The government has renounced some $22.2 million dollars per year in fixed rent plus payments of 10 percent of gross receipts due to it from the Panama Ports Company (PPC), the local subsidiary of Hong Kong-based Hutchison Whampoa that holds 50-year concessions to run the ports of Cristobal and Balboa. The company’s windfall came by way of the Ministry of Commerce and Industry’s Resolution 14 of May 13, 2002, an executive decree that probably does not require legislative approval. Though a legislative attempt to rescind the decree failed to get past the committee to which it was assigned, the measure is being challenged in the courts.

The resolution, which went into effect on May 20 when it was published in the Gaceta Oficial, purports to equalize the payments that PPC makes under its 1997 concession contract with those that Taiwan-based Evergreen makes for its Colon Container Terminal concession under a 1996 agreement. In place of the $22.2 million in fixed payments and 10 percent of the gross, the state will receive $6 per container movement plus $3 in taxes for each container of local cargo.

The government’s decision, which adds up to more than one billion dollars in direct lost revenue over the life of the concession, has generated strong and broad-based criticism. Colon labor leader Marcos Allen summed up the contrary sentiment: "Panama can’t afford the luxury of forgiving a company such a large amount, knowing that we’re a country with few economic resources," he said. "Colon is proof of this, because every time we ask for improvements for the province the answer is always that there are no resources and we remain stuck," Allen added.

Also among the critics are opposition legislators Teresita de Arias (Partido Popular) and Denis Arce (PRD), who submitted proposed legislation to overturn the Ministry of Commerce and Industry’s "equalization" resolution. However, on June 12 that proposal was rejected by the Legislative Assembly’s Commerce Committee when PRD legislators Eddy Londoño and Rubén De León broke ranks with the META alliance and abstained, giving the Arnulfista-led committee minority the votes to block the measure. De León told La Prensa that he wasn’t necessarily against the proposal, but that with the end of the current legislative session fast approaching there wasn’t time to properly address the matter. The proposal would have had both financial and constitutional implications, as it would have declared that Commerce and Industry Minister Joaquín Jácome’s resolution (which was approved by the Cabinet Council) would have to be approved by the nation’s Comptroller and then ratified by the Legislative Assembly, because it changes a contract approved by the legislature.

Legislator Teresita de Arias said that her proposal was an attempt to overturn both an "injustice" and an executive infringement on the legislative branch’s powers.

Former Comptroller Rubén Darío Carles warned that the "quarrels and messes" involved with the government’s handling of the ports contracts could affect the country’s image within the world maritime industry and threaten our reputation as a vital area for international commerce. Carles, who served as Comptroller during Guillermo Endara’s administration, avoided comment on the underlying dispute over the ports concession modification, but pointed out that the ports have strategic value for this country because of their location. He added that Panama must give guarantees to all the businesses with interests at stake, most of all that "there is legal security."

The "equalization" of the Panama Ports and Colon Container Terminal contracts has not only prompted opposition from many quarters, but also divisions within the current government administration.

First Vice-President Arturo Vallarino, for example, said that among the people supporting the measure was presidential advisor Mario Galindo, an assertion that was then emphatically denied by Galindo himself. "I never opined that the PPC contract could be modified by a unilateral adminsitrative resolution by the Minister of Commerce and Industry," Galindo protested.

Colon legislator Laurentino Cortizo, a Solidaridad member who votes with the META alliance and presides over the assembly’s Commerce Committee, argued that the government should give PPC a $200 million credit instead of contract modifications that will cost the state $1.2 billion in the long run.

Cortizo’s estimate may be very low, if all costs are taken into consideration. A report by Credit Suisse – First Boston estimated the losses to government coffers at several billion dollars, mainly because the contract modification represents a loss to the national treasury at a time when government revenues are "collapsing" and the public payroll is expanding, which in turn is likely to lower Panama’s bond rating and thus increase the interest rates on money that the national government borrows.

Moreover, in one way or another the other private businesses involved in this country’s planned multi-modal container system --- Manzanillo International Terminal (Stevedoring Services of America), Colon Container Terminal (Evergreen), the Panama Canal Railroad (Kansas City Southern Railways) and CEMIS (the multinational San Lorenzo consortium) --- have provisions in their concession contracts that if another company gets a subsidy or tax break, they will as well. Already Manzanillo International Terminal has demanded relief, claiming that the break given to PPC is discriminatory and gives its competitor an unfair competitive advantage prohibited by its concession contract. Arguments that the government merely equalized the treatment that PPC gets with the terms of the other ports’ contracts are countered with the assertion that Hutchison Whampoa received the ports of Balboa and Cristobal as going concerns, while the other ports were built from scratch with the concessionaires’ private investments.

Commerce and Industry Minister Jácome defended the deal, saying that although at first glance the government will lose money, PPC’s plans to invest $200 million in the Port of Balboa and $40 million in Cristobal’s port will favor commerce on the isthmus and increase the value of the company’s shares, in which the state holds a 10 percent stake. He also pointed out that the concession contract provides that the rents will be revised every five years, based on the Comptroller’s price index, "without at any time exceeding 10 percent, nor the tariffs paid by other similar port concessionaires in the Republic of Panama."

"There are economic groups that want monopolies in the various economic sectors, and we think that with equalization we have to move toward free competition, because this free competition is going to be for the benefit of all Panamanians, because it’s going to bring better employment, economic stimulation, and an immediate reactivation of the economy," the minster said.

"Everybody knows that the opposition’s specific interest," Jácome argued. "President Mireya Moscoso’s adminstration, which is concerned about generating employment and prosperity for Panamanians, hasn’t been obstructed in this instance. Although it has been obstructed since the beginning of its term, it’s not going to allow this," he said.

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