Does HKND really want to build the Nicaragua Canal? Probably not.

There is some evidence that HKND does not intend to build the canal across Nicaragua. At the very least, they are prepared to walk away from that commitment at the drop of a hat. (The “Casa de los Pueblos” in the below photo is where HKND and President Ortega signed the framework agreement on June 14.)

I just again read over the framework agreement, and it separates the entire project into nine subprojects:

1.  Airport;
2.  Associated infrastructure;
3.  Caribbean Free Trade Zone;
4.  Caribbean port;
5. “Dry Canal,” e.g. railroad;
6.  Pacific Free Trade Zone;
7.  Pacific port;
8.  Pipeline;
9. “Wet Canal,” e.g., the canal.

But clause 15.1 allows the Sponsor (i.e., HKND) to walk away from any of the subprojects at its own discretion.

If in respect to a sub-project, at any time prior to closing the finance for said sub-project, the relevant Sponsor determines by its sole discretion that such sub-project is not viable (for commercial, technical, legal, political or other reasons) or that the sub-project should not be completed or operated, in such case, the Sponsor has the right to terminate the concession for such sub-project and all rights, benefits and obligations under this Agreement with respect to such sub-project.

The chart on page 21 of the agreement makes it clear that there is no special penalty for declaring a sub-project inviable and walking away.

In other words, HKND could develop, say, the railroad and free trade zones, or the airport and pipeline, or just the railroad, or just the free trade zones, or whatever ... with all the amazing protections and concessions that I discussed in this post.

You could see a de facto pair of HKND-run charter city ports (depending on the specific FTZ legislation; all we know right now is that they will be tax-exempt and operation outside Nicaragua’s tariff wall) with a railroad and pipeline connecting them. That might make commercial sense as a project; I can especially imagine the pipeline getting use for Venezuelan and Brazilian shipments.

But I do not think that HKND really intends to build a canal. Oh, I am sure that they might try if the financing showed up ... but I don’t think that they will try very hard.