4. The mystery of the project’s funding
One of the things that has perplexed commentators is where the financing for the canal is coming from. Russell White investigates.
‘If something’s good, why hide it’?
‘The canal has one enemy and that’s the lack of information’, the head of the Nicaraguan Chamber of Commerce Benjamin Lanzas told Reuters. ‘If something’s good’, Lanzas told Jon Lee Anderson in a piece for The New Yorker, ‘why hide it?’
The financing of the proposed Nicaraguan canal, in particular, has been shrouded in mystery. The government and HKND have suggested that the canal will cost somewhere between $40 and $50 billion to build, an enormous figure particularly given that Nicaragua’s entire GDP for 2013 stood at $11.26 billion. Nicaragua is the second poorest country in Latin America after Haiti.
Yet neither the Ortega administration nor HKND have offered any credible information about the source of the funding for the project.
Debates about financing, and about the financial and economic viability of the canal are animated by several concerns – the failure to publish McKinsey & Co’s financial feasibility study, doubts that the kind of investment needed for an engineering project on this scale can be raised, and the fact that little is known about Wang Jing, the businessman behind HKND.
The lack of specificity…
Uncertainty has been created by the vague and non-specific statements made by the principals.
Wang Jing told British daily newspaper The Daily Telegraph in July 2014 that HKND has secured investment from banks and others investors in China, the United States and Europe, but he failed to name any of those involved.
Environmentalists are particularly concerned about the possible involvement of Chinese banks which are not signed up to the Ecuador Principles, an agreement that requires creditors to meet and guarantee environmental standards.
HKND public relations manager Dong Lu told an audience in Managua in July that ‘the financing is ready but confidential. These affairs are secret because the companies are trading on the stock exchange and there are details it is not proper to reveal’.
Some news reports suggest that thus far only about $200 million worth of funding has actually been sourced. That is just 0.5% of the minimum amount required.
Secrecy and Harm
Certainly, the secrecy with which the canal’s financing is being treated does neither HKND nor the government any favours.
HKND’S empty boardroom — an image from their own website
It has led to questions regarding HKND’s seriousness and it has led to allegations of corruption. According to Jon Lee Anderson, the opacity of the negotiations has led ‘many Nicaraguans [to] assume that Ortega has a private financial arrangement with Wang’.
HKND has responded by pointing to the fact that it has already spent a vast sum of money on feasibility studies. Yet most of these are yet to be published.
Where is the McKinsey Report?
The feasibility study into the financial impact of the canal was commissioned by HKND and undertaken by the highly respected New York-based management consultant McKinsey & Co. It has yet to be published.
The canal commission’s spokesperson Telemaco Talavera had previously said that details of the project’s financing would be provided before the project ‘broke ground’ on December 22nd. While the project did indeed begin three days before Christmas with the building of access roads at the mouth of the Brito River, there was no sign of the promised financial report.
Indeed, there has not even been an interim report such as the one published by the environmental consultants Environmental Resources Management.
Government spokesperson Paul Oquist told reporters that the McKinsey report has been delayed because it needs to take into account the changes to the route of the canal. Oquist believes that the McKinsey report will be ready by April.
Any further delays will certainly damage the credibility of the entire project and reinforce the view of some sceptics that the canal is one big scam that will never actually be built.
How will finance be generated?
Commentators have wondered how HKND will attract long term investment given that the canal project will not yield any returns on investments during the years it takes to build it.
Revista Envio, a publication highly critical of Ortega and the canal, has made reference to a report on the canal’s financial viability by Guillermo Nóffal Zepeda, a former project evaluator with the Organization of American States. Zepeda claims that the canal will actually lose money over its operational lifespan and that each and every Nicaraguan will end up having to subsidise it to the tune of $500 each year for the next 40 years. Zepeda has labelled the canal a ‘mega-swindle’.
A Brookings Institution report referred to the possibility of equity financing (whereby investors would purchase stocks in the enterprise) but then suggested that the nature of the project made this unlikely.
As it currently stands, no-one apart from HKND and the government really knows how the canal will be financed. Until the cloak of secrecy is removed, critics of the canal project will be able to suggest that the financing of the entire project is no more than a mirage.
Wang Jing: An Unknown Figure?
Much commentary has focused on the figure of HKND’s CEO Wang Jing. Comparatively little is known about the 42 year old millionaire businessmen, at least in the West. Wang has interests in mining, infrastructure and telecommunications. He has made most of his money through his Xinwei Telecom Technology Company and through investing in a goldmine in Cambodia. Forbes lists Wang as the 12th richest man in China and estimates his wealth at $6.4 billion.
Many commentators wonder whether Wang has the necessary experience to develop and manage a project of this size. Doubts have been further fuelled by his supposedly patchy record as an investor in international projects.
A piece on Pulsamerica’s website pointed out that while Xinwei, Wang’s telecommunications company, boast of having secured contracts in some twenty countries in twelve of the countries no project funded by Xinwei is yet up-and-running. The same website also points out that while Xinwei is in possession of a $700 million contract from Nicaragua to build a wireless network, ‘there is no sign that this initiative is underway’.
One of the biggest unanswered questions is the extent to which the Chinese state is involved in this project. Wang and HKND have consistently and continuously stated that the canal project is a private commercial enterprise and that the Chinese government are not involved.
Yet critics do not believe this. It is almost inconceivable, they say, that the Chinese government would not be involved in a project that has such a clear geopolitical dimension.
Former US ambassador to Nicaragua Arturo Cruz told Reuters ‘If the canal goes ahead, it will be because the Chinese government wants it to, and the financing will come from China’s various state firms’.
While some of the feasibility studies have been undertaken by others, most of the core construction work and design will be undertaken by Chinese companies. There are some heavy hitters among the companies that HKND have named as partners.
According to HKND’s own website, the project’s lead design contractor will be China Railway SIYUAN Survey and Design Group, one of China’s leading design companies who specialise particularly in building high speed railways and railway infrastructure.
Responsibility for designing the canal, meanwhile, will lie with the Changjiang Institute of Survey, Planning, Design and Research, a state-owned construction management and development company that previously worked on the Three Gorges project and the South-North Water Diversion project, and is certified by China’s Ministry of Commerce.
Chinese companies will also be taking the lead in many of the sub-projects that form part of the wider canal project. The design of the ports will be the responsibility of CCCCSecondHarborConsultants; the design of the airport sub-project will be carried out by the Civil Aviation Engineering Consulting Company of China; and the free trade zone and holiday resort development will be designed by Shenzhen LAY-OUT Planning Consultants.
Even if the Chinese state is not directly involved in finance for the canal – and that is not certain – as the 12th richest man in China, Wang likely has links to the power elite.
Though located in Nicaragua, this would appear to be a very Chinese project.
In the fifth and final article, Russell White examines the international reaction to the building of the canal and why, thus far at least, the United States has said so little.