are expanding into Latin America.

Indeed, Panama, with existing port facilities and a coast-to-coast
distance about a quarter that of Nicaragua's, may hold most of the
trump cards in the dry canal game. Kansas City Southern Railroad
is negotiating with the Panamanian government to build a new railroad
line on an abandoned right-of-way.

At Manzanillo on Panama's Caribbean coast, Stevedoring Services of
America's new $120-million container terminal is thriving. In the past
three years, said managing director Andy McLauchlan, larger vessels
and increased competition have nearly halved costs per container
from Asia to Panama.

Mexico, too, may offer attractive land-bridge alternatives and big local
markets if it can modernize its ports and railroads. American President
Lines uses Manzanillo on the Pacific as a major port of entry for cargo
from Asia, which it ships and trucks primarily into the U.S. Midwest,
according to vice president Joaqu'n Montalv?n.

In southeastern Mexico, the ports of Coatzacoalcos and Salina Cruz and
an old railroad across the Isthmus of Tehuantepec are functional but in
poor condition. Plans to modernize the facilities for containers, however,
have been clouded by anti-government guerrillas in the region and
alleged efforts by a cocaine-trafficking cartel to buy the two ports.

In the other Central American countries and Colombia, dry and wet canal
proposals have circulated for years. But none have advanced as far as
Nicaragua's. Costa Rica recently rejected the idea as too expensive and
incompatible with its ecotourism industry.

Dreams of development

In Nicaragua, by contrast, the government has welcomed the dry canal.
According to Bosco, the project also has the support of opposition leader
Daniel Ortega.

Many Nicaraguans across the political spectrum look to the dry canal
as an economic cornucopia Ñ newspapers there have claimed it will
create 20,000 jobs. After construction, Bosco estimated, the dry canal's
permanent operations will employ 6,000 to 7,000, with each direct position
generating another two or three support jobs.

With unemployment over 50 percent and 70 percent of Nicaraguans living
in poverty, a common response to questions about the project was to rub
thumb against index and middle fingers to indicate the cash they hoped
the project would spread around.

Francisco Campbell, member of the Central American Parliament, said
training and good jobs were the key to insuring that the project benefits
local people. "What does it mean in terms of employment possibilities for
our people?" he asked. "Not only the cheap labor component. We need to
not only guarantee jobs in the building of this canal, but also to insure that
it means long-term employment for our people over an indefinite period of
time."

In the isolated spots where the new ports and free trade zones will be built
from scratch, nearly everybody survives on subsistence farming and fishing.
Most people are desperate for the jobs and economic development they
expect the project to bring.

In the village of El Gigante, site of the proposed Pacific port, some saw
new roads as a boon in getting their produce or catch to market.

At Monkey Point on the Caribbean, in a region where some 80 percent are
unemployed, many welcomed the prospect of more work and better
transportation. But most of the English-speaking Creole people and Rama
Indians who live there have no title to their land, which they hold in common.
Some fear that the mega-project will elbow them aside and pave over their
traditional ways of life.

"Sure the dry canal is coming, but then it mustn't molest the Indians,"
said Angela Benjamin MacRae, a Rama Indian, in English. "Leave the
Indians to them place. My parents were born right here, right here." And her
neighbor, Cristina Nat, added in Rama: "We're not against the canal, but
we want our rights and our homes."

Recently, residents said, some unknown men from the Pacific side of
Nicaragua showed up, claimed they owned a tract of land there, and tried
to set up a sawmill. In the past, more than one dictator has given titles to
tracts of Caribbean wilderness as repayment for favors.

Registered nurse Pearl Watson is organizing her neighbors to work with the
government to survey their traditional lands and secure a clear communal title.
Community members should not sell their land, she said, but rather offer the dry
canal a long-term lease and use the revenue to fund local schools and health care.

Such concerns do not appear to trouble the many Nicaraguans who are pinning
their hopes of economic revival on foreign investment and for whom the canal
project appears an blessing bestowed on them by global markets. The full
implications of the project, though, are still unfolding for a nation which has
seen too many dreams deferred and promises broken.