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Xinhua: HKND Group, Nicaragua Canal Preliminary Works Progressing Steadily 2015-9-21 13:56

By: Zhang Yong

HKND Group, concessionaire of the Nicaragua Interoceanic Grand Canal project since 2013, has been under international scrutiny as the sponsor of this ambitious mega project setting to reshape global maritime transportation. The project has aroused heated discussions including positive expectations, objective considerations, and also doubts and pessimism. Responding to the mounting concern, Pang Kwok Wai, Executive Vice President of HKND, shared his understanding of the new waterway with Xinhua in Beijing. He highlighted in the interview that Nicaragua Canal is a serious business project and HKND is spearheading a collaborative efforts on more detailed geological investigation, environmental analysis and reference designs as the project advances stably and orderly to the next stage. Below is an extract from the interview between Mr. Pang and Xinhua.

1. HKND launched the Canal project last December. Why haven’t we seen any major construction commencement by now? 

Nicaragua Canal is the largest civil engineering project in history with an estimated excavation volume of 5 billion cubic meters. In consideration of the above, we must ensure project safety, smooth resettlement program and environmental sustainability to promote Nicaragua’s social and economic evolvement for the benefit of its people. Therefore, we must step up our efforts in preliminary study and logistic support before kicking off major works. In this regard, HKND announced the commencement of access roads construction last December, where we already completed upgrading of local roads leading to the Port and Lock on the Pacific side.

ESIA study is a key element in identifying project’s environmental and social impacts on local community. Earlier in May, we’ve completed the ESIA study and handed over to Nicaragua authority for their internal review and approval. In the meantime, HKND has also carried out project design, formulated resettlement program and prepared itself for the enormous logistics service requirements during construction phase in compliance with international practice.

HKND is led by an international team of individuals with world-class experience and skills in the construction industry and asset management. Bill Wild, HKND’s Chief Project Advisor has been a recognized leader in the global contracting industry. John Murray, Senior Advisor, has accumulated 28-year experience in construction, fleet management, site control and supply chain management. I have over 30 years' experience in the transportation industry with Kowloon Canton Railway Corporation (KCRC) and Mass Transit Railway Corporation (MTR) of Hong Kong covering operations, maintenance, project development and asset management.

HKND has entrusted China Railway SIYUAN Survey and Design Group (hereafter 'Siyuan'), China’s leading design contractor, to undertake technical feasibility studies; while McKinsey & Company is engaged in carrying out economic feasibility study. We’ve also invited SBE, the Belgium consultant designing the third set of locks for the Panama Canal, to work on the Canal lock design. The project is overall advancing steadily. 

Signing ceremony between HKND Group and CSA Global from Australia

2. Is there a clear schedule for the formal commencement of construction?

It is expected construction of locks and massive excavation will start by the end of next year, marking the commencement of the main work. We expect the canal project will be completed within 5 years following the start of main work

3. Environmental impact assessment, where local residents and the whole world focus their attention on, constitutes a vital part of preliminary works. Would you please explain the progress made on this so far? 

For environmental protection, we spent huge sum of money engaging British company ERM, an internationally renowned sustainability consulting firm, to carry out a two-year ESIA for the canal project. The work of ESIA is comprehensive and detailed, including a large amount of fundamental researches. At the end of May 2015, we presented the ESIA report to the Government of Nicaragua. An expert panel has been formed by the Government of Nicaragua to review the ESIA report. Once the report is approved, an environmental permit will be issued for the canal.  

On August 19th, 2015, we signed an agreement with international geological and resource consultancy CSA Global of Australia, entrusting CSA Global to conduct an aerial geological survey of the canal route and Lake Nicaragua shore line. The survey is a major step for the intensive study on Lake Nicaragua, water resources and geology along the canal route and possible impacts of earthquakes, and supports pre-works planning, design and engineering for the canal and infrastructure. The survey will cover a 10km-wide area along the 276km proposed canal route alignment connecting the Pacific to the Caribbean and the 2km-wide circumference of Lake Nicaragua. The airborne remote sensing data acquisition methods that will be applied are LiDAR airborne laser radar (land and near shore bathymetry), high resolution digital photography and airborne geophysics. Results of this survey are key information to be used in detail construction planning and design. They also support minimizing the impact to surrounding environmental and social activities from the design stage, underpinning HKND´s commitment in the long term sustainability and well-being of the Earth.

4. We noticed that some of the local residents are concerned that the Canal will destroy the ecological environment. What are your conclusions in terms of environmental assessment?

After a thorough scientific study, we believe that the Canal project will eventually produce net positive environmental benefits, after we take appropriate mitigation, control and compensation measures.

At present, one of the most serious ecological problems which Nicaragua is facing is that residents excessively cut down the forests to maintain their livelihood. If deforestation continues at current rates, all the forests and natural reserves of this country may disappear within 20 years. Moreover, the degree of drought in Nicaragua is increasing year by year, due to destruction of vegetation, serious soil erosion, as well as the increasing El Nino phenomenon during recent years. According to the statistics of a German environmental protection agency - Germanwatch, Nicaragua has been one of the four countries which are most severely affected by extreme weather events around the world.

According to our planning and study, the Canal will effectively curb the deterioration of the environment in Nicaragua. As one of the environmental compensation measures, HKND will carry out large-scale reforestation on both sides of the Canal. This measure can prevent soil erosion, also will create employment for the residents living along the Canal, so as to reduce or even eliminate the phenomenon of deforestation. In addition, the project will assist the Nicaragua government in mobilizing illegal residents to move out of Indio Maiz ecological reserve, thus the eastern section of the Canal will become a natural barrier of this ecological reserve. Moreover, dams will be constructed in the eastern section of the canal, forming two huge artificial lakes which will retain the precious water resources wasting into the Caribbean Sea and divert the water westward into the Lake Nicaragua. The artificial lakes apart from fully meeting the water usage of the Canal also help the largest freshwater resources in the Central America - Lake Nicaragua to achieve sustainable development, thus effectively alleviate the local drought caused by El Nino and global climate change.

I also would like to stress that the Canal route is chosen as much as possible in areas where the ecological value is not high (areas already damaged). However, for the areas with high ecological value, we will only occupy the smallest space possible. From the perspectives of the ecological environment in Nicaragua, it can be said that the advantages outweigh the disadvantages.

The map of Nicaragua Canal alignment

5. For the Canal project, resettlement is an important issue. There are some concerns and voices of opposition in this respect; could you please introduce the relevant situation?

The resettlement will involve 7,200 families and 29,000 citizens living along the Canal, in which only 25 households are real indigenous people. We will adopt international best practices to cope with this challenge. Our commitment being; all the residents on the acquired land, including residents without property titles, will live a better life as compare with today. The resettlement area will be equipped with various social facilities, including power, water, sanitation, healthcare, education, police, and security facilities. If people choose to move to the resettlement area, we can ensure that the conditions of their new house will be better than their existing ones.

The resettlement fund will be deposited into a financial institution with international credibility. It will be paid to the affected land owners according to the progress of expropriation.

For any large-scale engineering project, land acquisition and resettlement are complicated tasks, not to mention this epoch-making mega Project. The determination of the final alignment still depends on the ESIA approval as well as the geographical and geological data to be collected by CSA. However, this temporary uncertainty is exploited by some politicians in Nicaragua, who have made one-sided statements, causing unnecessary misunderstandings and concerns to a small number of residents. In this regard, it is with our greatest sincerity that we will properly resolve resettlement issues in accordance with our fair, reasonable and open principles.

6. Previously some media questioned that this project has political background and doubted the profitability prospects of the Canal. Please introduce the relevant situation. Furthermore, currently how is the financing situation of the Canal project?

The Project of Nicaragua Interoceanic Grand Canal is a pure commercial project. HKND is a wholly privately owned enterprise which operates according to pure commercial principles, and without any so-called political overtones. Until 31st of August, 2015, the actual expenditure of HKND on the canal project has reached 3 billion RMB (about 500 million US dollars), all of which comes from the personal expense of the chairman.

Some people doubted that after the opening of the Canal, its incomes cannot cover its outcomes. I would like to emphasize that the incomes of the Canal itself already can make the project profitable. Moreover, the profit margins of the associated projects such as ports, free trade zone, and airport may even be higher.

As for the financing, the 50 billion USD required by the construction of the Canal will be funded through global financing. Various potential and applicable financing arrangements, including equity financing, debt financing and IPO will be fully taken into consideration. HKND will make announcements in the appropriate time.

7. As we know, Panama Canal expansion is already underway, is it necessary to build another canal? Or will there be a market for the Nicaragua Canal? 

In shipping industry, container vessels are getting larger and larger in volume. The world’s largest container vessel has tripled its size since 1996. More than two years ago, container vessels in the market could merely carry more than 13,000 TEU containers. But in the last two years, designed capacity of container vessel has reached 17,000 TEU, and even 25,000 TEU. 

As reported by Financial Times and The Economist from UK, the largest cargo vessel allowed to navigate through the expanded Panama Canal is limited to 13,000 TEU. To be specific, neither the Triple-E (the world’s biggest container vessel) nor the Q-Max (the world’s largest class of liquefied natural gas (LNG) tanker) can make it through the expanded Panama Canal. 

According to our current design, the Nicaragua Canal, once completed, will be able to accommodate vessels with capacity up to 25,000 TEU, which is twice the size of vessels allowed to pass through the Panama Canal even after expansion. Therefore, Nicaragua Canal can better satisfy the increasing demands of global maritime trade.  

Another important fact is that Nicaragua Canal will provide a shorter shipping route (especially for maritime trade between Asia and America), which could help shipping lines to improve efficiency and reduce operating cost. 

Accordingly, it is absolutely necessary to build a wider and deeper transoceanic canal that offers higher effectiveness. As President of Nicaragua Daniel Ortega put it, Nicaragua Canal and Panama Canal are complementary efforts and will not compete with each other. 

8.Are there any political risks related to this project? 

The two laws passed by the Nation Assembly of Nicaragua (namely, Law 800, Law on The Nicaraguan Interoceanic Grand Canal Legal Regime and on the creation of The Nicaraguan Interoceanic Grand Canal Authority, and Law 840, the “canal law”) serve as a solid legal foundation for the project. Moreover, the Nicaragua Canal Commission established by the canal law coordinates the work of different government departments to ensure the smooth running of the canal project.  

Nicaragua Canal is a serious commercial project. We have conducted sufficient assessment and studies with respect to project risks. After the technical feasibility study, commercial viability study and ESIA, we consider the canal project to be highly feasible on the whole, and this is the reason why we have made a huge input in preliminary preparation.