Oriental Outlook - Nicaragua Grand Canal Environmental Assessment approved: A Critical Breakthrough
By: Shan Xu and Xu Ying
In the first week of November 2015, the Environmental and Social Impact Assessment (hereafter referred to as the “ESIA”) for the Nicaragua Interoceanic Grand Canal Project was approved by the Government of Nicaragua. Prior to that, McKinsey & Company and China Railway Siyuan Survey and Design Group completed the commercial feasibility study and the technical feasibility study for the Project respectively.
In a recent interview, Pang Kwok Wai, Executive Vice President of HKND Group, told Oriental Outlook that the mega project has moved into the construction phase.
According to the schedule provided by HKND, the main works, including construction of the world’s largest lock and full excavation of the waterway, will start by the end of 2016. A year before that happens, they are devoted to construct infrastructure facilities, logistics system and preparatory works for the West Port.
With an estimated investment of US$50 billion, the proposed Canal of Nicaragua will traverse Central America, connecting the Atlantic Ocean and the Pacific Ocean. It is expected to boost transoceanic transportation and benefit therefrom with its locks and waterway designed to be bigger and wider than those of the Panama Canal.
In June 2013, HKND Group was granted with the exclusive right to plan, design, construct, and thereafter operate and manage the Nicaragua Canal and other potential projects, including ports, a free trade zone, an international airport, and other infrastructure development projects, for up to 100 years.
On December 22, 2014, HKND Group announced the commencement of construction of the Nicaragua Canal Project.
However, due to its immense scale, the Project has been subject to skeptical attacks from some western media as to its environmental impacts and profitability since the plan was made public, and was even regarded as some sort of geopolitical leverage due to its transoceanic function and proximity to the United States.
Pang Kwok Wai indicated that the approval of the ESIA is a critical breakthrough and the Project is now moving forward as scheduled. In the next stage, the resettlement of 27,000 residents (6,800 households) is even more important and challenging than any other technical problems that might arise during the construction phase, he added.
ESIA facilitates risk control
Oriental Outlook: In your opinion, what is the biggest challenge you have faced in the process of carrying out the ESIA for the Nicaragua Canal Project?
Pang Kwok Wai: The ESIA for Nicaragua Canal Project is probably the most strenuous and complicated one in the world so far. Nicaragua Canal is the world’s largest civil engineering project with a potential excavation volume of up to 5 billion cubic meters. Besides, the ESIA study covers a corridor of 276 km long and 10 km wide, an area much larger than required by the Canal, which is 276 km long, 230 to 280 meters wide and 30 meters deep.
Moreover, the 2.75 million-word ESIA report covers not only environmental impacts, but also social impacts, including conservation of cultural heritage, resettlement of affected residents and so forth.
The ESIA for Nicaragua Canal Project was completed by the British company Environmental Resources Management (ERM), one of the world’s leading environmental consultancies. During peak periods, more than 200 professionals were engaged in the study in Nicaragua.
Oriental Outlook: Why should the ESIA cover a corridor of 10 km wide?
Pang Kwok Wai: We are now conducting an airborne LiDAR and geophysical survey along the route where the Canal will go through and along the shoreline of Lake Nicaragua. In case any undesirable geological conditions are identified on the proposed route after completion of the aerial survey and collection of geological data, we will still have other alternatives within the 10 km wide corridor. Besides, a large survey area will definitely allow more room for optimizing the waterway and reducing the cost while minimizing negative impacts on the environment and communities.
Oriental Outlook: How was the collaboration with ERM? Have you experienced any disagreement?
Pang Kwok Wai: ERM has carried out extensively detailed and professional work, such as analyses of the possible impacts on soil and water resources with computer simulation. They have carried out careful studies on the flora and fauna and water resources along the canal route for 12 months before coming to the final conclusions and proposing recommendations.
For example, one of the proposed canal routes would pass through a natural reserve where, according to ERM, is home to a kind of fingernail-size frog which may require beforehand relocation for species conservation. Fortunately, another route was selected without going through this reserve.
Oriental Outlook: So far, how has the environmental issue affected the canal?
Pang Kwok Wai: Initially, six possible routes were proposed for the Canal, among which, Route 3 and Route 4 were shortlisted. In view of the fact that Route 3 will go through the above-mentioned reserve as well as several populated cities, having greater impacts on the communities, Route 4 was finally opted for the Canal, though it requires much more excavation volume.
Even though the final route had been selected, there are issues remained to be solved. For example, there is a piece of damaged wetland on the east side of Lake Nicaragua. We planned to channel the Canal through a river that traverses the wetland in order to reduce the excavation volume. However, according to ERM, it is possible and also necessary to restore this wetland and HKND should assist in river protection and wetland restoration in order to compensate for the Project’s negative environmental impacts. Therefore, we decided to bypass the river, though such change will increase the construction cost by US$700 million.
Overall, ESIA has not only identified potential risks that the Project may face, but also put forward measures to mitigate such risks.
Acquire global financing by complying with international standards
Oriental Outlook: There have been doubts about the environmental impact and the ESIA report of the Nicaragua Canal. How do you see it?
Pang Kwok Wai: So far those who discredited the ESIA report of the Nicaragua Canal have not provided any solid evidence. With the assistance of ERM, we always hope to achieve a net positive environmental impact.
The Lake Nicaragua, covering an area of 8,200 square kilometers, which equals to 3.5 times that of Lake Tai [Note: the third-largest freshwater lake in China], is the largest freshwater lake in Central America. Local communities are concerned that the lake water may be contaminated once the Canal opened. However, discharges from human activities and industrial production near the Lake have already caused serious pollution. Deforestation along the lake shore also resulted in severe sedimentation of the Lake.
We have started to provide support to the government by planting trees along the Canal route and lake shoreline.
Construction of the Canal and locks will not cause saltwater intrusion, but divert rivers draining into the Caribbean Sea back to Lake Nicaragua, i.e. “East-to-West Water Diversion”, which will improve the condition of water resources in Lake Nicaragua.
Amid criticism from the Western media, only one article published by a less influential U.S. magazine sounds reasonable to us, in which a geologist pointed out that there is a crack at the bottom of Lake Nicaragua, posing a potential risk to the construction works. For that purpose, we’ve sent a group of professionals for site investigations and the results showed that the crack is not severe.
Oriental Outlook: In addition to environmental impact, what other risks have the ESIA identified?
Pang Kwok Wai: From the perspective of construction risk, the biggest problem lies in geological data errors. In 2014, ERM identified more than 400 archeological sites along the Canal route. I believe there is a chance that ancient pyramids could be discovered along the route.
We have signed an agreement with the Government of Nicaragua, setting out that HKND is responsible for relic excavation, record and storage during construction. They will later be handed over to relevant authorities and the Government will be in charge of the heritage study. In the current aerial survey, we’ve also highlighted the requirement for identifying archeological sites. Nowadays, underground structures up to 20 meters deep below ground can be detected by aerial survey techniques.
Oriental Outlook: Why has HKND group made such a great effort for the ESIA?
Pang Kwok Wai: It’s widely perceived that the Canal Project mainly relies on Chinese fund. Nevertheless, what we are carrying out is an international project. Adoption of international standards is vital to secure global financing. Now that the Government of Nicaragua has approved the ESIA, the biggest obstacle of project financing has been wiped out.
Resettlement is top priority
Oriental Outlook: As the ESIA was approved, what is the next issue on your priority list?
Pang Kwok Wai: Resettlement is our top priority in the next stage.
Overall, the affected area under resettlement program is not significant. Compared with the poor local housing conditions, resettlement houses provided by the Government of Nicaragua will be of much better quality in general.
The Government of Nicaragua has promised to help settle the resettlement issue within 12 to 18 months after the relocation starts. They are aiming to make sure every family, regardless of its financial status, could have a house of no less than 60 square meters. They also hope we could help to achieve this goal with the Canal Project.
As early as in 2014, we completed a census of persons, families and assets attached to land with the joint effort of more than 400 people from the Changjiang Institute of Survey, Planning, Design and Research Co., Ltd. (CISPDR), the Attorney General's Office (PGR), the Directorate General of Revenue (DGI) and the Nicaraguan Institute of Territorial Studies (Ineter). The census covers 90% of affected population except for those residing in primeval forest in the east.
Oriental Outlook: What’s the estimated investment for resettlement?
Pang Kwok Wai: As for the compensation in the resettlement process, we will pay according to fair market price.
As present, the compensation amount for each affected resident has been well discussed. The Canal is about two hundred and seventy kilometers; some of the affected lands alongside the Canal will be utilized in 2016 while others in three to five years. What we need to study is how to guarantee the successful utility of each piece of land after paying compensations.
Oriental Outlook: For resettled residents, the growing concern is how to resolve issues for the indigenous communities?
Pang Kwok Wai: The resettlement plan involves 25 indigenous households, according to local legislation, their land is under collective ownership and can’t be sold, which is similar to the situation for American Indians. Our plan is to lease from the indigenous communities for 100 years as 30 km of the Canal will pass through this kind of land.
The resettlement plan for the indigenous people is fairly complicated. For instance, if there is a river running through the front gate of a resettled house, we will need to resettle this family in a similar living environment, meanwhile, we also need to deal with relocating their family graves, etc.
ERM organized anthropologists to participate into the Environmental Impact Assessment and related work. Take the many churches along the Canal as an example; although we need to build several new ones, the Route No.4 has generally fewer knotty matters.
A Worldwide Mega Project
Oriental Outlook: There has been a question for the construction of the Canal Project: How to complete the Nicaragua Canal within five years when its excavation volume is more than three times greater than the South-to-North Water Diversion Project, which has taken more than ten years to finish.
Pang Kwok Wai: The construction techniques for the Canal are mature and there are a lot of practices in China as well worldwide.
The difficulty lies in the huge excavation volume. Currently the planned construction period is 60 months, which is the result of computer simulation.
Once the construction work reaches peak stage, it is estimated to use up to 4.6 million liters of petrol per day, which is equivalent to current Nicaraguan national daily usage. Therefore the delivering will be a challenge and more than 200 oil tanker trucks will be needed. At present, our plan is to store oil in several places and then deliver through pipelines.
Additionally, the livelihoods for 50,000 workers during peak stage should also be well arranged.
Another task is the port construction because the existing port is too small to accommodate 200t~400t machinery and supplies. Eventually, the brand new port will provide three berths for 25,000 tons container ships.
Oriental Outlook: Doubts towards the Project involve financing and economic operating issues, for example, according to one calculation method, the annual return is expected to be US$1 billion; then under the half split scheme with Nicaraguan government, how to reach the breakeven point and make it profitable. How would you respond to these doubts?
Pang Kwok Wai: The calculation method of many who doubt has serious defects. The Project is not only relying on the transportation, but also on the Free Trade Zone, Ports, tourism and etc. The economic feasibility study was carried out and completed by McKinsey & Company and now we are also doing further financial return projections.
Oriental Outlook: What is the attitude at domestic and abroad towards the Canal Project?
Pang Kwok Wai: In Central America and Latin America, the majorities trust the Canal Project with 100% confidence and we have received constantly potential investors. Because of the major significance of the Canal for Central America, they are looking forward eagerly to the Canal.
Europeans remain neutral; on one hand, many companies are willing to participate in the Project, e.g. a Belgium company that design locks, a Netherland company specialized in dredging as well as British company ERM. On the other hand, they are concerned about financing issues.
Although the North Americans welcome the navigation convenience between the east and west coasts to be facilitated by the Canal, they also have complex attitude towards ‘Chinese’.
For Nicaraguan people, they are quite proud of the Project and also paying attention to the Environmental Impact Assessment and financing situation, while for most of the ‘going out’ Chinese enterprises, obtaining the Environmental Permit is just like an insurmountable threshold.
For us, the Nicaragua Canal Project is an international project; not only the construction stage but also the entire future industrial system, require the participation of well-select enterprises all over the world.