Petroleum Free Zones

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Panama has the potential to become a major oil and downstream products redistribution centre for two main reasons: one is the existence of the Panama Canal creating a natural bunkering market as well as a transhipment point, and the other is the fact of being the narrowest isthmus between the Atlantic and Pacific oceans to pipeline oil from South America to the Far East. Companies already doing business in 7 petroleum free zones include Exxon/Mobil, Shell, Alireza/Mobil, Chevron/Texaco, Gencor and others.

The free zone concept is inherent to Panama’s historical condition as an international commercial, maritime and trade centre due to its strategic geographical position. The free zone is mainly a tax product within which all transactions are tax free and all business operations from the zone are protected by a special low-tax regime. As a consequence, Panama developed the Colon Free Trade Zone, the second biggest in the world after Hong Kong, and now is pursuing the Petroleum Free Zones.

There are other advantages arising from establishing this area: increasing supply availability to domestic market in the Isthmus of Panama, due to the amount of stored product. In addition to a more efficient management in distribution areas, that can also be supplied as El Salvador, Honduras and Guatemala. There is as well an opportunity to explore other markets to offer other related products creating several added values to this type of trade.

The Bahia Las Minas Petroleum Free Zone located in Colon is home to several projects.

Chevron (Texaco) doubled the capacity of its terminal by using tanks vacated after leaving the refining business in 2002. Since then, the tanks remained without any use. Investment is estimated at 10 million dollars, and storage was increased to one million barrels. This makes the company a candidate to become a recollection center for the Region. In addition to the marketing of products such as LPG (propane) gas, premium and regular gasoline, aviation fuel (jet fuel), diesel, asphalt and bunker, also servicing wholesale businesses and vessels transiting the Panama Canal and re-exporting petroleum products to Central America.

Bahia Las Minas (BLM): in addition to purchasing fuel to Chevron, which is delivered by means of a special service pipeline (duct), have a contract to supply 62.25 megawatts (MW) of power electricity to Panama for a period of 6 years, investing an approximate of US $100 million to build a thermal plant with capacity of 87 MW, in the aforementioned Free Zone Petroleum. Other projects include the conversion of 3 steam units and the construction of a boiler to generate 120 MW, which will cost 135 million and re-converting of combined cycle to allow the use of compressed gas from Colombia, which investment amounts up to US$ 10 million. Suez, a Franco-Belgian company, owns 51% of BLM shares.

There presently exists in the country 7 Petroleum Free Zones.

Within any Petroleum Free Zone, individuals or corporations, national or foreign, may perform multiple operations under a special tax free regime, as follows:

a) Introduce, storage, manufacture, bottle, refine, purify, mix, market, transport, transfer, pump, process, transform, sell or in any other way dispose in the domestic market, export, reexport, provide and, in general, operate and manage crude oil, semi processed or any of its by-products;

b) Build, install and operate petroleum refineries and other transformation or processing means of crude oil or semi-processed, storage tanks, oil pipelines, gas pipelines and poly-pipelines, pumping installations and pipes, buildings for offices, warehouses, or workshops and any other installations; introduce machinery, equipment, spare parts, containers, bottles, vehicles, furniture, equipment for fire or spill prevention, construct buildings for offices, warehouses, workshops for the use of the beneficiaries of the contracts to operate in the Petroleum Free Zones in any of the activities mentioned insubsection (a) hereinbefore;

c) Lease, acquire or in any other manner use lands, easements, right of way and other real or personal rights in regard to bona mobilia located in the areas designated as Petroleum Free Zones;

d) Establish water services, electrical power, gas, energy, heat, refrigeration or any other kind of services, upon previous coordination and approval with the respective public entities;

e) Build ports, piers, dry docks, shipping and unloading places for ship and airplanes, railroad stations for loading and unloading on land or granting contracts for the construction and exploitation of such works; and

f) In general, all kinds of operations or activities proper or incidental to the establishment and operation of the Petroleum Free Zones for the introduction, storage, pumping, transference, distribution, marketing and crude refining and petroleum by products.

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