Panama Supreme Court Voids Hong Kong Firm’s Canal Port Contracts

Panama's Supreme Court has voided the contracts allowing a Hong Kong-based company to operate two of the most important ports at the Panama Canal, marking a major shift in control over one of the world's most critical shipping routes.

The court ruled late Thursday that the concession contracts held by Panama Ports Company, a subsidiary of CK Hutchison Holdings, were unconstitutional and must be cancelled. The decision leaves unclear who will operate the Balboa and Cristobal container terminals at the canal's Pacific and Atlantic entrances, and throws into question a planned $23 billion sale of the company's ports worldwide.

Background

Panama Ports Company has operated the two terminals since the 1990s under a concession agreement with the Panamanian government. The arrangement was automatically renewed in 2021 for another 25 years during the previous administration.

The legal challenge began when Panama's comptroller, Anel Flores, audited the 2021 contract extension and found what he said were serious irregularities. According to the audit, the company had failed to make required payments, committed accounting errors, and allowed what Flores described as a "ghost" concession to operate within the ports since 2015. The company has denied these allegations.

Flores said the irregularities cost the government approximately $300 million since the contract was extended in 2021, and an estimated $1.2 billion during the original 25-year period. He also noted that the extension was granted without the required approval from his office.

Based on these findings, Flores filed a lawsuit in the Supreme Court last year arguing that the laws underpinning the contract were unconstitutional.

Key Details

The Supreme Court's decision focused on the legal foundation of the contracts rather than the specific allegations of financial misconduct. The court stated that after extensive deliberation, it found the laws and acts supporting the concession between the state and Panama Ports Company for the development, construction, operation and management of the terminals were unconstitutional.

The ruling provides no immediate guidance on what happens next with the ports. Panama Ports Company said in a statement that it has not yet been officially notified of the decision but insisted its concession was the result of transparent international bidding.

"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." – Panama Ports Company statement

The decision sent shockwaves through financial markets. Shares of CK Hutchison Holdings, which is controlled by Hong Kong billionaire Li Ka-shing, dropped 5.5 percent on Friday, marking the company's largest one-day percentage loss in nine months.

The Proposed Sale

CK Hutchison had been planning to sell dozens of ports worldwide, including the Panamanian terminals, to a consortium led by investment firm BlackRock and shipping company Mediterranean Shipping Company. The court's decision now clouds that transaction, as the legal status of the Panamanian assets is no longer clear.

What This Means

The immediate question is how Panama will manage the transition. The Supreme Court's decision could force the Panamanian government to restructure the legal framework for port operation contracts and potentially require new competitive bidding to select an operator for the terminals.

The ruling comes amid intensifying US-China tensions over control of global trade routes. President Donald Trump has made repeated statements about curbing Chinese influence over the Panama Canal, which handles roughly 5 percent of global maritime trade. Trump has even suggested the United States should take back the canal, which was built by the Americans and handed to Panama in 1999.

Panama's government has pushed back against such suggestions. President Jose Raul Mulino has repeatedly stated that the canal is a Panamanian operation over which the country exercises full sovereignty.

The court's decision removes a major Chinese-linked asset from international commerce, at least temporarily. For Beijing, the ruling represents a setback in efforts to maintain its commercial footprint in strategic locations. For Washington, it aligns with broader efforts to limit Chinese influence over critical infrastructure.

For the thousands of workers employed at the ports, the immediate future remains uncertain. Port operations have continued under the existing arrangements, but without clarity on the legal status of the contracts, questions linger about job security and operational continuity.

CK Hutchison has not yet announced how it plans to respond to the ruling or whether it will pursue legal remedies. The company's next steps will likely depend on further guidance from Panamanian authorities about the process for either restructuring the contracts or opening new bidding for port operations.

The Supreme Court's decision represents a significant moment for the Panama Canal, which has been at the center of geopolitical calculations since its construction more than a century ago. Control over the waterway has long been tied to broader questions about power and influence in the Western Hemisphere.