By ELOY O. AGUILAR
Associated Press Writer

PANAMA CITY, Panama (AP) -- Panama's new leader, to be elected Sunday, will have a historic decision to make: Should Panama launch a multibillion dollar canal expansion project aimed at keeping the waterway competitive?

The question has been a key debate in the presidential race leading up to elections Sunday, and the decision will be a defining moment for the country, which has formally run the canal for less than five years.

The election's top two candidates, Martin Torrijos, the U.S.-educated son of former military strongman Omar Torrijos, and former President Guillermo Endara, have supported the idea, but say they want to study it further before making a final decision. The expansion project also would need approval by a national referendum.

Torrijos says it will be Panama's "most important decision of the century."

Endara recommends careful study of the project, especially the cost.
 
"We do not want to incur financial obligations that would mortgage the country," he said.

The annual growth of world trade and the use of cargo ships too large for the canal gates are threatening to reduce the waterway's usefulness.

An average of 35 ships move daily through the canal's 50 miles. Linking the Pacific Ocean to the Atlantic, the canal moves ships - already a tight fit for some - through a series of locks.

The alternative is a long trip around the tip of South America.

The Panamax class of ships, the largest that can use the waterway, are about 100 feet wide and squeeze through the canal locks with just two feet to spare on each side.

The larger Post-Panamax ships under construction are too wide to fit through the canal's narrowest stretches and cannot use the waterway.

The Canal Authority has spent more than $30 million in studies of future market demand and environmental repercussions. Those studies are expected to be submitted to the board of directors of the canal by the end of June, according to Francisco Miguez, coordinator of the Master Plan for the Canal.

The authority is charged with running the canal as a profitable company and it has increased income by providing logistical as well as ship and container services. Revenue from canal operations last year was $900 million, compared to $600 million during the last year of U.S. administration.

According to canal officials, ship movement increases 2 percent a year, while cargo tonnage goes up 8 percent as the trend toward larger ships continues.

Fernando Manfredo, vice administrator of the canal during the last years of the U.S. administration, told The Associated Press that for years studies showed the canal needed a third set of locks.

"What needs to be determined is the capacity of the locks. The ships keep getting bigger," he added.

Miguez declined to say what kind of expansion was being considered or whether the studies show the market demand justifies it.

"Once we have a project that would include an expansion, if it is profitable, there will be no lack of sources of financing," Miguez said. He refused to give an estimated cost, saying it would be "speculation."

Ricauter Vazquez, assistant administrator of the canal, said Panama, a Central American country of 2.8 million people, cannot alone assume the risk of incurring the huge debt needed to finance such an expansion.

"We would not expect the central government to participate in the financing," Vazquez said, noting that international financial institutions have shown interest in an expansion project.

Officials must also consider the environmental impact of any expansion project.

Each ship passing through the canal uses 54 million gallons of fresh water to lower or raise it to and from the ocean. The water is dumped into the oceans from Lake Gatun, a man-made lake covering 170 square miles.

A third set of locks would increase the use of water, but Miguez said special locks could be made to use the same water more than once.

Copyright 2004 Associated Press. All rights reserved.