Controversy runs deep in Nicaragua’s canal plan

The Nicaraguan government and a Chinese development company have started work on what they claim is the world’s largest infrastructure project: a new canal to connect the Pacific Ocean and Caribbean Sea. Three times as large as the Panama Canal, the $50 billion project will speed shipping time for supertankers taking shale oil and liquefied natural gas from the Eastern United States to energy-hungry Asia. Supporters say the canal and related projects will create over 250,000 jobs.

That’s if the canal gets built. I went to Nicaragua in order to sort through the wildly different claims by canal supporters and critics.

Opponents emphasize the lack of government transparency and potential environmental problems the canal would create. They argue the project would wreak havoc on Lake Nicaragua, Central America’s largest body of freshwater, and disrupt bird and wildlife habitats.

But I found that many ordinary Nicaraguans I interviewed were more concerned about jobs than flora and fauna. They look forward to what the government promises will be massive foreign investment, which it claims will not only create 50,000 temporary construction jobs but also 200,000 permanent jobs at anticipated ancillary projects such as ports, an airport, factories and tourist resorts.

An overwhelming 71 percent of Nicaraguans living far from the canal route support it, according to a December poll by M&R Consultants. But support drops to 42 percent among those living along the canal’s path.

Hong Kong Nicaragua Development (HKND), the company building the canal, admits that the project will displace about 35,000 people, mostly campesinos (peasant farmers) and indigenous tribes living near the Atlantic coast. Campesinos have become the backbone of the anti-canal movement. Thousands have marched, with dozens arrested and injured in clashes with Nicaraguan police.

And here’s where things get really interesting. At first glance, the struggle looks like poor campesinos and environmentalists facing repression from the leftist Sandinista government. But in reality, the Sandinista leaders gave up their revolutionary fervor years ago. Nicaragua’s President Daniel Ortega has led the Sandinistas toward the political center and allied with the big businessmen backing the canal.

The opposition includes leftist critics of the newly moderate Sandinistas, along with the conservative daily La Prensa, conservative political parties and some Contras, the U.S.-backed counterrevolutionaries who fought a civil war against the Sandinista government in the 1980s. Canal supporters and opponents denounce each other with a passion not seen since that era.

Nicaragua is “no longer a popular or leftist revolution,” said Ernesto Cardinal, a former Sandinista leader and the country’s most famous poet. “It’s a personal dictatorship of Ortega and his wife.”

Amid all the angry rhetoric, one question remains: Can Nicaragua build a canal that benefits ordinary people, mitigates the project’s environmental impact and serves international trade?

Let’s take a look at some of the key controversies.

Politicians, including those in the U.S., regularly exaggerate the number of jobs that will be created by large infrastructure projects. Once completed, the canal will employ relatively few people. The claim that the canal will provide the promised 200,000 permanent jobs at ports, an airport, a free trade zone and tourist resorts depends on whether those projects get built.

Raul Calvet, the president of a business-consulting firm in Managua, said that for every job at the Panama Canal, five were created in ancillary industries. As for Nicaragua, he said, “Who can calculate the exact number of jobs?”

Benjamin Lanzas, head of a construction industry trade association, estimates the canal and related projects will provide 25,000 construction jobs for Nicaraguans and 25,000 for Chinese and other foreigners with specialized skills. So far the project has employed some 200 Nicaraguan construction workers. Employment should increase later this year as HKND builds worker housing and port facilities on the Pacific and Caribbean coasts.

Campesino leaders on Ometepe Island in the middle of Lake Nicaragua said HKND will use dynamite to dredge the lake to a depth of 80 to 100 feet. That will destroy local fisheries, canal opponents say, and maintenance dredging will pollute the water supplies of dozens of nearby cities.

Leonel Teller — a former Nicaraguan ambassador to the European Union, a former Contra leader and a canal supporter — flatly denies dynamite will be used in the lake. He notes that the lake is already heavily polluted from river sediment and fish can’t live anywhere except close to shore. The dredging, he said, is “far enough from shore so as not to disturb the [fish] population or the shore of the lake or the island.”

It is possible to dredge a lake without destroying its ecology, but that requires careful, scientific planning and sophisticated construction techniques. It remains to be seen if HKND and its subcontractors can handle the task.

Opponents argue that the Chinese government is manipulating the canal project behind the scenes — part of political plan to colonize Latin America. One opponent said China is prepared to lose tens of billions of dollars on the project to establish a political beachhead in Nicaragua. Others go further and claim China is planning to create a military base on Ometepe Island.

A Chinese diplomat, who asked for anonymity because he’s not authorized to speak to the media, tells me that the Chinese government favors the canal but is not involved in the day-to-day decision-making. The Chinese government hopes to benefit economically and politically from the project but has no agenda beyond getting faster and cheaper delivery of oil and other key natural resources.

It’s absurd to claim China will establish a military base in Nicaragua. Canal opponents must be confusing China with the United States. China has no military bases outside its territory and, as a practical matter, wouldn’t risk U.S. anger by establishing one in Nicaragua.

In 2012 the Nicaraguan National Assembly passed a canal law that would have given the government 51 percent ownership and substantial revenues from the canal. Any canal contractor would have had to follow national and international environmental laws.

Then in 2013 the Assembly completely revised the law in just a few days. Under the new terms, HKND owns the canal and transfers 10 percent to the Nicaraguan government every 10 years. The government won’t achieve majority ownership for 51 years and will receive a measly $1 million per year in fees. Critics call this a sellout of the country’s sovereignty.

Teller argues that Nicaragua cut the best deal it could. “The law has to be very favorable for those foreign investors who will put that kind of money in a developing nation,” he said.

Under the current law, HKND is providing worse financial terms than the U.S. ultimately negotiated for the Panama Canal, which gave full ownership to Panama after 65 years. If the law is not revised, the issue of sovereignty and ongoing revenues will haunt Ortega’s and future administrations.

HKND President Wang Jin has reportedly put up $200 million of his own money so far. HKND says it has additional investors lined up from China, Britain, Australia and the U.S. At least so far, the investors are also major subcontractors, which stand to profit from building the ports, dredging the waterways and doing related work. HKND has not made public the names of other investors, if any.

HKND has announced plans to offer securities on a stock exchange to raise additional funds. But which stock exchange? International stock investors will want a great deal more financial transparency than HKND has offered. Without additional financing, HKND will have a hard time completing the canal — let alone the subsidiary projects.

So what can we expect in the near future? First, HKND plans to buy up land along the canal route. If HKND leaders are smart, they will pay generously for the land and take special care to relocate the campesinos to areas where they can improve their standard of living. Spending a few tens of millions of dollars is a relative drop in the bucket and would go a long way to meet protesters’ demands. But that assumes the HKND leaders are politically savvy.

Meanwhile, protests will likely continue. Government leaders and protesters aren’t talking to each other yet, much less considering possible compromises. It’s possible to build a canal that fairly treats displaced residents and mitigates environmental effects. But can Nicaragua achieve that difficult task? Stay tuned.