A distant dream?

On June 14, Nicaraguan president Daniel Ortega signed a 50-year concession granting to HK Nicaragua Canal Development Investment Co. (HKND) the right to explore—and possibly build and operate—a canal between the country's Pacific and Caribbean coasts. As if digging a canal were not ambitious enough (experts say the canal would cost $40 billion and require the excavation of over 125 miles of new waterway), the proposed project would also include a pipeline, two ports, two airports, and a cross-country railroad. The timing is interesting in that the concession comes right before the opening of the $5.25 billion expansion of the Panama Canal. Even more interesting is the fact that HKND is a Chinese company whose owner's experience lies in telecommunications, not canal building.

Building a canal across Nicaragua is not a new idea by any means. As far back as colonial New Spain, the concept has been studied, surveyed, and ultimately abandoned. In 1828, Antonio Jose Caoaz, Guatemalan minister to the United States, presented the idea to John Quincy Adams, who proved a receptive audience. The U.S. dove into the project, spending considerable time and resources on it. However, the effort was soon derailed by instability in Nicaragua.

In 1882, the French, who had been constructing the Suez Canal, decided to tackle the Central American canal project but chose Panama as the venue. Under the leadership of Ferdinand de Lesseps, work began on a ground-level canal. However, the project was plagued from the start by yellow fever, malaria, and financial difficulties. The plan was changed to a lock canal, but in 1889, the company was forced into liquidation, and another new company was formed in France only to fail five years later.

In 1889, Cornelius Vanderbilt and others had begun construction of a canal in Nicaragua, but in 1893, a stock panic halted that construction. Finally in 1902, Congress voted to go back to Panama and gave President Theodore Roosevelt $40 million to buy out the French and continue the project. Construction was not easy and came at an enormous human cost. Over 10,000 workers had already died between 1882 and 1888, primarily from disease. Another 6,000 would die before the canal was finally completed in 1914. The expansion currently under way is scheduled for completion in 2015.

So why do we need another canal? There are several good reasons to have a second canal across the Americas. Obviously, the threat of terrorism always hangs over our heads. The loss of the Panama Canal would create an almost unimaginable global shipping crisis. From an operational perspective, just last month Maersk introduced the first of its Triple E ships. As of today, they are too large for any port in North America and will be too large to traverse the enlarged Panama Canal. The Triple Es are 1,312 feet long and 194 feet wide. The new Panama Canal lock will be 1,400 feet long, but only 180 feet wide. Finally, the new canal would be good for Nicaragua. Estimates are that it would double the per-capita GDP of the country.

But will it really happen? I wouldn't bet on it. Certainly, canals are easier to build than they were 100 years ago, but destruction of pristine rivers and lush jungles in Nicaragua would be an environmentalist's nightmare. Also, there are 12 active volcanoes in Nicaragua, some of which erupt on a fairly regular basis. Some experts do not believe even $40 billion is enough for such an ambitious project, and others have suggested this may be some sort of scam by Ortega, who is not the most trusted leader in Central America. Finally, there is a concern by many that if the canal were actually built, the Chinese would hold too important a position in global commerce.

And by the way, there has been no indication of where the $40 billion is coming from.