A new dam in the Panama Canal could solve water-level problems but create housing ones

The Panama Canal's water levels have been dwindling, and this shift will have significant economic consequences for the region. To combat the change, the Panama government approved the Rio Indio Reservoir Project. The plan could guarantee water supply to approximately 50% of the country's population but will also displace many Panamanians.

Water woes

Panama's Lake Gatún and Lake Alajuela, both of which provide water for the Panama Canal, are reliant on rainfall. Now, the canal is in trouble because of more frequent and intense droughts. Usually, "major dry events happened in Panama around once every 20 years," said Steve Paton, the head of the physical monitoring program for the Smithsonian Tropical Research Institute in Panama, to CNN. But they have become more frequent, with the country experiencing three droughts in less than three decades. A drought caused by El Niño in 2023 "got so bad that water levels and canal traffic plummeted, reducing the number of ships passing through by more than a third," said NPR.

The canal's depletion is a significant problem because the passageway accounts for 3.1% of the Central American country's GDP. In addition, the canal "allows up to 14,000 ships to cross per year, accounts for 2.5% of global seaborne trade and is critical to U.S. imports of autos and commercial goods by container ships from Asia, and for U.S. exports of commodities, including liquefied natural gas," said Reuters. The proposed solution is the Rio Indio reservoir project. The plan, valued at $1.6 billion, is to "build a dam that would "secure the water needed to ensure the canal's uninterrupted operation at a time of increasingly erratic weather," said The Associated Press.

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"The Rio Indio Reservoir Project would be the most complete solution in a 50-year horizon," the canal's deputy administrator, Ilya Espino de Marotta, said to Reuters. However, it would also "flood villages, where about 2,000 people would need to be relocated," said the AP. Dam construction is expected to begin in 2027.

Dammed if they do, dammed if they don't

There have been mixed opinions on whether the Rio Indio reservoir project is a good idea. The dam is a "key element in Panama's comprehensive solution for the water challenge, significantly increasing the storage capacity of this vital resource," said the Panama Canal Authority in a news release, adding that the canal is a "safety measure against future droughts" and "represents a significant step towards canal sustainability, reliability and competitiveness."

Not everyone agrees. Part of the proposal is a large-scale relocation plan for those displaced by the flooding. Opposition has been "strong and organized," Alberto Agrazal, a social researcher associated with the Ecology Network of the Catholic Church, said to CNN. The dam is a "direct threat to the communities that have inhabited and worked these lands for generations," he added. It could "have a greater negative impact and few positive benefits," including damages for fish and forests downstream as well as forced displacement, professor LeRoy Poff, an expert on aquatic ecology from Colorado State University, said to Reuters.

Climate change is expected to worsen droughts, and solutions will become more necessary. "There are significant risks that the project to build the multipurpose reservoir on the Rio Indio will be postponed or suspended indefinitely," Cesar Petit, a senior economist at BancTrust & Co, an investment bank, said to Reuters. "The communication strategy of the benefits of the plans and an adequate incentive and compensation program for those affected will be key to successfully implementing this plan."