The Supreme Court of Panama made a significant ruling on Thursday evening (January 29), declaring the concession contracts of the Panama Ports operated by the Hong Kong-based CK Hutchison Holdings at both ends of the Panama Canal unconstitutional.
This decision has created a great deal of uncertainty for the company that has been operating the strategic waterway container terminals since the 1990s.
The ruling was based on the investigation results of the Panamanian Comptroller General’s Office. Comptroller General Anel Flores pointed out that in the case of the 25-year contract extension granted to CK Hutchison’s subsidiary, Panama Ports Company, in 2021, there were multiple irregularities.
Flores stated that the audit uncovered unpaid amounts, accounting errors, and suspected “ghost” concessions within the ports since 2015 through undisclosed tax-free subcontracting activities.
The so-called ghost concessions refer to hiding substantial profits outside government oversight through undisclosed tax-free subcontracting, thereby evading concession fees and income taxes payable to the government.
According to the audit report, these irregularities since the contract extension in 2021 have resulted in government losses of approximately $300 million. If traced back to the initial 25-year contract period, the estimated total losses could reach up to $1.2 billion.
Furthermore, Flores criticized that the contract extension did not receive the necessary endorsement from the Comptroller General’s Office at the time.
The legal ruling comes amidst the escalating influence competition between the United States and China in the Panama Canal.
The Panama Canal connects the Atlantic and Pacific Oceans, allowing ships to bypass South America, shortening the journey by about 13,000 kilometers, saving up to 18 days of travel time and significant fuel costs. Approximately 5% of global maritime trade flows through this critical strategic waterway, with the United States being its largest user.
Apart from its commercial value, during conflicts, the canal also enables the rapid transfer of warships and military supplies for the U.S. Navy between the two oceans. Control over this passage in times of war or conflict signifies ensuring the stability of supply chains.
U.S. Secretary of State Marco Rubio chose Panama for his first overseas visit after taking office and made the U.S. position clear.
He emphasized that the operation of these ports is seen by the U.S. as a “national security issue.” The Trump administration also prioritized blocking Chinese influence over the Panama Canal, and even suggested Panama should return control of the canal to the U.S.
Last year, CK Hutchison Holdings planned to sell a majority stake in its Panama Ports Company to an international consortium including BlackRock, but the deal was stalled due to interference by Chinese authorities.
Currently, the Supreme Court of Panama has not provided specific guidance on the future takeover of the ports, but this is considered a victory for Washington. This ruling may compel the Panamanian government to review the legal framework for port operations and reopen bidding for the concession rights of the relevant container terminals.