Panama's Supreme Court ruled in late January that a 25-year concession held by Panama Ports Company (PPC), a subsidiary of Hong Kong's CK Hutchison Holdings, to operate key ports at the Panama Canal's entrances, is unconstitutional. The decision followed an audit by Panama's comptroller citing alleged irregularities in the concession's extension. In response to the ruling, Panamanian authorities appointed APM Terminals, a subsidiary of A.P. Moller-Maersk, for temporary management. CK Hutchison has initiated arbitration proceedings against Panama and issued a warning of potential legal action against the Danish group, while the ruling has also drawn reactions from Hong Kong and China, and is set against a backdrop of U.S. concerns regarding Chinese influence over the strategic waterway.
Supreme Court Ruling and Interim Management
Panama’s Supreme Court ruled in late January that the concession held by Panama Ports Company (PPC), a subsidiary of Hong Kong’s CK Hutchison Holdings, to operate ports at both ends of the Panama Canal, is unconstitutional. The concession had been renewed for 25 years in 2021 by the previous Panamanian administration.
The court's decision followed an audit by Panama’s comptroller, which cited alleged irregularities in the concession's extension. The comptroller had formally challenged the contract before the Supreme Court on July 30.
The Supreme Court's statement did not provide immediate guidance on the future status of the ports. Subsequently, Panamanian authorities appointed APM Terminals, a subsidiary of Danish logistics group A.P. Moller-Maersk, to temporarily manage these operations until a new concession process is completed.
APM Terminals stated its willingness to the Panamanian government to manage operations temporarily, aiming to mitigate risks to essential regional and global trade services, and clarified that it is not a party to the ongoing legal dispute regarding the concession.
Audit Findings and Allegations
Panama's comptroller, Anel Flores, conducted an audit of the concession to PPC, which had held the contract since 1997. The audit reportedly found unpaid payments, accounting errors, and the alleged existence of a "ghost" concession operating within the ports since 2015.
PPC denied these allegations.
The audit estimated that these irregularities had cost the government approximately $300 million since the concession extension and an estimated $1.2 billion over the original 25-year contract.
Comptroller Flores also stated that the extension was granted without his office's required endorsement.
Responses and Legal Actions
Panama Ports Company (PPC)
PPC stated it had not yet been officially notified of the Supreme Court’s decision and maintained that its concession was awarded through a transparent international bidding process.
The company asserted that the ruling "lacks legal basis and jeopardizes not only PPC and its contract, but also the well-being and stability of thousands of Panamanian families who depend directly and indirectly on port activity, but also the rule of law and legal certainty in the country."
PPC reserved all rights to pursue legal action.
CK Hutchison's Legal Measures
CK Hutchison announced it had notified A.P. Moller-Maersk that any operational steps taken by the Danish group or its subsidiary without CK Hutchison’s agreement could lead to legal recourse.
CK Hutchison also stated it had initiated arbitration proceedings against Panama and notified Panama of a dispute under an investment protection treaty to safeguard its rights and interests at the ports. The company added that the continued operation of the ports depends on actions by the Panama Supreme Court and the Panamanian State, which are beyond its control.
International Reactions
The Hong Kong government stated its opposition to any foreign government using coercive or unreasonable means to affect the business interests of Hong Kong enterprises. It urged the Panamanian government to respect contracts and provide a fair business environment, while also advising Hong Kong enterprises to review their investments in Panama.
In Beijing, China’s foreign ministry spokesperson, Guo Jiakun, stated that China would take necessary measures to safeguard the legitimate rights and interests of "the Chinese company."
Geopolitical Context and Prior Developments
U.S. Concerns over Chinese Influence
The situation surrounding the Panama ports is linked to broader international relations. U.S. officials, including former U.S. Secretary of State Marco Rubio, previously highlighted a U.S. perspective that the operation of these ports constituted a national security issue.
The Trump administration had previously stated its objective to prevent Chinese influence over the Panama Canal. Former President Donald Trump had suggested that Panama should return control of the canal to the U.S. The Panamanian government and canal authority maintained that China had no influence over operations.
Stalled Sale and Beijing's Role
Last year, CK Hutchison Holdings announced a deal to sell its majority stake in the Panamanian ports and other global ports to an international consortium, including BlackRock Inc. This deal reportedly stalled following objections reported from the Chinese government, and following allegations by U.S. President Donald Trump regarding China’s involvement with the Panama Canal.
In July, CK Hutchison indicated it was considering a Chinese investor to join the consortium, a move reported as an effort to address Beijing’s concerns. No further information has been released by CK Hutchison on this matter. The company's position is described as highlighting challenges for Hong Kong business elites in navigating Beijing’s expectations, especially during strained U.S.-China relations. CK Hutchison is owned by the family of Li Ka-shing.
Outlook
Political analyst Edwin Cabrera indicated that after official notifications, the matter of the ports' operation would fall to Panama’s executive branch, specifically the Panama Maritime Authority. He expressed an impression that port operations would continue.