Logjam in Panama’s logistics sector: Hegseth’s visit, the Panama Ports audit, the Trans-Isthmian Railway purchase, and the new gas pipeline
The visit of US Secretary of Defense Peter Hegseth to Panama, during which a memorandum of understanding and a joint declaration were signed, aims to strengthen security cooperation through joint exercises and a "cost-neutral" compensation mechanism for security services between the US and the Panama Canal in return for eliminating toll payments for US military vessels' passage through the Canal. This move has sparked controversy due to alleged violations of the Neutrality Treaty and the National Constitution, as well as the lack of response from President Mulino, who traveled to Peru after Hegseth’s visit.
Hegseth’s visit and the government’s failure to clarify these documents could have a significant impact on the Mulino government's political capital and on social stability, affecting key national projects such as the reactivation of a copper mine and the construction of the Rio Indio reservoir. Robust communication, transparency and a strong narrative will be crucial in the coming weeks and months.
The Comptroller General revealed that an audit of Panama Ports Company (PPC) uncovered a breach of contract due to poor accounting practices and a 25-year renewal that did not meet legal requirements. This could impact BlackRock’s bid to acquire the PPC concession, which is already under pressure from Chinese regulators. Nevertheless, we believe that, despite these difficulties, the transaction can still be carried out. The audit is part of an effort to increase state revenue from concessions and mixed-owned companies, which could help with fiscal consolidation. The Comptroller’s Office indicated that PPC owes the government at least US$300 million.
Maersk completed the acquisition of Panamá Canal Railway Company from a consortium led by Canadian Pacific and Lanco Group. This move strengthens Maersk’s transportation solutions by controlling the railway, helping mitigate risks tied to Canal congestion and water levels. It also positions Maersk to counter rival Terminal Investment Limited—BlackRock’s partner in the PPC transaction. The main risk lies in competition, as other Canal users may push for toll reductions if the railway is owned by a user or serves as a cheaper alternative to the Canal.
The Panama Canal Authority approved the bidding process for a new gas pipeline along the Canal. The 80-kilometer Trans-isthmian Pipeline is expected to cost around US$2 billion and will transport liquefied petroleum gas from the US to Asia. The pipeline is intended to help alleviate Canal congestion by diverting LNG vessels, thereby increasing the space for other shipments and boosting Canal capacity without additional water usage.
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