The Panama Canal Authority (ACP) is an autonomous legal entity, established pursuant to Title XIV of the Political Constitution of the Republic of Panama and organized by the Law No. 19 of 1997. The ACP pursuant to the Political Constitution has the exclusive charge of the operation, administration, management, preservation, maintenance, and modernization of the Panama Canal, as well as its activities and related services.
On October 22, 2006, the Expansion Program of the Panama Canal estimated at US$5,250 million was approved through National Referendum with a 78% affirmative vote. The Expansion Program included the design, construction, finance, a third set of locks to the Panama Canal comprising of the following components: (a) deepening and widening of the Pacific and Atlantic entrances, (b) deepening and widening of the navigational channels (including those of the Culebra Cut), (c) the construction of two locks complexes and water-saving basins at the Atlantic and Pacific, (d) the raising of Gatun Lake to its maximum operational level, and (e) all matters in furtherance thereof or otherwise related thereto. The financing needs for the execution of the Expansion Program was determined to be US$2,950 million through internal funds generated by the operation of the Canal, and US$2,300 million from external financing. The key objectives established for the financing of the Expansion Program were:
- Without collateral nor guarantee from the Panamanian government
- Long-term horizon with a grace period during construction
- Without obligations to purchase goods and services from any particular source
- Best possible cost subject to market conditions
- Obligations to minimize potential interference with the operation and administration of the Canal
- Geographical diversification
- Increasing contributions to the National Treasury
On December 9, 2009, ACP subscribed a Common Terms Agreement with five development agencies for US$2,300 million with the set objectives. Financing consisted in a 20-year loan agreement, with 10-year grace period, which permitted disbursements based on the lenders costs, aligned to the execution of the Expansion Program. The obligations of the agreement reflected the financial strength of the ACP, as no guarantees were set. The recognition of the attributes of ACP´s contracting regulation and social and environmental system, the ACP´s corporate governance and its autonomy, permitted a continued and unhindered operations of the Panama Canal and execution the expansion program. The exhaustive due diligence highlighted the criteria matched between the agencies requirements and ACP regulatory framework. The geographical diversification was important due to the connectivity and reliability the ACP provides to global trade, thus subscribing financings with multilateral and bilateral agencies reflected worldwide participation by different member countries, which support IADB (47 members), EIB (28 members), IFC (179 members), JBIC - Asia, CAF (17 countries and 15 private banks).
Accomplishing a common ground among five multicultural policy agencies was the result of understanding each agency requirement; communicating the invested expertise and studies on engineering, social and environmental guidelines and adapting to the best-fit compromise on all parties, to reach a common understanding under one sole agreement.
Multiple lessons learned can be shared from this experience, for example: survey of all possible financing sources available in the market now. This activity helped to understand if the criteria from the sources meets the project’s needs; no sole project is the same; set your organizations objectives ahead of entering into negotiations at the highest possible level thus scope of the financing is not altered. As negotiating team, be prepared to share all your institutional regulations in writing as these represent your playfield; include a multidisciplinary team to contribute their expertise and as counterparties to the lenders, experts like environmental, legal, and operational; among others. Be prepared to include in your team external legal and financial advisors who will aid in establishing the framework by which your institution would be able to adhere to international standards and practices as well as determine legal deal limitations.