AMLO sees bright future for megaproject as Panama Canal struggles with drought

The drought crisis that has left hundreds of vessels waiting at the Panama Canal could become an opportunity for Mexico to catapult its Tehuantepec isthmus rail corridor. 

The 300km link between Oaxaca and Veracruz states is currently the only project underway in the region to connect the Atlantic and Pacific oceans.

Panama’s problems “affect worldwide trade and anyone knows that the option in a situation like this is the Tehuantepec isthmus. That's why we are working on this project,” President Andrés Manuel López Obrador said Monday during his morning press conference, where he showed a video showing many ships waiting to cross the 80km Panamanian waterway.

Due to “the prolonged effects of the dry season,” the Panama Canal Authority (APC) announced this month that it had imposed restrictions on vessel crossings, reducing the allowed number from 36 to 32 a day, in addition to maximum weight limits. 

This left some 200 ships stranded on both sides of the canal during the weekend, according to an estimate by The Wall Street Journal. And Reuters reported that queues from earlier this month had delayed some ships by as much as 21 days.

The canal’s lake system provides Panama City with 50% of its potable water, and around 51mn gallons of water are required to transport one vessel from one end to the other. 

El Niño weather phenomenon has worsened Panama’s long-running drought problem and reduced water availability this year.

While this is not the first time the canal has been faced with a drought crisis – BNamericas reported a similar case in 2020 – analysts have warned of the risk of continued water problems due to climate change. 

Three years ago, ACP mulled a proposal to build a multipurpose reservoir at the Indio River in Colón province, that would supply the waterway with fresh water during the dry season and guarantee drinking water for the population until 2050. The project has not moved forward as a tender worth around US$2bn to design, build and operate the system was canceled after its launch. 

The drought situation is also hurting APC’s finances. 

On August 3, its CEO Ricaurte Vásquez told a press conference that the canal has seen a revenue drop of between US$150mn and US$200mn in the fiscal year that runs from October 2023 to September 2024.

Tehuantepec isthmus progress 

Despite the need for a new logistics platform to connect the oceans, López Obrador acknowledged Monday that one of his signature projects would take a few years to gather momentum. 

The project’s core involves the rehabilitation of a 300km rail line between the Salina Cruz port in Oaxaca and the Coatzacoalcos port in Veracruz, which is scheduled for inauguration this month. 

On September 7, López Obrador said he plans to take a tour from one end to the other using a passenger train.

The president will leave office in September 2024 and some parts of the project will be left to his successor. These are the second modernization phase of the two ports, which include tenders for new terminals and a highway connecting the coasts, he said. 

The government is also tendering five of the 10 industrial park areas that will be created along the Veracruz-Oaxaca line. Construction is expected to last two years after the park projects are awarded between this year and 2024.