Nicaragua Canal postponed again for environmental and/or financial concerns

The west coast of Nicaragua, near the proposed route of the Nicaragua Canal.  Photo: Dylan Walters.

While climate change negotiations dominated headlines this month, another global environmental concern came to a much less publicized turning point.  The proposed Nicaragua Canal project, which would move more earth than any infrastructure project in history, has been postponed until at least late 2016, according to the project team:

The company said the “design of the canal is being fine tuned”, in accordance with recommendations contained in an environmental impact assessment [...] “The construction of locks and the big excavations will start toward the end of 2016.”  HKND officials have said the route may be adjusted and other changes made to the original plan in order to offset such concerns and ensure the project is in compliance with international standards, so it can win support from the World Bank and other global institutions.  Such claims remain contentious [...]

Other concerns focus on the financing of the project, which remains obscure. HKND says it plans to build a global consortium with investors from many countries. Until now, however, most of the seed money has reportedly come from Wang’s personal fortune.

And that fortune has been devastated in recent months, as the Chinese stock market collapse has dramatically reduced Wang Jing's capacity to personally finance the project.  Bloomberg called him the worst performing billionaire in 2015:

Telecommunications entrepreneur Wang Jing, 42, was one of the world’s 200 richest people with $10.2 billion at the peak of the Chinese markets in June, according to the Bloomberg Billionaires Index. His net worth has since fallen to $1.1 billion.  His 84 percent drop so far in 2015 is the worst recorded by the index [...]

The billionaire said in a December 2014 televised press conference in Nicaragua that he was committing personal funds to the project, and he’s poured about $500 million of his own money into it so far [...]

“The turn of fortune in Mr. Wang’s financial resources will impact how and whether the canal can and will be built," said Daniel Wagner, CEO of Country Risk Solutions and a former country risk manager at General Electric Co. “I would expect, given this year’s financial gyrations in China, that the government is also asking itself whether the canal is a viable proposition."

Wang will most likely recover, but it will be difficult to convince investors to back the project if the environmental and social concerns remain a point of global concern.  This NPR segment suggests the canal will remain contentious for some time:

Nicaragua releases and approves Nicaragua Canal environmental assessment

Image: ERM

It took a while, but the government of Nicaragua finally released the Environmental and Social Impact Assessment (ESIA) for the proposed Nicaragua Canal megaproject.  It can be downloaded here.  The ESIA was handed over to the government back in early June, a few months after a group of us reviewed parts of the environmental studies at FIU in March.  It wasn't clear why the government was waiting so long to release the ESIA, though back in September the government announced that construction would be delayed in order to conduct further studies of the project.  It's not clear if those studies will still take place, as the government has approved the ESIA and allowed HKND (the company building the canal) to start construction:

Canal commission representative Manuel Coronel Kautz said the commission's decision authorizes China's HKND Company to start structural and construction design work [...] The canal, scheduled for completion in December 2019, will cut across the middle of the country and bisect Lake Nicaragua, known locally as Lake Colcibolca — the second-largest lake in Latin America and the largest drinking-water reservoir in the region. The canal will also cut through the Cerro Silva Nature Reserve.

One thing that's clear from the ESIA (developed by consulting firm ERM) is that while a net positive impact on the environment and local communities is possible, it remains an unlikely outcome under current planning scenarios:

The report says “the government would be wise to consider engaging with international development agencies such as the World Bank or the Inter-American Development Bank,” to avoid damage in sensitive areas like the Mesoamerican Biological Corridor, the Indio Maíz Biological Reserve, the San Juan River, Lake Cocibolca and surrounding nature reserves.

“The study says that in normal situations, these areas would generally be considered untouchable due to their social and ecological fragility,” López noted.

ERM says that if further studies are not conducted and “mitigation and offset measures” are not successfully implemented, “biodiversity impacts would be significantly worse than described.”

It recommended further studies to identify seismic risks posed by construction of the canal; gauge the impact of dredging in the lake; identify the threats from the introduction of saltwater into the lake; and assess the risk of a reduction of the outflow of water from the lake to the San Juan River.

It also concludes that without the implementation by HKND and the government of the environmental and social mitigation measures recommended in the report, not even Route 4 – the one that was selected and the only one considered viable – would have the positive net impact for the environment that could justify construction of the canal.

Nicaragua releases executive summary of Canal Environmental Impact Assessment

Proposed route of Nicaragua Canal.  Image: ERM.

While we're still waiting for the full Environmental-Social Impact Assessment (ESIA) for the Nicaragua Canal to be released, the government of Nicaragua released the Executive Summary of the ESIA yesterday.  It can be viewed here.   The consulting firm that put the ESIA together is optimistic that the impacts can be mitigated (and even offset to a degree that the overall impact is positive on both the environment and human communities), but the cautionary tone of their conclusions is telling:

[The Project] is fraught with risks.  If the Project is not constructed in accordance with international good practice and the proposed mitigation measures are not properly implemented; or if the Project's business case is not realized and the predicted longer term indirect and induced benefits from the Project do not occur; or if the construction of the canal is not completed, Nicaragua may be worse off than doing nothing.

In summary, the Project does offer potential benefits to the environment and people of Nicaragua, but only if its business case is robust, the financing to complete construction is secure, and the Project is constructed and operated to international standards (i.e., recommended mitigation measures are fully implemented).

In other words, it might be possible to construct and operate the canal in a way that provides net benefits to the Nicaraguan people and their environment, but it's not going to be easy.  

Nicaragua Canal construction pushed back due to environmental concerns

Ometepe, an island in Lake Nicaragua, lies just north of the proposed canal route.  Photo: David Armstrong.

Last March I helped organize an independent panel review of the environmental impact assessment for the proposed Nicaragua Canal.  Our conclusions were made public, but the government of Nicaragua has yet to release the impact assessment.  Circle of Blue wrote a follow-up piece I posted on the blog in June (see here), and last month the Wall Street Journal questioned the economic feasibility of the mega-project:

It’s hard to make an economic case for a Nicaragua canal. Nicaragua originally estimated the cost of the 172-mile waterway at $40 billion and now it’s $50 billion. Panama Canal Authority CEO Jorge Quijano told me last summer that he estimates the project will cost more like $67 billion-$70 billion.

Extra-large container ships bring goods from Asia to West Coast ports in the U.S., where the cargo is unloaded and moved by railroads and trucks to the American heartland. But Asian cargo ships that transit the Panama Canal for the Eastern Seaboard make multiple ports of call, from Halifax to Miami and the Gulf Coast. Many of these ports cannot accommodate the largest container ships anyway, so the demand for taking them through the canal is not there. 

HKND hired a British firm, Environmental Resources Management (ERM), to study the social and ecological effects of the Nicaragua canal.   In March an independent review panel, organized by Florida International University’s Southeastern Environmental Research Center and College of Law, viewed draft copies of some sections of the report. The panel concluded that the study was done too quickly to be thorough and that ERM was not given sufficient data about the construction plan. In its response ERM agreed that the study schedule was “aggressive” and that “the lack of a final feasibility study hampered” the analysis.

There has been some skepticism among the review panel that the government would seriously consider the environmental impact assessment or our feedback, but this week the canal commissioner announced that construction would be pushed back in order to conduct the studies we've been calling for:

Paul Oquist, executive director of the government’s canal commission, said that four additional studies to identify new mitigation requirements had been recommended by UK-based Environmental Resources Management, one of the canal’s environmental assessment contractors.

“We and (Nicaragua president Daniel Ortega) have made the decision that all studies recommended by the environmental groups have to be undertaken,” Oquist said yesterday in Washington, DC at a forum sponsored by the Council of the Americas, according to IHS Maritime 360.  Oquist added: “No stone will be left unturned in terms of the environmental elements.”

The surprise announcement will be welcomed by scientists who have criticised the quality of ERM’s work in compiling the environmental impact study.

The environmental impact assessment, as far as I can tell, remains classified.  Still, that the government appears to be taking our concerns seriously is a promising sign that environmental impacts will be mitigated.  Or, as one of my colleagues pointed out, "additional studies" may be nothing more than a convenient excuse to buy time to find more investors.