On the eve of the Sandinista government’s approval of a 50-year canal concession to a mysterious Chinese company, the head of Nicaragua’s largest business chamber is raising serious concerns that the megaproject could be bad news for private property rights and the country’s short-term investment climate.
José Adan Aguerri, president of the Superior Council of Private Businesses (COSEP), warns that private property owners will be “defenseless” against the advances of the canal project, which the government has declared a national priority. If the Chinese firm HKND Group decides that private lands need to be expropriated to make way for their canal project, Nicaraguan property owners will be forced to sell their land at a price established by the government-controlled Canal Committee.
Making matters worse, Aguerri says, is the fact that no one knows which way the canal will snake across the country, or where the accompanying airports, seaports, oil pipeline, free trade zones, or dry canal will be built. Until the final canal route is clearly defined, Aguerri warns, no one living in or near the future canal zone is safe from potential expropriation—a risk factor that could bring a sudden halt to a number of investment projects in various parts of Nicaragua.
“The law establishes a mechanism that gives total power to the Canal Commission, which is above the law and due process,” Aguerri told The Nicaragua Dispatch in a phone interview this morning. “They alone will determine which lands need to be expropriated, and how much they will pay for them. Period.”
Aguerri says the law is currently structured in a way that gives the Canal Commission—a small cadre of Sandinista officials—unchecked authority to expropriate anyone’s property for the mere cost of its cadastral value, which is usually only a fraction of the land’s market value. Property owners are unable to appeal the decision, and are left “with their hands in the air,” Aguerri says.
“Let’s say someone has invested $20 million in African Palm plant on the Caribbean coast, and the commission determines that they need to expropriate that land for the canal project. Who is going to reimburse them for that investment?” Aguerri said.
In that situation, Aguerri says, the investor would be indemnified for the cadastral value of his or her land (assuming that land even appears on a cadastral map), and would receive maybe several thousand dollars in compensation for a $20 million-plus investment.
“Land owners have no rights other than to argue that the cadastral value of their property should be higher,” Aguerri says. “But the only way the government would pay market price for expropriated property is if the market value is less than the cadastral value.”
Until the final canal megaproject is clearly mapped, the concern over expropriations will remain generalized throughout a giant swath of land that covers more than half the country, Aguerri says. With a project this size, the potential for massive expropriations could lead to big problems, the COSEP boss says.
“People all over the country are vulnerable of being expropriated as part of this concession, as long as canal route remains undefined,” Aguerri says. “If I want to buy property in León, what guarantee do I have that tomorrow the commission won’t come to me and say they need that property to put their offices for the port they are building on the Pacific.”
Aguerri says COSEP’s position on the canal concession, which is expected to be passed into law on Thursday by the Sandinista supermajority, is that better guarantees need to be established to pay expropriated landowners a “fair price” for their property, and not just the cadastral value. He says the Canal Commission also needs to include representatives from the private sector, academia, and environmental group so that the Nicaraguan Canal project represents the whole country, and “not just a government project.”
Gov’t insists canal will be a boon
Sandinista officials insist the whole country will benefit from the canal project, which will bring an economic boon to Nicaragua, says Dr. Paul Oquist, President Ortega’s private advisor for national development policies.
“The Great Inter-Oceanic Canal will allow Nicaragua to practically double its Gross Domestic Product between now and 2018, and triple our formal employment,” Oquist told Sandinista media outlets earlier this week, following his presentation to the legislative commission on infrastructure.
Oquist projects that by the fifth year of the canal project, formal employment in Nicaragua will be greater than informal employment, which is nothing short of a “social and economic revolution” in a country that currently has levels of informal employment as high as 70-80%.
Oquist says the canal project will result in immediate double-digit economic growth levels, thanks to massive investment in construction and services. Economic growth in 2014 would jump from 4% to over 10% percent, Oquist claims.
The devil is in the details
COSEP thinks the immediate economic effect of the canal project could be just the opposite. While the concept of the project is good, Aguerri says, the devil is in the details. And those details could damage Nicaragua’s investment climate in the short-term, he warns.
“We support the project of the canal; from the beginning we have said that Nicaragua has to support a project like this. But the problem is that when you start looking at the fine print,” Aguerri says.
The COSEP chief thinks the government is trying to avoid the type of expropriation issues that have plagued the massive Tumarín hydroelectric plant, which has been delayed due—in part—to affected landowners getting wise to real estate prices before selling their property to the power company.
“Now, instead of selling their land for $350 a manzana (1.7 acres), they are going to sell for about $1,300 per manzana,” Aguerri said.
But by trying to avoid the same type of delays and costs for the Chinese canal project, the “government is creating an even bigger problem” by creating unacceptable terms of expropriation, Aguerri says. Until the canal route is clearly defined, a wide cloud of uncertainly will hang over Nicaragua’s real central, Caribbean and Pacific real estate markets, as well as darken the country’s investment climate, Aguerri warns.
“This insecurity will slow the progress we have made in bringing new investment to the country; if people were looking at investing in land in the center of the country or on the Caribbean coast, now they are not going to buy anything until the route of the canal is defined,” Aguerri said. “And the problem is how long is that going to take?”