Review of Island & Reclamation Studies for Container Terminal Development on the Pacific Coast of Panama. Autoridad del Canal de Panamá

Transcription

1 Review of Island & Reclamation Studies for Container Terminal Development on the Pacific Coast of Panama Autoridad del Canal de Panamá March 23, 2016

2 Table of Contents 1 OBJECTIVE EARLIER STUDIES Artificial Island Preliminary Study December Objectives...1 Study Results...2 Conclusions (2001)...4 Update to Conclusion (2015) Pacific Side Excavation & Dredging Material Disposal Alternatives Evaluation Objectives...7 Study Results Artificial Island Feasibility Study May Objectives Results Conclusions (2004) Farfan/Palo Seco Island Project Feasibility Study June Objectives Results Conclusions (2015) OVERALL ASSESSMENT Summary Artificial Island Palo Seco Island Findings >> PAGE i

3 List of Figures Figure 1: Artificial Island Concept 2001 (P1 Long Breakwater)... 3 Figure 2: Short Listed Beneficial Use Sites for Excavated Material... 8 Figure 3: Short Listed Offshore Island Sites (2004) Figure 4: General Area for Palo Seco Port Options Figure 5: Proposed Rail Link from Palo Seco Terminal to Albrook (2005) List of Tables Table 1: Assessment of Current Validity of Artificial Island Preliminary Study... 7 Table 2: Base Cost of Materials Transport to Disposal Sites (2004 US$)... 9 Table 3 : Development Costs of Offshore Island Disposal Sites (2004 US$)* Table 4:Estimated Cost of Palo Seco Albrook Rail Link (2005 US$) Table 5:Assessment of Current Validity of Palo Seco Rail Link Table 6: Estimated Cost of the Palo Seco Phase 1 Terminal (2005 US$) Table 7: Estimated Cost of Equipment & Superstructure Palo Seco (2015 US$) Table 8:Assessment of Current Validity of Palo Seco Island Project >> PAGE ii

4 1 OBJECTIVE This scope of work aims to assess the validity of a series of previously developed studies performed by Moffatt & Nichol for Autoridad del Canal de Panamá (ACP) in light of current market costs for construction, maritime development revenues and materials availability. In particular, the following three studies are highlighted: Contract No Preliminary Study of Island Development at the Pacific Entrance of the Panama Canal (December 2001) Contract No Feasibility Study of Island Development at the Pacific Entrance of the Panama Canal (May 2004) Contract No Feasibility Study of Palo Seco/Farfan Land Reclamation to Develop a Port Facility (June 2005) The above mentioned studies were developed to evaluate the potential beneficial use of some 70 million cubic meters (m 3 ) of excavation material from the construction of the Third Set of Locks, including the construction of an artificial island. Based on the conclusions of the earlier studies, alternative disposal sites were recommended and used for the placement of this excavation material. Given the need for additional container terminal capacity on the Pacific Coast of Panama, this study updates and comments on the validity of the conclusions and recommendations of these earlier studies. The objective is to re examine the key considerations and construction costs of an island or near shore development at the Pacific Entrance of the Panama Canal taking into account current conditions. 2 EARLIER STUDIES 2.1 ARTIFICIAL ISLAND PRELIMINARY STUDY DECEMBER 2001 OBJECTIVES In 2001, ACP requested that Moffatt & Nichol make a preliminary evaluation of the feasibility of the construction of an artificial island on the Pacific Coast, to be developed as a container port to meet increasing demand and limited expansion capacity in the Balboa area. At that time, the Master Planning studies for the Canal expansion were well advanced, with the expectation that the New Locks Project would generate up to some 70 million m 3 of excavation material. >> PAGE 1

5 The objective of this first study was to evaluate the technical, logistical and financial viability of taking advantage of this material to construct an artificial island to provide a new container port for the Pacific Side. The first element of the study was to develop a transportation cost model to evaluate the most efficient and cost effective means of moving the excavated material from the various work fronts to the proposed island location. STUDY RESULTS Somewhat surprisingly, the cost assessment clearly favored the rail option using a purpose built rail line to transport the material from the Locks area to the island site. This option also offered the advantage of a lower environmental and socio economic impact than the most expensive truck option. However, as the study progressed, it became clear that the use of the island for commercial ship traffic required a number of key elements that went beyond the simple construction of an island using the excavation material. These included: A breakwater to protect the ships at berth Dredging to accommodate the larger vessels expected in the future A 3 km access highway from the shoreline to the island location Power and other utility connections to the new island Customs and other agency facilities services for the container operations Displacement or reduction of one of the primary Panama Canal anchorages In order to use the full excavated volume of 70 million m 3 from the P1 channel alignment and considering the expected initial bulking and later consolidation of the material, it was calculated that the island would cover some 350 ha. Within this area, it was considered that five marine terminals could be built, with at least three being for containers, as shown in Figure 1, below. >> PAGE 2

6 Figure 1: Artificial Island Concept 2001 (P1 Long Breakwater) The preliminary study concluded that an island project was technically feasible, with basic materials transport costs from the excavation work by rail to the site estimated to be a total of some US$260 million for the P1 channel alignment. The total cost to construct the 350 ha unimproved island (based on the P1 channel alignment and long breakwater option) including landside access was estimated to be some US$542 million, not including navigation access, basic infrastructure, nor the container terminal facilities. The full development cost of the island including basic infrastructure, but without container or value added installations, varied from a low of $274/m 2 to a high of $451/m 2 depending on the Locks channel alignment (P1 or P2) and the breakwater options selected (long or short). If the cost of disposal to the >> PAGE 3

7 existing ACP disposal sites was discounted from the development costs 1, the range of values fell to a low of $87/m 2 and a high of $226/m 2. The study estimated that the investment cost of a fully developed 32 ha terminal module with eight gantry cranes and an annual capacity of 950,000 TEU was on the order of $149 million at that time, using 2001 costs, including support facilities but excluding yard equipment and inventory control systems which were assumed would be provided by the terminal operator. Considering the support facilities required for the module, a 48 ha terminal would result in a unit cost of $310/m 2, over and above the improved island construction cost. A 950,000 TEU capacity container terminal module on the artificial island was expected to cost approximately $157 per TEU of annual throughput in 2001 dollars. Construction of the island and basic infrastructure to support the terminal added another $40 per TEU (based on the P1 alignment and long breakwater option), indicating a total cost, including cranes, of $197 per TEU of annual throughput, assuming that the cost of disposal to the ACP sites was discounted from the estimate. With the full cost of the island construction included, the cost per TEU of installed capacity increased to $263 per TEU of annual throughput. At that time, a typical U.S. West Coast terminal on a developed site was expected to cost on the order of $165 per TEU of throughput, with land costs varying from $30 to $95 per TEU, depending on location and demand. Asian and Far East terminal construction costs were some 15% to 20% higher than the US counterparts, with land costs varying considerably depending on location. However, revenues from the Asian terminals were generally double the rates received by operators in Latin America at that time. THIS ROUGH COMPARISON INDICATED THAT THE PANAMA ARTIFICIAL ISLAND CONTAINER TERMINAL COST WAS AT THE HIGH END OF THE RANGE, IF FULL COST RECOVERY WAS REQUIRED. CONCLUSIONS (2001) As a result of the preliminary report conclusions, the ACP Board recommended that the project should be evaluated in more detail, but the scope of work was also expanded to include other location options for marine terminal development as well as other uses. 1 In order to provide a realistic estimate of the opportunity cost for the island, it was assumed at the time of the study that the basic cost of materials disposal to the existing ACP disposal sites would be borne by the Third Locks Project and should be discounted from the island cost. >> PAGE 4

8 UPDATE TO 2015 As noted, the basic objective of the artificial island study was to examine the beneficial use of the Locks expansion excavated material in a way that would provide economic benefits to Panama. While the study showed that the concept was viable technically, the economics relied heavily on the fact that the fill material would be provided at no cost, except for transportation and placement on the island. More importantly, the fundamental concept of the island was that it would receive up to some 70 million m 3 of excavated material, which then determined the 350 ha area of the island. With each marine terminal module covering some 35 to 40 ha each, it was clear that the island would accommodate multiple terminals, which were expected to be developed over a long period of time. If a private group was to develop an offshore marine facility in the area under today s conditions, the first consideration would be the source of material, and the second would be the initial size of the reclaimed area. For container development, a typical first phase project will have on the order of 1.0 million TEU annual throughput capacity and it is common to see projects with the capability of expansion to some 3.0 to 5.0 million TEU, in order to recover the high basic infrastructure investment. Given that the Third Locks excavation material would no longer be provided for use in the construction of the artificial island, this 2015 update now assumes that fill material will be obtained and purchased from alternative sources. As a result, the initial island size would be smaller than the disposal concept. On this basis, and allowing space for support industries, government agencies, commercial development and service facilities, a new island would be expected to cover some 150 ha, with one terminal having 850 m of berth as the first phase and reclamation provided for expansion for one future phase. A detailed up to date cost estimate of the previously proposed island concepts is outside the scope of this study. However, attempts were made to generate rough approximations of current costs based on escalation averages from R.S. Means and some preliminary research into fill material sources. In order to update the costs of the artificial island concept to 2015, the island layout resulting from the P2 alignment and short breakwater was used as it closely resembled the minimum requirements identified above. The requirements for dredging, breakwater, access trestle, main utilities and power would still be similar to those indicated in the original concept, while all fill material, rock and materials transport would have to be sourced alternatively. For the purposes of updating the cost estimate, it was assumed that fill material could be obtained from offshore sand borrow areas and would be purchased, dredged and transported to the island site. It was assumed that the 31 million m 3 of sand estimated to be required to create the 153 ha island would be available from existing concessions. However, very little reliable information is available on the characteristics and extents of the sand deposits. The availability of such a >> PAGE 5

9 large volume of sand from existing nearby concessions exceeds the current authorizations and is unlikely to be approved. In addition, rock for the construction of containment dikes was assumed to be purchased from nearby quarries and trucked to the site. Assuming suitable fill material and rock were available and were purchased, the updated cost to construct the improved island including basic infrastructure was estimated to be $1,472/m 2. The updated cost for developing the container terminal excluding yard equipment and inventory control systems was estimated to be an additional $412/m 2. CLEARLY THIS UPDATE MAKES THE PROJECT LESS ATTRACTIVE THAN THE EARLIER VERSION, WHICH IN ITSELF, BASED ON M&N S RECOMMENDATION, WAS CONSIDERED BY ACP TO BE AN EXPENSIVE MEANS OF DEVELOPING ADDITIONAL PORT CAPACITY ON THE PACIFIC COAST. IT THEREFORE FOLLOWS THAT THE ARTIFICIAL ISLAND CONCEPT WOULD BE MUCH LESS FEASIBLE UNDER CURRENT CONDITIONS AND WOULD NOW BE MOST UNLIKELY TO BE DEVELOPED BY PRIVATE INTERESTS. CONCLUSION (2015) Table 1 summarizes the assessment of the current validity of the 2001 Artificial Island Preliminary Study findings and recommendations. Since the 2001 study was based on the premise of using the volume of material expected to be generated from the Third Locks Project, this predefined volume dictated the size of the island. If the island were to be constructed now using fill material imported from offshore borrow sites, the size of the island would be dictated by the minimum area required for the container terminal. Thus cost comparisons are made on a cost per square meter basis. >> PAGE 6

10 Table 1: Assessment of Current Validity of Artificial Island Preliminary Study Source of fill material Transportation of fill material million m 3 of rock fill provided by ACP from Third Locks excavation material at only the transportation cost. By rail from Third Locks excavation 31 million m 3 of sand fill would have to be purchased and dredged from offshore borrow areas. It is unknown whether sufficient volume of suitable sand is available from nearby concessions and whether its extraction would be approved. Rock would have to be purchased from local quarries. Sand fill would have to be barged in from the offshore borrow areas. Rock for containment dikes would have to be trucked in from quarries. Unit cost improved $315/m 2 (P1 Long Breakwater) 1 island $393/m 2 (P2 Short Breakwater) 1 $1,472/m 2 (P2 Short Breakwater) 3 Unit cost container terminal 2 $310/m 2 (48 ha module) $412/m 2 (153 ha, Phase 1+2) Conclusion Comparison to typical developments indicated artificial island container terminal was at the high end of the range of costs. Artificial island concept should be evaluated in more detail and other location options as well as other uses should be studied. The need to purchase and import sand and rock to create the island makes the project less attractive than the 2001 version and would now be most unlikely to be developed by private interests. Given that the rail link would no longer be needed to import the excavation material, the project would no longer include connection to the existing Trans Isthmian rail system. 1 Costs for improved island in 2001 assume full cost of island construction (i.e. cost of disposal to ACP sites not discounted from estimate) 2 Yard equipment and inventory control systems not included, assumed provided by terminal operator 3 Estimated cost for purchasing fill material (assumed available) and rock included in estimate. 2.2 PACIFIC SIDE EXCAVATION & DREDGING MATERIAL DISPOSAL ALTERNATIVES EVALUATION OBJECTIVES In order to evaluate the most cost effective and environmentally acceptable option for disposal of the excavated material from the Locks expansion project, ACP requested Moffatt & Nichol in 2003 to undertake a review of the cost and environmental implications of all disposal options for the excavated material. >> PAGE 7

11 In addition to the material from the excavation of the Locks, the scope of the study was also widened to include the evaluation of alternative sites to receive the dredged material from the Pacific Entrance widening and deepening project. This study included an assessment of all identified offshore, near shore and landside potential locations for the beneficial use of the excavated/dredged material or simple disposal. These options were identified and refined in a series of work sessions attended by ACP executive staff from several departments and initially included a total of some 59 locations. The sites also included consideration of the various Unexploded Ordnance Sites (UXOs) in the area of the Pacific Locks that were essentially abandoned by the U.S. following the handing over of the Canal, but were of great concern to the Panama Government due to increasing levels and dangers of unauthorized entry. Through a series of reports and work sessions, the preferred options were reduced to a short list of 17 locations, and then refined to six preferred sites, as shown in Figure 2. Figure 2: Short Listed Beneficial Use Sites for Excavated Material >> PAGE 8

12 STUDY RESULTS After a detailed evaluation and screening assessment, the El Arado (#2) location was eliminated due to its importance to the local agricultural and poultry industry, plus the high cost of transportation. The Panama Bay (#1) and Chorrillo/Amador (#4) locations were also eliminated due to impacts of bringing material by truck over the Bridge of the Americas and/or through the city urban areas to the dump sites. In the final analysis, only two options were considered to meet the requirement to accept the full volume of material from the Third Locks Project. The UXO area (site T6) and the artificial island (Site M5) remained as the only two locations that could receive all of the fill material. The locations were tested on a transportation cost basis against the option of open water disposal with no beneficial use, as shown in Table 2, below. As can be noted from the table, the unit cost of material transport was lowest for the UXO site. Table 2: Base Cost of Materials Transport to Disposal Sites (2004 US$) Since the combined capacity of all of the other acceptable land side sites did not meet the project needs, the final recommendation was that ACP would need to select one or both of the artificial island or UXO sites options to receive the material excavated from the Locks. 2.3 ARTIFICIAL ISLAND FEASIBILITY STUDY MAY 2004 At that time, the total volume of material to be removed from the excavation area was calculated to be approximately 70 million m 3, before the application of any coefficients for bulking and compaction at the disposal site. The option to receive the dredged material from the Pacific Entrance widening and deepening was discounted during the dredging tender process, with the selection of the dredged materials disposal site to be left to the selected contractor. >> PAGE 9

13 OBJECTIVES This major technical assessment took the earlier analyses to a feasibility level in order to generate a higher level of confidence in the cost estimate and to identify key issues related to the permitting process. In turn, these engineering feasibility studies and environmental assessment included the site investigation work required to provide a basis for future detailed engineering design for construction and provide the basis for the formal environmental permitting process. Given the aesthetic considerations and potential socio economic or environmental implications of maritime related development on the island, it was suggested that the long term development of the island and one other marine site under consideration should not necessarily be limited to port and port related uses. Consequently, the 2004 study covered a broader panorama of potential uses for an artificial island and expanded the location alternatives. Beneficial use options included: Marine terminal development for concession offerings Multi purpose development (housing, commercial, parks) Public park The assessment also included a no development option, which essentially used an island location as a dump site with no landscaping, land side access or site improvements. RESULTS OFFSHORE ISLAND LOCATIONS The location study was expanded to include all potential locations from the Pacific Entrance to the Canal to the original artificial island site, as shown in Figure 3. The selected sites also took into account the need to maintain an obstacle free approach for aircraft using the Howard runway, which was being developed at that time for private use and concession. An option to develop a near shore project at Palo Seco was also included at this time. >> PAGE 10

14 Figure 3: Short Listed Offshore Island Sites (2004) >> PAGE 11

15 COSTS Among the offshore island locations, the Palo Seco area was seen to be most cost effective, as shown in Table 3 below. However, due to the very shallow water in the project area, the Palo Seco site required over 700 ha to receive the full volume of excavated material. Table 3 : Development Costs of Offshore Island Disposal Sites (2004 US$)* Alternative Probable cost ($millions) Island Area Unit cost per marketable m2 (65% of generated area) Sensitivity Ranking Low (90%) Mean High (90%) (ha) Low (90%) Mean High (90%) Item % rank 1 Isla Venado Location $754 $826 $ $305 $334 $369 Rock Quantity 75% 2 Isla Tortolita Location $703 $763 $ $264 $286 $311 Rock Quantity 92% Spoil Ground/Explosives Anchorage Location Peninsular South of Palo Seco (berths on east face) Palo Seco area - (basin configuration) $809 $867 $ $293 $314 $336 Rock Quantity 85% $829 $896 $ $182 $197 $211 Rock Quantity 86% $1,084 $1,202 $1, $237 $262 $290 Rock Quantity 89% Note: Unimproved island costs include rail corridor, island fill, breakwater (where applicable), causeway and breaches (where applicable), dredging for four container terminals, engineering & project administration. * Assumes island fill material is provided from the Third Locks Project excavation works. CONCLUSIONS (2004) The transportation and island development cost estimates indicated that the use of an artificial island as a simple disposal site was significantly more expensive than the placement of material at the UXO area. At the same time, the cost of development of any of the offshore alternatives were seen to be much higher than land costs in Panama. Also the maritime development options were not attractive as a financial venture at that time, based on private sector financial offers for concessions that were typical of the region. There were also concerns voiced from the existing port concession holders that the donation of fill materials from the Locks Project to a new port, to then be offered in concession, represented unfair competition to the existing terminals, and legal challenges were expected if the artificial island options were to be used for port terminals. >> PAGE 12

16 GIVEN THESE CONCLUSIONS AND CONCERNS AT THE ACP BOARD LEVEL REGARDING THE MARKET RISK PLUS THE RELATIVELY HIGH ADDITIONAL COSTS REQUIRED TO DEVELOP THE BASIC PORT INFRASTRUCTURE AND M&N S RECOMMENDATION, IT WAS DETERMINED THAT THE UXO OPTION REPRESENTED THE MOST COST EFFECTIVE MEANS TO RECEIVE THE PACIFIC SIDE EXCAVATED MATERIAL. 2.4 FARFAN/PALO SECO ISLAND PROJECT FEASIBILITY STUDY JUNE 2005 OBJECTIVES Following completion of the ACP studies in 2003 and 2004, the Government of Panama, not ACP, continued to receive requests from Port operators and carriers related to the potential to build additional container terminals on the Pacific Coast, to capture the increasing demand for transshipment cargoes. The President s office then requested Moffatt & Nichol to use the earlier ACP study results to expand the technical and cost assessment of the Palo Seco project, which had earlier been identified as a lower cost option for maritime development under the island location and feasibility studies. Figure 3 shows the general location of the area of interest for this project. The original studies sponsored by ACP had focused on the beneficial use of rock and other material generated by the excavation and dredging needed for the New Pacific Side Locks. However, based on the results of the earlier work, ACP had decided to use the UXO sites and other nearby landside locations for the excavation material from the Third Locks Project. This then implied a need to import the required fill material, but also that the island size could be much smaller than originally required. >> PAGE 13

17 Figure 4: General Area for Palo Seco Port Options RESULTS MATERIALS REQUIREMENTS Since the objective of this latest study was to determine the feasibility of a new container terminal in the Palo Seco area, the requirement to contain all of the excavated material was no longer an issue. Fill requirements for the Palo Seco project were then computed on a first phase development of some 1,600 m of container berth, which in turn required some 19 million m 3 of fill. It was assumed that the fill material would be available from a sand borrow site, although it was considered that there was only a slim possibility of obtaining the necessary authorizations for this volume of material. >> PAGE 14

18 PALO SECO RAIL LINK The earlier ACP decision to use the nearby land side disposal options for the Third Locks excavation material then implied that the cost of the rail link to the proposed port site could no longer be considered as part of the Canal Expansion Project. Its viability was then totally dependent on the income from the container terminal and connection to the existing Trans Isthmian rail system. As such, the cost of the rail link was then extended to include a crossing in the area of the Miraflores area, using the existing swing bridge and a new bridge over the Third Locks entrance as shown in Figure 5. At that time, discussions with the ACP Operations and pilots group indicated that the only effective time for rail crossings would be during the Canal ship traffic reversal period offering some one to two hours per day for the bridge closings. While some concerns were expressed that a problem with the rail bridges or trains could shut down the Canal transits, it was generally accepted that this traffic window would be workable for one train transfer in each direction each day. This in turn was reasonable given the expected demand for container moves from the port to and from the Albrook intermodal yard. >> PAGE 15

19 Figure 5: Proposed Rail Link from Palo Seco Terminal to Albrook (2005) >> PAGE 16

20 A preliminary cost assessment was then developed to test the financial viability of the crossing, with the resulting cost of US$172.6 million as presented in the table below Table 4:Estimated Cost of Palo Seco Albrook Rail Link (2005 US$) Description Amount (US$) Mobilization & Demob $6,712,976 Intermodal Yard $27,856,381 Rail Line $48,180,374 Crossings $50,750,341 Sub Total Rail Corridors and Intermodal Yard $133,500,072 Contingencies $25,587,524 Admin & Engineering Costs $13,522,445 Estimated Project Cost $172,610,041 At that time, and assuming amortization of this investment over a 20 year period, with interest rates of 7.0 percent, the annual payment requirement was calculated to be $18 million. Converting this to a rate per TEU at the maximum expected traffic projections indicated a need to recover at least $72.00 per TEU to amortize the cost of the rail link alone. The cross Isthmus rail fee in 2005 was on the order of US$120 each way using the east side infrastructure. Adding the rail crossings from the west side and including the additional operations costs implied a tariff of $ per TEU for the coast to coast transfer, which was substantially above the acceptable rate for the carriers. Based on this assessment, it was determined the most cost effective and efficient transfer option from the new port to the Atlantic Coast would be to improve the highway connection to the Centenario Bridge and use the Corredor Norte and that the rail link was not feasible. RAIL COST UPDATE 2015 As seen above, the estimated cost of the rail crossing in 2005 was US$172.6 million. Inflating this cost to 2015 rates would imply an increase of 41% giving a new cost of US$243 million. However, it is understood that the old Miraflores rail bridge has now been dismantled and no provision was made in the Third Locks Project for a second low level rail crossing at the entrance to the locks. For this study update it is not possible to determine the cost of the two Locks crossings/bridges under today s requirements. In the meantime, it is understood that cross Isthmian rail charges are still in the same range at the earlier numbers. >> PAGE 17

21 AT THIS LEVEL OF COSTS, IT IS CLEAR THAT A NEW CONTAINER TERMINAL ON THE WEST SIDE OF THE CANAL COULD NOT GENERATE SUFFICIENT INCOME OR INTERCHANGE VOLUMES TO JUSTIFY THE RAIL LINK WITHOUT A CONSIDERABLE SUBSIDY FROM PUBLIC OR OTHER SOURCES. Table 5:Assessment of Current Validity of Palo Seco Rail Link New crossings required since the Rail crossings would be during the Miraflores Swing Bridge has been ship traffic reversal period, using the Assumptions dismantled and no provision has existing Miraflores Swing Bridge and been made for rail crossing at the a new bridge over the Third Locks. New Cocoli Locks. At least $243 million + cost for Cost of Rail Crossings $173 million additional 3 rd Locks crossing(s) Conclusion The most cost effective and efficient transfer option from the new port to the Atlantic Coast would be to improve the highway connection to the Centenario Bridge and use the Corredor Norte. A new container terminal on the West side of the Canal could not generate sufficient income or interchange volume to justify the rail link without a considerable subsidy from public or other sources. PALO SECO PROJECT COSTS As shown below, the cost simulation models prepared in 2005 indicated an estimated CAPEX requirement of $672 million for the Phase 1 development at Palo Seco, excluding power connections, equipment and a rail connection to the existing Panama Canal Railroad yards. These costs were predicated on the construction of a terminal with 1,600 m of berth length and 80 ha of back up/storage area. >> PAGE 18

22 Table 6: Estimated Cost of the Palo Seco Phase 1 Terminal (2005 US$) Description Amount (2005 US$) Dredging and Reclamation $300,100,641 Marginal Wharf and Access Trestle $73,308,559 Site Stabilization $47,036,175 Terminal Infrastructure $91,658,853 Construction Road and Highway Improvements $16,969,899 Entrance Gates and Buildings $7,633,491 Mitigation $680,640 Sub Total Rail Corridors and Intermodal Yard $537,388,258 Contingencies $94,042,945 Planning, Engineering and Project Management $40,253,739 Estimated Project Cost $671,684,942 Applying inflation to 2005 costs implies an increase of 41%, bringing the cost today to an expected US$947 million. The cost of equipment for a terminal with 1,600 m of berth length is seen in Table 7 below to be $ million, bring the total project cost for the Palo Seco Island project to $1,255 million in 2015 US$. Table 7: Estimated Cost of Equipment & Superstructure Palo Seco (2015 US$) Description Quantity Unit Cost Amount (US$) STS Cranes 18 $8,500,000 $153,000,000 RTGs 59 $1,300,000 $76,700,000 Yard Tractors 133 $100,000 $13,300,000 Chassis 147 $12,000 $1,764,000 Reach Stackers 4 $450,000 $1,800,000 MT Handlers 10 $500,000 $5,000,000 Yard Vehicles 5 $45,000 $225,000 Personnel Buses 4 $75,000 $300,000 Scanners 2 $3,000,000 $6,000,000 TOS 1 $4,000,000 $4,000,000 IT and Security 1 $3,500,000 $3,500,000 Maintenance Equipment 1 $1,250,000 $1,250,000 Office Equipment 1 $1,000,000 $1,000,000 Miscellaneous 1 $500,000 $500,000 $268,339,000 Contingencies 15% $40,250,850 Equipment Cost $308,589,850 >> PAGE 19

23 However, the final cost of this project is particularly sensitive to the unit costs of dredging and fill materials. It also assumes that some 19 million m 3 of hydraulic fill materials would be available from a sand borrow site west of the Taboga areas and this was considered to be highly unlikely to be approved, given the move to preserve the sand deposit areas from the Canal westwards to Chame and beyond. CONCLUSIONS (2015) On completion of the Farfan/Palo Seco Study, the Government via the President s Office invited leading Port operators and carriers to present proposals for a public private partnership to develop the Phase 1 development of the Palo Seco port option, but no definite proposals were received. The general response was that the initial investment risk was very high and the transshipment market potential was too uncertain at that time. Finally, a number of objections were voiced to the Palo Seco project during the evaluation phase, including some legal actions. Table 8:Assessment of Current Validity of Palo Seco Island Project Rail Link Description Island Terminal (including cost of fill) Equipment & Superstructure Unit cost improved island, 80 ha, no equipment Conclusion $173 million $672 million $947 million Not included At least $243 million + cost for additional 3 rd Locks crossing(s) $309 million $1,056/m 2 $1,487/m 2 Potential operators deemed the initial investment risk high and the transshipment market potential too uncertain. Objections were raised by various interest groups. Assumed that some 19 million m 3 of hydraulic fill material would be available from a sand borrow site though this was considered unlikely to be approved. Availability of sufficient suitable sand from nearby approved offshore borrow sites would still need to be confirmed. Objections voiced in 2005 would likely still stand today. >> PAGE 20

24 3 OVERALL ASSESSMENT 3.1 SUMMARY The initial studies undertaken by Moffatt & Nichol for ACP were aimed at evaluating the potential uses for some 70 million m 3 of excavation material expected to be generated by the Third Locks Project. These included the construction of an island (to be used as a port, a multi purpose development, a public park, or not developed at all) and disposal in various offshore, near shore and landside sites. Based on the studies, ACP determined that the placement of the excavation materials at selected UXO sites was the most cost effective use for the material. ARTIFICIAL ISLAND In order to construct the artificial island project at the Isla Venado location and under present conditions, approximately 31 million m 3 of sand fill would have to be purchased and obtained from offshore sand borrow areas and transported to the island site. This significantly increases the project s cost compared to the original artificial island which would have been constructed using the material generated from the excavation of the Third Locks Project. The availability of such a large volume of sand from existing nearby concessions has not been confirmed and it is considered unlikely to be approved. The original artificial island project assumed the material from the excavation works would be transported to the island site via rail as the lowest cost alternative. This rail network could then have been extended to provide rail connectivity to the Atlantic Coast terminals via the existing Trans Isthmian rail system. However, if the project were to be built now, fill for the artificial island would now be transported from offshore borrow areas and the rail link would no longer be needed for material transport and would have to be justified based on the market demand for connectivity to the Atlantic Coast. These issues make the artificial island project less attractive than the 2001 version, making it now most unlikely to be developed by private interests. PALO SECO ISLAND Although the proposed Palo Seco island development also contemplated a rail link, it was premised on the use of the old Miraflores Swing Bridge and a new bridge over the Third Locks entrance. However, the Miraflores Swing Bridge has now been dismantled and no provision was made in the Third Locks Project for a rail crossing at the entrance to the locks. Thus, two new crossings would be required to provide this rail link now. The terminal would likely not generate sufficient income or interchange volume to justify the rail link without a considerable subsidy from public or other sources. >> PAGE 21

25 The Palo Seco development would also require the purchase and transport of some 19 million m 3 of sand from offshore borrow areas to use as island fill material. The availability of suitable sources of sand from existing concessions would have to be confirmed. The objections voiced in 2005 regarding the location of the Palo Seco project and its impacts on the developments along the Amador Causeway, Playa Bonita and Veracruz would likely still stand today. FINDINGS As can be seen from the previous discussions, there have been a number of studies and initiatives to develop artificial islands and shorefront reclamation projects to provide new container terminal capacity on the Pacific Side of the Canal. Each of these projects differed in the infrastructure needs, costs, environmental impacts and size of the installations. Consequently, comparisons with other terminal proposals is somewhat complex. However, over the past ten years, Moffatt & Nichol and others have maintained records of investments in container terminals on a worldwide basis. We have also undertaken many due diligence assignments for the major multilateral lending agencies and banks, and are very familiar with the elements required to justify a private sector project financially. Using the available database on costs, it is seen that the financial viability of a container terminal investment can be generally simplified to consider the following: Investment cost (marine, civils, buildings, equipment, operating systems, etc.) Income per TEU Strength of the market (import/export or transshipment) It follows from this assessment, that a high cost terminal can be justified when income is also high, but a medium or low cost terminal may not be viable if income is low. Unfortunately for Panama, at least 90% of the container moves are for transshipment traffic, which generally generates revenues that are some 60% of those expected for import/export containers. Consequently, it is important to assess the viability of the project in light of both the income and CAPEX sides. The need to purchase and transport fill material from offshore sources as well as the requirement to provide access from mainland to the island via causeway/trestle/bridges as well as power and utility connections to the island result in these potential island transshipment terminals having relatively high investment costs. This becomes even more evident in light of the relatively lower income per TEU expected from the transshipment cargo as compared to terminals with more import/export cargo. Given the high investment costs required and the low income expected, the proposed island developments rank >> PAGE 22

26 relatively low compared to other modern container terminals that have recently been completed or are in development or construction at this time. In addition, based on the level of costs of a rail link, it is anticipated that the island port development would likely not generate sufficient income or interchange volumes to justify the rail ink without considerable subsidy from public or other sources, additionally impacting the attractiveness of this development. In summary, the following conclusions can be stated: 1. The initial studies were aimed at evaluating the potential uses for some 70 million m 3 of excavation material expected to be generated by the Third Set of Locks Project. These uses included the construction of an island (to be used as a port, a multi purpose development, a public park, or not developed at all) and disposal in various offshore, near shore and landside sites. 2. The transportation and island development cost estimates indicated that the use of an artificial island as a simple disposal site was significantly more expensive than the placement of material at the UXO area. ACP determined that the UXO option represented the most cost effective means to receive the Pacific Side excavated material. 3. The Palo Seco development would require the purchase and transport of some 19 million m 3 of sand from offshore borrow areas to use as island fill material. The availability of suitable sources of sand from existing concessions would have to be confirmed. 4. New rail crossings to the Panama Canal Railroad would be required since the Miraflores Swing Bridge has been dismantled and no provision has been made for rail crossing at the New Cocoli Locks. A new container terminal on the West side of the Canal could not generate sufficient income or interchange volume to justify the rail link without a considerable subsidy from public or other sources. 5. The need to purchase and transport fill material from offshore sources as well as the requirement to provide access from mainland to the island via causeway/trestle/bridges as well as power and utility connections to the island result in these potential island transshipment terminals having relatively high investment costs compared to relatively lower income per TEU expected from the transshipment cargo. >> PAGE 23