What Happened
Panama President José Raúl Mulino on Thursday rejected accusations that his administration failed to meet arbitration obligations in a dispute with Panama Ports Company (PPC), a subsidiary of Hong Kong-based CK Hutchison. Mulino called the claims “shameful and a lie” and told reporters Panama had only received notification two days before an arbitration deadline and had requested an extension.
Background
The dispute centers on the ports of Balboa (Pacific) and Cristóbal (Atlantic). PPC had managed those facilities since 1997 under a concession contract that Panama’s Supreme Court ruled unconstitutional in January, finding the deal granted excessive privileges and tax exemptions. The court decision was published in the official gazette in February, clearing the way for the government to take control.
PPC filed a claim with the International Chamber of Commerce in Paris in February and announced in March it is seeking at least $2 billion in damages. PPC said Panama did not respond before a March 13 deadline and argued the government lacked lawyers familiar with the dispute and needed more time to prepare. Mulino rejected that account, saying the government had requested the usual extension and has appointed international lawyers to defend Panama.
Government response and port operations
The Panama Maritime Authority issued a statement saying the country has complied with the arbitration rules and will continue to exercise its rights and defenses. Panama took temporary control of Balboa and Cristóbal in late February and assigned interim operations to APM Terminals (a Maersk unit) at Balboa and Terminal Investment Limited (part of Mediterranean Shipping Company) at Cristóbal.
Authorities reported that the ports were in significant deterioration at the time of takeover, with conditions below best practices and international standards. The maritime authority also accused PPC of refusing to cooperate during the transition and of withholding information. An audit by Panama’s comptroller general concluded the concession cost the state about $1.2 billion in lost revenues due to irregularities, insufficient payments and tax exemptions.
What This Means
The annulment and subsequent takeover have drawn international attention because of the ports’ strategic locations at the entrances to the Panama Canal. The ICC arbitration in Paris is expected to take years to resolve. Panama says it will present a full defense with international legal support; Mulino said, “We have appointed international lawyers who are going to defend us, and defend us well, in the process.”
The government plans to run new tenders for long-term management once the transition period ends. Meanwhile, officials say port operations continue under temporary operators.