The Nicaragua Canal - a disaster in waiting?

Nathan Wood

| 15th August 2014

Lake Nicaragua, ecological jewel of Central America, will never be the same if the canal project goes ahead. Photo: Helen ST via Flickr.

A second canal joining the Pacific and Atlantic oceans is planned for Nicaragua, writes Nathan Wood. But the gigantic project is raising growing fears due to a grossly unfair contract, glaring failures of process, close links to the Chinese government, and its enormous - but uncosted - ecological impacts.

For the second poorest country in the western hemisphere, the Nicaragua canal could be seen as a much needed economic boost.

But the 278 kilometre project involves the construction of two deep water ports, two free-trade shipping zones, an international airport, an oil pipeline and a railway could be an environmental disaster.

With huge environmental impacts and questionable motives of those backing the project, economists, sociologists and environmentalists are already voicing concerns.

The little-known HKND Group is heading the project. According to their website, they are committed to international "best practice" in terms of transparency and accountability.

However little to no evidence has been produced to support the technical, environmental and financial viability of the project. And only the sparsest information has been released about the company, its principal actors, and its credentials.

'Sensitivity to social and environmental impacts'

Usually by law an environmental impact assessment would have to proceed before moving into the jurisdiction of Ministry of Environment and Natural resources, however this project rests in the hands of the Canal Authority.

Diverting from best practice, the Nicaraguan government will be relying on an investigation outsourced by HKND to Environmental Resource management, a global consultancy firm. HKND has no obligation to make the results public.

The project will obliterate more than a million acres of Nicaraguan rainforests and wetlands, displace countless indigenous peoples and will likely jeopardize Nicaragua's largest source of fresh water - Lake Nicaragua.

At either end of the canal, mangroves, sea turtle nesting sites, coral reefs would be obliterated.

A unique acquatic ecosystem at risk

Lake Nicaragua contains a vast, unique ecosystem consisting of numerous endemic species. Crossing the lake, the canal will bring with it masses of saline water, which could drastically change the lake salinity, inhibiting its ecosystem functioning.

Freighters commuting across the lake run the risk of introducing invasive species into the lake through the release of bilge water.

The chosen route runs through two reserves. The UNESCO-designated 7,700 square mile Bosawás Biosphere Reserve and Indio Maíz Biological Reserve. The latter of which is dependent on the San Suan River, which itself would need to be dammed to supply water to the Canal's colossal locks.

The dam would hold back 16 million cubic metres of water. Many fear that to build such a dam in a seismically active region is to invite disaster due to the risk of collapse.

Salvadore Montenegro-Guilén, a professor of hydrology at the National Autonomous University of Nicaragua, voiced concerns in a recent interview with National Geographic.

Stating that the lake itself is far too shallow to accommodate container ships, saying locals with the 1.5 metre drafts on their barges in the dry season. In order to mitigate this HKND propose to dredge a 27 metre deep channel across through the length of the lake.

"To clear a channel like that means they will need to be dredging up to 1.3 billion tonnes of mud, sand and stone ... That's a mountain of material to be disposed of somewhere."

Montenegro-Guilén goes on "the lake itself will transport sediment back into the channel very swiftly and very efficiently". Though dredging is necessary for the maintenance of any canal, the sheer magnitude of the dredging occurring implies enormous costs.

His calculations show that if the canal had been constructed by the US in the late 19^th century it would have had to be rebuilt 23 times in the past 115 years.

'Economic benefits and value creation across all stakeholder groups'

The projects proposed budget exceed more than twice Nicaragua's GDP. Such a figure has obviously enticed the majority of the nation's politicians, who approved the HKND's proposal 61 votes for, 25 against.

Part of HKNDs mission, they say, is to generate local training and job growth. However the Nicaraguan workforce lacks both the capacity and the expertise to fulfil the demands for labour the project will make. In reality the majority of labour and capital goods will be imported.

HKND stresses that this will be an international project, stating they will source partners and invests from around the world - few of these partners have yet to emerge.

Among those that have are the Chinese Railway Construction Corporation (CCRC), entrusted to undertake the technical feasibility studies; China Railway SIYUAN Survey and Design Group, the lead design contractor; and the Civil Aviation Engineering Consulting Company of China (CCCC), responsible for the design of the airport sub-project

A Chinese foothold in the Americas?

Both CCRC and CCCC are wholly state owned, and the substantial involvement of Chinas state owned monopolies has raised concern that the project is an endeavour by the Chinese government to gain a geopolitical foothold within the Americas.

Chairman and CEO of HKND, Wang Jing has been the chairman of Xinwei a telecoms company since March 2010. Xinwei was previously state owned.

In January 2013, Nicaragua permitted Xinwei a licence as a mobile phone service provider. Jing pledged to invest $2 billion, of which $700 million of which was meant to materialise last year but failed to do so.

Jing holds that the venture is strictly private, stressing that there is no state involvement. However many of China's top leaders, including President Xi Jinping, Premier Li Keqiang, Vice Premier Zhang Dejiang and top anti-corruption official Wang Qishan have visited Xinwei.

In a Financial Times interview an executive close to Xinwei said: "Wang Jing is certainly extremely well connected. I believe this canal is something the government wants but cannot be seen as doing, so he does it for them."

Wang Jing himself has an unclear history. Claiming to have made his fortune from mining investments in Columbia - for which little to no evidence exists. Jing has refused to disclose which university he attended. He describes himself as a "very ordinary Chinese citizen" - though he is valued to have a net worth of $1.4 billion.

Public liabilities, private benefits

Raising further suspicion are the terms of the deal. The proposal took three days for the Nicaraguan government to pass, with no other bidders for the project.

The agreement exempts HKND from taxation, allows them to keep all the profit and provides the group with immunity from the environmental devastation they will likely cause.

The Nicaraguan government assumes all liability for clean-up costs. Furthermore HKND are permitted to build where they see fit and hold rights to any minerals they discover throughout the project.

Such generous terms raise questions as to why the Nicaraguan government are so eager to sign their sovereignty away. Many of the international community have criticized Daniel Ortega, Nicaraguans president, who's soon is allegedly good friends with Wang Jing.

HKND under closer inspection

Contacting HKND regarding their history and background failed to garner a response.

HKND Group holding limited can be found on the Cayman Islands general registry. Investigative writer Alex Boyd, looked deeper into the matter. Finding that HKND is a unit of the HK Nicaraguan Canal Development Investment Co.

Searching the Hong Kong register revealed the investment company to be a 10,000 Hong Kong dollar ($1,290) venture, registered on August 20^th 2012 - just two week before the projects memorandum of understanding was signed on September 5^th 2012. The Cayman island venture was registered after the MoU on November 7^th 2012.

Writing on the HKND website Wang Jing proclaims: "We will change the world. Realizing this dream will bring more happiness, more freedom, and more joy to the world.

But the heavy involvement of the Chinese state, a secretive CEO with an invisible track record, and a government that has signed its soul away to HKND, do not bode well for Nicaragua's people, prosperity, sovereignty, and environmental treasures.

Nathan Wood is an Undergraduate at the University of York currently reading Environment, Ecology and Economics, with orientation around corporate social responsibility.

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