Panama Canal port dispute escalates into $1.5 billion lawsuit

Hong Kong conglomerate CK Hutchison is seeking more than $1.5 billion in compensation from Panama over the loss of control of two port terminals near the Panama Canal. The company has initiated new international arbitration proceedings against the state.

The dispute concerns the ports of Balboa and Cristobal, located respectively at the Pacific and Atlantic entrances to the Panama Canal. They were operated for nearly three decades by Panama Ports Company, a subsidiary of CK Hutchison.

In January, the Supreme Court of Panama declared unconstitutional the legal basis of the concession under which the company managed the terminals. In February, the state took the ports under its control, after which Panama Ports Company ceased their operation.

CK Hutchison claims that the actions of the Panamanian authorities have effectively led to the loss of its investments in the country. The company stated that attempts to settle the conflict before the start of arbitration yielded no results.

The new claim of more than $1.5 billion is separate from another arbitration proceeding that Panama Ports Company itself initiated earlier. The CK Hutchison subsidiary is already seeking over $2 billion from Panama, linking losses to the loss of the concession, assets, and control over the terminals.

CK Hutchison is also engaged in a separate arbitration dispute with Danish transport group A.P. Moller-Maersk. A Maersk unit obtained operational control over the port of Balboa after the previous operator was removed, while Cristobal is managed by a structure of Mediterranean Shipping Company.

Ports became part of a major deal

The conflict in Panama has complicated one of the largest port deals in recent years. CK Hutchison previously agreed to sell a large portion of its port assets outside China to a consortium involving BlackRock and Mediterranean Shipping Company.

The initial value of the transaction was about $23 billion. The package was to include dozens of ports in various countries, including Balboa and Cristobal.

However, the deal became the center of geopolitical confrontation between the US and China. Washington sought to reduce Chinese influence around the strategically important Panama Canal, while Beijing expressed concern about the possible transfer of port assets to Western investors.

The parties continue to work on the structure of the deal, but the disputed Panamanian terminals may be excluded from it until legal procedures are completed.

For CK Hutchison, the loss of the Panamanian ports has already had financial consequences. The company previously estimated the lost operating profit from the loss of these assets at approximately $63 million.

Sources: Financial Times, The Wall Street Journal, CK Hutchison