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This project was stalled as landowners and government weren¶t unable to agree on how much
the first should be paid for the land.

Time is of the essence, as $105 million donated by the Millenium Challenge Account must be
spent before September. In order to speed up the expropriation process, ³the State will pay a
fair price for the properties, and any disagreeing landowner will have the money deposited in a
relevant court until the legal process is concluded, but works won¶t be delayed any further´.




  
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The 100-kilometer route is to link Goascorán, on the border with El Salvador, with Villa de San
Antonio in central Honduras.
The Dry Canal aims to link the Pacific ports of La Unión (El Salvador), Henecán (Honduras) and
Corinto (Nicaragua) with the Caribbean ports of Puerto Cortés (Honduras) and Puerto Barrios
(Guatemala).
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[or the past decade, the Honduran and Salvadoran governments have hoped to create a land
route between the Atlantic and Pacific oceans that could complement the services of the Panama
Canal. That plan is now becoming a reality.

The land route is an ambitious proposal, but Honduras and El Salvador have already begun
construction. The Logistic Corridor, also known as the ³Dry Canal´ or ³Canal Seco´ in Spanish, is
a 371 kilometer (230.5 mile) road that will link the Atlantic and Pacific Oceans and two of the
most modern ports in the region: Puerto Cortés, Honduras in the Atlantic and Puerto La Unión, El
Salvador in the Pacific. The critical part of the Logistic Corridor would start in Comayagua, a city
located in the middle of Honduras. [rom there, the highway would follow a direct route to El
Salvador, thus avoiding the Honduran capital and cutting the transit time from Honduras to El
Salvador in half.
This project would not only attract foreign investments to both countries, but it would also offer
complementary services to the Panama Canal and improve distribution of goods in Guatemala, El
Salvador, Honduras and Nicaragua.

Although experts like Santiago Aguilar, Project Manager for Puerto La Unión, and logistics
specialist Pedro Escalón say the Logistic Corridor would never be a rival to the Panama Canal
because neither Honduras¶ or El Salvador¶s ports have the capacity to handle the cargo that the
Panama Canal handles, it would be an important complement, improving the distribution of
merchandise in the region and providing an alternate route for moving cargo from one ocean to
another. The Logistic Corridor could turn Central America into the most important logistic and
distribution center in the Americas.

This project could attract millions of dollars in revenue for both countries, as well as encouraging
further development along the Logistic Corridor. The Corridor, which is expected to open in
2009, has required a great deal of political effort, coordination, financing and work.

    ( 

The Logistic Corridor between Honduras and El Salvador is part of Central America¶s economic
and infrastructure integration plans, many of which were included in the Puebla-Panama Plan
(PPP). The PPP is a forum where the presidents of Belize, Colombia, Costa Rica, El Salvador,
Guatemala, Honduras, Mexico, Nicaragua, and Panama agreed to create a social and economic
development agenda for the region in order to enhance the quality of life for its inhabitants.

One of the PPP¶s priorities is the infrastructure of the region: road networks, ports and airports.
The road networks are grouped into the International Network of Mesoamerican Highways, which
includes seven corridors or main roads: three of them will cross the entire region; the other four
will connect both oceans in Costa Rica, Guatemala, and Panama, and between Honduras and El
Salvador (the Logistic Corridor). ³The Logistic Corridor is totally financed,´ says Maria Teresa de
Rendón, Executive Director of the Plan Puebla Panama (PPP) in El Salvador.

The Logistic Corridor between El Salvador and Honduras links two of the most important ports of
the region: Puerto Cortés and Puerto La Unión. La Unión, which is still under construction, will be
finished by the end of 2008 and will be one of the few ports on the Pacific coast capable of
receiving post-Panamax ships²a new line of vessels that have three times the cargo capacity of
Panamax ships and are currently too large to fit through the Panama Canal¶s locks. According to
the Panama Canal Authority, post-Panamax vessels will constitute 37 percent of the world¶s fleet
by 2011. These vessels have a maximum capacity of 12,000 TEU (Twenty-[oot Equivalent Unit)
and, in order to dock, they need a 15 meter (49 feet) depth, even with low tide. This new breed
of ships has forced the Panama Canal to start building a third set of locks in order to
accommodate this maritime traffic.

Both El Salvador and Honduras have a vested interest in building the Logistic Corridor. In the
case of El Salvador, the Corridor and resulting linkage with Puerto Cortés will validate the
country¶s $132 million investment in the new Puerto La Unión, which is the main infrastructure
project of President Saca¶s government. The government¶s goal is to turn the country into a
logistic and distribution center with ³added value.´ This means, for example, that the country
might receive unfinished merchandise that could be finished within the country and labeled as
Salvadoran, thus allowing them to re-export the products tax-free to the United States under
CA[TA-DR. There are several factors that will lead to this success: the new port, with its special
capacity; El Salvador¶s strategic geographic position on the Pacific coast allowing for easier
access to Asian countries; the country¶s high-quality road network (considered by the Inter-
American Development Bank as the best in the region); Salvador¶s free trade agreements,
especially CA[TA-DR; the country¶s qualification by Moody¶s as one of the three countries in
Latin America with an investment-grade rating; and a modern airport.

El Salvador¶s plans to become a logistic center also include an aggressive strategy to attract
foreign investment. According to Pedro Escalón, an Investment Advisor at El Salvador¶s
Investment Promotion Agency (PROESA), the goal is to turn El Salvador into a hub for goods
distribution in Central America. ³Panama is able to easily supply Costa Rica and the north of
South America, but supplying the rest of Central America is easier from here,´ says Escalón.
PROESA¶s plans also include marketing the new port to shipping companies and couriers;
creating a free trade zone similar to Colon in the Panama Canal; creating special free trade
zones for pharmaceutical companies; investing in refrigerated holds; and turning the port into a
distribution hub for cars imported from Asia. El Salvador has already built a 58 km (36 mile)
road linking Puerto La Unión with El Amatillo, located at the border between El Salvador and
Honduras.

On the Honduran side, the Dry Canal provides the country with an exit to the Pacific for its
exports. Until now, Honduras has never had the resources to develop efficient ports on the
Pacific coast; the current Honduran port on the Pacific works only for fuel import.

The project also provides an opportunity for Honduras to improve its main highway between the
capital city of Tegucigalpa and the industrial center of the country, the city of San Pedro Sula,
while at the same time, opening up an economically depressed area through the construction of
the new section in Comayagua.

The government is managing an investment of approximate ly $320 million to improve already

existing sections of the route and to build the new part of the Corridor that bypasses the capital.
The funds for these improvements come from several sources, including the Inter-American
Development Bank, the World Bank, the Central American Bank for Economic Integration, and
the Millennium Challenge Account.

³The intention of the Honduran government is to finish the Logistic Corridor in 2009, before the
end of the current administration´ says Marcio Sierra, Director of the Honduran Government¶s
Unit of Technical Support (UNAT), which is entrusted to do the follow-up of all the public
investments.

  

A number of steps remain to complete the building of a ³Dry Canal.´ In the case of El Salvador,
Puerto La Unión must be finished by December 2008 and a number of operational details must
be finalized. La Unión, together with the Acajutla port will be given in concession through an
international bid process scheduled for September through November 2007. The concession
would start on January 2008, and according to Pedro Escalón, would provide an income of $500
to $600 million to the country. In addition, a free trade zone law needs to be created to establish
competitive tariffs for the port and for cargo transportation (by land). Currently, it is very
expensive to move cargo from El Salvador to Honduras. This situation should improve once the
port is operating, because an increase in cargo will allow for renegotiation of transportation
prices. However, there are many details that still need to be determined, such as the port and
transportation tariffs.

If projections are met, within five years, when Puerto La Unión will be handling an estimated
350,000 TEUs, the Dry Canal will be a faster conduit than the Panama Canal for destinations
such as Miami and Louisiana (albeit more expensive because of economies of scale). Currently,
vessels require three days to cross the Panama Canal, and ³sometimes queues might take up to
eight days´ says UNAT¶s Sierra, resulting in up to eleven days to complete the crossing from one
ocean to another. Through the Dry Canal, cargo can be moved in four to five days, a time
savings that might appeal to some companies despite the higher cost of transportation.
According to ECLAC (United Nations Economic Commission for Latin America and the Caribbean)
in 2006 Puerto Cortés handled 507,980 TEU.

Addressing custom issues is another important step for the success of the Logistic Corridor.
Customs are already in the process of being integrated under a project called ³Modernization of
Customs and Border Crossings,´ supervised by the PPP. This project aims to design and
implement a standardized, computerized border crossing procedure that addresses immigration,
customs and quarantine. ³The objective is to computerize all procedures so that the papers will
be sent with anticipation. With this advance« we estimate that the border crossing time will be
reduced by 50 percent,´ says de Rendón of PPP. The procedure is already being tested at the El
Amatillo checkpoint between Honduras and El Salvador. De Rendón predicts that the project will
be finished some time in 2008, although there is some concern that this goal of unification is
unrealistic. In a statement to La Prensa Gráfica Arturo Condo, Chancellor of the INCAE Business
School, noted that eliminating customs in 18 months seems unrealistic and this is an area where
unification of the region is much at a standstill.

Customs are one of the greatest challenges that the region will have to override in order to
reduce significantly the cost of doing business in Central America. In addition, in order for the
Dry Canal to succeed, both countries will have to show that they are able to operate their ports
efficiently and make the route a viable option to the Panama Canal.

Europa-honduras.eu

Through the National Transformation Project Foundation, a private sector initiative aimed at
promoting private sector investment as a key strategy for improving the country's infrastructure, the
Government of Honduras is considering a series of short and long term infrastructure projects for
enhancing the country's competitiveness in the global economy. The following report from the
American Embassy-Honduras offers details:
Among the projects proposed under the Presidential Investment Program is the construction of an
interoceanic road or "dry canal" connecting Puerto Cortes on the Caribbean with the Ports of La
Union in El Salvador and Corinto in Nicaragua on the Pacific, providing intercontinental shippers an
attractive option to the Panama Canal. The project, estimated at US$600 million, is currently at the
pre-feasibility stage. The Governments of Honduras and El Salvador have identified this project as
one of their infrastructure priorities and are in the process of signing a Memorandum of
Understanding (MOU) for its development;

. The dry canal binational project involves the construction of a four-lane highway, to be executed
by a private international consortium. The existing paved road network would serve as a preliminary
corridor for the transportation of heavy cargo between both the Atlantic and Pacific coasts. A Free
Trade Zone might also be established within a two-kilometer strip of the interoceanic highway in
order to further stimulate maquiladora industry investments throughout Honduran territory;

Among the advantages of the proposed dry canal project would be its positive impact on
international trade, as well as the physical integration of Central America. According to local
sources, transportation of containerized merchandise throughout the region has increased by 16%
during the last ten years. The dry canal project is also expected to stimulate the modernization and
development of Honduran ports, particularly Puerto Cortes and Puerto Castilla on the Atlantic, as
well as the Gulf of Fonseca on the Pacific. Honduras is strategically located at the crossing of world
markets, providing a geographic advantage for trade between Europe, Asia/Pacific and North and
South America;

Among the infrastructure investments to be executed in connection with the dry canal project are:
pavement of the Limones-Salama (66 km) and La Union-Mame roads (88 km); construction of a
north road between Los Mangos-El Tejar (45.07 km) and ElTejar-Goascoran (54.9 km), connecting
to the paved road network of El Salvador; pavement and construction of a central road connecting
Trujillo and Puerto Castilla with Piedras Azules in Comayagua, Honduras (253.3 km); design and
construction of a road connecting Tegucigalpa with La Paz; modernization and expansion of Puerto
Cortes; modernization and expansion of Puerto Castilla; maquiladora investments and agro-
industrial investments, among others. It is estimated that the first phase of the project will have a
significant economic impact for Honduras, generating over 50,000 jobs and contributing to the
country's export activity by over US$200 million annually;

Allbusiness.com
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