Expansion begins with signing of first Panama Canal excavation contract

The first of five earth-moving contracts for the US$5.25 billion rebuilding of the Panama's Canal that will double its size by 2014, has been signed amid claims of government favouritism towards a local company, reports The Financial Times of London.

But Panama Canal Minister David Kuzniecky said the comparatively minor "dry excavation" contract with Constructoras Urbanas was honest and transparent, despite Canal Administrator Alberto Aleman's once having been a major shareholder.

Mr Kuzniecky said the Constructoras bid was 50 per cent below its nearest rival, the result of it having local labour market knowledge together with having no need to import equipment as foreign competitors must do.

Container traffic accounts for 52 per cent of the traffic compared to 25 per cent in 2000 after an annual tripling of containerships passing through the canal from 1995.

Annual toll increases of 3.5 per cent for the next 20 years are expected to pay for most of the canal expansion, though almost half the money $2.3 billion will be raised by international borrowings from 2009.

Since 2000, canal traffic has risen from 220 million tons in 2000 to 300 million tons, getting close to the canal's 350 million ton limit. Until the 1980s the traffic was mostly North American, commodities and manufactures moving from one side of the hemisphere to the other. Today more than 40 per cent of traffic is from Asia bound for the Americas and Europe.