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Nicaragua's Big Dig

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From the Summer 2015 Issue "Climate's Cliff"

By Ted Andersen

MANAGUA, Nicaragua—Towering high in the tropical clouds of Ometepe, the conical symmetry of Nicaragua’s tallest active volcano looms over the expanse of Central America’s largest lake. Across the water to the east lies an unspoiled rain forest surrounding the San Juan River, which extends to the Caribbean’s famed Mosquito Coast. These are rich UNESCO Biosphere Reserves that host creatures from toucans to jaguars. Next to Haiti, however, Nicaragua is the most destitute country in the Western Hemisphere, where more than 40 percent of the population lives in poverty. Until now, the environment has been protected, but the people have not. 

There could soon be quite a dramatic transformation—at quite a high price. The wheels of economic change are in motion and choices between the climate and prosperity are approaching a crossroads. In this largely undeveloped territory, a $40-billion governmental deal struck with a privately held Chinese firm now aims to bring trade, tourism, and jobs by way of an interoceanic shipping canal—the second linking the Atlantic and Pacific Oceans across Central America. The Nicaraguan Canal would accommodate the next generation of the world’s largest boats in competition with the Panama Canal, which is expected to conclude its own decade-long, multi-billion dollar expansion by 2016. Through commerce and tourism, the new canal could raise Nicaragua’s GDP by more than 10 percent. But not everybody is thrilled with this possibility, and few may benefit.

The environment is often depicted as the silent victim of any great industrial project, but this time its not-so-quiet defenders have taken up a loud charge against what is perceived as the opening of the floodgates to ecological ruin. Protests have flared from the capital, Managua, to the rural town of El Tule in San Miguelito. Unanimously, they are opposed to the idea of turning over the land to a foreign company. And what has particularly stoked this fire is that the private company broke ground long before the release of any environmental impact report, forcing regional and international scientists to piece together any long-term effects to the land.

Nicaragua’s President Daniel Ortega, a Sandinista revolutionary fighter from the 1970s who today resembles more of a career politician, brokered the deal with a mysterious telecom billionaire named Wang Jing, and his company, Hong Kong Nicaragua Canal Investment Development Co., Limited (HKND). In what critics have called a rewriting of the constitution, the National Assembly approved Law 840 with only two days of prior notification, putting huge swaths of the country’s jungle and autonomously controlled indigenous tribal areas at Wang’s disposal. The deal has since focused the spotlight on possibly irreparable damage to the environment. Independent scientific experts conclude that the 172-mile canal would steamroll sensitive habitats, drive a number of endangered species to the cliff of extinction, and contaminate the country’s largest supply of drinking water. The project signifies the arrival of a new era of Chinese money seeking business and resources in Latin America. But at the same time this opportunity arrives, the cost of moving ahead has never been so dramatic. 

THE DAMAGE TO BE DONE

The canal would cut across one UNESCO biosphere reserve and build up a tourism center near another. It would require the dredging of Lake Nicaragua, which could threaten a number of fish species that have been evolving for thousands of years. The canal’s path cuts across the San Miguelito wetlands and its associated infrastructure, threatening to alter nearly one million acres of rainforest and sensitive habitat. Each year, 5,100 ships are projected to pass through, producing air, noise, and water pollution. More dirt will be excavated for this project than for any other in history—176 billion cubic feet or the equivalent of 4,700 Empire State Buildings. And with ground broken in advance of an environmental impact statement, it is plain to see that the cart has unequivocally been placed before the horse. 

The political fast track worries scientists who see the potential for devastation. Dr. Jorge Huete-Pérez, vice president of the Nicaraguan Academy of Sciences and director of the Molecular Biology Center at the University of Central America, says ship traffic would pollute the lake with industrial chemicals and introduce invasive plant and animal species. He emphasizes that the dredging of the lake required to accommodate large container ships would render it a “dead zone.”  With a shallow average depth of only 40 feet, the project would require the dredged removal of more than 60 miles of lakebed sediment that contains heavy metals, pesticides, and grease. The “dead zone” could occur if high levels of suspended particles in the water lead to a lack of oxygen from eutrophication—the process by which overly nutrient-rich water causes dense plant life to grow, resulting in fish kills. 

Huete-Pérez was among 21 scientists from 18 institutions who published a paper last November warning of the environmental dangers. The group met in Nicaragua and invited the government to participate and discuss the data, but the government declined. Huete-Pérez says this is because those pushing the project lack scientific credentials, so they have little basis to challenge the facts. The Nicaraguan government has tasked HKND with drawing up an environmental and social impact assessment (ESIA), which the company has outsourced to the UK-based Environmental Resources Management (ERM).

“My hope would be that they would come to their senses and request an independent study and include independent experts,” he said. “So far those studies are done by the company, and I see a serious conflict of interest in this. ERM is working for the Chinese. The Chinese have a concession for 100 years. How can you expect this to be very objective?”

A number of non-governmental organizations have voiced opposition to the project. Both the Humboldt Centre, an environmental group in Nicaragua, and Forests of the World, based in Denmark, claim the canal threatens more than a dozen endangered animals, including jaguars, spider monkeys, tapirs, green macaws, five species of sea turtles, and numerous species of frogs. Twenty-one species are under some kind of protection by Nicaraguan environmental laws, and 80 percent of the animals that would be affected by the canal’s route are mammals, according to the Humboldt Centre.

To compound the disruption caused by the initial construction, the canal will eventually be fenced off on both sides, creating a barrier for species to migrate through the Central American corridor. Two eco-bridges have been factored in to mitigate this problem, but environmentalists say it’s not enough. Indeed, such a fix is not unlike deer crossings. How can you ever be sure the deer will make their way to the crossing before they dart across the road?

Construction on the Panama Canal’s third route has raised far fewer concerns than the Nicaraguan project, though that project has already cut through trees, required the relocation of wildlife, dumped massive amounts of soil elsewhere, and added more than 7 billion cubic feet of water to Panama’s Lake Gatun. The Panama Canal Authority, which has employed 30,000 people on the new section since 2006, uses euphemistic language to characterize a situation where thousands of animals have been “rescued” and relocated to “protected zones.” The Authority holds the project is benefiting the environment, as new forests are being planted as compensation for “altering the flora.” But while the Panama project has its own critics, the two projects are not close to the same scale. 

The Nicaraguan Canal would be three times as long and almost twice as deep as the Panama Canal, since the Panama Canal is built at one of the narrowest east-west points across Central America. According to the Humboldt Centre, the Nicaragua Canal zone would also cover 30 times more area. The Panama Canal, built before the era of environmental impact reports, seriously affected biodiversity and forest cover by flooding large tracts of the rainforest for the purposes of constructing an artificial lake. A similar body of water, the Atlanta Reservoir, is likewise planned for the eastern span of the Nicaraguan Canal, and a huge swath of forest would also go underwater after the building of dams. 

Then there are the unimaginable risks in a country that is naturally volatile. Nicaragua is prone to earthquakes and hosts 19 volcanoes, many of them active. The largest, Concepción, located on Ometepe Island just north of the canal’s path, erupted most recently in 2010. With a built-up shipping and tourism infrastructure planned for the lake’s island, just one eruption could lead to an unmitigated disaster. But the designers of the project see quite the opposite potential. Instead, three villages on the northwestern shore will become upscale resort towns linked to the canal that would draw tourists to the volcano. More traffic would boost tourism revenues, but the impact on the UNESCO-supported biosphere of Ometepe remains foggy.

Aside from the risk of calamity, another serious risk is at play. The toxic volcanic sediment and industrial chemicals that now rest on the bottom of Lake Nicaragua would become suspended in the water column with the project’s required dredging. In addition, the locks that allow ships to enter and exit the lake will also allow some level of salt water to mingle with the fresh water. This cannot be overlooked because Lake Nicaragua represents the largest source of drinking water for the country.

WATER, WATER, EVERYWHERE

Penetrating the largest source of fresh water for the country with ocean-going vessels is of paramount concern. Central America as a whole has fallen into drought conditions recently and the canal’s operations would have the potentially catastrophic impact of forcing more fresh water out to sea.

The situation in Panama provides a suggestion of what could be in store for Nicaragua. A 2000 U.S. Army Corps of Engineers study found that the salinity in Panama’s Miraflores Lake increased immediately after commissioning of the canal, which led to relocating the water intakes that supplied city taps. Salt accumulations were also noticed in power station pipes. Fresh water from Miraflores and Gatun Lakes, both created artificially in the course of construction of the Panama Canal, is used for filling the navigation locks that raise and lower ships transiting through the canal’s changes in elevation. Salt water from the ocean is added to the lakes during ship transit according to the study, and fresh water from the lakes is lost when the ships move from the lakes out to sea. The net loss of fresh water is estimated to be about 52 million gallons per lockage operation. Drinking water from Gatun Lake is also supplied to local populations in two Panamanian cities, but during years of low rainfall, there is a shortage of fresh water for canal operations. 

Flushing the locks with freshwater is one way to keep the salinity intrusion low, but this method is hardly viable during drought conditions. January to July is typically the dry season, but with changing weather cycles, 2014 was an exceptionally parched year for Central America. Last fall’s drought was so severe that the United Nations World Food Program was called in to help. In Nicaragua alone, the UNWFP and the government provided food to over 270,000 people affected by drought-stricken failed crops. So lock flushing may not be the best way of managing the country’s principal source of fresh water if rains again fall short and irrigation systems become stressed.

Nicaragua is also a country prone to seasonal hurricanes. A storm like Hurricane Mitch, which killed 3,800 people in 1998, would likely flood the canal and cause mudslides that could breach locks and dams and overwhelm the new infrastructure. On top of this, researchers with the U.S. Geological Survey have pointed to the likelihood of more powerful storms than ever before hitting Nicaragua in the future. 

These storms could also degrade Lake Nicaragua’s water quality by mixing piles of the dredged sediment back into the water. More than 21 billion cubic feet of dredged sediment from the lakebed will be stored in three sites on the water forming the “Confined Disposal Facility” islands (CDFs), according to ERM. Indeed the company—the same one tasked with producing the Environmental and Social Impact Assessment (ESIA) for the canal project—has affirmed that these islands will not allow any of the fine sediment escape back into the water column, but there is a host of unknowns at play. Whether these islands could hold their structural integrity in the face of a category-5 super storm remains to be seen. 

Another water concern revolves around the proposal to build the 152-square-mile Atlanta Reservoir needed to provide power for the canal’s locks and whether there would be, in reserve, sufficient water for domestic, agricultural, and industrial use. Billions of cubic feet of water from Lake Nicaragua, San Juan River, and Punta Gorda River are required for this project. Atlanta Reservoir is also designed to become a future hub for tourism, which would heighten the need for water resources in the eastern part of the country. Using fresh water to flush the salinity from the locks, all while creating a larger demand for drinking water could put an undue strain on Nicaragua’s water resources, especially if prolonged droughts like last year’s play out in the future as the norm. Moreover, if salt water does intrude into Lake Nicaragua, the country may be forced to consider building a desalination plant, an expensive and energy-intensive solution to a problem that HKND has not factored into its project proposal.

HISTORIC ERUPTIONS

Plans for a canal through Nicaragua have been long in the making. One hundred years ago, before America entered the First World War, San Francisco played host to the Panama-Pacific International Exhibition of 1915, which ushered in an era of global trade via the new Panama Canal. The canal had opened the year before, and the rising tide of industrialization was set to profit from the Central American route that more than halved the nautical distance from New York to San Francisco. But the choice to build in Panama was far from clear-cut, and the seeds of competition had already been sown a few hundred miles north. 

The Spanish conquistadors of the 1500s were the first to envision a canal through Nicaragua, and the idea later took root in the United States. American railroad magnate Cornelius Vanderbilt successfully ferried passengers in search of California gold up the San Juan River and across Lake Nicaragua to a 12-mile carriage road, which linked the lake to a steamship on the Pacific coast. In 1901, the Nicaraguan government granted the United States exclusive rights to build a canal, and the battle with Panama erupted. Early on, plans for Panama seemed dead after a French company went bankrupt, following nine years of excavation. Meanwhile, Nicaragua, closer to the United States than Panama, was favored by American political leaders and popular opinion, though the Panamanian route was shorter, straighter, faster, and in the end, cheaper to build. Congress had a decision on its hands.

This was a turning point in history when seemingly small actions had explosive impacts. Philippe Bunau-Varilla, head of the pro-Panamanian Canal lobby who owned shares in the bankrupted venture, paid William Nelson Cromwell to lobby the U.S. Congress in favor of Panama. Cromwell planted a false story in The New York Sun about volcanic eruptions in Nicaragua, with a clear subtext: build in Nicaragua, and you’ll get burned. The smokescreen worked. On June 19, 1902, the Senate approved the Panama Canal by a margin of eight votes. Ironically, three years later, the volcano of Momotombo did erupt.

The United States bought exclusive rights to build a canal in Nicaragua in 1914 for just $3 million, a move that ultimately prevented the Central American country from competing with Panama for the next century. Augusto César Sandino, Nicaragua’s greatest hero who would later give his name to the Sandinista party, wrote in a 1927 manifesto, “Civilization requires that a Nicaraguan canal be built, but that it be done with capital from the whole world, not exclusively from the United States…And Nicaragua, my Fatherland, will then receive the taxes that by right and by law belong to it, and we will then have income enough to crisscross our whole territory with railroads and to educate our people in a true environment of effective democracy.” Members of Nicaragua’s National Guard assassinated Sandino in 1934, leading to 40 years of conservative rule by the right-wing Somoza family that was largely supported by successive U.S. administrations.

A political shift again occurred in 1979 when the Marxist Sandinistas toppled the Somoza regime. The head of this revolutionary spark was Daniel Ortega, who is the country’s president today. Throughout the 1980s, Ortega fought pro-Somoza Contra fighters who sought to swing Nicaragua’s political pendulum away from the Soviet Union and back toward Washington. The war with the Contras did not heighten Ortega’s popularity, even within his own party, and he lost the election of 1990. Instead of going quietly, though, Ortega set about redistributing huge swaths of the national reserves, some to peasants, millions to himself and his friends.

Dogged by corruption charges, Ortega lost the next two elections, but courting the Catholic vote, he returned to power in 2006 and was then re-elected in 2011. Ortega knew the century-old Panamanian canal was in the midst of a decade-long, $5-billion facelift to build a third lane for larger container ships. He also knew the canal generates close to $2.5 billion in revenue each year, so Panama, with almost half as many people as Nicaragua, has close to four times his country’s GDP. The answer was simple: a canal equals business, and he wanted a piece of the pie, no matter what the cost to the environment or society.

ENTER CHINESE BILLIONAIRE

Ortega announced his plans to build the canal at a ceremony in Managua in June 2013. Holding up the hand of the Chinese billionaire, Wang Jing, chairman and CEO of HKND, Ortega told the crowd this was the man with the money and capability to make the country’s long-standing vision a reality. But what most of the crowd didn’t know was that the National Assembly, dominated by Ortega’s party, had just voted 61-28 to grant HKND carte blanche to bisect the country, end-to-end, to develop the canal any way it saw fit. Lawmakers had just two days to review the deal and largely voted along party lines.

The canal would begin at the Pacific town of Brito, cross 66 miles of Lake Nicaragua, and exit at the Punta Gorda River on the southern end of the Caribbean’s Mosquito Coast. The 50-year concession includes rights to build and operate a rail system, an oil pipeline, steel and cement factories, an airport, a free trade zone, several tourism sub-projects, and the option to extend the concession for 50 more years if HKND desires. This means HKND could own and operate the canal for up to 100 years. The company also has the rights to any mineral resources it might find in the construction path.  

In addition to ERM, HKND has contracted MEC Mining from Australia and engineering experts Studiebureau voor Bouwkunde en Expertises (SBE) from Belgium to consult and prepare studies in the pre-construction phase.  A number of Chinese companies, including China Railway Construction Corp., have been tapped to design and build the canal, its roads, ports, factories, pipeline, and the holiday resorts. HKND is even looking into an IPO to help raise money for the expensive array of projects, which raises questions regarding future leadership changes and the potential of a hostile takeover.

Ground was broken on the project on December 22, 2014 at an access road near Brito that was largely symbolic. But the symbolism wasn’t lost on Nicaraguans, who took to the streets in Managua, Rivas, El Tule, and San Miguelito to voice their opposition. Fears of a vendepatria (sale of the Fatherland) and a Chinese invasion gripped many who openly rallied against the project. 

The story becomes more complicated in rural areas. Indigenous tribes, including the Rama and Sumo Indians, along with Creoles of African descent who have lived on the Mosquito Coast for generations, control autonomous territories granted by the Nicaraguan Constitution of 1987. But this has now been rewritten in favor of a privately held Chinese company, and the Nicaraguan government has put the police and the army at the service of this company. Chinese surveyors, who are gathering property information to put together a census of future land expropriations, will go to properties that are in the project’s path. The owner will be notified by armed troops that the land is going to be seized for the project. Although property has yet to be taken, people have complained of intimidation. It is estimated that tens of thousands of people could be displaced from their land. So when the land is actually seized, the situation might become quite volatile.

In the countryside, the government met with a number of communities last year regarding land seizures and their compensation packages. Although many will no doubt choose to take the money and go elsewhere, a number of farmers remain defiant in the face of relocation. Many protestors have been beaten and jailed. In the universities, these discussions are discouraged, while professors can be punished if they speak too openly against the canal.

NO TRACK RECORD

HKND has no track record in this area of business—even less in the conflict of development and environment in such potentially fragile surroundings. And the company and its principals remain tight-lipped about contentious details. HKND, created in 2012, has home offices in Hong Kong, Managua, and is internationally registered in the Cayman Islands. Wang serves as board chairman of more than 20 international businesses, including Xinwei Telecom Enterprise Group in China. Speculation has swirled over his links to the Beijing government, but he has denied any. The Nicaraguan government lacks formal diplomatic relations with China, but with money now flowing from Beijing to Latin American governments, the type of business relationship being played out in Nicaragua may well represent a future norm in Sino-Latino relations. 

At a January 8 summit in Beijing with a number of Latin American nations, Chinese President Xi Jinping hailed strengthening ties with the region and pledged to use the Chinese economy to support billions of dollars in projects in order to double trade to a level of half a trillion dollars by 2025. Xi underscored the potential for future growth between China and the group of more than 30 nations, known as the Community of Latin American and Caribbean States. The community accounts for one-eighth of the global economy, and late Venezuelan President Hugo Chavez had pushed the bloc as an alternative to U.S.-led regional organizations. Trade between the community and China soared from $10 billion in 2000 to $257 billion in 2013, the same year U.S. Secretary of State John Kerry declared “dead” the Monroe Doctrine, which has long positioned the United States as the Western Hemisphere’s overload. Clearly this had been the enduring reality throughout the hemisphere.

And China was certainly anxious to hustle the doctrine into an early grave, along with any gesture toward environmental conservation. Indeed, trading money for the environment was the theme in Ecuador last year when the government began negotiating a secret $1-billion deal with the Chinese Development Bank to drill for oil under the Amazon’s Yasuni National Park, one of the most bio-diverse regions on earth, all while soliciting international donations to keep the oil in the ground. The objective was simple. PetroChina was to secure drilling access to a hefty supply of crude oil. The Ecuadorian government would get a substantial line of credit at an attractive interest rate.

In the case of Nicaragua, HKND gets the rights to operate the canal and keep all revenue from operating it. In exchange, the Nicaraguan government receives $10 million per year for the first decade and an increasing share thereafter, along with a 1 percent stake in the canal each year, meaning that beyond half a century, the government would be a majority stakeholder. The Nicaraguan government and HKND both seek to gain from the deal, but what has been omitted from the contract’s provisions is the long-term price tag charged to the land.

NICARAGUA'S CHOICE

Development on the Pacific side of the country has been eerily quiet since the high-profile ground breaking in December, and nothing has yet to move on the Caribbean coast. But this could just be the calm before the storm. The canal is technically feasible, and plans are likely to resume after the environmental impact report is released. HKND is beyond ambitious in its desire to build it in a mere five years at $40 billion, but large engineering projects routinely go over time and over budget. In this case, though, some estimates of the total ballooning costs have risen as high as $100 billion. In such a case, if HKND went bankrupt during a protracted construction, the company could simply pull out and leave Nicaragua with a stack of feasibility plans and a huge hole in the ground. This would put the onus on the government to find a new project to sponsor.

But the question is not whether the canal can be built. The chief issue is whether it should be. There are good reasons for the canal. One is that it would allow passage for the largest modern supertankers from Asia that even the new, expanded third route in the Panama Canal will be too small to accommodate. Ortega also sounds convincing when he proclaims that with poverty and economic dependence, there is no sovereignty. As the biggest civil engineering project in the world, in all likelihood thousands of jobs would be created inside the country. The national government doesn’t have the money to undertake the project, so fate has led an opportunistic billionaire to Nicaragua’s doorstep.

Of course, a fundamental and unresolved problem exists with this canal. Beyond its questionable impact on the Central American environment, it hasn’t really been proven that this is going to lead to positive economic development. There is no business plan at hand that economists or laypeople can discuss. The business side would be turned over to the Chinese. The Nicaraguan economy could grow as much as 14 percent per year, according to canal spokesperson Francisco Telémaco Talavera—more than either Panama or China. But there is a need to look at numbers and scenarios. It may all just be a wish in place of a plan. And there are no assurances in place that money will be fairly distributed. 

In terms of the environment, representatives of Greenpeace and the World Wildlife Fund, usually active participants in such high-profile projects, both said they have no official position on the project due to their lack of presence inside the country. And as for those environmental workers and scientists who have criticized the canal, inevitably it is likely to be said they are stifling the potential of others seeking work.

But research has already demonstrated some overwhelming risks to UNESCO biosphere reserves, endangered species, and clean drinking water. Moreover, the developers, particularly HKND, enjoy limited liability if they are ever found negligent in the deaths of Nicaraguan citizens and sued in international courts. With the Chinese controlling the entire process, courtesy of the Nicaraguan government, it doesn’t seem to matter very much what the environmental impact statement concludes. Plans are moving forward.

So who would the canal really benefit? A one-time Nicaraguan revolutionary-turned-career-politician who seeks to create a grand legacy and a 42-year-old Chinese telecom baron and the companies he pays to do the actual work. Or, perhaps, it would be the Chinese government, which may be the secret force behind the entire operation, all in an effort to win a century-long trade route with enormous strategic significance. With the Nicaraguan government receiving a barely-modest sum each year from HKND, it could happen that only a small clique in power gets their hands on any real money, while everyone else gets left out—or suffers the consequences. 

There are no guarantees, of course, that any policy positions would prevent environmental damage, but moving ahead without analyzing all of its potential would be beyond ill advised. It would be plainly irresponsible. With a project so large and impactful, measured judgments must be taken. If the Ortega government and HKND do not heed advice for inclusive input—economically, environmentally, and socially—the whole project could be considered at best an unanswered question, and at worst, an epoch catastrophe. 

*****

*****

Ted Andersen is a San Francisco-based journalist who is the winner of the 2014 Overseas Press Club Foundation Walter and Betsy Cronkite Award.

[Photo courtesy of ENK]

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