C.J. Schexnayder/ENR A ship pushed by a tugboat passes through the Gaillard Cut of the Panama Canal.

The Inter-American Development Bank has approved a $400-million loan to help finance the $5.2-billion third-lane expansion of the Panama Canal.

The IDB's Board of Executive Directors loan was approved this week for the Panama Canal Authority (often referred to by its Spanish-language acronym ACP),  the quasi-governmental agency that administers the historic waterway.

“The IDB has been a steadfast partner for Panama for nearly 50 years,” said IDB President Luis Alberto Moreno. “We are proud to assist in this key investment in the future of Panama’s greatest national asset, especially when conditions in international financial markets are so uncertain.”

When completed in 2014, the 50-mile-long waterway will double in terms of capacity as well as permitting larger post-Panamax ships to use the canal.

Officials with the ACP say they plan to raise about $2.3 billion in loans to finance the expansion and the remainder of the cost will be covered by cash flow generated by the canal. The proposed debt will have a 20-year maturity, with a ten-year interest-only payment phase.

The crucial component to the project and the financing schedule is the $3.35-billion design-build contract for the new locks expected to be awarded in the next few months. The ACP estimates that the lock construction will push the annual expenditures for the project in excess of $500 million between 2009 and 2011.

Related Links: The Panama Canal Authority The International Development Bank

"We are very pleased with the decision of the IDB board to offer financing for the Panama Canal Expansion Program. This signifies that Panama and the Canal are on the right track," said ACP Administrator/CEO Alberto Alemán Zubieta. "This also reinforces the Bank's trust and confidence in the Panama Canal Authority."

Four consortiums comprised of 30 companies were qualified last December to bid on the locks component of the expansion - Consorcio C.A.N.A.L. led by ACS Servicios, Comunicaciones y Energía, S.L. of Spain that includes the UK firm Mott Macdonald Limited as one of the designers; Consorcio Atlántico-Pacífico de Panamá led by Bouygues Travaux Publics of France; Bechtel, Taisei, Mitsubishi Corp., led by U.S.-based Bechtel International, Inc. and Grupo Unidos por el Canal, led by Spanish company Sacyr Vallehermoso S.A.

C.J. Schexnayder/ENR A cargo ship carrying vehicles passes through the Miraflores Locks of the Panama Canal.

Still, ACP officials say the revenue from the canal itself, which handles 5 percent of the world’s seaborne freight, will be sufficient to underwrite the cost of the expansion.

Between the projected increase in cargo passing through the canal and a staggered increase in toll costs, the revenue from the waterway is expected to jump from $1 billion to $6 billion per year by the completion of the expansion project in 2014.

The IDB loan for ACP, will not be underwritten by the Republic of Panama. The IDB provides non-sovereign guaranteed loans and partial credit guarantees to private sector corporations and state-owned entities.

Since July 2007, the ACP has been approaching financial institutions to determine the most viable financing for the waterway’s Expansion Program. To date, officials with the ACP have approached institutions in New York, Washington, Hong Kong and London for involvement.

Despite the grim global economic situation, the ACP has garnered  favorable responses to it’s overtures particularly in the wake of receiving a prospective A2 investment grade rating from Moody’s Investor Service for the expansion program’s financing,

According to Moody’s a full 30% of the overall expansion expenditure is reserved for contingencies, such as cost increases and overruns, or an unexpected inflation increase.