Fausta's Blog

American and Latin American Politics, Society, and Culture

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Nicaragua: Wang Jing does poorly

In case you don’t remember the name, Wang Jing is the chairman of Xinwei Telecom Enterprise Group, who made a $300million telecommunications deal last year with Daniel Ortega. He also heads HK Nicaragua Canal Development Investment Co., the company behind the proposed Nicaraguan Canal, that project of Dubious Plans and Abundant Unknowns.

Wang is the year’s worst-performing billionaire:

This Chinese Billionaire Has Lost More Than Glasenberg in 2015 (h/t JC)

Telecommunications entrepreneur Wang Jing, 42, was one of the world’s 200 richest people with $10.2 billion at the peak of the Chinese markets in June, according to the Bloomberg Billionaires Index. His net worth has since fallen to $1.1 billion.

Oops!

HKND Group, Wang’s closely held development company, was awarded a 50-year concession for the 170-mile (274 kilometer) canal by the government of President Daniel Ortega in 2013. The billionaire said in a December 2014 televised press conference in Nicaragua that he was committing personal funds to the project, and he’s poured about $500 million of his own money into it so far, Peng Guowei, an executive vice president at HKND, told Chinese state media Xinhua on Sept. 7.

Turn of Fortune
“The turn of fortune in Mr. Wang’s financial resources will impact how and whether the canal can and will be built,” said Daniel Wagner, CEO of Country Risk Solutions and a former country risk manager at General Electric Co. “I would expect, given this year’s financial gyrations in China, that the government is also asking itself whether the canal is a viable proposition.”

The company said that despite the economic setbacks and local protests against the canal’s construction, the project is moving forward. “I have no doubt that appropriate financial arrangements will be in place before construction commences,” Bill Wild, HKND’s chief adviser for the canal, said in an e-mailed response to questions. Company representatives for Xinwei declined to comment on Wang’s personal investments and declined a request for an interview with Wang.

A September e-mail from closely held HKND said the funds raised from the pledged Xinwei shares were used for Wang’s “personal investments” and not for the canal project, without elaborating. Wang is also funding unrelated projects — in some cases with partners — including a deep water port in Ukraine.

As I have been saying from the start, the canal project (if you can find it) cannot come about without major support from the Chinese government.

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Nicaragua: Is China actually behind the canal?

Mary O’Grady thinks so:
China Wants to Dig the Nicaragua Canal

The economics don’t add up, but the project serves both governments’ larger interests.

The Chinese government denies it is behind the concession held by HKND. But with more than $3.5 trillion in foreign reserves, it’s the logical candidate to foot the bill. Beijing has been flexing its geopolitical muscles in the Americas for more than a decade, and it hasn’t hesitated to work closely with corrupt dictatorships like those in Ecuador and Venezuela. According to HKND, the Nicaragua canal will require a labor force of 50,000. Many can be expected to be Chinese. The company says the China Railway Construction Corporation is conducting feasibility studies of the project.The HKND concession includes the rights to develop “two ports, a free-trade zone, holiday resorts and an international airport.” Canal or no canal, each is a business opportunity not only for China but also for Mr. Ortega, who is bound to ensure that he gets a piece of the action.

There’s action already: Last year Ortega made a $300 million telecommunications deal with Xinwei Telecom Enterprise Group, of which Wang Jing is chairman.

The canal, a project of Dubious Plans and Abundant Unknowns, cannot come about (as I have been saying from the start) without major support from the Chinese government. As O’Grady puts it,

China may still see the ditch as part of a military strategy,

A Nicaragua canal may fit as part of a military strategy along with the South China Sea projects.

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Nicaragua’s steps to dictatorship

Sergio Ramírez at El País on how Daniel Ortega is taking Nicaragua towards dictatorship (link in Spanish).
After 9 years of Ortega in power,

48% of the population subsists on less than $2 a day, and in that group, half subsists on less than $1 a day. Nicaragua’s on the bottom three of the Latin American misery index, along with Haiti and Honduras.

Coming elections?

Ortega, or his wife, will win the 2017 presidential elections.

But family Governments always end up as big political disasters. Tensions will turn up and increase as hopes in Ortega’s populist rhetoric wear out, particularly since Venezuela’s aide comes to and end as that country faces plummeting oil prices, shortages, inflation, and a swelling short-term foreign debt.

Ramírez is deeply pessimistic about the proposed Nicaragua Canal, too. He accuses Ortega of turning over the defense of Nicaragua’s national sovereignty to Wang Jing and the Chinese

Another breaking point will be the failure of the canal project, now seen as a huge hope, which will become a cause for frustration once it is proven to be a merciless lie.

By which time, Ortega will be rich enough to live in impunity.

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About that Nicaragua Canal . . . UPDATED

Instapundit links to a post on the proposed Nicaragua canal, and, since his website rejects my comment on the grounds that “Your comment currently includes words that are not allowed,” I’m posting it here (links added):

I’m very skeptical on the proposed project.

So far the only investor is Wang Jing’s HKND Group, which may (or may not) be a cover for the Chinese government, a company that made a $300 million telecommunications contract with Nicaragua.

For the Canal deal, “HKND would raise the $40 billion needed to build the canal and would have the right to operate and manage it for up to 100 years before turning it over to Nicaragua. In the meantime, Nicaragua would have a controlling interest in the canal and receive income from it.”

A final route for the canal has not yet been announced.
The following have not been made public:
No details on where the funds come from.
No feasability studies.
No environmental impact studies.
Indeed, no studies for the project have been made public.

Additionally, “it appears that the project would also include an oil pipeline, two deepwater ports, an airport, a railway, and two free trade zones. With a projected total price tag of $40 billion, the overall project would cost four times Nicaragua’s 2011 gross domestic product ”

The expansion of the existing Panama Canal cost $5.7 billion. The Nicaraguan canal would be 3 1/2 times longer over an existing shallow lake, & is estimated to cost only $40 billion? On the Country of Lakes and Volcanos?

While i agree that “a healthier Latin America, both economically and politically, is very much in our interest”, Nicaragua, hostile to the US, is following the Venezuelan model, not the healthiest economically and politically.

Until all these items are clarified, my advice is “don’t be the next Lord Crawley.”

UPDATE
Comment from Doug Wenzel,

Jorge Luis Quijano, Administrator of the Panama Canal Authority says in an interview granted to La Estrella de Panamá that ACP experts estimate this as being a $65-70 billion project, and that five years is way too optimistic. There are also many questions about Environmental mitigation.

http://laestrella.com.pa/panama/nacional/quijano-invertiria-solo-real-canal/23831295

My personal focus is not on that, but on OpEx for this canal. First, the much longer time in canal waters at slow speed mitigates some of the distance advantage for certain port pairs, and has the largest effect on time-sensitive cargoes, which may be willing to pay the highest tolls per ton.

More importantly, the route will require triple the maintenance dredging, as well as triple the piloting and tugboat hours. Those will all affect what the canal can charge for a transit, and therefore the gross margin per transit.

Furthermore, of all the ships that could only use this canal, and not the one in Panama, most transport low value, time-insensitive cargo. (bulk carriers and VLCC’s). The Maersk EEE and larger container ships can call on only a few dozen ports worldwide, not just because many ports can’t physically handle their size or draft, but because most ports can’t produce enough demand to justify a weekly or even biweekly port call.

This canal is obviously a threat to the tolls that Panana could charge. However, in a race to the bottom, the low cost provider usually wins, and Panama will have lower costs because the Panama Canal is so much shorter.

—————————-

Panama’s neighbor to the north, Nicaragua, is hoping a transoceanic canal and similar prosperity are in its near future; now that Venezuela’s oil money dries up, does this mean China is willing to prop up the Nicaraguan economy?

From back in 2008, China’s Control of the Panama Canal Revisited.

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Nicaragua canal: Plan, nothing more

The Economist weighs in,
Nicaragua’s proposed canal
A man, a plan—and little else
Yet again, Nicaraguans are letting their longing for a trans-oceanic canal get the better of them

Since June, when the Sandinista-stuffed National Assembly rubber-stamped a law granting a 50-year concession, renewable up to 100 years, to Mr Wang’s HKND Group, many have wondered whether the 40-year-old telecoms boss is a crank. In August the Associated Press reported that in many countries, including Nicaragua, where he has claimed to be doing business, his companies are barely noticeable. Although both Mr Wang and President Daniel Ortega insist that the project will go ahead, people who have worked with HKND say it has more of an option to build than an obligation. In effect, the cost of the option is the tens of millions of dollars that Mr Wang is expected to pay from his own pocket to find out which route is most physically and financially feasible.

Hence ERM, a British consultancy, is looking at the environmental and social impact of digging a deep channel through Lake Nicaragua, one of the largest in Latin America, and carving through ancestral indigenous lands. Australian engineers are pondering how to remove millions of truckloads of dirt in a country with no large excavators, let alone nearby roads or railways. McKinsey, a business consultancy, is said to be working out how the project could make enough money to entice sovereign-wealth funds to bankroll it.

Good luck with that; all they have is dubious plans and abundant unknowns.

Again: the Chinese government are not involved in this; only Wang Jing – and he and Ortega already made a $300million sweet deal.

I’ve been saying all along, Don’t be the next Lord Crawley.

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Nicaragua’s canal: “Dubious Plans and Abundant Unknowns”

Heritage has an Issue Brief, Nicaragua’s Canal Push and Concerns for the U.S.

Although the project has gone public, many questions remain, including the route of the canal, its economic feasibility, and the overall environmental effects, especially on Lake Nicaragua, one of the major sources of freshwater in the region. While limited infrastructure details have been announced, it appears that the project would also include an oil pipeline, two deepwater ports, an airport, a railway, and two free trade zones. With a projected total price tag of $40 billion, the overall project would cost four times Nicaragua’s 2011 gross domestic product (GDP).

Additionally,

Although the project has gone public, many questions remain, including the route of the canal, its economic feasibility, and the overall environmental effects, especially on Lake Nicaragua, one of the major sources of freshwater in the region. While limited infrastructure details have been announced, it appears that the project would also include an oil pipeline, two deepwater ports, an airport, a railway, and two free trade zones. With a projected total price tag of $40 billion, the overall project would cost four times Nicaragua’s 2011 gross domestic product (GDP).

The smell of scams in the morning?

And keep in mind that the Chinese executive who wants to build Nicaraguan trans-ocean canal has spotty global record

In 12 of the 20 countries where Wang’s Xinwei Telecom Enterprise Group and associated companies say they’ve done business, the AP found no evidence of a successful, large-scale project up and running.

In the other eight, either analysts and major telecom firms said they had not heard of the company, or Xinwei did not provide enough details about its partners or projects to allow its record to be examined.

Read the Heritage report: “Dubious Plans and Abundant Unknowns” indeed.

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The Nicaragua canal: Don’t be the next Lord Crawley

Don’t be like him
For many years now we who watch Latin American news have been hearing about a Nicaraguan canal to rival the Panama canal.

Indeed, people who know Nicaraguan history have been hearing about it for centuries.

Back in 2010 the Iranians were in the picture,

Costa Rica says that last week Nicaraguan troops entered its territory along the San Juan River – the border between the two nations. Nicaragua had been conducting channel deepening work on the river when the incident occurred.

Sources in Latin America have told Haaretz that the border incident and the military pressure on Costa Rica, a country without an army, are the first step in a plan formulated by Venezuelan President Hugo Chavez and Nicaraguan President Daniel Ortega, with funding and assistance from Iran, to create a substitute for the strategically and economically important Panama Canal.

Well, Hugo died, his heir Nicolas Maduro’s still talking to the birds, the Panama Canal expansion is going on schedule, and the Iranian fervor has cooled off in the midst of its current current annual inflation rate of 105.8 percent.

Enter HK Nicaragua Canal Development Investment Co., known as HKND Group,

Nicaragua’s legislators gave their poverty-stricken country one more chance at a dream that has eluded it for nearly 200 years, granting a Hong Kong company the right to build a $40 billion interoceanic canal.

Supporters of the 50-year concession, approved Thursday, hope that it will propel Nicaragua out of its misery by boosting employment and economic growth. But there is also ample suspicion that the project will flounder, as so many others have done since the first government contract for a canal through Nicaragua was awarded in 1825.
…
The project envisions building a canal as long as 286 kilometers (178 miles), depending on which of four possible routes is used, as well as two deep-water ports, two free-trade zones, an oil pipeline, a railroad and an international airport.
…
The law granting the concession to HK Nicaragua Canal Development Investment Co., known as HKND Group, whose sole owner is Wang Jing, a 40-year-old Beijing-based entrepreneur, was introduced last week to Nicaragua’s congress, which is controlled by Mr. Ortega’s ruling Sandinista party.

Take a look at the map,

Look at the size of the existing Panama Canal, whose expansion is estimated to cost $5.25 billion dollars and take 8 years, and compare it to the projected Nicaraguan canal. Are we supposed to believe that a new canal, multiple times larger, when

work on some of the pre-feasibility studies has barely started and isn’t scheduled to be finished until next year

plus two deep-water ports, two free-trade zones, an oil pipeline, a railroad and an international airport, are supposed to cost only $40 billion?

If the Chinese government is not involved, who’s going to cough up that kind of money for that period of time?

Wang Jing’s experience appears to be only in the telecommunications industry. And he’s not even started the feasibility studies?

There’s Mr. Wang’s little deal with Daniel Ortega,

Mr. Wang registered his canal company in Hong Kong in August. A month later, on Sept. 5, he met President Ortega in Nicaragua. That day, Mr. Wang and the Nicaraguan government signed a memorandum of understanding—which wasn’t announced at the time—authorizing Mr. Wang to promote the financing and participate in the construction of a canal.

He and Mr. Ortega also discussed a telecommunications proposal, and Xinwei was awarded a $300 million telecommunications contract in Nicaragua, according to the company.

Nicaragua’s corruption frequently makes the news.

And then there’s the collapse of the Chinese stocks, which happens sporadically, since – guess what! – China doesn’t use GAAP (Generally Accepted Accounting Principles).

Bernie Madoff is probably regretting he didn’t think of this first, but Werner Herzog may be casting a lead for a movie now that Klaus Kinski is gone.

Those of us who watched Downton Abbey may recall that Robert Crawley, Earl of Grantham found that

the investment he made in the Canadian Railway has become worthless, he had lost his own and most of Cora’s money, enough to lose Downton.

Don’t be the next Lord Crawley.


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