Hong Kong firm did not uphold Panama Canal ports contract: Panama audit

PANAM CITY: The Hong Kong firm in charge of two key Panama Canal ports has flouted the terms of its contract, according to a Panamanian audit released on Monday (Apr 7), as US and Chinese firms fight for business on the waterway after President Donald Trump threatened to seize it.

The audit found "many breaches" of the concession awarded to a subsidiary of logistics giant CK Hutchison to operate the two ports, and concluded that Panama did not receive US$1.2 billion it was owed under the contract.

The subsidiary, called Panama Ports, benefited from many tax exemptions and also had irregularities in a previous audit that was used to justify an extension of the concession first awarded in 1997, said state comptroller Anel Flores.

"This is a very delicate issue," Flores told reporters, adding that he would file a complaint with prosecutors in the coming days over the unpaid concession fees.

The release of the audit results came hours before US Defense Secretary Pete Hegseth arrived in Panama, which has come under strong pressure from Trump to reduce Chinese influence on the US-built canal.

The US has said it is a threat to its national security - and the region as a whole - for a Hong Kong company to operate ports at either end of the canal connecting the Atlantic and Pacific, through which 5 per cent of all global shipping passes.

Hegseth will meet Panamanian President Jose Raul Mulino on Tuesday and visit the canal, which opened in 1914.

He will also participate in a security conference with Central American officials.

Although the waterway has been under Panamanian control since 1999 under international treaties, Trump has threatened to take it back, by force if necessary, arguing that it is effectively controlled by Beijing.

TRUMP THREATS

Flores on Monday denied that the announcement of Panama Ports failing to honour the concession contract had anything to do with the Hegseth visit.

"This is an autonomous act by Panama," Flores said.

However, some analysts had predicted that this audit would in fact purport to show irregularities, so that Panama could strip the Chinese company of the contract and thus appease the Trump administration.

"It comes as a surprise to no one that the audit turns up alleged irregularities, since the idea was to have some kind of legal justification strong enough to cancel the concession," Euclides Tapia, a professor of international relations, told AFP.

The state comptroller's office is an autonomous body that examines how government money is spent.

It began the audit of Panama Ports in late January to determine if it was honouring the concession contract, after Trump threatened to take over the canal.

Faced with the US president's repeated threats, the Central American country in turn has put pressure on CK Hutchison to relinquish its control of the ports.

In March, the firm announced an agreement to sell 43 ports in 23 countries - including its two on the interoceanic Panama Canal - to a group led by giant asset manager BlackRock for US$19 billion in cash.

A furious Beijing has since announced an antitrust review of the deal, which likely prevented the parties from signing an agreement on Apr 2 as planned.

The Panama Ports concession to operate Balboa port on the Pacific side of the canal and Cristobal port on the Atlantic side was renewed for another 25 years in 2021.