Tolls-Proposal-2015.Pdf

PROPOSAL TO MODIFY THE REGULATIONS FOR THE ADMEASUREMENT OF VESSELS AND THE PANAMA CANAL TOLLS SYSTEM

January 2015

This English translation is intended solely for the purpose of facilitating an overall understanding of the content of the original Spanish version. In those cases where differences may be found between the two, the Spanish document must be considered as the authoritative version.

CONTENT

I. Background ...... 1

II. Rationale of the proposal ...... 8

III. Proposal……………………………………………………………………………..10

IV. Implementation….……………………………………………………………….....31

V. Impact analysis…..………………………………………………………………..…31

ANNEXES

Annex A - Panama Canal Record ...... 33

Annex B - Legal references ...... 50

Annex C – Impact analysis by market segment ...... 94

PROPOSAL TO MODIFY THE REGULATIONS FOR THE ADMEASUREMENT OF VESSELS AND THE PANAMA CANAL TOLLS SYSTEM

I. BACKGROUND

The Panama Canal opened its doors to world shipping in 1914. Since then and until December 31, 1999, the United States Government managed the Panama Canal. During the period of U.S. administration the Canal was a non-profit organization and its financial policies, as well as its tolls, were basically oriented to recover operating and capital costs. The tolls system was designed so that the total cost of operating and improving the Canal could be distributed proportionally among all of the vessels that transit the Canal. During the eighty-five years of U.S. administration Panama Canal tolls underwent nine changes which can be seen in table No. 1:

Table No. 1 Panama Canal Toll Rates from 1914 to 2002 Charges by Net Ton

During the period shown in the above table, the Canal maintained a pricing policy based on the concept of “one price fits all” where, for merchant vessels, toll calculations are based on their volumetric capacity measured in Panama Canal / Universal Measurement System (PC/UMS) Net Tonnage1, which only differed if the vessel transited laden (with cargo or passengers) or ballast (not carrying passengers nor cargo), and in the case of other floating craft, including dredges, dry docks and warships, which were charged tolls on the basis of displacement tonnage2.

Whereas the “one price fits all” structure remained fixed, vessel design as well as global and maritime trade became increasingly sophisticated and specialized.

1 PC/UMS or Panama Canal / Universal Measurement System is the system employed by the Panama Canal to measure the volumetric capacity of a vessel to transport cargo for the purpose of assessing tolls. 2 The weight of salt water (in long tons) that the vessel displaces.

During the years 2002-2003, the Panama Canal Authority (ACP), the autonomous entity of the Government of Panama with exclusive charge for the administration, operation and maintenance of the waterway, introduced the initial phase of a new pricing structure, established price differentiation by size of vessel and laid the foundations for a market segmentation by type of vessel that takes into account segment necessities and characteristics and the value proposition offered by the Panama Canal to each segment. The structure is as shown in table No. 2:

Table No. 2 Tolls in effect as of October 1, 2002

Tolls shown in table No. 2, which reflect an average increase of approximately 8 percent (8%), became effective on October 1, 2002 for all segments.

In 2005, the ACP implemented a change in its admeasurement system applicable only to full container vessels and those vessels with container-carrying capacity on-deck. The adjustment modified the traditional measure utilized as the charge basis for these vessels, from PC/UMS Net Ton to a twenty feet container, or TEU (“twenty-foot equivalent unit”) and established the total TEU capacity, including on-deck, adjusted for the visibility restrictions of the ACP, as the basis for the new charge. The implementation of a TEU-based toll allowed operators of container vessels to transfer Canal transit costs to their users in a more transparent manner. All other market segments remained unchanged in their tolls. Table No. 3 shows the tolls approved in 2005 and the various effective dates.

Table No. 3 TEU Tolls on the basis of a twenty foot container For the full container market segment and other vessels that carry containers on-deck

Effective May 1, 2007, the Panama Canal Authority modified its tolls system and regulations of admeasurement, to more closely align the Canal toll charges with the value this route offers. Tolls by segment were raised in general, and in response to the cruise industry, the way of charging passenger vessels was modified to make the Canal cost portion more transparent to the final user. The aforementioned changes are shown in table No. 4.

Table No. 4 Modification of the Regulations for the Admeasurement of Vessels and the Tolls System 2007 – 2009 (in $U.S. Dollars)

Notes: 1/ Vessels above 30,000 gross tons (GRT) and whose PC/UMS tonnage divided by maximum passenger capacity (PAX-ITC) ratio is less than 33, shall pay tolls on a per berth basis. If such a ratio is greater than 33, tolls shall be paid on the basis of PC/UMS tonnage. Vessels below or equal to 30,000 GRT shall also pay on the basis of PC/UMS tonnage.

In June 2009, in light of the global economic crisis which had a significant impact on the maritime industry, the ACP implemented some temporary measures to assist in mitigating the effects of the economic downturn in our clients. These temporary measures included the application of the ballast toll rate to full container vessels transiting with a utilization of its capacity of 30 percent (30%) or less, and reductions in certain transit reservation system tariffs. These measures were originally set to be effective during the period from June 1, 2009 to September 30, 2009; however, at the industry’s request, the measures were extended until April 30, 2010. Likewise, considering the economic crisis’ impact on our clients, the ACP decided against adjusting tolls in 2010.

In January 2011, the ACP implemented modifications to its price structure, including a change in the way tolls are calculated for the full container segment by means of a slight adjustment in the capacity charge and an additional adjustment applicable to the actual number of TEUs with cargo on board during the transit. In addition, the tolls for the dry bulk, liquid bulk, refrigerated cargo, vehicle carriers, general cargo and other vessels segments were modified, as follow:

Table No. 5 Modifications to the Panama Canal Tolls (in U.S. dollars)

The modifications implemented between 2002 and 2011 did not include adjustments to the small vessels tolls, whose tolls remained at the level set in 1998.

In 1998 the former Panama Canal Commission, the United States government agency responsible for managing, operating, maintaining and improving the Canal until December 31, 1999, adjusted its price structure and established a minimum toll for small vessels. The purpose of this minimum toll was to recover a portion of the direct costs incurred by the Canal in the transit of these vessels, which were and still remain much higher than the tolls assessed.

The ACP concluded that it was necessary to modify its minimum tolls to incorporate adjustments not previously considered, given the size of the vessels. Effective October 1, 2012, minimum tolls were adjusted in the following manner:

Table No. 6 Modifications to the Panama Canal minimum tolls

In 2012, in light of the differences in the modes of operation of vessels included in the tanker segment, the ACP redefined this segment. The segment is comprised of three vessel types: petroleum and petroleum products tankers, chemical vessels and gas vessels that carry LPG (liquefied petroleum gas).

Hence, the segment was redefined in three segments, each with its own specific vessel type. This modification set the foundation upon which to develop new price structures, unique to each segment that would allow, if convenient, the use of the unit of measure inherent to each trade and vessel type.

On the other hand, operators of Ro-Ro vessels requested the ACP to reclassify this ship type and incorporate it into the vehicle carrier segment, given that the industry trend has been to transform Ro-Ro vessels into vehicle carriers in order to transport automobiles. Such reclassification took effect beginning October 1, 2012.

In order for the Canal tolls to further approach the value of the route, the Panama Canal Authority proposed to increase, in general terms, the tolls of the specifically identified segments, in accordance with the structure in table No. 7.

The changes were implemented in 2012 and 2013, which provided price certainty for two years to the industry for the identified segments. The new tolls were effective in two phases, the first beginning on October 1, 2012, and the second starting on October 1, 2013. No adjustments were made to the full container, passenger and refrigerated cargo segments at this time, whose tolls effective since 2011 remained in effect.

Table No. 7 Modification of the Panama Canal Tolls (in U.S. Dollars)

The ACP pricing policy, through the changes implemented since 2002, has been evolving from a cost-recovery system to a structure that considers the value that the route provides to its clients. The price structure has been adjusted to reflect the needs and the deployment of the various market segments, adding transparency to the system.

In the last fourteen years, the demand for transit service through the Panama Canal has been increasing. In this period, there has been significant growth in tonnage during boom economic times, with a very slight decrease during the economic recession, which points to the value of this route for our clients. The Canal has maintained a safe, reliable and efficient service, fulfilling the needs of shippers and operators, allowing global trade in a timely manner and reasonable cost.

The Canal expansion with a third set of locks, will allow the transit of neopanamax vessels3, maintain the quality of service, offer economies of scale to shippers and operators and improve the competitiveness of the route. Considering the aforementioned benefits, the Canal expansion proposal reaffirmed the Panama Canal pricing policy, in that it should continue to approximate the tolls to a value that reflects the real benefit that the route provides to its clients.

3 vessels of length up to 366 m (1,200´); and/or beam up to 49 m (160´) and/or draft up to 15.24 m (50’).

II. RATIONALE OF THE PROPOSAL

1. The Panama Canal price policy and the economic criteria that serve as its basis:

• Tolls will be established so that they reflect the value provided by the Canal to its users.

• Tolls will be set so that their relative value is maintained over time and will be periodically adjusted for inflation.

• Tolls will be established at appropriate levels to uphold the competitiveness of the Panama route at all times and to reach a profitability level in accordance with the risk levels, investment amounts and the value added by the Canal to its users, so that the payments to the National Treasury and the benefits to Panama are increased in a sustainable manner.

2. Value of the route by segment

The evolution of the maritime transportation industry entailed the design of specialized vessels for the transportation of different types of cargo. The ACP considered this heterogeneity in 2002 when it established market segments based on ship type –according to industry parameters- and the result was eight specific market segments: general cargo, refrigerated cargo, dry bulk, liquid bulk, full containers, vehicle carriers, passenger vessels and others

The segmentation scheme has been a key element in the design of the Panama Canal price structure. The ACP is continuously evaluating the value of the route through Panama against other alternative for each segment. These alternatives might include -depending on the segment- rail costs for containers and dry bulk goods and the availability of pipelines for liquid bulk products, among others.

Just as the ACP adjusts its prices to further approach the value of the route, the competing alternatives to the Panama Canal also make the necessary adjustments according to market forces to maximize their profitability. The pertinent analyses take into account different factors that affect the total transportation cost, including the cost of fuel, daily charter rate, capital costs, ship chandlering, travel time and the relative cost and reliability of the various alternatives.

Over time, segmentation has allowed the development of segment-specific value propositions, as is the case with the TEU toll applicable to full containers and other vessels able to carry containers on-deck, and the per berth toll for the passenger vessel segment. These adjustments have taken place as a result of clients’ requests, and in consultation with the industry.

An analysis of the value of the route by segment has revealed that among the vessel types in some segments established in 2002, there are significant differences in modes of operation and types of cargo transported, which merit a reconsideration of their definition.

The value of the route through Panama lies both in the competitiveness of the Canal, the connectivity and value-added benefit of the various elements that comprise the transportation and logistics hub of the country. In addition to the time and distance savings, the Panama route allows the operator to utilize Panama as a consolidation and distribution center of regional cargo, which means improved vessel utilization and profitability for vessel operators. The key components of this transportation and logistics hub are modern and efficient ports at both extremes of the Canal, shipping agencies, ship chandlering services, bunkering services, storage, logistics services, financial services, the Colon Free Zone and the transisthmian railroad. Nonetheless, this proposal only considers the Canal tolls and does not take into account other service charges related to the intra-maritime cluster. In addition, it is worth mentioning that Panama is an “air transportation hub” (this facilitates the crew changes for vessels transiting the Canal) and a “cargo hub”. Furthermore, Panama hosts the world’s largest open flag registry, thereby facilitating documentation procedures.

3. Canal expansion

In September 2007 the ACP initiated the Panama Canal expansion project, which involves building two new locks complexes in both the Pacific and the Atlantic terminals, which will allow doubling the current Canal capacity to 600 million PC/UMS tons, allowing transits of longer and wider vessels. The expanded Canal will handle vessels up to 1,200 feet (366 meters) in length, 160 feet (49 meters) in beam, and 50 feet (15.24 meters) of draft in tropical fresh water.

According to the ACP Master Plan estimates, the expanded Canal would handle full container vessels of up to 13,200 TEU and other vessels of up to 170,000 deadweight tons, with certain draft restrictions. The expansion project has been very well perceived by the maritime industry; there are even 13,200 TEU vessels which have been designed taking into consideration the expanded Panama Canal dimensions.

The impact of the Canal expansion will be evident in different market segments. The expanded Canal will allow the transit of Capesize4 dry bulk vessels and Suezmax5 liquid bulk vessels. New markets will flourish, such as the trade of LNG (liquefied natural gas) through the Canal. Likewise, the deployment of larger vessels in the grains, coal, and iron mineral trades is expected.

4 Capesize refers to dry bulk vessels that transports iron ore and coal and can reach up to 400,000 deadweight tons (DWT); however, neopanamax vessels in this segment will range between 95,000 and 180,000 deadweight tons. 5 Suezmax refers to tanker vessels with deadweight (DWT) between 120,000 to 150,000 tons.

The Canal expansion will benefit its users, Panama and world trade. In addition to augmenting the Canal capacity, it will improve Canal services to the maritime industry and world trade flows, and facilitate the movement of goods between important markets. Canal customers will benefit from the resulting economies of scale from deploying larger vessels. Likewise, the Canal expansion will allow Panama to become the transportation logistics hub of America, thereby strengthening the all-water route through the Panama Canal.

Considering the ACP commitment to enhance the value of the route to its users, this proposal fulfills the criteria that tolls shall be established at appropriate levels to maintain the competitiveness of the Panama route at all times and to reach a profitability level in accordance with the risk levels, investment amounts and the value added to its users.

The ACP has been receptive to the needs of the industry; however, there are market segments whose fleets are evolving and the ACP is constantly striving to adapt to the ever-changing market needs.

III. PROPOSAL

The ACP proposes to modify the Panama Canal tolls and the Regulations for the Admeasurement of Vessels for the Panama Canal, with the introduction of new structures for the following market segments: full containers, dry bulk, liquid bulk (tankers and gas carriers), the creation of a new segment for vessels transporting liquid natural gas (“LNG”), vehicle carriers and Ro-Ro. New admeasurement methods will be developed to accommodate the previously mentioned changes.

For the purposes of this proposal, the terms “client” and/or “customer”, refer to vessel owners, vessel operators and vessel charterers who make transits through the Canal.

The tables henceforth presented in this document specify length, breadth and draft limitations to offer a general guideline for estimating the new tolls, evaluating this tolls proposal, and clearly establishing the difference between the panamax locks6 and neopanamax locks7.

Nonetheless, it must be noted that the length, breadth and draft limitations are determined by Canal Operations authorities, which in many cases perform evaluations on a case-by- case basis. In instances where there is an apparent conflict between the assessment by Canal Operations and what is set forth in this proposal, the criteria of Canal Operations shall prevail.

6 Panamax locks: for vessels with length of up to 294 m (965´), beam of up to 32.31 m (106´), draft of up to 12.04 m (39.5´). 7 Neopanamax locks: for vessels for length up to 366 m (1,200´); and/or beam up to 49 m (160´) and/or draft up to 15.24 m (50’).

Vessels which are not full container vessels, not part of the intra-maritime cluster and carry containers (TEU) on deck will be applied the toll tariff of $90 per TEU.

The designated toll tariffs for the neopanamax locks will be applied to all vessels that due to their size are unable to transit through the panamax locks. If a vessel can transit through the panamax locks but due to an operational decision by the ACP aimed at optimizing capacity, such vessels transits through the neopanamax locks, it will be applied the panamax locks tariff.

This proposal includes charging parameters already in place such as PC/UMS, berth and TEU, as well as new capacity charging parameters like deadweight ton (DWT) and cubic meter (m3). In addition, a new charging parameter is proposed for cargo on board, in metric tons (MT).

The capacity measure will be in accordance to the summer loaded draft or the Plimsoll mark, as it appears in the vessel plan. The appropriate measure is from the vessel plan in written format and verified in the deadweight scale. All the measures are subject to verification by Canal authorities. In the case this information is omitted, incorrect, inappropriate, or not provided, the Canal reserves the right to establish an appropriate toll admeasurement parameter which can be applied to the calculation of tolls to be paid. All parameters associated to tonnage must be considered in metric tons.

The Panama Canal Authority, with the purpose of continuing to more closely align Canal toll charges to the value of the route, proposes:

1. Reformulation of the full container vessels segment

The new toll proposal for the full container vessel segment shall go into effect once the Expanded Canal begins operations. The new toll proposal offers the following, as shown in table No.8:

• Differentiate the vessel total TEU allowance (TTA8) capacity tariff and the TEU loaded with cargo tariff to be charged to full container vessels using the neopanamax locks and/or the new locks.

• No additional charge for the transport of empty containers at the moment of transit, as determined by the ACP.

• Reduce the existing vessel total TEU allowance (TTA) tariff and increase the existing TEU loaded with cargo tariff to the full container vessels that can

8 TTA refers to the total TEU allowed, which is equal to the total sum of below and above deck TEU allowed by the Panama Canal.

currently transit the Panama Canal and that will continue to use the neopanamax locks (see table No. 8a).

• This price strategy proposes maintaining the competitiveness of this segment at an attractive level for customers.

Table No. 8, below, describes the proposed structure and tariffs for full container vessels.

Table No. 8 Full Container Vessels Segment

1/ Panamax locks: for vessels with length of up to 294 m (965´), beam of up to 32.31 m (106´), draft of up to 12.04 m (39.5´). 2/ Neopanamax locks: for vessels with length up to 366 m (1,200´); and/or beam up to 49 m (160´) and/or draft up to 15.24 m (50’).

Table No. 8a Full Container Vessels Segment

By establishing a tariff differentiation for vessels based on the use of the panamax and the neopanamax locks, the new toll proposal seeks to encourage an increase in the size of the vessels that currently transit the Panama Canal, taking advantage of the economies of scale that the neopanamax locks will offer the maritime industry. At the same time, it improves the Canal route competitiveness levels for the main trade routes, promoting the increase of cargo volumes and utilization levels.

This plan offers a more flexible toll structure that will benefit the customer. In times of economic prosperity, when vessels are loaded close to capacity, such a plan offers a shared gain situation for the Canal and for the customers. By the same token, there would be a shared risk element in instances of low utilization transits, according to the customers´ business model, mainly for the return trip, when TEU cargo levels tend to decrease. The Panama Canal’s exposure to this risk normally associated with vessel operators would increase considerably.

To assist in understanding the application of the tariff, we include an example of the resulting tolls charge using the current tariff (tariff approved in 2011) and using the proposed tariff (tariff proposed for 2016):

• If a vessel with a total TEU allowance (TTA) capacity of 10,000 TEUs and 80 percent (80%) utilization of this total were to transit, applying the tariff approved in 2011 it would total $804,000 in tolls.

• If a vessel with total TEU allowance (TTA) capacity of 10,000 TEUs and 80 percent (80%) utilization of this total were to transit, applying the tariff proposed for 2015 it would total $780,000 in tolls.

• The same comparison of a vessel with a total TEU allowance (TTA) capacity of 10,000 TEUs, but with a 40 percent (40%) utilization of this total, the vessel transiting under the 2011 approved tariff would total $772,000 in tolls, a $32,000

variation when compared to the transit with 80 percent (80%) utilization and using the same tariff.

• If a vessel with a total TEU allowance (TTA) capacity of 10,000 TEUs and 40 percent (40%) utilization of this total were to transit, applying the 2015 proposed tariff it would total $640,000 in tolls, a $140,000 variation when compared to the transit with 80 percent(80%) utilization and using the same tariff

• If a vessel with a total TEU allowance (TTA) within the TEU range of the panamax locks were to transit, however due to its dimensions (length, beam or draft) it requires transit through the neopanamax locks, it shall pay the appropriate fee of the neopanamax locks for ships under 6,000 TEU. The following example illustrates the difference in rate between ships of the same capacity:

o If a vessel with a total TEU allowance (TTA) of 4,700 TEUs were to transit with an 80 percent (80%) utilization rate having panamax dimensions for the panamax locks, the appropriate total TEU allowance (TTA) tariff that that would apply would be $60 and the TEU loaded with cargo tariff would be $30. This vessel would pay $282,000 corresponding to the vessel total TEU allowance (TTA) tolls and $112,800 for the TEU loaded with cargo tolls for a total tolls charge of $394,800.

o If a vessel with a total TEU allowance (TTA) of 4,700 TEU´s were to transit with an 80 percent (80%) utilization rate having neopanamax dimensions for the neopanamax locks, the appropriate total TEU allowance (TTA) that would apply would be $60 and the TEU loaded with cargo tariff would be $40. This vessel would pay $282,000 corresponding to the vessel total TEU allowance (TTA) and $150,400 for the TEU loaded with cargo tolls for a total tolls charge of $432,400.

According to the prior example, if a customer needs to use the neopanamax locks, it is more advantageous to deploy bigger vessels to benefit from the tariffs and economies of scale. Conversely, if a customer needs to transport a number of TEUs that can pass through the panamax locks, it is more convenient to transit through the existing panamax locks. This price structure is more balanced and provides an incentive for adequate utilization of the panama locks in spite of having the neopanamax locks available.

1.1. Loyalty program for full container vessels

The loyalty program’s aim is to encourage TEU capacity volumes in full container vessels transiting the Panama Canal by applying a preferential tariff system that offers the following benefits:

• Four loyalty categories are established, based on the volumes of TEU volumes of total TEU allowance (TTA) capacity set by the customer. The four categories are as follows:

o Category 4: Applies to all customers with a registered TEU capacity volume from 0 to 450,000. See table No. 9.

o Category 3: Applies to all customers with a registered TEU capacity volume from 450,001 to 999,999. See table No. 10.

o Category 2: Applies to all customers with a registered TEU capacity volume from 1,000,000 to 1,499,999. See table No. 11.

o Category 1: Applies to all customers with a registered TEU capacity volume of 1,500,000 or more. See table No. 12.

• To determine the customer category, the cumulative TEU volume of total TEU allowance (TTA) transited by a customer through the Panama Canal during a maximum period of 12 consecutive months is used, starting from the approval date of the Panama’s Cabinet Council. The result is applied during a one-month period, allowing a one-month break starting from the moment a category is achieved and the moment that the preferential tariff is applied. Example: If a customer reaches during the month of July (whether it happens at the beginning or at the end of the month) 500,000 TEU´s allowing him to qualify for category 3, he will pay the category 3 tariff during the month of September, being August the intermediate month used to confirm and carry out the necessary processes.

• Preferential tariffs are applied based on the tariffs included in table No. 8, with the following variations:

o Category 4: regular tariff, without variation.

o Category 3: tariff which reflects a $1.00 improvement on the vessel capacity tariff (TEU allowance).

o Category 2: tariff which reflects a $2.00 improvement on the vessel capacity tariff (TEU allowance).

o Category 1: tariff which reflects a $3.00 improvement on the vessel capacity tariff (TEU allowance).

Table No. 9 Full Container Vessels Category 4: Regular Tariff: no variation

Table No. 10 Full Container Vessels Category 3: reflects a price improvement amounting to $1.00 in the capacity tariff

Table No. 11 Full Container Vessels Category 2: reflects a price improvement amounting to $2.00 in the capacity tariff

Table No. 12 Full Container Vessels Category 1: reflects a price improvement amounting to $3.00 in the capacity tariff

The loyalty program, along with the new tolls proposal, seeks to encourage the retention and the increment of TEU capacity that currently transits the Panama Canal. At the same time, it improves the Panama Canal route´s competitiveness levels for the main trade routes.

To illustrate, if we use the previous example of a vessel with an allowed capacity of 10,000 TEUs transiting with 80 percent utilization, it would pay the following tolls:

• Category 4: $500,000 based on the vessel capacity tariff and $280,000 based on the TEU loaded with cargo tariff, for a total tolls charge of $780,000.

• Category 3: $490,000 based on the vessel capacity tariff and $280,000 based on the TEU loaded with cargo tariff, for a total tolls charge of $770,000.

• Category 2: $480,000 based on the vessel capacity tariff and $280,000 based on the TEU loaded with cargo tariff, for a total tolls charge of $760,000.

• Category 1: $470,000 based on the vessel capacity tariff and $280,000 based on the TEU loaded with cargo tariff, for a total tolls charge of $750,000.

To determine the categories for the loyalty program the customer must provide its customer code, which will be used to assign the TEU capacity for each full container vessel that is to transit the Panama Canal. The total TEU allowance (TTA) per transit cannot be transferred between customers, and will only be assigned to the customer code of the vessel owner, or to the vessel operator, or to the company chartering the vessel transiting the Canal.

2. Reformulation of the dry bulk vessels segment

The most important commodity cargoes moved in bulk carriers through the Panama Canal in the last three years were grains, coal and iron ore. These cargoes are mostly low value raw materials with relatively low levels of industrial processing. The main trade routes for grains, coal and iron ore shipped through the Panama Canal, are the United States Gulf of Mexico to Asia, Colombia to Chile, and Venezuela/Brazil to China, respectively. It is projected that these types of commodity cargoes will be transported in vessels with capacities exceeding 85,000 tons Deadweight (DWT) which is currently the maximum size of bulk carriers transiting the panamax locks at a maximum draft of 12.04 meters (39.5 feet).

It is proposed to establish differentiated toll rates for bulk carriers carrying grains, coal, iron ore and other drybulk cargoes (ODB) in order to improve the value to our customers and encourage the volumes transported through the waterway. Dry bulk vessels transiting the panamax locks will be charged a capacity price based on the ship DWT.

Moreover, drybulk vessels transiting through the neopanamax locks will use a capacity price based on the ship DWT and a cargo price scheme based on the amount of cargo carried in metric tons (MT).

The proposed toll rates will be applicable by DWT bands in a sliding scale that promotes the use of larger vessels, differentiated according to the type of cargo: grain, coal, iron ore and ODB. On the other hand, rates by DWT bands will also apply to vessels transiting in ballast. See table No. 13.

Table No. 13 Dry Bulk vessels

1/ Panamax locks: Length of up to 294 m (965´), beam of up to 32.31 m (106´), draft of up to 12.04 m (39.5´). 2/ Neopanamax locks: Length up to 366 m (1,200´); and/or beam up to 49 m (160´) and/or draft up to 15.24 m. (50’). 3/ DWT: Deadweight tons. 4/ MT: Metric tons.

The toll structure proposal replaces the fixed unit that is the basis for toll assessment from the PC/UMS ton to the Deadweight ton (DWT) which measures the cargo carrying capacity of a ship in terms of metric tons. The DWT ton is well-established within the maritime industry. The toll structure proposal also introduces a variable toll structure for the bulk carriers transiting the Neopanamax locks, based on the cargo tons actually carried by vessel.

Every bulk carrier (ACP vessel codes vessels 03, 10 and 27) carrying cargo types identified in the proposal (grain, coal and iron ore) with volumes greater than fifty percent (50%) of total cargo tons will be levied only with the rates applicable to that cargo type, applied to the totality of cargo transported. If the percentage of the majority cargo is less than or equal to fifty percent (50%), the bulk carrier will be levied according to the rate structure of Other Dry Bulk (ODB). In the case of a dry bulk vessel with 50 percent of one type of cargo and 50 percent of another type of cargo among those specified in this proposal (grains, coal, iron ore or other dry bulk), the tariff applied will be that of the commodity having the highest toll.

To facilitate understanding of rates calculation, we include an example of the resulting tolls for these cases:

• a bulk carrier of 49,000 DWT, with 60 percent (60%) of total cargo in grains and transiting with a draft of 10.9 meters, would pay $128,710 since the rates would apply to the DWT bands under the panamax locks rate system based on the DWT capacity;

• and a 165,000 DWT bulk carrier carrying 139,000 metric tons of coal with a draft of 14.9 meters coal transiting through the neopanamax locks would pay a total of $252,000, since the rates that would apply would the fixed rate based on the DWT capacity ($219,550) plus the variable rate based on the coal cargo in metric tons carried ($32,450).

The tariff for dry bulk vessels transiting in ballast are set at levels which promote the repositioning of large vessels that could take advantage of the neopanamax locks. In addition, there are distinct tariffs applicable to panamax and neopanamax locks.

3. Reformulation of the liquid bulk vessels segment

Currently the liquid bulk segment consists of three segments, each with a specific type of vessel, tankers (petroleum and petroleum products), chemical vessels (chemical products) and gas vessels carrying liquefied petroleum gas (LPG).

The expanded Canal will allow the transit of neopanamax vessels and hence, it is proposed the incorporation to the liquid bulk segment of a new segment of gas vessels carrying liquefied natural gas (LNG). In addition, it is proposed the reformulation of the pricing structures of each of the four segments that comprise the liquid bulk segment as set forth below:

3.1 Reformulation of the tanker vessel segment

The proposed new tolls structure for the tankers segment maintains the PC/UMS unit for the collection of tolls. The tankers transiting the panamax locks will be charged tolls based on their PC/UMS tonnage capacity. The tankers transiting through the neopanamax locks will use a capacity and cargo carried pricing scheme, in which the PC/UMS tonnage is used to collect the capacity portion, whereas the amount of cargo in metric tons (MT) is used to collect the cargo carried, as shown in table No. 14.

Table No. 14

The new proposal includes 2 bands of 10,000 PC/UMS, 1 band of 15,000 PC/UMS, another band of 10,000 PC/UMS and a last band for the rest of the PC/UMS applicable to the capacity charge, while the charge for cargo transported will use 4 bands of 20,000 metric tons and a last band for the remaining cargo.

Meanwhile, the tariff for tankers transiting in ballast applies for both panamax locks and neopanamax locks. The ballast rate intends to encourage the repositioning of large ships that could take advantage of the neopanamax locks, attracting new PC/UMS tonnage to the Panama Canal.

Regarding the chemical tankers whose "Certificate of Class" identifies them as “Chemical/Oil Tanker” or "Chemical/Parcel", they will be asked for the "Certificate of Fitness for the Carriage of Dangerous Chemicals in Bulk" to determine the IMO ship classification "Chemical/Oil Tanker" or "Chemical/Parcel" Vessels classified as IMO type 2 and/or 3 or any combination containing the IMO types 2 and 3 will pay the established tanker tariff (see table No. 14).

To facilitate the understanding of the implementation of the tariff, we include examples of the resulting toll for the following cases:

• A Panamax/LR1 tanker vessel of 33,346 PC/UMS would pay $ 163,728 since the applicable PC/UMS band tariff for the panamax locks would apply.

• An Aframax9 tanker vessel of 46,136 PC/UMS carrying 60,000 metric tons of cargo that transits through the neopanamax locks, would pay a total of $238,892 as it will be applied the fixed tariff by PC/UMS bands for the neopanamax locks ($221,892) and the variable tariff by bands of metric tons of cargo applicable to the total cargo carried ($17,000).

9 Aframax: refers to a vessel that has a deadweight between 80,000 to 120,000 tons.

3.2 Reformulation of the chemical tanker vessel segment

The new tolls proposal for the chemical tanker segment maintains the PC/UMS unit for the collection of tolls, as well as the 2 bands of 10,000 PC/UMS each and another band for the remaining PC/UMS tons as illustrated in table No.15.

Table No. 15

Regarding the categorization of chemical tankers, those vessels whose "Certificate of Class" identifies them as Chemical Tanker will be classified as Chemical Tankers and will pay the established Chemical Tanker tariff (see table No. 15). For chemical tankers whose "Certificate of Class" identifies them as “Chemical/Oil Tanker” or Chemical/"Parcel Tanker", they will be asked for the "Certificate of Fitness for the Carriage of Dangerous Chemicals in Bulk" to determine the IMO ship classification in accordance with the International Bulk Chemical Code (IBC Code), Chapter 2, paragraph 2.1.2 establishing the following:

• The vessels classified as “Chemical/Oil Tankers” and “Chemical/Parcel” whose "Certificate of Fitness for the Carriage of Dangerous Chemicals in Bulk" establishes that they have been classified as IMO 1 type or any combination containing the IMO 1 type will be considered chemical tankers and will pay the tariff established for chemical tankers.

• The vessels classified as “Chemical/Oil Tankers” and “Chemical/Parcel” whose "Certificate of Fitness for the Carriage of Dangerous Chemicals in Bulk " establishes that they have been classified as IMO type 2 and/or 3 or any combination that contains IMO type 2 and /or 3 will pay the established tanker tariff.

3.3 Reformulation of LPG Gas Carrier vessel segment:

The new proposal for the LPG gas carrier vessels segment, introduces a change in the unit of measure used to collect tolls by replacing the PC/UMS tonnage with the cubic meter (m3) of cargo capacity. This new measure is used in the trade and transportation of liquefied gases in bulk such as propane, butane and ethylene.

The new proposal consist of 4 bands that includes the first 5,000 cubic meters (m3) of cargo capacity, the next 20,000 cubic meters (m3) of cargo capacity, the next 30,000 cubic meters (m3) of cargo capacity and a last band for the rest of the cargo capacity, as illustrated in table No. 16. This proposed toll structure applies to the panamax locks and neopanamax locks.

Table No. 16

m3: cubic meter

The ballast rate will apply to LPG gas tankers carrying up to a maximum of two (2) percent of the total cubic meters (m3) of cargo capacity.

To facilitate the understanding of the implementation of the tariff, we include an example of the resulting toll: an LPG gas carrier of 57,618 cubic meters of cargo capacity, laden, would pay $148,212.40 since the laden tariff by bands of cubic meters will be applied.

3.4 Establishment of LNG gas carrier segment

The LNG gas vessel type is created to incorporate gas carrier vessels transporting liquefied natural gas (LNG). The unit of measurement to be used for toll collection of this new type of ship is the cubic meter (m3) of cargo capacity. This unit is commonly used in the maritime industry to measure this particular type of ship, as well as in the trading of LNG, which would make the Canal tariff system easier to understand for this segment.

This toll proposal contemplates the use of 4 bands that includes the first 60,000 cubic meters (m3) of cargo capacity, the next 30,000 cubic meters (m3) of cargo capacity, the next 30,000 cubic meters (m3) of cargo capacity and a last band for the remaining cargo capacity, as illustrated in table No. 17.

Table No. 17

m3: cubic meter

The ballast rate will be applied to the LNG gas carriers transporting up to a maximum of 10 percent (10%) of the total cubic meters (m3) of cargo carrying capacity. In addition, shippers that use the same vessel for a voyage to and return from an specific place through the Panama Canal, will pay the laden tariff for the laden portion of the trip and would be eligible for a roundtrip ballast fee, if the return transit in ballast through the Panama Canal is made within sixty days after the laden transit was completed.

To facilitate the understanding of the implementation of the tariff, we include examples of the resulting toll for the following cases:

• LNG Gas carrier of 173,000 cubic meters capacity, laden, will pay $380,480 since the laden tariff by bands of cubic meters will be applied.

• LNG gas carrier ship of 173,000 cubic meters capacity, in ballast, will pay $334,830 because the ballast tariff by bands of cubic meters will be applied;

• LNG gas carrier of 173,000 cubic meters capacity, round trip, will pay $380,480 for the laden portion, since the laden tariff by bands of cubic meters will be applied and $300,000 for the return in ballast because the roundtrip ballast tariff by bands of cubic meters will be applied, if the transit in ballast through the Panama Canal is made within sixty days after the laden transit was completed.

4. Reformulation of the vehicle carriers and Ro-Ro segment

With the spirit of keeping the communication channels open to cater to the needs of our clients and introduce value-adding initiatives to our offer, the ACP is proposing a new pricing structure in which the charge by size bands is replaced in favor of PC/UMS ton ranges. The PC/UMS ton is maintained as the unit of charge and a new variable is incorporated –the vessel utilization percentage-.

The proposed structure is a matrix table in which the columns show different ranges of PC/UMS capacity of the vessel and the rows show various percentage utilization ranges. In order to determine the toll rate to be applied, the PC/UMS tonnage of a vessel is determined according to the range it falls within the columns of the matrix table and the percentage utilization factor is calculated and identified in the rows of the matrix. The percentage utilization factor is the ratio of the cargo weight in metric tons and the deadweight (TM/DWT) of the vessel. This percentage could be calculated by the ACP based on the vessel’s cargo manifest and the DWT in the capacity plan or any other available source. Refer to table No. 18.

Table No. 18 Proposed Structure and Tariff

Ballast transits are considered to have a utilization of 0.00%

To facilitate the explanation of the proposed structure, the following example is provided:

• A Ro-Ro vessel of 25,000 PC/UMS tons with 45 percent of utilization will be charged $128,750.

• A vehicle carrier of 55,000 PC/UMS tons with 35 percent utilization will be charged $238,700.

5. Reformulation of the passenger vessels segment

The Panama Canal expansion project enhances the value of the route because the neopanamax locks are expected to draw heavy tourist attention. Cruise passengers will be able to appreciate the neopanamax locks from the Expansion Observation Center at Gatun. Another tourist attraction would be the “Biomuseo”-designed by world renowned architect Frank Gehry- located on the banks of the Canal.

In order to continue approaching the value of the route for this segment, the Panama Canal Authority (ACP) proposes a toll increase and a locks differentiated tolls depending on whether panamax or neopanamax locks are utilized, while maintaining the current structure based on berth and PC/UMS tons. It is worth noting that the last toll increase for this segment was in January 2011. Refer to table No. 19.

Table No. 19 Proposed Structure and Tariff

1/ Vessel above 30,000 gross tons (GRT) and whose PC/UMS tonnage divided by the maximum passenger capacity (PAX-ITC) ratio is less than 33, shall pay tolls on a per berth basis. If such a ratio is greater than 33, tolls shall be paid on the basis of PC/UMS tonnage. Vessels below or equal to 30,000 GRT shall also pay on the basis of PC/UMS tonnage. 2/ Panamax locks: for vessels with length up to 294 m (965´), beam up to 32.31 m (106´), draft up to 12.04 m (39.5´). 3/ Neopanamax locks: for vessels with length up to 366 m (1,200´); and/or beam up to 49 m (160´) and/or draft up to 15.24 m (50’).

6. Refrigerated cargo, general cargo, others segments and displacement

The new tolls proposal for the refrigerated cargo, general cargo and others segments is presented in table 20. Tolls will not be differentiated by locks utilized for these segments.

Table No. 20 Structure and Tariffs Proposal

Panamax locks: for vessels with length up to 294 m (965´), beam up to 32.31 m (106´), draft up to 12.04 m (39.5´). Neopanamax locks: for vessels with length up to 366 m (1,200´); and/or beam up to 49 m (160´) and/or draft up to 15.24 m 50’).

On this occasion, the tolls for small vessels (minimum tolls) will not be modified.

7. Intra Maritime Cluster Segment:

The Panama Canal Authority (ACP) proposes to establish a new “Intra Maritime Cluster” market segment with its own pricing structures. This segment will be composed of different vessel types and initially it will contain four distinct pricing structures.

The defining characteristic of this segment is:

• Operates within the local maritime cluster of which also comprises the Canal.

• Supports the activities from the local maritime cluster.

• Does not compete with the international trade that the Canal serves.

• The new segment will be established to serve the container transshipment markets, the local Canal tourism markets and marine bunkering.

• The vessels in this segment must be self-propelled; fully integrated tug/barge vessels will be evaluated on a case-by-case basis by Canal authority.

• To be considered to become part of this segment, the vessel must make a request to the ACP and comply with all the requirements. The ACP is the regulating and approving entity for this segment.

Vessels are not eligible for this segment pricing when they operate outside of the canal centric cluster, for example regionally or internationally. This segment is designed to complement the Canals service of international trade as well as international and local tourism, not in any way compete against it. The goal is to improve the efficiency and opportunities of the Canal’s offering. Canal scheduling as well as other regulatory and financial matters will continue as they currently exist, with the change being limited to the toll structures.

The Canal’s location, hence its utility as a “shortcut”, has always been a significant element in its offering. However, due to changing trade dynamics, many of which are related to economies of scale, certain trades require strong connectivity and enhanced opportunities to further solidify the Canal as the route of choice. The Canal centric Maritime Cluster is a key element in the properties of connectivity and opportunity; hence the Canal’s development of this segment will indirectly bring significant growth potential to the Canal and the Cluster.

7.1 Local tourism market

To qualify for this rate the vessel must be 125 feet length over all or less and would otherwise have fallen into the “minimum tolls based upon their length overall category” and it must be conducting commercial tourism activity and be making repetitive full or partial transits of the Canal. See table No. 21.

Table No. 21

In the case of vessels that are part of the “intra-maritime cluster” in the local tourism market, carrying containers on deck, the applicable charge will be $72 per TEU on deck

7.2 Marine bunkering market

Two structures are proposed, one based on PC/UMS tonnage, and the other applicable to vessels that would otherwise pay minimum tolls. The eligibility requirements for this segment are the following:

• Length overall of up to 125 feet, for those that would pay minimum tolls (see table No. 22)

• For vessels exceeding 125 feet of length overall or whose PC/UMS tonnage is above 583 (laden) and 735 (ballast), the PC/UMS structure will apply. The proposed tariffs will be applied to laden and ballast transits (see table No. 23).

• In the case of a marine bunkering vessel carrying containers on deck, the applicable charge will be $72 per TEU.

Table No. 22 Tariff for minimum tolls

Table No. 23 Tariff for oceangoing vessels

7.3 Container transshipment markets

To qualify for this rate the vessel must be dedicated to intra cluster movement of containers between port complexes10 that are in Canal centric cluster. The Canal is proposing to establish Toll Rates for two different type vessels:

1. Vessels which ordinarily have cell guides to transport containers and would be charged based on the maximum TEU capacity and the actual number of containers with cargo on board.

2. Vessels that would ordinarily be charged based on PC/UMS net tonnage and based on TEU for containers carried on deck.

These two styles will be referred to as “Container Transport – Cell” and “Container Transport – Non Cell”. Generally, these would have a maximum capacity TTA of 500 TEU nominal. Vessels with greater capacity would be evaluated on a case-by-case basis by the ACP; nonetheless, in no case could a vessel exceed 600 TEU nominal of TTA maximum capacity.

The “Container Transport – Cell” vessel will have a structure that is similar to the existing Full Container Vessel structure in that it will have a rate for the vessels capacity and a rate for TEU with Cargo. See table No. 24.

Table No.24

The “Container Transport – Non Cell” vessel will have a structure that is similar to the existing General Cargo Vessel structure in that it will have a rate for the vessels Panama Canal Net Tonnage (PC/UMS) and a rate for TEU above deck. See table No. 25

10 A local port, for the purposes of this proposal, refers to ports that operate adjacent to Canal waters and include but is not limited to, nearby areas such as the Balboa Bay, Cristobal Bay, Manzanillo Bay or other areas comprising the local maritime cluster. Not considered as local ports are those located in areas not related to the local maritime cluster, for example Bahia Las Minas, Charco Azul, Vacamonte, etc.

Table No.25

IV. IMPLEMENTATION

The proposed adjustments will be implemented in such a manner that facilitates the transition, optimizes the changes involved and takes into consideration the complexity of determining a precise date for the commercial opening of the expanded Canal and its neopanamax locks. With this purpose in mind, the proposed adjustments will be implemented according to the following timetable:

• The tolls and structures pertaining to the new “intra-maritime cluster segment” will take effect on April 1, 2015.

• The rest of the proposed adjustments will be effective April 1, 2016; however this does not in any away represent a binding obligation to commence commercial operations in the neopanamax locks on this date.

• Notwithstanding the aforementioned in the previous paragraph, in the event that commercial transits in the neopanamax locks can be made prior to April 1, 2016, the new structures and tolls will be applicable as of the date determined by the ACP Board of Directors, published in the Panama Canal Record; this date would not be earlier than February 1, 2016.

V. IMPACT ANALYSIS

The Authority regularly analyzes the manner in which Canal costs affect total voyage costs of the main routes, vessel types, and commodities. This analysis also considers commodity prices, other elements that are part of maritime transportation costs, and its fluctuations over the last few years and its impact on foreign trade of the main user countries that benefit from the route through Panama. The analysis also takes into account the historical evolution of both traffic and cargo through the Canal. The analysis

also considered the deployment of the existing fleet in the various market segments and the evolution of the order book and vessels new buildings to obtain a glimpse of the trends in the neopanamax vessels fleet.

Furthermore, the proposed tariffs and structures were presented and validated through an informal consultation process with the most important umbrella world maritime organizations that represented the various market segments that use the Panama Canal. This informal consultation began in December 2012 with the first high-level meeting with the World Shipping Council in London, England. At this meeting the first initiatives were discussed and work plans were established for ensuing meetings with sectorial organizations during all of 2013. All the comments and suggestions gathered during this informal consultation were taken into consideration in our analysis in all our market segments and most of them were made part of this proposal.

Impact analyses have been conducted to gauge the effect upon our clients and users of the waterway, taking into consideration the competitive position of the Canal vis-a-vis other transportation routes or modes, the interests of the principal user countries and their merchant fleets, their different geographical areas and regions and their economies. It has been concluded that the proposed adjustments do not affect the competitiveness of the products in their respective markets.

32 This English translation is intended solely for the purpose of facilitating an overall understanding of the content of the original Spanish version. In those cases where differences may be found between the two, the Spanish document must be considered as the authoritative version.

AGREEMENT No. 276 (of December 24, 2014)

"Whereby the proposal to modify the regulations for the admeasurement of vessels for the Panama Canal and the Panama Canal Tolls system is approved"

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

WHEREAS:

In accordance with article 319.2 of the Republic of Panama Political Constitution, and article 18.3 of the Panama Canal Authority Organic Law (No. 19 of June 11, 1997), the Board of Directors must establish the tolls, rates, and fees for the use of the Canal and related services, subject to final approval of the Cabinet Council.

The Panama Canal Authority administration has submitted for consideration by the Board of Directors a proposal to modify the regulations for the admeasurement of vessels for the Panama Canal and the Panama Canal's tolls system.

The proposal submitted contains a justification of the reasons and factors taken into consideration for its formulation, in accordance with the provisions of the Panama Canal Authority Agreements No. 3 of November 12, 1998 and 127 of January 19, 2007 which regulates the Procedure to Revise the Panama Canal Tolls Rates and Rules of Admeasurement; No. 140 of June 21, 2007 and No. 182 of March 23, 2009 which regulates the Rules of Admeasurement of Vessels for the establishment of Tolls for the use of the Panama Canal; and No. 4 of January 7, 1999, No. 58 of August 16, 2002, No. 94 of March 30, 2005, No. 141 of June 21, 2007, No. 220 of November 25, 2010 and No. 269 of October 30, 2014, which regulates the establishment of tolls, rates, and fees for the transit of vessels through the Canal, and the rendering of related services and complimentary activities.

Article 79 of the Organic Law prescribes that the Authority shall give interested parties an opportunity to participate in the consultation processes for the purpose of revising tolls and admeasurement rules by submitting, in writing, data, opinions, or arguments, and participating in a public hearing to be held at least 30 days after the date of publication of a notice in the official publication of the Authority in which said hearing is called.

ANNEX A 33 The Board of Directors of the Panama Canal Authority is in agreement with the contents of the proposal, and considers that it should be processed appropriately, pursuant to the applicable law and regulations.

AGREES:

ARTICLE ONE: To approve the proposal submitted by the Panama Canal Authority’s administration to modify the Panama Canal's tolls system and the rules of admeasurement.

ARTICLE TWO: To order the initiation of the consultation and public hearing process established by the Organic Law, through publication in the Canal Record of the notification of the proposal, in accordance with the Annex of this Agreement.

ARTICLE THREE: To appoint the following Directors as members and officers of the Board Committee that shall conduct the consultation and public hearing process:

José A. Sosa A. Chairman Ricardo de la Espriella T. Vice chairman Guillermo O. Chapman, Jr.

ARTICLE FOUR: Mr. Jorge L. Quijano, Administrator, Panama Canal Authority, shall act as Secretary of the Committee.

ARTICLE FIVE: This Agreement will take effect as of the date of its publication in the Panama Canal Record.

AUTHORITY: Article 319.2 of the Republic of Panama Political Constitution; articles 9, 18, and 79 of Law 19 of June 11, 1997, Panama Canal Authority Organic Law; and Panama Canal Agreements Nos. 3, 4, 58, 94, 127, 140, 141, 182, 220 and 269 issued by the Panama Canal Authority Board of Directors.

Given in the City of Panama, Republic of Panama, on the twenty fourth (24) of December, two thousand and fourteen (2014).

TO BE PUBLISHED AND ENFORCED.

Roberto R. Roy Rossana Calvosa de Fábrega

______Chairman of the Board of Directors Secretary

ANNEX A 34 This English translation is intended solely for the purpose of facilitating an overall understanding of the content of the original Spanish version. In those cases where differences may be found between the two, the Spanish document must be considered as the authoritative version.

PROPOSAL TO MODIFY THE REGULATIONS FOR THE ADMEASUREMENT OF VESSELS FOR THE PANAMA CANAL AND THE PANAMA CANAL TOLLS SYSTEM

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

ANNOUNCES:

1. PROPOSAL TO MODIFY REGULATIONS FOR THE ADMEASUREMENT OF VESSELS FOR THE PANAMA CANAL AND THE PANAMA CANAL TOLLS SYSTEM

During an extraordinary session, the Board of Directors of the Panama Canal Authority approved the Agreement No. 276 of December 24, 2014, whereby the proposal to modify the regulations for the admeasurement of vessels for the Panama Canal and the Panama Canal tolls system is approved, the initiation of the consultation and public hearing process established by law is ordered, the members of the Panama Canal Authority Board of Directors’ Committee that shall conduct the public consultation and hearing are designated, and the Secretary of the Committee is appointed. This Agreement, which is an integral part of the proposal to modify the regulations for the admeasurement of vessels for the Panama Canal and the Panama Canal tolls system, will be available to the interested parties as of the date of this publication.

2. ESSENCE OF THE PROPOSED CHANGE

The Panama Canal Authority proposes modifications to the regulations for the admeasurement of vessels for the Panama Canal and the Panama Canal tolls system by market segment.

2.1. The Panama Canal Authority proposes to modify the regulations for the admeasurement of vessels for the Panama Canal as follows:

2.1.1. Modifications to the regulations for the admeasurement of vessels consider the parameters that are subject to measurement in regards to the toll proposal. For this matter, it is proposed to adjust some existing parameters and to include new ones in order to enable and facilitate compliance with the requirements

ANNEX A 35 of the units of measurements that are used in the proposal. Furthermore, it is proposed that new articles be incorporated to the regulations to consider new document requirements from vessel owners or shipping agents, as well as specific procedures for the calculation of the units of measurement that support the implementation of the tolls proposal.

2.1.2. This proposal includes charging parameters already in place such as PC/UMS, berth and TEU, as well as new capacity charging parameters like deadweight ton (DWT applied to the dry bulk and vehicle carrier/Ro-Ro segments) and cubic meter (m3 applied to gas carrier segments like LPG and LNG). In addition, a new charging parameter is proposed for cargo on board, in metric tons (MT) applied to those segments that use cargo carried on board as a parameter to calculate tolls. Wording modifications to the regulations for the admeasurement of vessels include and define new units for charging vessels, including, but are not limited to deadweight tons (DWT), metric tons (MT), and cubic meters (m3). The proposed provisions of this article are expanded to include, in addition to the volume, the new basis for the charging of toll. Likewise, the proposed provisions of these regulations are intended to replace existing concepts with the ones needed to support the tolls proposal.

2.1.3. Wording modifications in certain regulations of the admeasurement rules related to passenger vessels whereby the terms “passengers” is replaced by “berths” to improve definitions, adding more detail. This change seeks to strengthen the concept and the transparency of the charge by berth in this segment.

2.1.4. Modifications of an administrative nature with the purpose of improving the efficiency of the Canal by establishing more precise definitions of its terms and processes, and which involve no financial impact. In addition, other modifications would reflect deletions of terms and concepts that are no longer applicable in the context of the new toll proposal, as well as some spelling corrections (capital letters, plural/singular, etc.)

2.2. The modifications of the Panama Canal tolls by market segment (see enclosed tables), take into consideration the effect upon our clients and users, the competitive position of the Canal vis-a-vis other transportation routes or modes, the interests of the principal user countries and their merchant fleets, their different geographical areas and regions and their economies. It has been concluded that the proposed adjustments do not affect the competitiveness of the products in their respective markets.

ANNEX A 36 2.2.1 Reformulation for full container vessels

Loyalty program for full container vessels (proposal for 2016)

The loyalty program’s aim is to encourage TEU capacity volumes in full container vessels transiting the Panama Canal by applying a preferential tariff system. To determine the customer category, the cumulative TEU volume of total TEU allowance (TTA) transited by a customer through the Panama Canal during a maximum period of 12 consecutive months is used, starting from the approval date of the Panama’s Cabinet Council.

Four loyalty categories are established, based on the volumes of TEU volumes of total TEU allowance (TTA) capacity set by the customer. The four categories are as follows:

o Category 4: Applies to all customers with a registered TEU capacity volume from 0 to 450,000.

o Category 3: Applies to all customers with a registered TEU capacity volume from 450,001 to 999,999.

o Category 2: Applies to all customers with a registered TEU capacity volume from 1,000,000 to 1,499,999.

o Category 1: Applies to all customers with a registered TEU capacity volume of 1,500,000 or more.

ANNEX A 37 Category 4: Regular Tariff: no variation

Category 3: reflects a price improvement amounting to $1.00 in the capacity tariff

ANNEX A 38 Category 2: reflects a price improvement amounting to $2.00 in the capacity tariff

Category 1: reflects a price improvement amounting to $3.00 in the capacity tariff

ANNEX A 39 IMPORTANT: For the following segments, those that are not full container vessels and are not part of the “intra-maritime cluster”, but carry containers (TEU) on deck, will be charged $90 per TEU on deck.

2.2.2 Reformulation of dry bulk vessels

2.2.3. Reformulation of tanker vessels

ANNEX A 40 2.2.4 Reformulation of the chemical tanker vessel segment

2.2.5 Reformulation of LPG gas carrier vessel segment

m3: cubic meter.

The ballast rate will apply to LPG gas tankers carrying up to a maximum of two (2) percent of the total cubic meters (m3) of cargo capacity.

2.2.6. Establishment of LNG gas carrier vessels segment

m3: cubic meter.

The ballast rate will be applied to the LNG gas carriers transporting up to a maximum of ten (10%) percent of the total cubic meters (m3) of cargo carrying capacity. In addition, shippers that use the same vessel for a voyage to and return from an specific place through the Panama Canal, will pay the laden tariff for the laden portion of the trip and would be eligible for a roundtrip ballast fee, if the return transit in ballast through the Panama Canal is made within sixty days after the laden transit was completed.

ANNEX A 41 2.2.7. Reformulation of vehicle carriers and Ro-Ro segment

Ballast transits are considered to have a utilization of 0%.

2.2.8. Reformulation of passenger vessels

ANNEX A 42 2.2.9. Refrigerated cargo, general cargo, others segments and displacement

2.2.10. On this occasion, the tolls for small vessels (minimum tolls) will not be modified.

2.2.11. Intra Maritime Cluster Segment (new)

2.2.11.1 Local tourism market

ANNEX A 43 2.2.11.2 Marine bunkering market

For minimum toll vessels

For oceangoing vessels

2.2.11.3. Container transshipment markets

Container transshipment markets – with fixed cell guides

ANNEX A 44 Container transshipment markets – without cell guides

In the case of vessels that are part of the “intra-maritime cluster” carrying containers on deck, the applicable charge will be $72 per TEU on deck, with the exception of the segment of container transshipment markets – with fixed cell guides that will pay $48 for total TEU allowed (TEU capacity) and $24 for loaded containers on board (TEU loaded).

3. IMPLEMENTATION OF PROPOSED CHANGES

3.1 The tolls and structures pertaining to the new “intra-maritime cluster segment” will take effect on April 1, 2015.

3.2. The rest of the proposed adjustments will be effective April 1, 2016; however this does not in any away represent a binding obligation to commence commercial operations in the neopanamax locks on this date.

3.3. Notwithstanding the aforementioned in the previous paragraph, in the event that commercial transits in the neopanamax locks can be made prior to April 1, 2016, the new structures and tolls will be applicable as of the date determined by the ACP Board of Directors, published in the Panama Canal Record; this date would not be earlier than February 1, 2016.

ANNEX A 45 4. INVITATION TO PARTICIPATE IN THE PUBLIC CONSULTATION AND HEARING

Interested parties are invited to participate in the consultation and public hearing of the proposal to modify the regulations for the admeasurement of vessels for the Panama Canal and the Panama Canal tolls system. The following dates are established:

4.1 Public Consultation: There will be a public consultation period that begins on the date of this publication and expires on February 9, 2015, at 4:15 p.m., local time.

4.2 Public Hearing: A public hearing will be held on February 27, 2015, in the place indicated in paragraph 7.

5 FORM OF PARTICIPATION OF THE INTERESTED PARTIES

The interested parties may participate in the consultation and public hearing in accordance with the following rules:

5.1 As of the publication date of this notification, the consultation period is open, and the interested parties may present data, opinions, or statements in writing, in English or Spanish, which must be received by the Panama Canal Authority with a deadline of February 9, 2015, at 4:15 p.m., local time.

5.2 All who have participated in the consultation process described above in paragraph 4.1 may participate in the public hearing, to be held on the date indicated in paragraph 4.2, directly or through their duly accredited representatives, provided that they have announced in writing, during the consultation period, their intent to participate in the hearing. This notification must be sent to the addresses indicated in paragraph 6.4 of this document, and shall contain the name and address of the interested party and the capacity under which he/she shall present himself/herself. The announcement of participation in the public hearing must be received in writing, in English or Spanish, no later than February 9, 2015 at 4:15 p.m., local time, and the recorded date and time of receipt of the notification shall determine the order in which the interested party shall participate in the public hearing.

6. REQUEST AND FORWARDING OF INFORMATION

6.1. Persons interested may access an electronic copy of proposal, both in Spanish and English, in the Panama Canal Authority website (www.micanaldepanama.com – Spanish; www.pancanal.com - English), or request a copy in person from the Executive Vice Presidency for Planning and Business Development, located in the Canal Administration Building, Balboa, or by fax at (507) 272-7377 or (507) 272-1416, or by mail, to any of the addresses indicated in paragraph 6.4.

ANNEX A 46 6.2. Those interested in expressing their comments, opinions, information, or arguments during the consultation period, shall submit them in writing, in English or Spanish, in person, by facsimile, or by sending them via courier or mail before the date indicated in paragraph 4.1 of this document. No communications shall be accepted by electronic mail.

6.3. Those interested in participating in the public hearing must announce their interest in writing, in English or Spanish, in person, by facsimile, or by sending them via courier or mail before the date indicated in paragraph 4.1 of this document. No communications shall be accepted by electronic mail.

Likewise, a printed copy of their presentation contents is required before attendance to the hearing, if possible.

6.4. Addresses to send the above-mentioned documentation:

Personal or via Courier in Panamá:

Autoridad del Canal de Panamá PROPUESTA DE MODIFICACIÓN DE LOS PEAJES Y LAS REGLAS DE ARQUEO DEL CANAL DE PANAMÁ Edificio de la Administración – Oficina 320 Vicepresidencia Ejecutiva de Planificación y Desarrollo Comercial Sección de Administración de Relaciones Estratégicas (MERC) Balboa, Ancón, República de Panamá

By mail in the United States of America:

Panama Canal Authority PROPOSAL TO MODIFY THE REGULATIONS FOR THE ADMEASUREMENT OF VESSELS AND THE PANAMA CANAL TOLLS SYSTEM Executive Vice Presidency for Planning and Business Development Strategic Relations Management Section (MERC) P.O. BOX 526725 Miami, FL 33152-6725 United States of America

By Facsimile to:

(507) 272-7377 (507) 272-1416

ANNEX A 47 7. PLACE AND TIME OF THE PUBLIC HEARING

The public hearing shall be held in the “Ascanio Arosemena” complex, Balboa, Republic of Panama, and shall begin at 9:00 a.m., local time.

8. PUBLIC HEARING PROCEDURE

A Committee of members of the Panama Canal Authority Board of Directors has been designated to conduct the public consultation and hearing:

José A. Sosa A. Chairman Ricardo de la Espriella T. Vice chairman Guillermo O. Chapman, Jr.

Jorge L. Quijano, Administrator of the Panama Canal Authority, shall act as Secretary of the Committee.

8.1. The Committee shall examine all the information that has been properly and timely presented, relative to the comments, data, and information provided by the interested parties during the consultation period.

8.2. The Committee shall commence the public hearing in the established place, and on the established date and time. The President of the Committee shall inform the participants that the purpose of the hearing is to hear the arguments in favor or against the proposal.

8.3. The President of the Committee shall announce the order of each participant’s presentation, in accordance with the provisions of paragraph 5.2 of this document, and each one shall begin his/her presentation in that order.

8.4. Participants in the public hearing shall be called upon individually to make their statement and express their points of view on the proposal, for a maximum of five (5) minutes. The Committee shall analyze and decide on the appropriateness of extending this period of time as they deem convenient, on a case-by-case basis, and shall inform the participants of their decision. Presentations with visual aids, slides, “power point” or any other devices, shall not be allowed.

8.5. The purpose of individual participation is merely expository; therefore, no debates or questions and answers shall be admitted between the members of the Committee and the participants, or between participants.

8.6. The members of the Committee shall receive the testimony or statements of the interested parties in relation to the proposed modification.

ANNEX A 48 8.7. After the public hearing, the Committee shall analyze the documentation presented, and the presentations of the participants, and shall submit a report to the Board of Directors, within a reasonable time, of the proceedings and the pertinent recommendations.

PANAMA, REPUBLIC OF PANAMA, JANUARY FIVE (5), TWO THOUSAND AND FIFTEEN (2015).

ANNEX A 49 ANNEX B – LEGAL REFERENCES

The legal instrument that governs the establishment of Panama Canal tolls and rules of admeasurement derives from Title XIV of the Political Constitution of the Republic of Panama, the Neutrality Treaty, and the Organic Law of the Panama Canal Authority (Law No. 19 of June 11, 1997), and its Regulations issued by the Panama Canal Authority Board of Directors.

Political Constitution of the Republic of Panama Title XIV

Article 319. The board of directors shall have the following powers and duties, without prejudice to any other as determined by the Constitution and the Law: ... 2. Set tolls, charges, and fees for the use of the Canal and its related services, subject to final approval by the Cabinet Council. ...

Article 321. The Panama Canal Authority shall make annual payments to the Panama National Treasury per Panama Canal net ton or its equivalent, from the monies collected from vessels transiting the Panama Canal, which are subject to the payment of tolls. The rates for these payments shall be set by the Panama Canal Authority, and shall not be less than those paid to the Republic of Panama for the same concept on December 31, 1999. By reason of their transit through the Panama Canal, vessels, their cargo, passengers, owners or operators, or their operation, as well as the Panama Canal Authority may not be subject to any other national or municipal tax.

Neutrality Treaty

The treaty pertaining to the Permanent Neutrality of the Canal and the Operation of the Panama Canal, establishes in its article III, numeral 1, point c, that tolls and others charges for transit and ancillary services will be fair, reasonable and equitable and consistent with the principles of International Law.

ANNEX B 50

Law No. 19 of June 11, 1997 "Whereby the Panama Canal Authority is Organized"

Article 9. The Authority shall set the tolls to be charged for use of the Canal, fees, and rates for services rendered, as well as the rules for the admeasurement of ships which will be in force in the Canal, in accordance with the National Constitution, this Law, and the Regulations.

Article 18. In addition to the authority assigned by the National Constitution, the Board of Directors shall exercise the following functions: … 2. Determine, upon previous consultation with the Administrator, the vessel admeasurement system to be used by the Canal.

3. Set the tolls, rates, and fees for use of the Canal and related services, subject to final approval of the Cabinet Council. … 5. Approve, pursuant to the authority granted by the pertinent general provisions established in this Law, the necessary or appropriate regulations for the proper operation, and modernization of the Canal, including the following: … k. Regulations to set tolls, rates, and fees charged by the Authority and its concessionaires for the transit of vessels through the Canal, and the rendering of related services. … Article 21. The Chairman of the Board of Directors shall exercise the following functions: … 5. Submit and justify to the Cabinet Council the revision of tolls, fees, and rates charged by the Authority and its concessionaires for the rendering of services. In these instances he shall be accompanied by the Administrator, who shall have a right to be heard. …

Article 25. The Administrator shall have the following functions and duties: … 6. Draft the regulations for the proper operation and adequate modernization of the Canal and submit them for consideration and approval by the Board of Directors. … 10. Reply to any inquiry made by the Board of Directors regarding the setting of tolls, fees, and rates for Canal transit and related services rendered by the Authority.

Article 39. The Authority shall pay annually to the National Treasury fees per Panama Canal net ton, or its equivalent, collected from ships transiting the Canal, subject to the payment of tolls. These fees, as well as others it must pay, shall be set by the Authority and may not be less than those the Republic of Panama must receive for the same items as of December 31, 1999.

ANNEX B 51

Article 75. Tolls shall be set at rates estimated to cover the costs of operation and modernization of the Canal, and will include at least: 1. The costs of operating the Canal, including depreciation costs, support for water resources protection, working capital, and the required reserves. 2. Payments to the National Treasury, as stipulated in the National Constitution and this Law, estimated according to the bases established in the regulation for this purpose. 3. Capital for plant replacement, expansion, improvements, and modernization of the Canal. 4. Interest on the assessed value of the Canal. 5. Losses carried over from previous years.

The tolls and rates established by the Authority shall take into consideration the conditions of safe, uninterrupted, efficient, competitive, and profitable Canal service.

Article 76. Neither the Government nor the Authority may authorize exemption from the payment of tolls, fees, or tariffs for Canal services. Notwithstanding, vessels exempted by virtue of international treaties in effect, ratified by the Republic of Panama, shall not pay tolls for transiting the Canal.

Article 77. All Canal users subject to tolls, fees, and tariffs shall make the payment in cash, in the legal currency of the Republic of Panama or the currency established by the Authority before the service requested is rendered, in an amount equivalent to the cost of the service.

The above-mentioned payment may be substituted by a surety posted by a bank that meets the requirements of the Authority for such purpose.

Article 78. The Authority may require, as a previous condition for transit, that vessels clearly establish the financial responsibility and guarantees for payment of a reasonable and adequate amount, consistent with the rules of international practice, to cover any damages that may result from their transit through the Canal.

In the case of a government-owned or government-operated vessel, or for which the government of a country has accepted responsibility, it shall suffice to guarantee such financial responsibility by means of a certification by the respective country stating that it shall comply with its obligations, in accordance with International Law, to pay any damages arising from actions or omissions of such ships during their passage through the Canal.

The exception set forth in the previous paragraph will not be applicable when the vessel, property of a State or operated by the same, is engaged in maritime trade.

Article 79. The Authority shall give interested parties an opportunity to participate in the consultation processes for the purpose of revising tolls and admeasurement rules by submitting, in writing, data, opinions, or arguments, and participating in a public hearing to be held at least 30 days after the date of publication of a notice in the official publication of the Authority in which said hearing is called. ANNEX B 52

Article 80. The fees and rates established for the rendering of other services will take into consideration at least the corresponding cost of such services, as determined by the Regulations.

Article 124. The Authority shall publish an official bulletin to announce the measures it has adopted. It shall include: 1. The Regulations. 2. The changes suggested for the tolls rates or the admeasurement system referenced in Article 9 of this Law.

Regulation on the Procedure to revise the Panama Canal Tolls Rate and Admeasurement Rules (Agreement No. 3 of November 12, 1998, modified by Agreement No. 127 of January 19, 2007)

AGREEMENT No. 3 (of November 12, 1998)

“Whereby the Regulation on the Procedure to Revise the Panama Canal Tolls Rate and Admeasurement Rules is approved”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

WHEREAS:

In accordance with article 18.3 of the Canal Authority Organic Law, one of the functions of the Board of Directors is to establish tolls for the use of the Canal, with the approval of the Cabinet Council;

Article 79 of the aforementioned law prescribes that any revision of the tolls rate or of the admeasurement rules must be subject to a previous consultation and public hearing process, to afford the interested parties an opportunity to participate and to express their opinions and arguments on the subject;

We have received from the Administrator of the Authority the proposed regulation of the procedure to revise the Panama Canal admeasurement rules and tolls rate.

RESOLVES:

ARTICLE: To approve the following regulation on the procedure to revise the Panama Canal tolls rate and admeasurement rules:

“REGULATION ON THE PROCEDURE TO REVISE THE PANAMA CANAL TOLLS RATE AND ADMEASUREMENT RULES”

ANNEX B 53

Article 1. Modifications to the Panama Canal admeasurement rules and the tolls rate shall be subject to a previous consultation and public hearing process, pursuant to this regulation.

Article 2. The proposal to revise [the tolls rate and the admeasurement rules] shall be opened to public consultation, and all interested parties may participate. Any proposal must be explained, with the inclusion of all the factors that would have been object of the revision by the Authority, for the effects of its issuance.

Article 3. The Authority shall make an official announcement of the proposal by means of its publication in the Panama Canal Register, with at least thirty (30) days in anticipation of the date of the public hearing.

Article 4. This Announcement shall contain: 1. The essence of the proposed change; 2. The date, place and procedures for receiving information and opinions, and participation in the hearing; 3. The date in which the interested parties must submit their notice of attendance to the public hearing.

Article 5. Following publication of the announcement, the Authority shall make available to the public the explained proposal referred to in Article 2 of this regulation.

Article 6. The Board of Directors shall designate a minimum of three of its members to form part of the Committee that shall conduct the process of consultation and hearings, and shall appoint one of its members to chair this Committee.

Article 7. The Committee shall apply this regulation, and its functions shall include the following: 1. Conduct the process of consultation and hearings; 2. Request or receive opinions, presentations or additional information; 3. Decide on procedural or similar matters; 4. Dispense with any irrelevant, immaterial, or excessively repetitive material expounded by the parties; 5. Dispense with any participant whose behavior interferes with the process of the hearing.

The Committee should submit to the Board of Directors the complete file of its activities, with the pertinent recommendation.

Article 8. The interested parties shall have the opportunity to participate in the process of the admeasurement rules and tolls rate revision by submitting information, opinions, or statements in writing to the Chairman of the Committee, within the time limits established in the announcement.

The opinions, information and oral expositions that this regulation refers to may be in Spanish or English.

ANNEX B 54

Article 9. The interested parties that have participated in the process of consultation shall also have the opportunity to participate in the public hearing. The hearing shall be held on the date and place prescribed by the announcement, and the parties in attendance may present additional information in writing on any material they have already incorporated, as well as make any statements or oral presentations concerning the admeasurement rules or the tolls rate, as appropriate.

Article 10. The hearing may be attended by the interested parties in person or by their representatives. They must give notice of their attendance in writing to the Chairman of the Committee within the time limits prescribed in the announcement of the hearing, and they must include the following information:

1. The names and addresses of the parties, and the condition under which they attend. 2. The place where they wish to make their presentation, if the hearings are scheduled to be held in more than one place.

Article 11. After considering the Committee’s conclusions and recommendations, the Authority shall analyze the proposed admeasurement rules or tolls rate, as appropriate. However, in the case of tolls, if the rates proposed during the analysis are higher than the original proposal, the process shall be repeated. This requirement shall apply to any subsequent revision in which higher rates than those contemplated in the previous proposal are proposed.

Article 12. Any interested party may have access to the transcript of the presentations made in the hearing, provided they submit previous request thereto, and pay the costs established by the Authority.

Article 13. Changes to the tolls rate and admeasurement rules shall become effective on the date determined by the Board of Directors.”

Given in Panama, on November twelve, nineteen hundred and ninety-eight.

TO BE PUBLISHED AND ENFORCED.

Jorge E. Ritter Tomás Paredes ______Minister for Canal Affairs Secretary Ad Hoc

ANNEX B 55

AGREEMENT No. 127 (of January 19, 2007)

“Whereby the Regulation on the Procedure to Revise the Panama Canal Tolls Rates and Rules of Admeasurement is amended”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY WHEREAS:

Article 18, item 3, of the Organic Law empowers the Panama Canal Board of Directors to set tolls, rates, and fees for use of the Canal, subject to final approval by the Cabinet Council.

Article 79 of the aforementioned law prescribes that any revision of the tolls rates or admeasurement rules must be subject to a previous consultation and public hearing process, to the afford interested parties an opportunity to participate and to express their opinions and arguments on the subject.

That by means Agreement No. 3 of November 12, 1998, the Board of Directors approved the Regulation on the Procedure to Revise the Panama Canal Tolls Rates and Rules of Admeasurement.

The regulation contains no special rules in the case of proposals to revise tolls rates to be implemented in several phases or several years, whereby the addition of a pertinent rule to the aforementioned regulation is necessary in order to include this subject.

We have received from the Administrator of the Authority the proposal to modify the Regulation on the Procedure to Revise the Panama Canal Tolls Rates and Rules of Admeasurement

AGREES:

SOLE ARTICLE. Adds Article 11ª to the Regulation on the Procedure to Revise the Panama Canal Tolls Rates and Rules of Admeasurement, to read as follows:

“Article 11a. Notwithstanding the dispositions of Article 11, in the case of proposals to revise tolls rates to be implemented in several phases or several years, and the Authority, considering the issues raised by participants during the hearing, considers pertinent of modify its original proposals, shall proceed to make the corresponding adjustments and grant and additional consultation period of no less than 15 calendar days starting on the date of publication of the modified proposal in the Canal Register, to afford the interested parties an opportunity to submit to the Authority, in writing, data, opinions, information, or arguments, regarding said proposal.”

ARTÍCLE TWO: This agreement shall take effect upon its publication in the Canal Register.

Given in the City of Panama on the nineteenth day of the month of January of the year two thousand seven.

TO BE PUBLISHED AND ENFORCED. ANNEX B 56

Ricaurte Vásquez M. Diógenes de la Rosa

Chairman of the Board of Directors Secretary

ANNEX B 57

Regulation for the Admeasurement of Vessels to Assess Tolls for Use of the Panama Canal (Agreements No. 140 of June 21, 2007, modified by means of Agreement No. 182 of March 23, 2009)

AGREEMENT No. 140 (of June 21, 2007)

“Whereby the Regulation for the Admeasurement of Vessels to Assess Tolls for Use of the Panama Canal is modified and subrogated”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY WHEREAS:

In accordance with article 18.5 (e) of the Panama Canal Authority Organic Law, the Board of Directors is responsible for approving the regulations regarding the admeasurement and inspection of vessels, Canal navigation, marine traffic control, vessel pilotage, and other matters relative to Canal navigation.

Pursuant to that Authority, the Board of Directors approved the regulation for the admeasurement of vessels to assess tolls for use of the Panama Canal under Agreement No. 2 of September 3, 1998.

After complying with the legal and regulatory requirements, the Board of Directors approved Agreement No. 132 on April 24, 2007 whereby the rules of admeasurement and tolls of the Panama Canal Authority are modified.

In that Agreement, the new regime required adjustments or modifications to the regulation for the admeasurement of vessels to assess tolls for use of the Panama Canal.

A draft regulation containing the modifications to subrogate Agreement No. 2 of September 3, 1998 and to adopt a new regulation has been submitted to the Board of Directors by the Canal Administrator.

AGREES:

ARTICLE ONE: The regulation for the admeasurement of vessels to assess tolls for use of the Panama Canal is hereby modified and subrogated as follows:

“REGULATION FOR THE ADMEASUREMENT OF VESSELS TO ASSESS TOLLS FOR USE OF THE PANAMA CANAL

Chapter I

General Standards and Definitions

ANNEX B 58

Article 1: This regulation establishes the procedures and rules for the admeasurement of vessels, to assess the tolls to be charged by the Panama Canal Authority for the use of the Panama Canal, pursuant to its Organic Law.

Article 2: The words, expressions and acronyms used in this regulation shall have the following definitions:

Appendix. Complementary rules for the determination of the Panama Canal Universal Measurement System (PC/UMS) Net Tonnage, which is an integral part of this regulation.

Vessels with the capacity to carry containers above the upper deck. A vessel that is not classified as a full container vessel, but has the capacity to transport containers above the upper deck. The Authority shall determine whether a vessel belongs in this category, taking into account the information provided by the ship.

Warship. Any government-owned vessel used by its owners for military purposes, including armed coast guard vessels and naval training vessels. Auxiliary vessels such as tankers, ammunition vessels, refrigerated vessels, repair vessels, tenders, or vessels used to transport general military supplies, are excluded from this definition.

Passenger vessel. Vessels that principally transport passengers, and runs on fixed published schedules. Normally, this type of vessel is provided with accommodations for more than (12) passengers. Only those specifically designed for passenger transport will be eligible for the application of per berth tolls charge. Those passenger vessels that also carry other types of cargo will continue to be charged on the actual toll basis (PC/UMS tonnage).

Full Container Vessel. A vessel specifically designed or converted to transport containers above the upper deck and that has permanently affixed cellular guides in its holds. The Authority shall determine whether a vessel belongs in this category, taking into account the information provided by the ship.

Fully Loaded Draft. The maximum permissible depth (in meters) to which the vessel’s hull may be immersed when fully loaded.

This definition only applies to vessels that pay tolls based on displacement.

International Tonnage Certificate, 1969 (ITC 69). International Tonnage Certificate issued in accordance with the 1969 International Convention on Tonnage Measurement of Ships.

Upper Deck. The uppermost complete deck exposed to weather and sea, which has permanent means of weathertight closing of all openings in the weather part thereof, and below which all openings on the sides of the vessel are fitted with permanent means of watertight closing. In a vessel having a stepped upper deck, the lowest line of the exposed deck and the continuation of that line parallel to the upper part of the deck is taken as the upper deck.

Fully Loaded Displacement. The weight of the vessel in metric tons fully loaded with all ANNEX B 59

stores, cargo, water, fuel, ammunitions, the weight of officers and crew members as well as passengers, if any, and their belongings.

This definition only applies to vessels that pay tolls based on displacement.

Enclosed spaces. Those bounded by the vessel’s hull, by fixed or portable partitions or bulkheads, by decks or coverings other than permanent or movable awnings. No break in a deck, nor any opening on the vessel’s hull, in a deck or in a covering of a space, or in the partitions or bulkheads of a space, nor the absence of a partition or bulkhead, shall preclude a space from being included in the enclosed space.

Excluded spaces. Notwithstanding the definition of enclosed spaces, the spaces referred to in part C of Appendix, which are not included in the volume of the enclosed spaces. However, they shall be considered enclosed spaces when they meet any of the conditions stated in the first paragraph of the aforementioned Part.

Weathertight. Water does not penetrate in the vessel, regardless of the condition of the sea.

Watertight. Capable of preventing the passage of water through the structure or closure in any direction under a head of water for which the surrounding structure is designed.

Berth. The shelf-like space allotted to a passenger as a sleeping accommodation. The number of berths will be determined in accordance with items (g), (h), and (i) in part E of the Appendix.

Breadth or molded breadth (MB). The maximum breadth of the vessel, measured amidships to the molded line of the frame in a vessel with a metal shell, and to the outer surface of the hull in a vessel with a shell of any other material.

Number of TEU carried during a transit (NTT). Is the product of combining the various sizes of containers carried in open spaces above the upper deck of vessels that are not full container vessels, but have the capacity to carry containers above the upper deck, maximizing the volumetric space, expressing such volume in TEU units according to the conversion table in Article 10. The Authority reserves the right to verify the NTT to ensure that this data complies with the degree of accuracy required by the Authority.

Passenger. Every person on board, other than the master, members of the crew or other persons employed or engaged in any capacity on board on the business of that vessel, and children under one year of age.

Molded Depth (D). The vertical distance measured from the top of the keel to the underside of the upper deck at side, with the variations described in part A of the Appendix of this regulation.

Universal Measurement System (UMS). The set of rules, measurements and calculations applicable for determining the gross and net tonnage, adopted in accordance with the 1969 ANNEX B 60

International Convention on Tonnage Measurement of Vessels.

Panama Canal Universal Measurement System (PC/UMS). The system based on the Universal Measurement System, 1969, using its parameters for determining the total volume of a vessel with the additional variations established by the Authority.

TEU (20-foot Container). A unit of measurement or reference equivalent to a 20-foot container whose external length, width, and height measurements are 20, 8, and 8.5 feet, respectively. A TEU represents a volume equal to 1,360 cubic feet.

TEU allowance below deck. The total container capacity in TEU that a full container vessel is able to carry in enclosed spaces, including those that may be transported in enclosed spaces above the upper deck. This capacity is determined by using the combination of the various sizes of the containers that maximize the volume of the space, expressing that volume in TEU units.

TEU allowance above deck. The total container capacity in TEU that a vessel is able to carry in open spaces above the upper deck, not including those containers that may be carried in enclosed spaces above said deck. This capacity is determined by using the combination of the various sizes of the containers that maximize the volume of the space, expressing that volume in TEU units, which shall be adjusted to compensate for the visibility restriction of the Authority.

For vessels with the capacity to carry containers above the upper deck, the TEU allowance above deck shall be calculated for purposes of administrative managing of the transit reservation system.

Total TEU allowance. Is the sum of total allowable containers a vessel may carry in enclosed spaces below and above the upper deck (TEU allowance below deck) plus the total allowable containers that a vessel may carry above the upper deck (TEU allowance above deck).

Total volume (V). The enclosed space of the vessel, expressed in cubic meters.

Article 3: The following shall be subject to measurement: 1. The enclosed space below the upper deck 2. The enclosed spaces above the upper deck, and 3. The maximum capacity of the vessel to carry containers below and above the upper deck.

Article 4: The Administrator of the Authority shall interpret and apply the rules of admeasurement established by this regulation.

ANNEX B 61

Chapter II Determination of Net PC/UMS Tonnage and Total TEU allowance

First Section Requirements

Article 5: For the purpose of admeasurement, the vessels transiting the Canal shall present the ITC 69 or a substitute document deemed acceptable by the Authority, based on a system substantially similar to the one adopted by the aforementioned agreement. In addition, these same vessels shall provide plans, classification certificates and documents with information stating the total volume of the vessel or sufficient information to determine this volume through mathematical calculations.

For passenger vessels, in addition to the documents required in the previous paragraph, they shall also present the Passenger Ship Safety Certificate.

Warships, dredges, floating drydocks, vessels qualifying for minimum fixed fees based either on length overall or their corresponding PC/UMS Net, and vessels subject to the transitional relief measures referred to in Article 11 of this regulation, are exempted from the requirements of presenting the documents mentioned in this article.

Article 6: In addition to the requirements of the previous article, vessels with the capacity to carry containers shall provide plans, classification certificates, and documentation with sufficient information to determine TEU allowance below deck and TEU allowance above deck, as defined in article 2 of this regulation.

The information to which the preceding paragraph makes reference shall be obtained from the Cargo Securing Manual (CSM) and the General Arrangement Plan (GA), which shall indicate the total number of containers and their measurements. In the event these documents do not meet the accuracy guidelines acceptable by the Authority, the alternate method of admeasurement set forth in this regulation shall be followed.

All information referenced in this article and the preceding one shall be submitted to the Boarding Officer of the Authority at the time the vessel is inspected.

Article 7: Vessels that fail to provide the documentation required in the preceding articles and those that after submitting the documentation do not meet the accuracy standards acceptable to the Authority, shall be subject to inspection by the Authority to determine its V, pursuant to the PC/UMS Net Tonnage or to determine the total TEU allowance, as established in this regulation.

Article 8: The Authority shall establish V to calculate the PC/UMS Net Tonnage; further, the Authority shall establish the values of TEU allowance below deck and TEU allowance above deck, as may be applicable. For passenger vessels, the Authority shall establish V to be used to calculate the PC/UMS Net Tonnage, the maximum passenger capacity (PAX- ITC) and the PC/UMS to PAX-ITC ratio. ANNEX B 62

In calculating the PC/UMS Net Tonnage, TEU allowance below deck and TEU allowance above deck, the maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio, the Authority may request and use complementary vessel information provided by the user or officials, persons or organizations authorized by national governments to undertake surveys, identify the capacity of containers that may be carried by the vessel, and issue national tonnage certificates. The information provided may be verified and corrected, if necessary, to ensure the accuracy required by the Authority.

If the requested documentation is not provided, the user shall accept the figures resulting from the calculation by the Authority which, in its judgment, reflects V, TEU allowance below deck, TEU allowance above deck, the maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio, as may be applicable.

Second Section Tonnage

Article 9: The tonnage of a vessel shall consist of PC/UMS Net Tonnage, TEU allowance below deck, TEU allowance above deck, the maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio. These shall be determined on the basis set forth in this regulation.

The tonnage of novel types of vessels whose construction features make the application of the rules unreasonable or impossible shall be calculated in a manner that is acceptable to the Authority.

Article 10: PC/UMS Net Tonnage of vessels, except those subject to transitional relief measures or in the category of full container vessels, warship vessels, dredges, floating drydocks as classified by the Authority, shall be calculated by the following formula:

PC/UMS Net Tonnage = K4(V) + K5(V)

For all vessels classified by the Authority as full container vessels, the admeasurement shall be based on the Total TEU allowance, which shall be calculated by the following formula:

Total TEU allowance = TEU allowance above deck + TEU allowance below deck

To determine TEU allowance below deck, TEU allowance above deck, and NTT, as may be applicable, the following conversion table will be used.

ANNEX B 63

MEASUREMENTS CALCULATION EQUIVALENCE 20’ x 8’x 8.5’ 1360/1360 1.00 TEU 20’ x 8’x 9.5’ 1520/1360 1.12 TEU 40’ x 8’ x 8.5’ 2720/1360 2.00 TEU 40’ x 8’ x 9.5’ 3040/1360 2.24 TEU 45’ x 8’ x 9.5’ 3420/1360 2.51 TEU 48’ x 8’ x 9.5’ 3648/1360 2.68 TEU 54’ x 8’ x 9.5’ 4104/1360 3.02 TEU

Any container whose measurements are not listed in the preceding table shall obtain its equivalence using the same method of calculation.

For passenger vessels, tolls are to be based on the maximum passenger capacity (PAX- ITC) in accordance to the International Tonnage Certificate 1969, or as indicated in the Passenger Ship Safety Certificate. The application of charges is determined by two parameters of design: (a) ITC 69 gross tonnage and (b) the PC/UMS to PAX-ITC ratio. Those vessels having more than 30,000 gross tons whose PC/UMS to PAX-ITC ratio is less than or equal to 33 will be charged tolls based on berths. Passenger vessels not complying with these two criteria and those passenger vessels that carry combinations of cargo and passengers, or other combinations, will continue to be charged based on the actual toll basis (PC/UMS tonnage).

Article 11: Transitional relief measure is understood as the special treatment granted to the vessels that have made a transit of the Canal between March 23, 1976, and September 30, 1994. It consists in freezing the tonnage according to the Panama Canal Net Tonnage System that was in effect up to September 30, 1994. This measure is applied to vessels as long as they have not undergone a significant structural change, as defined in article 12 of this regulation. These vessels may be exempted from presenting the ITC 69 or any other certificate regarding its V.

In these cases, the formula for determining the Panama Canal Universal Measurement System (PC/UMS) Net Tonnage is the following:

PC/UMS Net Tonnage = Panama Canal Net Tonnage

The transitional relief measure shall not apply to vessels classified by the Authority as full container vessels.

Article 12: Vessels whose PC/UMS Net Tonnage is calculated in accordance with Article 10, may be subject to a new tonnage measurement in the event of a change in the V.

Vessels whose PC/UMS Net Tonnage is calculated in accordance with Article 11, shall retain that tonnage classification as long as they do not undergo any significant structural change, understanding such a change to be a real variation of no less than ten percent (10%) of the vessel's V. In the event of a significant structural change, the vessel's PC/UMS Net

ANNEX B 64

Tonnage shall be determined in accordance with article 10.

Article 13: The full container vessels whose total TEU allowance has been calculated pursuant to article 10 shall maintain said total as long as they have not undergone a structural or documentation change affecting the total TEU allowance. In the event of a structural or documentation change affecting the carrying capacity of same, the total TEU allowance shall be determined pursuant to the provisions of said article.

Vessels with the capacity to carry containers above the upper deck, whose TEU allowance above deck has been calculated as defined in this regulation and which undergo structural or documentation changes affecting said TEU allowance above deck, shall be established using the conversion table in article 10.

Passenger vessels whose maximum passenger capacity was calculated pursuant to article 10 shall maintain said capacity as long as they have not undergone a structural change or documentation change that affects the number of passengers. In case there is a change, the total volume (V), the maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX- ITC ratio shall be calculated using the criteria indicated in article 10.

Article 14: All volumes included in the calculation of the PC/UMS Net Tonnage shall be measured, irrespective of the fitting of insulation or the like, to the inner side of the shell or structural boundary plating in vessels constructed of metal, and to the outer surface of the shell or to the inner side of structural boundary surfaces in vessels constructed of any other material.

The V shall include the volume of the appendages of the vessel and may exclude the spaces open to the sea.

Article 15: All measurements used in the calculation of volumes shall be taken to the nearest centimeter or to one-twentieth of a foot.

The volumes shall be calculated by generally accepted methods for the space concerned, and with the degree of accuracy accepted by the Authority, verifying the calculations in a detailed manner, so that their precision may be corroborated.

Chapter III Alternative Method for the Admeasurement of Vessels

Article 16: When the ITC 69 or suitable substitute or the necessary documentation to calculate V are not been presented, or when these documents do not meet the standards of accuracy acceptable by the Authority, the vessels will be measured to include the entire cubic contents of V, as is defined in this chapter.

In the event the vessels classified by the Authority as full container vessels or vessels with the capacity to carry containers above the upper deck that have not submitted the Cargo Securing Manual and the General Arrangement Plan, their equivalents, or when these documents do not comply with the standards of accuracy acceptable to the Authority, the TEU allowance below ANNEX B 65

deck and TEU allowance above deck, as may be applicable, shall be established using any other method acceptable to the Authority.

In the event the vessel classified by the Authority as a passenger vessel does not present the documents listed in the first paragraph of this article and/or the Passenger Ship Safety Certificate, or when the documents provided do not meet the standards of accuracy acceptable by the Authority, the Authority will determine V, the maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio, using any other method acceptable to the Authority.

Article 17: The Authority shall endeavor to determine V, TEU allowance below deck, the TEU allowance above deck, the maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio as may be applicable, as accurately as possible, on the basis of information available at the time of the calculation, using generally accepted methods of measuring the space concerned and/or for determining allowable TEU, V, the maximum passenger capacity (PAX- ITC) and the PC/UMS to PAX-ITC ratio, within the parameters of accuracy acceptable to the Authority.

Article 18: Vessels that do not submit the documentation required or when this documentation does not meet the accuracy standards acceptable to the Authority, shall be measured as follows:

1. The volume of structures above the upper deck may be determined by any method or combination of methods acceptable to the Authority. These methods shall include simple geometric formulas, Simpson’s rules, and other standard mathematical formulas. If special procedures are used, they must be identified.

Measurements and calculations should be sufficiently detailed and concise, so as to permit easy review by the Authority.

2. The volume of the hull under the upper deck (UDV) shall be determined in accordance with the following formula:

UDV = {0.91 x [(LOA x MB) x (D - SLD)]} + (SLDISP/1.025)

If the previous formula proves unworkable, the volume of the hull below the upper deck shall be determined by multiplying the product of the LOA, MB and D, as defined in part G of the Appendix, by the corresponding coefficient indicated in the following table:

ANNEX B 66

LENGTH OVERALL IN COEFFICIENT METERS > 0 to 30 .7150 > 30 to 60 .7250 > 60 to 90 .7360 > 90 to 120 .7453 > 120 to 150 .7328 > 150 to 180 .7870 > 180 to 210 .8202 > 210 to 240 .7870 > 240 to 270 .7328 > 270 .7453

3. The V of a vessel is the sum of the volume of the structures above the upper deck as determined in accordance with (1) above, and the volume of the hull below the upper deck, as determined with the parameters established in (2) above.

Article 19: Vessels which have had their V determined in accordance with article 16 may apply for re-admeasurement when they present a new or corrected ITC 69, a suitable substitute, or sufficient documentation to re-calculate their V.

Passenger vessels may apply for re-admeasurement when they present an ITC 69, a new or corrected Passenger Ship Safety Certificate, a suitable substitute, or sufficient documentation to re-calculate their V, their maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio.

Article 20: Vessels for which TEU allowance below deck and TEU allowance above deck have been determined in accordance with the guidelines of article 16, may request the determination of a new admeasurement upon the presentation of a new and revised Cargo Securing Manual and a General Arrangement Plan or other pertinent, acceptable documents that will allow a recalculation of their allowable TEU.

Chapter IV Certificate of Admeasurement

Article 21: The admeasurement of vessels shall be calculated by the Authority’s specialized personnel, or by agents authorized by it. Each vessel shall present to the Authority a complete set of plans, the total volume breakdown and calculation sheets, with the dimensions that served as the basis for obtaining its ITC 69 or its equivalent, and a copy of same.

Article 22: The Authority shall provide each vessel, its owner or agent, the Certificate of Admeasurement, which shall be carried on board the vessel as proof that it has been inspected and measured.

Article 23: The Authority may correct the Certificates of Admeasurement when a difference ANNEX B 67

in either V, TEU allowance below deck, TEU allowance above deck, maximum passenger capacity (PAX-ITC) and the PC/UMS to PAX-ITC ratio, as applicable, is found after examining the documents or inspection of the vessels.

Chapter V Warships, Dredges and Floating Drydocks

Article 24: The tolls on warships, dredges and floating drydocks shall be based on their fully loaded displacement. To this effect, these vessels shall be required to submit documents stating accurately the displacement tonnage at each possible mean draft.

Article 25: The fully loaded displacement of these vessels shall be determined in a manner acceptable to the Authority, and shall be expressed in metric tons.

Article 26: If the user does not submit the necessary documents, the Authority may use any acceptable and practicable method to determine the fully loaded displacement.

Chapter VI Final Provisions

Article 27: To prepare the documentation required by the Authority, a vessel must meet the following conditions to be considered in ballast status:

1. Not carrying passengers or cargo.

2. Not carrying fuel for its own consumption in quantities which exceeds the capacity of the spaces designed and certified for said purpose, as shown in the vessel’s capacity plan or official documents.

3. Not using the spaces certified and marked as sedimentation tanks for the storage of lubricants or liquid fuel and fixed tanks or compartments for the stowage of cargo or stores.

Failure to comply with the foregoing shall cause the vessel to be considered laden.

Article 28: Vessels passing through the locks at either end of the Panama Canal and returning to the original point of entry without passing through the locks at the other end of the Canal, shall be considered as having made a full transit. Re-entry of the same vessel shall be considered a new transit.

Article 29: Vessels qualifying for minimum fixed fees based either on length overall or their corresponding PC/UMS Net Tonnage, unless otherwise prescribed by other regulations, are exempted from the PC/UMS tonnage measurement.

Article 30: This regulation subrogates Agreement No. 2 of September 3, 1998, as modified.

ANNEX B 68

ARTICLE TWO: This regulation shall become effective upon its publication.

PARAGRAPH: The Administrator of the Panama Canal Authority is hereby authorized to publish and distribute this regulation with a different format, including annotations and comments, to facilitate its use by the users of the Canal.”

Given in the City of Panama, on the twenty-first day of the month of June of 2007. TO

BE PUBLISHED AND ENFORCED.

Dani Kuzniecky Diógenes de la Rosa

Chairman of the Board of Directors Secretary

ANNEX B 69

APPENDIX

A. EXPANSION OF THE MOLDED DEPTH DEFINITION:

In wood and composite vessels the distance is measured from the lower edge of the keel rabbet. Where the form at the lower part of the midship section is of a hollow character, or where thick garboards are fitted, the distance is measured from the point where the line of the flat of the bottom continues inwards and cuts the side of the keel.

In vessels having rounded gunwales, the molded depth shall be measured to the point of intersection of the molded lines of the deck and side shell plating, the lines extending as though the gunwales were of angular design.

Where the upper deck is stepped and the raised part of the deck extends over the point at which the molded depth is to be determined, the molded depth shall be measured to a line of reference extending from the lower part of the deck along a line parallel with the raised part.

B. MEANING OF THE SYMBOLS USED IN THE SKETCHES IN THIS REGULATION:

O = excluded space C = enclosed space I = space to be considered as enclosed space Hatched

in parts to be included as enclosed spaces. B =

breadth of the deck in way of the opening

In vessels with rounded gunwales, the breadth is measured as indicated in Figure 11.

C. DEFINITION OF EXCLUDED SPACES:

Are the spaces described below, unless they meet any of the following three conditions, in which case they shall be considered enclosed spaces:

- The space is fitted with shelves or other means for securing cargo or stores.

- The openings are fitted with any means of closure.

- The construction provides any possibility of such openings being closed.

1.a. A space within an erection opposite an end opening extending from deck to deck except for a curtain plate of a depth not exceeding by more than 25 millimeters (one inch) the depth of the adjoining deck beams, such opening having a breadth equal to or greater than 90 percent of the breadth of the deck at the line of the opening of the space. This provision shall be applied so as to exclude from the enclosed spaces only the space between

ANNEX B 70

the actual end opening and a line drawn parallel to the line or face of the opening at a distance from the opening equal to one-half of the width of the deck at the line of the opening (Figure 1).

1.b. Should the width of the space because of any arrangement except by convergence of the outside plating, become less than 90 percent of the breadth of the deck, only the space between the line of the opening and a parallel line drawn through the point where the athwarships width of the space becomes equal to or less than 90 percent of the breadth of the deck shall be excluded from the volume of enclosed spaces. (Figures 2, 3 and 4).

ANNEX B 71

1.c. Where an interval which is completely open except for bulwarks or open rails separates any two spaces, the exclusion of one or both of which is permitted under paragraphs 1.a and 1.b, such exclusion shall not apply if the separation between the two spaces is less than the least half breadth of the deck in way of the separation. (Figures 5 and 6).

2. A space under an overhead deck covering open to the sea and weather, having no other connection on the exposed sides with the body of the vessel than the stanchions necessary for its support. In such a space, open rails or a bulwark and curtain plate may be fitted or stanchions fitted at the vessel’s side, provided that the distance between the top of the rails or the bulwark and the curtain plate is not less than 0.75 meters (2.5 feet) or one-third of the height of the space, whichever is the greater. (Figure 7).

ANNEX B 72

3. A space in a side-to-side erection directly in way of opposite side openings not less in height than 0.75 meters (2.5 feet) or one-third of the height of the erection, whichever is the greater. If the opening in such an erection is provided on one side only, the space to be excluded from the volume of enclosed spaces shall be limited inboard from the opening to a maximum of one-half of the breadth of the deck in way of the opening (Figure 8).

4. A space in an erection immediately below an uncovered opening in the deck overhead, provided that such an opening is exposed to the weather and the space excluded from enclosed spaces is limited to the area of the opening. (Figure 9).

ANNEX B 73

5. A recess in the boundary bulkhead of an erection which is exposed to the weather and the opening of which extends from deck to deck without means of closing, provided that the interior width is not greater than the width at the entrance and its extension into the erection is not greater than twice the width of its entrance. (Figures 10 and 11).

D. EXPANSION OF THE DEFINITION OF THE UPPER DECK:

In a vessel having a stepped upper deck, the lowest line of the exposed deck and the continuation of that line parallel to the upper section of the deck is taken as the upper deck.

ANNEX B 74

E. DETERMINATION OF THE PANAMA CANAL NET TONNAGE IN ACCORDANCE WITH THE UNIVERSAL MEASUREMENT SYSTEM:

Description of the component of the formula described in Article 10:

PC/UMS Net Tonnage = K4(V) + K5(V)

(a) K4 = {0.25 + [0.01 x Log10(V)]} x 0.830

(b) K5 = [Log 10(DA-19)]/{[Log 10(DA-16)] x 17}.

If the number of passengers (N1 + N 2) is greater than 100 or DA is equal to or less than 20.0 meters, then K5 is equal to zero.

International Convention on Tonnage Measurement of Vessels.

(d) DA (Average depth) = The result of the division of the V by the product of the length in meters multiplied by the molded breadth in meters. DA = V/(L x MB).

(e) L (Length) is defined as 96 percent of the total length on a waterline at 85 percent of the least molded depth measured from the top of the keel, or the length from the fore side of the stem to the axis of the rudder stock on that waterline, if that be greater. In vessels designed with a rake of keel, the waterline on which this length is measured shall be parallel to the designed waterline.

(f) MB = Molded breadth is defined in article 2.

(g) N1 = Number of passengers in cabins with no more than 8 berths. (h)

(h) N2 = Number of other passengers.

(i) N1 + N2 = Total number of passengers the vessel is permitted to carry as indicated in the vessel’s passenger certificate.

F. CHANGE IN THE PC/UMS NET TONNAGE:

The Authority shall perform a fair and equitable volumetric comparison where a vessel does not have total comparative volumes according to ITC 69, or other suitable source of volumetric comparison, to determine if the vessel’s structure has undergone a significant change.

ANNEX B 75

G. MEASUREMENT OF VESSELS WHEN TONNAGE CANNOT BE OTHERWISE ASCERTAINED:

UDV = {0.91 x [(LOA x MB) x (D - SLD)]} + (SLDISP/1.025) Where:

UDV = Volume of the hull below the upper deck, in cubic meters.

LOA = The length of the hull, in meters, from the foremost to the aftermost points, including the bulbous bow, if present.

MB = Molded breadth, in meters, as defined in article 2. D =

Molded depth in meters as defined in article 2.

SLD = Summer loaded draft (in meters), i.e., the maximum depth to which the vessel’s hull may be immersed when in a summer zone.

SLDISP = Summer loaded displacement, i.e., the actual weight in metric tons of the water displaced by the vessel when immersed to its SLD.

AGREEMENT No. 182 (of March 23, 2009)

“Whereby Article 27 of the Regulations for the Admeasurement of Vessels to Assess Tolls for Use of the Panama Canal is Amended”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL

AUTHORITY WHEREAS:

Article 18.5e of Law 19 of June 11, 1997, confers upon the Board of Directors of the Panama Canal Authority the authority to approve regulations applicable to the admeasurement and inspection of vessels, Canal navigation, marine traffic control, vessel pilotage, and other matters relative to Canal navigation.

In exercise of this authority, the Board of Directors approved the Regulations for the Admeasurement of Vessels to Assess Tolls for Use of the Panama Canal by means of Agreement No. 2 of September 3, 1998, amended and subrogated by Agreement No. 140 of June 21, 2007.

ANNEX B 77 That it is a policy of the Authority to uphold the competitiveness of the Panama route to provide profitability in tune with the risk levels, amounts of investment, and value the Canal offers its users.

That in consideration of the abovementioned, the Administrator of the Authority has submitted to the Board of Directors the draft agreement with the amendment to Article 27 of the Regulations of Admeasurement of Vessels for the purpose of determining when a vessel may be considered to be in ballast.

HEREBY AGREES:

ARTICLE ONE: Article 27 of the Regulations for the Admeasurement of Vessels to Assess Tolls for Use of the Panama Canal is amended as follows:

Article 27: For the purpose of the preparation of the documents required by the Authority, the vessel that fulfills the following conditions shall be considered to be in ballast:

1. It may not carry passengers or cargo.

2. It may not carry fuel for its own consumption in quantities that exceed the capacity of the spaces designed and certified for that use, as shown in the vessel’s capacity plan or official documents.

3. The spaces certified and marked as sedimentation tanks to store lubricants or liquid fuels and tanks or fixed compartments shall not be used to load cargo or supplies.

4. Notwithstanding the abovementioned, a vessel of any segment may be considered to be in ballast when it transits with a minimum percentage of vessel utilization as determined by the Board of Directors at the proposal of the Administration. For this purpose, the Administration shall submit beforehand to the Board of Directors the corresponding duly defended and reasoned proposal, indicating vessel segment and type, minimum percentage of vessel utilization required to be considered in ballast, and period of time or season of the year during which the present provision is proposed to be applied.

ARTICLE TWO: This agreement shall come into force upon its publication in the Canal Record.

Issued in Panama City, on the twenty-third day of March of 2009.

TO BE PUBLISHED AND ENFORCED

ANNEX B 78

Dani Kuzniecky Diogenes de la Rosa

Chairman of the Board of Directors Secretary

Regulation to set tolls, rates, and fees for the transit of vessels through the Canal, and the rendering of related services and complementary activities (Agreement No. 4 of January 7, 1999, amended by Agreements No. 58 of August 16, 2002, No. 94 of March 30, 2005, No. 141 of June 21, 2007, No. 220 of Nov 25, 2010, and No. 269 of October 30, 2014

AGREEMENT No. 4 (of January 7, 1999)

“Whereby the Regulation to set tolls, rates, and fees for the transit of vessels through the Canal, and the rendering of related services and complementary activities is approved”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

WHEREAS:

In accordance with article 18.5 k. of the Panama Canal Authority Organic Law, the Board of Directors is responsible for regulating the establishment of tolls, rates, and fees for the transit of vessels through the Canal, and related services.

It is also the responsibility of the Authority, in accordance with articles 4 and 18.9 of the abovementioned Organic Law, to regulate matters related to complementary activities and services related to the operation of the Canal.

The draft regulation on the foregoing subjects have been submitted by the Administrator for the consideration of the Board of Directors, in exercise of the authority granted him by article 25.6 of the above mentioned Organic Law.

AGREES:

ARTICLE: The following regulation on tolls, rates, and fees for the transit of vessels through the Canal, and the rendering of related services and complementary activities is adopted:

“REGULATION TO SET TOLLS, RATES, AND FEES FOR THE TRANSIT OF VESSELS THROUGH THE CANAL, AND THE RENDERING OF RELATED SERVICES AND COMPLEMENTARY ACTIVITIES

ANNEX B 79

CHAPTER I General Provisions

Article 1. The transit of vessels through the Canal, the rendering of related services, and complementary activities, shall be subject to tolls, rates, and fees.

Article 2. The tolls, rates, and fees established by the Authority shall take into consideration the conditions of safe, continuous, efficient, competitive, and profitable Canal service.

Article 3. The Board of Directors shall establish the tolls, rates, and fees, and the conditions for the use of the Canal and related services.

Article 4. All charges, tolls, rates, and fees assessed by the Authority shall be published in the Canal Register, and recorded in the Authority’s Official Tariff.

CHAPTER II Tolls

Article 5. Tolls shall be set at rates estimated to cover the costs of operation and modernization of the Canal, and will include at least: 1. The costs of operating and maintaining the Canal, including depreciation costs, support for water resources protection, working capital, and the required reserves. 2. Payments to the National Treasury, as stipulated in the National Constitution and the Organic Law of the Panama Canal Authority. 3. Capital for plant replacement, expansion, improvements, and modernization of the Canal. 4. Interest on the assessed value of the Canal, based on the interest rate approved by the Board of Directors. 5. Losses carried over from previous years.

Article 6. Tolls shall be the product of the rate established by the Authority, multiplied by the PC/UMS Net Tonnage (PANAMA CANAL/UNIVERSAL MEASUREMENT SYSTEM) established by the Regulations for the Admeasurement of Vessels to Assess Tolls for Use of the Panama Canal.

CHAPTER III Related Services and Complementary Activities

Article 7. Related services are those provided by tugboats and linehandlers, in direct support of the transit of vessels through the Canal.

The charge for these services shall be additional to the toll rates.

Article 8. The Authority shall carry out complementary activities to the Canal operation, such as dredging, electric power generation, water treatment, and telecommunications.

ANNEX B 80 It is the responsibility of the Administrator to establish the rates to be charged for these activities, in consultation with the Board of Directors.

CHAPTER IV Payment and Guarantees

Article 9. Payment of Canal tolls and related services shall be made: 1. Before transiting through any set of locks. 2. Before the Authority clears a vessel for departure from Canal waters, in relation to any charges for unexpected, necessary, or required related services provided during transit.

Article 10. Tolls and charges for related services shall be guaranteed by a bank previously approved by the Authority, to ensure that the Authority is paid in a timely manner.

Other forms of payment shall be permitted in the cases authorized by the Authority, provided any additional cost for the use of such forms of payment are at the expense of the user.

Article 11. As a precondition for transit and for the rendering of any related services, the Authority may require the establishment of financial responsibility and reasonable and adequate guarantees for payment, considered sufficient by the Authority, to cover any damages that may result from their transit through the Canal.

In the case of a government-owned or government-operated vessel, it shall suffice that the respective government certify that it shall comply with its obligations to pay any damages arising from actions or omissions of such a vessel during her passage through the Canal. This exception shall not apply when a government vessel is engaged in maritime trade.

Article 12. Payments for complementary activities shall be made by means of cash deposits, payments guaranteed by a bank, or any other means of payment accepted by the Authority.

CHAPTER V Exemptions and Prohibitions

Article 13. Vessels exempted by virtue of international treaties in effect, ratified by the Republic of Panama, shall not pay tolls for transiting the Canal.

Article 14. Neither the Government nor the Authority may authorize exemption from the payment of tolls, fees, or rates for transit-related services.

Article 15. This Regulation shall become effective at twelve noon, December thirty-fist, nineteen ninety-nine.”

Given in the city of Panama, on January seven, nineteen ninety-nine.

TO BE PUBLISHED AND ENFORCED

ANNEX B 81 Jorge E. Ritter Tomás Paredes

______

Minister for Canal Affairs Ad-Hoc Secretary

ANNEX B 82 AGREEMENT No. 58 (of August 16, 2002)

“Whereby the Regulation for the Establishment of Tolls, Rates, and Fees for the Transit of Vessels through the Canal, Related Services, and Complementary Activities is Modified”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

WHEREAS:

In accordance with Article 4 of the Panama Canal Authority Organic Law, the Authority has the exclusive charge of the operation, administration, management, preservation, maintenance, improvement, and modernization of the Canal, as well as its activities and related services, pursuant to legal and constitutional regulations in force, so that the Canal may operate in a safe, uninterrupted, efficient, and profitable manner.

Article 18.5.k. of the aforementioned law assigns authority to the Board of Directors to set the tolls, rates, and fees charged by the Authority for the transit of vessels through the Canal, and the rendering of related services.

Pursuant to Article 18.9. of the aforementioned law, the Authority shall also adopt policies for engaging in activities or services that complement the operation of the Canal.

The Board of Directors recently approved a proposal to increase tolls, revise the tolls system, and establish a new fee for the use of locomotives as a related service to the transit of vessels through the Canal.

To comply with the abovementioned proposal, it is necessary to modify the appropriate regulation, to include the use of locomotives as a related service to the transit of vessels through the Canal.

AGREES:

ARTICLE 1: Article 7 of the Regulation to Establish Tolls, Rates, and Fees for the Transit of Vessels through the Canal, Related Services, and Complementary Activities shall be modified to read as follows:

Article 7. Related services are those provided by tugboats, line handlers, and locomotives in direct support of the transit of vessels through the Canal.

The cost of these services shall be considered an additional charge to the tolls payment.

ANNEX B 83

ARTICLE 2: This Agreement shall become effective as of the date of its approval.

Given in Panama City, on the sixteenth day of the month of August of the year two thousand and two.

TO BE PUBLISHED AND ENFORCED.

Ricardo Martinelli B. Diógenes de la Rosa

______Minister for Canal Affairs Secretary

ANNEX B 84 AGREEMENT No. 94 (of March 30, 2005)

“Whereby the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities is Amended”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

WHEREAS:

In accordance with Article 4 of the Organic Law of the Panama Canal Authority, this agency has exclusive charge of the operation, administration, management, preservation, maintenance, improvement, and modernization of the Canal, as well as its activities and related services, pursuant to legal and constitutional regulations in force, so that the Canal may operate in a safe, uninterrupted, efficient, and profitable manner.

Article 18, Item 5, paragraph k, of the aforementioned law assigns to the Board of Directors the authority to regulate the setting of tolls, rates, and fees charged by the Authority for the transit of vessels through the Canal, and the rendering of related services.

Upon compliance with legal and regulatory procedures, on January 28, 2005, the Board of Directors approved Agreement No. 91 whereby the toll rates and rules of admeasurement were modified.

The provisions established in said agreement imply the undertaking of an adjustment or modification to the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities.

The draft agreement setting forth the modifications to the aforementioned regulation has been submitted by the Administrator of the Authority for the consideration of the Board of Directors.

AGREES:

ARTICLE ONE: Article 6 of the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities is hereby modified, and reads as follows:

ANNEX B 85 Canal, multiplied by the rate established by the Authority.

For full container vessels, tolls shall be the product of the total TEU allowance pursuant to the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, multiplied by the TEU rate established by the Authority.

Tolls for those vessels not classified as a full container vessels, but that have the capacity to carry containers above the upper deck, shall be the product of the PC/UMS Net Tonnage multiplied by the rate established by the Authority plus the NTT (number of TEU carried above the upper deck during a transit), multiplied by the rate per TEU established by the Authority.

Tolls for warships, dredges, and floating dry docks shall be the product of the displacement tonnage multiplied by the rate established by the Authority.

For smaller vessels of up to 583 PC/UMS net tonnage, when carrying passengers or cargo, up to 735 PC/UMS net tonnage when transiting in ballast, or up to 1,048 displacement tons, the minimum toll based on its total length shall be established by the Authority on the basis of a fixed rate.

ARTICLE TWO: This modification shall become effective on May 1, 2005.

Given in Panama City on the thirtieth day of the month of March of 2005.

TO BE PUBLISHED AND ENFORCED.

Ricaurte Vásquez M. Diógenes de la Rosa

______Chairman of the Board of Directors Secretary

ANNEX B 86 AGREEMENT No. 141 (of June 21, 2007)

“Whereby the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities is modified”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY WHEREAS:

Article 18.5.k. of the aforementioned law assigns the Board of Directors the authority to set the tolls, rates, and fees charged by the Authority for the transit of vessels through the Canal, and the rendering of related services.

The approval by the Board of Directors of Agreement No. 132 implies a modification to article 6 of the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities in order to adjust article 6 to the new tariff regime for passenger vessels and for vessels whose tolls are based upon their displacement tonnage.

The draft agreement setting forth the modifications to the aforementioned regulation has been submitted by the Administrator of the Authority for the consideration of the Board of Directors.

AGREES:

Article 6: For vessels, in general, tolls shall be the product of the PC/UMS Net Tonnage (PANAMA CANAL/UNIVERSAL MEASUREMENT SYSTEM OF VESSELS), pursuant to the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, multiplied by the rate established by the Authority. For full container vessels, tolls shall be the product of the total TEU allowance pursuant to the

ANNEX B 87 Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, multiplied by the TEU rate established by the Authority.

Tolls for passenger vessels shall be the product of the maximum passenger capacity or PC/UMS tonnage multiplied by the rate established by the Authority.

Tolls for warships, dredges, and floating dry docks shall be the product of the fully loaded displacement tonnage multiplied by the rate established by the Authority.

For smaller vessels of up to 583 PC/UMS net tonnage, when carrying passengers or cargo, up to 735 PC/UMS net tonnage when transiting in ballast, or up to 1,048 fully loaded displacement tons, the minimum toll based on its length overall shall be established by the Authority on the basis of a fixed rate.

ARTICLE TWO: In accordance with Agreement No. 132 of April 24, 2007 approved by the Board of Directors, the modification related to the tolls charged based on the fully loaded displacement tonnage will be effective on July 1, 2007 and the modification related to the new method of admeasurement for passenger vessels shall become effective on October 1, 2007.

Given in the City of Panama, on the twenty-first day of the month of June of 2007.

TO BE PUBLISHED AND ENFORCED.

Dani Kuzniecky Diógenes de la Rosa

Chairman of the Board of Directors Secretary

ANNEX B 88 AGREEMENT No. 220 (of November 25, 2010)

“Whereby the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities is amended”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY WHEREAS:

In accordance with Article 316 of the Political Constitution of the Republic and Article 4 of the Panama Canal Authority Organic Law, Law 19 of June 11, 1997, the Authority has the exclusive charge of the operation, administration, management, preservation, maintenance, improvement, and modernization of the Canal, as well as its activities and related services, pursuant to legal and constitutional regulations in force, so that the Canal may operate in a safe, uninterrupted, efficient, and profitable manner.

Article 18.5.k of the aforementioned law assigns the Board of Directors the authority to approve the regulation to set the tolls, rates, and fees charged by the Authority for the transit of vessels through the Canal, and the rendering of related services.

In the exercise of said authority, the Board of Directors approved the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities in Agreement No. 4 of January 7, 1999. This Regulation was subsequently modified by Agreements No. 58 of August 16, 2002; 94 of March 30, 2005, and 141 of June 21, 2007.

Upon compliance with legal and regulatory requirements, the Board of Directors approved Agreement No. 210 of June 10, 2010, whereby the toll rates of the Panama Canal Authority are modified.

The implementation of Agreement No. 210 implies a modification to Article 6 of the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities in order to adjust Article 6 to the new tariff regime for full container vessels.

The draft agreement setting forth the modifications to the aforementioned regulation has been submitted by the Administrator of the Authority for the consideration of the Board of Directors.

AGREES:

ANNEX B 89 “Article 6. For vessels, in general, tolls shall be the product of the PC/UMS Net Tonnage (PANAMA CANAL/UNIVERSAL MEASUREMENT SYSTEM OF VESSELS), pursuant to the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, multiplied by the rate established by the Authority.

For full container vessels, tolls shall be the result of adding:

1. The product of multiplying the vessel’s total TEU allowance (capacity) according to the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, by the corresponding rate; and 2. The product of multiplying the number of loaded TEUs aboard the vessel during the Canal transit, by the rate applicable to TEU with cargo.

For the purpose of applying these rates, the Authority shall determine the TEUs with cargo aboard the vessel during the transit based on the information that to this effect the vessel representative shall submit, which might be verified by the Authority.

Notwithstanding the aforementioned, if the information submitted by the vessel is incorrect, inadequate, incomplete, insufficient, or untimely, the toll shall be the result of adding:

1. The product of multiplying the vessel’s total TEU allowance (capacity) according to the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, by the corresponding rate; and 2. The product of multiplying the vessel’s total TEU allowance (capacity) according to the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal, by the applicable rate to the TEU with cargo.

What has been established in the previous paragraphs for full container vessels is subject to the following:

1. The vessel, through its representative, shall submit to the Authority, under solemnity of oath, the correct, accurate, adequate, complete, and timely information about the loaded containers that the vessel will have aboard at the time of initiating the transit through the vessels’ BAPLIE (“Bayplan/stowage plan occupied and empty locations”) at the time of transiting the Canal. This information shall be submitted before the arrival of the vessel at Canal waters. The Authority may authorize that the information be submitted before the arrival of the vessel at the last set of locks only in extraordinary circumstances. 2. The Authority has the exclusive right to determine if the information submitted by the vessel pursuant to the preceding numeral is accurate, adequate, or complete, and the corresponding toll the vessel shall pay to transit.

ANNEX B 90 3. The conversion of containers of any dimension shall be made in accordance with Article 10 of the Regulations for the Admeasurement of Vessels to Assess Tolls for the Use of the Panama Canal.

Tolls for those vessels not classified as full container vessels, but that have the capacity to carry containers above the upper deck, shall be the product of the PC/UMS Net Tonnage multiplied by the rate established by the Authority plus the NTT (number of TEU carried on or above the upper deck during a transit) multiplied by the rate per TEU established by the Authority.

Tolls for passenger vessels shall be the product of the maximum passenger capacity or PC/UMS Net Tonnage multiplied by the rate established by the Authority, according to the design criterion established by the Authority.

Tolls for warships, dredges, and floating dry docks shall be the product of the fully loaded displacement tons multiplied by the rate established by the Authority.

For smaller vessels of up to 583 PC/UMS Net Tonnage, when carrying passengers or cargo, up to 735 PC/UMS Net Tonnage when transiting in ballast, or up to 1,048 fully loaded displacement tons, the minimum toll based on its length overall shall be established by the Authority on the basis of a fixed rate.”

ARTICLE TWO: This modification shall become effective on January 1, 2011.

Given in the City of Panama, Republic of Panama, on the twenty-fifth day of the month of November of the year two thousand and ten.

TO BE PUBLISHED AND ENFORCED.

Rómulo Roux Rossana Calvosa de Fábrega

______Chairman of the Board of Directors Secretary

ANNEX B 91 AGREEMENT No. 269 (October 30, 2014)

“Whereby the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the rendering of Related Services and Complementary Activities is Modified”

THE BOARD OF DIRECTORS OF THE PANAMA CANAL AUTHORITY

WHEREAS:

In accordance with Article 316 of the Constitution of the Republic of Panama (Political Constitution), established the Panama Canal Authority (the Authority) as an autonomous legal entity under public law, which shall be exclusively in charge of the administration, operation, conservation, maintenance, and modernization of the Panama Canal and its and related activities, pursuant to legal and constitutional provisions in force, in order that the Canal may operate in a safe, uninterrupted, efficient and profitable manner. This entity has its own patrimony, and the right to administer it.

That Article 319.6 of the Political Constitution establishes that the Board of Directors of the Authority has the power to exclusively approve regulations to implement the general policies issued by the Legislative Branch as proposed by the Executive Branch, on contracts and procurement, and on any matters as may be required for the best operation, maintenance, conservation and modernization of the Canal within the national maritime strategy

That Article 323 of the Political Constitution establishes that the special regime contained in its Title XIV on the Panama Canal, may only be implemented by means of laws establishing general policies. The Panama Canal Authority shall regulate these matters.

That by virtue of the provisions of Article 323 of the Political Constitution, whereby the Authority (Organic Law) is organized, Law 19 of June 11, 1997, is promulgated.

That pursuant to Article 4 and 18.9 of this Law, the Authority is in charge of adopting policies related to the complementary activities rendered at the Canal.

That pursuant to Agreement No. 4 of January 7, 1999, the Board of Directors approved the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities, as well as later modifications.

That Article 8 of the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities, establishes that the Authority will carry out complementary activities to the Canal operation, such as dredging, electric power generation, water treatment, and telecommunications. It is the responsibility of the Administrator to establish the rates to be charged for these activities, in consultation with the Board of Directors.

ANNEX B 92 That the Authority has been evaluating possible adjacent or complementary activities to reinforce the main service of the Panama Canal, by creating growth options through the development of commercial, industrial and complementary activities to the operation of the Canal, as authorized by the Political Constitution and the Organic Law.

That in this process we have identified a number of possible commercial and industrial activities and complementary services, to which special effort has been devoted to logistics and port development of the Panama Canal.

It is deemed appropriate to amend the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities, to expressly mention the logistics and port activities under Chapter III on “Related Services and Complementary Activities”, because these are some of the activities that complement the operation of the Canal, to which Article 18.9 of the Organic Law refers to.

That the proposal setting forth the modifications has been submitted for the consideration of the Board of Directors, and after deliberation, the Board deems it convenient to the interests of the institution, and therefore considers appropriate the modification requested.

AGREES:

ARTICLE ONE: To MODIFY Article 8 of the Regulation to Set Tolls, Rates, and Fees for the Transit of Vessels through the Canal, and the Rendering of Related Services and Complementary Activities of the Panama Canal, which shall read as follows:

“Article 8. The Authority shall carry out complementary activities to the Canal operation, such as dredging, electric power generation, water treatment, telecommunications, logistics and port activities.

It is the responsibility of the Administrator to establish the rates to be charged for these activities, in consultation with the Board of Directors.”

ARTICLE TWO: This Agreement shall become effective on the day of its publication in the Canal Register.

Given in the City of Panama, on the thirtieth day of the month of October of 2014.

TO BE PUBLISHED AND ENFORCED

Roberto R. Roy Rossana Calvosa de Fábrega ______Chairman of the Board of Directors Secretary

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IMPACT ANALYSIS BY MARKET SEGMENT

FULL CONTAINER VESSELS

The full container vessels segment is the segment with highest participation in the main traffic indicators of the Panama Canal. During the fiscal years 2010 to 2014, the full container vessels segment represented an average of 50.7 percent of the total tolls revenue. On the other hand, the segment had a 35.3 percent participation and 22.1 percent in regards to the total PC/UMS97 tons and registered transits for this period, respectively.

During 2010, full container vessel traffic, as well as the movement of containerized cargoes through the Panama Canal was affected by the worldwide 2008-2009 economic recession. Due to the reduction of cargo volumes, especially on the Asia-U.S East Coast route, and to deal with the decrease in demand that they were facing, several shipping lines modified their service networks, causing the elimination, suspension or merger of several liner services that used the Panama Canal. The number of transits decreased 9.9 percent, lowering in 11.6 percent the PC/UMS97 tonnage and 3.7 percent the toll revenues, as compared to the registered figures of fiscal year 2009.

Afterwards, during the next two fiscal years, full container vessel traffic picked up, showing significant improvement until it attained and exceeded in fiscal year 2012 the levels of PC/UMS97 tons registered in fiscal year 2009. During fiscal years 2011 and 2012, there were

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8.7 percent and 5.4 percent increments in PC/UMS97 tons, and 7.3 percent and 2.4 percent increments in the number of transits.

Toll revenues were positively influenced during fiscal years 2011 and 2012, as a result of a rise in transits as well as the implementation of the new toll tariff that went into effect January 1, 2011, in 16.5 percent and 7.9 percent, respectively.

During fiscal year 2013, the maritime industry experienced a high level of tension due to the overcapacity in the containership fleet; low transportation demand in the international markets; and low charter rates, among others. On the same note, high fuel costs prompted vessel operators to carefully analyze their costs and network services in order to lower unit costs for the seaborne transportation of goods.

On the other hand, due to the subsidies to Chinese shipyards and the low prices of steel, shipping lines received many new vessels, and there was a noticeable increase in the number of orders for new buildings. The introduction of mega vessels upwards of 13,000 TEU, mainly on the Asia to Europe route, generated an overcapacity that caused the redeployment of vessels to other regions like the Transpacific route.

In response to this overcapacity, shipping lines implemented a series of actions to try to maintain positive freight rates, in some instances unsuccessfully. Slow steaming continued being one of the strategies used during this fiscal year, with the purpose of reducing fuel consumption and hence reducing costs. This allowed the addition of vessels into service rotations, which kept a high percentage of the fleet operational. However, low levels of utilization forced shipping agencies to take other measures, such as void sailings, to balance supply and demand in maritime transportation.

The Panama Canal was also affected by the situation in the industry, and the rising tendency of fiscal years 2011 and 2012 was interrupted during fiscal year 2013. Some of the shipping lines that use the Canal route adjusted their network services, and, even though the average transiting vessel size increased 6 percent as compared to the previous year, this was not enough to compensate the loss in tonnage and revenue caused by the services adjustments. These changes caused negative variations in traffic figures as compared to the previous year, 1.9 percent, 6.8 percent and 0.9 percent in PC/UMS97 tons, number of transits and toll revenues, respectively.

During fiscal 2014, the maritime industry continued going through major structural changes such as overcapacity, weak demand in international markets and low freight rates. In this period, a total of 132 new container vessels with a capacity of about 1.03 million TEUs were delivered to the shipping lines, of which 54 percent of this capacity are attributable to vessels of 10,000 TEU capacity or more. Of this total, seven of the 10 Maersk Triple- E vessels that are already in the active fleet were delivered during this fiscal year. Furthermore, a total of 108 newbuildings with a capacity of 615,700 TEU were ordered this fiscal year1.

The "slow steaming" and “void sailings” strategies continued throughout 2014. Other factors of great importance during this year were the formation of operational alliances and vessel sharing

1 IHS Fairplay Maritime World Fleet/ Liner segment (MEMN) analysis, November 2014

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agreements between shipping lines, given the wide range of mega ships ordered and delivered during the year. These alliances aim to expand their service networks and provide customers with more coverage, opportunities and benefits, as well as reduce operating costs by applying the economies of scale. Worth mentioning is the future Ocean Three (O3) alliance, comprised by CMA CGM, United Arab Shipping Company (UASC) and CSCL with a possible starting date in December 2014 or January 2015; the 2M alliance, formed by Maersk Line and Mediterranean Shipping Co. (MSC), and that will take effect in early 2015; the cooperation agreement between UASC and Hamburg Sud, to become effective in December 2014/January 2015 on some routes, and in mid-2015 on others.

In addition, this year was the signing of the preliminary purchase agreement of Compañía Chilena de Navegación Interoceánica (CCNI) by Hamburg Sud, which is scheduled to materialize before December 31, 2014; and the merger between Hapag Lloyd and Compañía Sudamericana de Vapores (CSAV), which once approved will create the fourth world's largest container shipping company.

At the same time it may be expected that other shipping lines implement these same strategies of creating alliances or slot sharing agreements to face competition that is foreseen for the near future. An increase in this trend is expected as operators receive the vessels that are being built.

In fiscal year 2014 some shipping lines implemented changes to Panama Canal liner services, negatively impacting the traffic figures compared to the previous fiscal year. Evergreen Line joined the CKYH alliance, thus forming the new alliance CKYHE since May 2014; consequently, this resulted in the suspension of one service in the Asia-East Coast of the United States route via the Panama Canal that was redeployed through an alternate route with larger vessels. Similarly, the G6 Alliance2, created in fiscal year 2013, temporarily merged two of its Asia-U.S. East Coast services to adapt to the season´s low demand, causing the elimination of another service during this period. On the other hand, American President Line and Mitsui Orient Line started a new service through the Panama Canal since May 2014, serving the route from the West Coast of South America to East Coast of the United States, dedicated primarily to refrigerated cargo. However, this inclusion was not sufficient to balance the negative impact caused by the suspension of the others.

In terms of established services, the main commercial flow consists of the route between Northeast Asia and the U.S. East Coast and the Gulf of Mexico, with a total of 11 direct services and 2 pendulums that represent 52 percent of the nominal capacity transiting through the Panama Canal. Other commercial flows of importance to the Canal, in terms of services deployed and annual capacity are the result of the commercial exchange between the South American West Coast to Europe and the U.S. East Coast. The fiscal year 2014 ended with 29 liner services through the Panama Canal.

For fiscal year 2015, and until the expanded Canal begins operations, it is foreseen that network service adjustments by maritime operators will continue, in order to achieve a lower transport unit cost of their goods, making a more efficient use of their available vessel fleet. Different factors, such as, the Panama Canal liner services migration to alternate routes conducted in 2014,

2 Comprised for APL, Hyundai, MOL, Hapag Lloyd, NYK and OOCL

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as well as the supply and demand imbalance, vessels oversupply, large newbuilding orders, low freight and charter rates, among others, are basis for year-end estimates consisting of lower traffic figures through the waterway. We estimate a traffic diminishment relative to fiscal year 2014 of 6.8 percent in PC/UMS 97 tons and transits and 7.5 percent drop in canal tolls with a total of 27 liner services using the Panama canal.

The full container vessel fleet has increased in the last years with the introduction of bigger and more efficient vessels, and until October of 2014, the total fleet capacity was 18.1 million TEUs. Of this total, 41.3 percent corresponds to Panamax or smaller vessels, 51.3 percent falls into the Neopanamax category (vessels that will be able to transit through the new locks of the Expanded Canal) and 7.4 percent are neopanamax.

It is expected that in 2016 the number of vessels of the fleet with bigger dimensions will increase, and it is estimated that 36.5 percent of the capacity will consist of Panamax or smaller vessels, 50.7 percent in Neopanamax vessels and 12.8 percent in neopanamax vessels, which will exceed the dimensions of the new Expanded Canal.3

New Toll Proposal

The new toll proposal for full container vessels was developed according to the maritime industry´s observed tendency and deep analysis of the competitiveness of the Panama Canal route and alternate routes, comparing transport costs, connectivity, times and distances.

The Panama Canal is a very important link for commerce between multiple routes, where Asia and the East Coast of the United States will continue to be the main regions of origin and destination for cargo transiting through the waterway. The Canal provides a high level of connectivity to countries whose maritime routes will benefit greatly from the expansion. Other trade routes as the North-South between Latin-American countries are also projected to take advantage of larger Neopanamax vessels.

1. Toll Proposal Objectives:

The objectives of the new toll proposal include:

• Utilize the competitive advantages provided by the Panama Canal to the different maritime routes.

• Improve the competitiveness of the Panama Canal on the main maritime routes, promoting volume and cargo growth as well as utilization levels of the vessels.

• Attract the deployment of new liner services through the Panama Canal by offering toll rates for Neopanamax vessels that provide greater economies of scale for shipping lines.

3 Fleet analysis by the liner segment (MEMN) with Fairplay data, November 2014.

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• Incentivize the deployment of Neopanamax vessels through the new locks while maintaining Panamax vessels transiting through the existing locks by providing more competitive rates.

• Promote an increase in the average vessel size of all services that currently transit through the Panama Canal to take advantage of the economies of scale that the new locks will provide to the maritime industry.

• Establish a differentiation of vessels for the use of the existing and the new locks.

• Provide a more flexible tolls structure by giving a greater value to the tariff for TEU loaded with cargo. This will create an element of risk reward aligning the Canal and its customers.

• Offer a loyalty program to keep and encourage capacity volume growth through the Panama Canal by applying a preferential tariff system.

2. Toll structure and tariffs proposal:

The new toll proposal for the full container vessel segment offers the following:

• All vessels transiting through the existing Panamax locks, regardless of their capacity, will have a capacity tariff (TEU allowed) of $60 per TEU based on its registered capacity at the Canal (TEU allowed), plus a tariff of $30 for every TEU loaded with cargo at its time of transit as determined by the ACP.

• All vessels transiting through the new locks will be charged tolls based on their capacity with different rates for each established TEU range as shown on Table 1 and explained as follows:

o Vessels with less than 6,000 TEU of capacity (TEU allowed), will have a capacity tariff of $60 per TEU based on its registered capacity at the Canal (TEU allowed), plus a tariff of $40 for every TEU loaded with cargo at its time of transit as determined by the ACP. o Vessels with a capacity (TEU allowed) equal to or greater than 6,000 TEU and less than 9,000 TEU, will have a capacity tariff of $50 per TEU based on its registered capacity at the Canal (TEU allowed), plus a tariff of $40 for every TEU loaded with cargo at its time of transit as determined by the ACP. o Vessels with a capacity (TEU allowed) equal to or greater than 9,000 TEU, will have a capacity tariff of $50 per TEU based on its registered capacity at the Canal (TEU allowed), plus a tariff of $35 for every TEU loaded with cargo at its time of transit as determined by the ACP.

• All vessels transiting through the Panama Canal, regardless of which locks are used, will not be charged for empty containers on board at its time of transit as determined by the ACP.

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Table 1 – Structure and Toll Tariffs

1/ Panamax locks: Length of up to 294 m (965´), beam of up to 32.31 m (106´), draft of up to 12.04 m (39.5´), 2/ Neopanamax locks: Length over 294 m (965´) up to 366 m (1,200´); and/or beam over 32.31 m (106´) up to 49 m (160´) and/or draft over 12.04 (39.5’) up to 15.2 m. (50’).

Our analysis indicates that the impact of the tolls proposal represents an average of less than one percent of the CIF (Cost, Insurance and Freight) value for containerized cargo.

The loyalty program aims to offer customers cumulative TEU volume capacity preferential tariffs to encourage maintaining and increasing the volume transiting the Canal. The program has four loyalty categories, providing improvements of up to $3.00 off the vessel capacity tariff.

TEU volume requirements for the four categories are as follow:

• Category 4: Applies to all customers with a registered TEU capacity volume from 0 to 450,000.

• Category 3: Applies to all customers with a registered TEU capacity volume from 450,001 to 999,999.

• Category 2: Applies to all customers with a registered TEU capacity volume from 1,000,000 to 1,499,999.

• Category 1: Applies to all customers with a registered TEU capacity volume from 1,500,000 or more.

Preferential tariffs are applied based on the tariffs in Table 1 and the following variations apply:

• Category 4: regular tariff, without variations.

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• Category 3: tariff with a $1.00 improvement on the vessel capacity tariff (TEU allowance).

• Category 2: tariff with a $2.00 improvement on the vessel capacity tariff (TEU allowance).

• Category 1: tariff with a $3.00 improvement on the vessel capacity tariff (TEU allowance).

DRY BULK CARRIERS

Bulk carriers contributed an average of 24.6 percent of the PC/UMS total tonnage of the vessels that transited the Panama Canal in the last five fiscal years. Bulk carriers transported 45.3 percent of the total cargo through the waterway in the last five fiscal years and ranked second in importance in total revenues. This segment registered new records in key Canal figures in fiscal year 2014. Cargo tonnage registered a record of 112.0 million long tons, an increase of 19.6 percent in comparison to the cargo of fiscal year 2013. With a total of 3,339 transits, bulk carriers registered a record of 86.0 million of PC/UMS tons; these represent increases of 15.0 percent and 18.2 percent respectively. Toll revenues increased 27.2 percent in comparison to fiscal year 2013 as a result of both higher volumes and increase in tolls rates effective October 1, 2013.

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In fiscal year 2014, grains transported in bulk carriers totaled 47.7 million long tons, an increase of 49.7 percent compared to 31.9 million long tons recorded in fiscal 2013, due to record grain production in the United States. Shipments of grains remain mayor drivers of the dry bulk segment, especially from the U.S. ports on the Gulf of Mexico to Asia route.

Soybeans and corn are mostly used in the processing of animal feed for the poultry, swine and cattle industries in China, Japan, South Korea and Taiwan. China in particular has increased its share of soybeans imports, which is also used in the processing of oil and flour for human consumption. With an annual growth rate of its population of 0.5 percent, China's population is expected to increase from 1,354.0 million in 2012 to 1,401.8 million in 20194, highlighting the need for more food and, therefore, the need of increasing grain imports through the Panama Canal.

The coal and coke category declined 11.5 percent in fiscal year 2014 compared with fiscal year 2013; a total of 14 million long tons for fiscal year 2014, in comparison to 16 million reported in fiscal year 2013. The decrease in this category is mainly due to lower thermal coal movements from the Atlantic Coast of Colombia to Chile, as Drummond Port was temporarily closed for not complying with the direct coal loading rules in Colombia, and less coal demand from Chile for power generation because of the availability of alternative sources such as gas and hydroelectric generation.

Minerals and metals flows increased 6.4 percent as a result of larger movements of steel manufactures from South Korea and Japan destined to the East Coast of the United States and copper ore from the West Coast of South America to Europe.

For other dry bulks, which include all cargoes other than grains, coal and iron ore, an increase of 8.3 percent was registered in fiscal year 2014 compared to fiscal year 2013. It is worth mentioning the record in salt movements from Chile and Mexico destined to the U.S. East Coast, registering more than 8 million long tons of cargo for fiscal year 2014. Very harsh winter conditions in the United States resulted in increased imports in order to assure the rock salt needed to de-ice the roads.

New Toll Proposal

The proposed new tolls for dry bulk carriers segment uses deadweight metric tons (DWT) instead of the PC/UMS tons for toll charging. Vessels transiting through the new lock will be charged using a fixed and variable cost table, in which the DWT is used to charge the fix toll portion while the amount of cargo carried in tons is used to collect the variable portion. Vessels transiting the current lock will be charged based on the DWT only.

The descending scale in the bands of DWT is aimed at promoting the use of larger vessels, helping to improve efficiencies and promoting economies of scale. All rates are differentiated according to the main types of cargo in order to adjust them to the level of competitiveness of these trade flows and attract new traffic volumes. In the case of ships in ballast, its rates are set at levels that encourage the repositioning of large ships that could take advantage of the expanded

4 Annual growth from 2012 to 2019. Source: World Economic Outlook (WEO) as part of IMF. October 2014.

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locks. The new pricing structure based on DWT is easily understood because it is a measure of capacity in the maritime industry.

The new toll proposal considers the type of cargo to maintain and attract cargo flows. It includes a sliding scale in the variable part considering that many large capesize vessels may not be fully loaded to capacity. The proposed new tolls will not significantly impact the trade competitiveness of products transported in dry bulk vessels through the Panama Canal. The cost of transit through the waterway with the new proposal represents a maximum of about 5 percent of the price on destination for the main products transported in bulk carriers. With this proposal, the dry bulk traffic through the Canal remains competitive on the major routes compared to alternative routes such as the Suez Canal, the Cape of Good Hope or the Straits of Magellan and alternative land and river routes such as the U.S. Pacific Northwest. See table No.2.

Table No.2

The saving benefits derived from the shortest route through the Panama Canal will remain on the main routes for dry bulkers, including grains from the Gulf of Mexico in the United States to Asia, coal from the east coast of Colombia and the United States to Mexico and Chile, iron ore from Venezuela and northern Brazil to Asia, manufactures of iron and steel from Asia to the East Coast of the United States and the fertilizers from the U.S. ports in the Gulf of Mexico to Asia, among others.

LIQUID BULK

The Liquid Bulk Segment includes oil tankers, LPG gas carriers and chemicals tankers. These ships transported nearly 22.6 per cent of the total annual cargo that transited the waterway during fiscal years 2009 to 2014. Similarly, this segment generated around 16.7 per cent of the total number of transits and an average of 15.7 per cent of PC/UMS/97 tonnage for this period.

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This segment recorded an increasing trend in performance for fiscal Years 2009 to 2014, with the exception of fiscal year 2010 in which reduced transits and PC/UMS tonnage was caused mainly by the decline in volume of crude oil transported through the Canal, mostly from Colombia and the port of Chiriqui Grande in Panama destined to refineries in California.

The liquid bulk segment had a remarkable performance in fiscal year 2009, despite the economic recession that affected all maritime markets, since it reported a significant traffic increase of tanker through the Canal, surpassing a record for the last 12 years with 48.2 million PC/UMS tons, which translated into a 12.1 percent growth from the previous year.

This traffic upswing of liquid cargo vessels, especially in ships with beam of 100 feet and more, is due to an upsurge in the trade of various products. First, crude oil flow increased, particularly in the Venezuela – Nicaragua route, as a result of the new storage complex for crude and crude oil products inaugurated in March 2009 in the Port of Corinto. Moreover, crude oil and oil products exports from Venezuela to the west coast of Central and South America increased in light of the agreement of the framework of the Bolivarian Alliance for the Americas (ALBA).

On the other hand, Petroterminal de Panamá, the Transisthmian pipeline operator, has temporarily closed due to efforts to reverse the flow from northbound to southbound; this action has spurred Ecuadorian oil exports through the Panama Canal. In addition, the exports of

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petrochemical products from the United States to Asia through the Panama Canal remained relatively high because of the United States dollar weakness and low production in China.

Fiscal year 2010 was a year with good performance; despite reporting a decrease in the number of transits and PC/UMS tons and a slight increase in toll revenue, compared with the exceptional figures of fiscal year 2009. This decrease in traffic, was the result of the reduction in the volumes of crude oil transported through the waterway from Colombia and Panama was caused mainly by the reversion of the oil flow from northbound to southbound of the Panamanian Transisthmian pipeline.

With regards to fiscal year 2011, it was an excellent year for the liquid bulk segment, recording a significant increase in the tanker ballast transit, because the freight market in the Atlantic was more attractive than in the Pacific, driving a tonnage repositioning in this area and also contributing to the positive performance of the segment.

In addition, Chilean diesel imports via the Panama Canal were remarkable due to Chile’s economic growth, which was reflected in its transportation sector and diesel-generated electricity. The diesel power plants were run heavily as a result of the drought experienced by the country early in the year that maintained reservoirs in deficit for several months.

The increase in diesel flow through the Canal, as a result of the Chilean demand surge, was accompanied by the contango of the oil market that continued encouraging the build-up of the United States petroleum and petroleum products commercial inventories, which in conjunction with the dollar devaluation, stimulated the exports of distilled products such as diesel, gasoline and LPG to Ecuador, Peru and Chile.

In fiscal Year 2012, the liquid bulk segment continued to show significant growth, primarily driven by increased vessel transits with beam of 100 feet and more, which was reflected in an increase of 5.4 percent in PC/UMS tonnage over fiscal year 2011.

Chile continued to confront hydroelectric-generation problems due to the prolonged drought, which, together with economic growth, led to increased diesel imports to meet rising demand for power generation.

Regarding to the supply of distillates such as diesel and petroleum products, North American refineries located in the Gulf of Mexico, maintained high commercial inventories as a result of the decrease in demand and prices of these products in that country. This situation allowed the establishment of attractive prices for exports, which was tapped by countries such as Chile and Ecuador.

On the other hand, in fiscal year 2013 the liquid bulk segment showed a similar behavior with respect to fiscal year 2012 as it only experienced a slight decrease of 0.4 percent in transits, while an increase of 2.6 percent in the PC/UMS tonnage.

Among the products that supported the growth of the segment during fiscal year 2013, include diesel, gasoline and petroleum miscellaneous products. Diesel recorded its largest flows on the

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routes of the Gulf of Mexico to Chile and Peru mainly, while gasoline was driven by exports from the Gulf of Mexico to Ecuador, Guatemala, Taiwan, Mexico and El Salvador.

Refineries in the United States registered records in petroleum products exports in 2013, according to figures from the Energy Information Administration, about 65 percent above the levels of exports from 2010, when the United States oil boom was still in its infancy. In general terms, this is attributed to the high levels of production, the decrease in purchase of gasoline in the United States by the improvement in efficiency of automobiles, the reduction in the price of the products and the increase of inventories due to low demand for the summer season. These shipments have been used largely by Latin American countries5.

Diesel imports from Chile, mainly from U.S. refineries in the Gulf of Mexico, recorded a 28.3 percent decrease when compared to FY 2012 figures. Despite this decline, Chile remains the main destination of shipments through the Panama Canal.

During fiscal 2014, the liquid bulk segment performed well, despite recording a decrease of 4.7 percent in transits and 3.0 percent in PC/UMS tons, while toll revenues recorded an increase of 2.9 percent. This decrease in traffic was the result of a reduction in gasoline imports from Europe6 to the West Coast of the United States. Additionally, higher freight rates in Panamax vessels used to transport diesel in the arbitrage between the United States and the Northeast Coast of Europe, contributed to the decline of laden and ballast transits of vessels through the Canal7.

The total cargo transported during fiscal year 2014, registered an increase of 3.0 percent compared with the previous fiscal year, mainly driven by the Ecuadorian oil exports, bound to North American refineries in the Gulf of Mexico and the increase in exports of LPG from the United States to the West Coast of Central and South America. This increase in cargo volume was reflected in the transits of vessels with a beam range of over 100 feet, which increased 5.2 percent compared with fiscal year 2013.

Crude petroleum was the product with the highest growth during fiscal year 2014, mainly from Ecuador to the Gulf of Mexico route, which grew by 32.0 percent compared with fiscal year 2013. The increase in crude oil exports from Ecuador in fiscal year 2014 is related to Petroecuador strategy to sell crude oil cargoes on the spot market with a discount on the price per barrel, which is indexed to WTI (West Texas Intermediate).

Traditionally, Petroecuador sells most of its oil to Petrochina, but ocasionally takes bids to sell the oil on the open market. Also, Ecuadorian Oriente and Napo crudes are in high demand by American refineries, as these types of crudes are optimal for blending with the light crude extracted from tight oil deposits in the United States8.

Moreover, the start-up of the new export terminals for liquefied petroleum gas (LPG) of Targa

5 U.S. Refiners Export More Fuel Than Ever, The Wall Street Journal, October 2013. 6 Europe awash with gasoline as shipments to U.S. at decade low, Reuters, October 2013. 7 Increased flows on LR vessels lead to USGC-NWE MR tanker rates bottoming out, Platts, June 2014.

8 Repsol, BP and Mitsubishi win tenders to buy Ecuador crudes, Reuters, May 2014.

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and Enterprise companies located in Houston, Texas, drove LPG exports from that country to Ecuador, Chile and Guatemala.

New Toll Proposal

Oil Tankers. The new toll proposal maintains the PC/UMS unit for charging the oil tanker vessels. Oil Tanker vessels transiting through the Neopanamax locks will use a fixed-and- variable toll scheme, in which the PC/UMS is used to collect the toll fixed part while the amount of cargo in metric tonnes is used to collect the variable part. For vessels transiting through the Panamax locks they will be charged based on the PC/UMS.

The descending scale of the PC/UMS bands are designed to promote the use of larger vessels, contributing to improved efficiencies in the transportation due to economies of scale. In the case of ballast vessels, their new tolls are stablished at levels that will encourage the repositioning of large ships that could take advantage of the Neopanamax locks. The new pricing structure based on PC/UMS is easy to understand because it is a measure that the canal has been using for many years and the industry is familiar with it.

It is expected that the oil tanker vessel traffic will increase in the coming years as a result of the rise of exports of crude oil products from the North American refineries located in the Gulf of Mexico bound for Asia, Central and South America. Similarly, increases in shipments of crude oil from the East Coast of South America with destination to Asia are expected.

Chemical tankers: the use of the PC/UMS unit remains for the collection of tolls and the categorization of these vessels is tuned on the basis of the classification type IMO. Specifically, vessels IMO 1 class and those containing IMO 1 class in conjunction with other classes will be categorized as chemical tankers; vessels class IMO 2 and/or 3 are classified as oil tanker ships

The trend in the average size of chemical tankers is expected to remain in the ranges that can use the Panamax lock. Moreover, with the rise in exploration and exploitation of natural gas in the United States, the prices of feedstocks for the petrochemical industry are projected to be very competitive, which promotes exports to Asia, mainly.

LPG gas carriers: The cubic meter unit of measurement for cargo capacity is entered in the toll structure, which is used in the trade and transport of products such as propane, butane and ethylene. This is another market that is shaping up positively following the exploitation of shale gas, liquefied petroleum gas ("LPG") is a product associated with the production of methane. The Neopanamax locks will allow the access to VLGC (very large gas carriers) ships, which currently cannot pass since they exceed the allowed dimensions. This change in the unit of measure in conjunction with established tolls will encourage long trips between the Gulf of Mexico and Asia.

LNG gas carriers: The type LNG vessel is created to include ships that transport liquefied natural gas (LNG) through the Neopanamax locks. The unit of measurement to be used for toll collection of this new type of ship is the cubic meter capacity. This unit is used in the maritime

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industry to measure this particular type of ship, as well as in the commercialization of this product, which facilitates the understanding of the tariff system.

It is expected that the main route for this new market originates in the Gulf of Mexico bound to Asia in LNG vessels up to 180,000 cbm of capacity. In this route, the Panama Canal transit toll represent about 1.1% of this product placed on destination/CIF price.

The benefits of savings derived from the shorter route through the Panama Canal are kept in the main routes of ships of the bulk liquids segment for the transportation of petroleum products from the Gulf of Mexico in the United States to the West coast of South America, crude oil from Ecuador to the United States, chemicals such as benzene and the liquefied petroleum gas (LPG) from the Gulf of Mexico to Asia and South America. Finally, shipments of liquefied natural gas (LNG) from the Gulf of Mexico are expected with destination to Asia.

The new toll proposal for the liquid bulk segment does not significantly impact the trade competitiveness of the products transported through the Panama Canal. The cost of transit through the all-water route with the proposed tariff represents in average about 0.6 percent for the final destination price of the main products transported.

VEHICLE CARRIERS AND RO-RO VESSELS

During the period between fiscal years 2010 and 2014, vehicle carriers and ro-ro vessels accounted for 12.9 percent of the total PC/UMS tonnage of the Panama Canal tonnage and generated on average 5.4 percent of total transits.

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The vehicle carriers and ro-ro segment has shown an upward trend for the fiscal period 2010- 2014, driven by a recovery of the light vehicle sales in the United States. However, it is important to highlight that the current U.S. sales volume still does not supersedes the pre- recession volume. When comparing fiscal year 2007 with fiscal year 2014, in the latter year 2.7 million long tons were transported via the Panama Canal and destined for the U.S. market, tonnage lower by 0.1 million long tons in comparison to fiscal year 2007.

During fiscal year 2014, the vehicle carriers and ro-ro market segment had a strong performance, in which the main indicators of traffic through the Panama Canal showed positive results in comparison to the traffic indicators observed during the previous fiscal year. The segment recorded a total of 815 transits and 45.8 million PC/UMS tons. In comparison to fiscal year 2013, these figures represent a 6.4 percent increase in transits and a 6.7 percent increase in PC/UMS tonnage. Vessels 100 feet and over in beam accounted for 93.4 percent of all transits.

Cargo tonnage totaled 4.6 million long tons, a 4.6 percent increase compared to fiscal year 2013 in which 4.4 million long tons were transported via the Panama Canal. The increase in cargo volume through the Canal was driven by exports to the United States from Japan, South Korea, Mexico, Germany, and United Kingdom.

Proposed Structure and Tariff

The proposed toll structure for the segment of vehicle carriers / ro-ro vessels maintains PC/UMS as the unit of toll assessment. However, it has been decided to introduce the load factor, which is

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calculated by dividing the cargo weight in metric tons by the deadweight in metric tons (DWT) of the vessel, as a variable to determine the capacity rate to be applied.

The establishment of a toll structure that is based on the percentage of utilization of the vessel will provide flexibility to carriers by allowing them to actually be assessed by the tonnage of cargo that is been transported, and thus, distribute the Panama Canal transit fees to the actual cargo onboard. This structure takes into consideration the effects of the OEM’s co-location strategy on the shipping lines, and specially the need of emerging routes to transport a lower amount of cargo in comparison to the industry standards. In addition, the ACP has also taken into consideration the fact that the existing Panamax locks will have the capacity to offer a high quality service to the vehicle carriers and ro-ro segment, segment which is expected that by the first quarter of year 2016 ninety-two (92) percent of its fleet will still be Panamax size or smaller, and thus, it is expected that their participation in the existing locks will increase due to the natural migration of the other segments (i.e. containers, dry bulk, tankers, and LNG) to the neopanamax locks.

This proposed structure is an outcome of the sectorial meetings conducted between the ACP and the PCC adhoc group that included the Japanese Shipowners Association (JSA), the Korean Shipowners Association (KSA) and the Norwegian Shipowners Association (NSA). With this toll structure proposal the ACP seeks, from a flexible and simple perspective, respond to the needs of the clients and enhance the value proposition of the Panama Canal to ensure that it will be the route of choice for the maritime transportation of light and heavy vehicles. Furthermore, the proposed tariff is very competitive since it is similar to the effective tariff of fiscal year 2014 with the objective of maintaining and attracting the traffic of Panamax vehicle carriers and ro-ro vessels, and thus, counteracts the effects of the natural migration of some services to the neopanamax locks.

PASSENGER VESSELS

During the period between fiscal years 2010 and 2014, passenger vessels accounted for 3.0 percent of the total PC/UMS tonnage of the Panama Canal tonnage and generated on average 1.5 percent of total transits.

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The passenger segment has shown a downward trend for the fiscal period 2010-2014, with the exception of fiscal year 2011, where it had an increase in PC/UMS tonnage, due to a greater traffic of Panamax-size vessels. As of 2011, a sharp decrease is observed on the number of transits and PC/UMS tonnage, mainly due to the itinerary adjustments performed by some cruise lines, which are following growth strategies driven by larger capacity new builds and ship/destination diversification. During fiscal years 2012, 2013 and 2014, the PC/UMS tonnage remained virtually unchanged at 9 million tons.

During the cruise season 2013-2014, the passenger ship traffic through the Panama Canal experienced a moderate behavior. The segment recorded a total of 218 transits (178 full transits and 40 turnarounds), 12 transits more than the previous year (171 full transits and 35 turnarounds). The total number of passengers was in the order of 234,865, 4.2 percent more than the 225,367 registered during the fiscal year 2013. The traffic of passenger vessels attending the premium market segment of the cruising industry, which is characterized by 10 - 15 day cruises with ticket prices higher than in the contemporary market segment, accounted for approximately 80 percent of the 9.1 million PC/UMS tons registered by the segment during fiscal year 2014.

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Proposed Structure and Tariff

The toll proposal for the segment of passenger vessels maintains its current toll structure of berth capacity and PC/UMS tonnage9, and proposes a slight adjustment in tariffs with the objective of approaching the touristic value of the Panama Canal route. In addition, passenger vessel will be subject to a differentiated tolls depending on the locks utilized( panamax or neopanamax).

With this proposal it is expected that the traffic of cruise ships will increase slightly in the years to come, as a result of the tourism attractions offer by the Panama Canal of which the neopanamax locks are a part of.

9 Vessels above 30,000 gross tons (GRT) and whose PC/UMS tonnage divided by maximum passenger capacity (PAXITC) ratio is less than 33, shall pay tolls on a per berth basis. If such a ratio is greater than 33, tolls shall be paid on the basis of PC/UMS tonnage. Vessels below or equal to 30,000 GRT shall also pay on the basis of PC/UMS tonnage.

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REFRIGERATED CARGO VESSELS

Specialized reefer vessels carry all types of perishable cargo, with bananas having the highest historical participation of these goods through the Panama Canal, accounting for 69.6 percent of all long tons shipped during the fiscal year 2014. Other important goods are fruits, fish, and canned goods. During the last five years the refrigerated cargo segment has been negatively impacted as a result of the trend to transport perishable goods in refrigerated containers on container ships, marking a downward trend in traffic indicators. During the period between fiscal years 2010 and 2014, this segment had an average participation in Panama Canal traffic of 3.6 percent, 10.3 percent and 3.0 percent of the total PC/UMS tons, transits and toll revenues, respectively.

At the end of fiscal year 2014, this segment registered 111 less transits than the previous fiscal year, which impacted negatively the number of transported TEU on deck and the billed vessel net tons, in 22.1 and 9.4 percent less than the past fiscal year. The continue migration of refrigerated cargo towards container vessels is evident and it is reflected in the Panama Canal traffic indicators for refrigerated cargo vessels.

Bananas are the main goods transported in refrigerated cargo vessels through the Panama Canal. During the past year, fruit trade was carried out not only from Ecuador to Europe, but also from

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countries in Central America and Colombia to take advantage of their low prices and freight costs. These trade routes do not use the Panama Canal.

A few months ago, Ecuador, one of the main exporters of perishable commodities through the Panama Canal, announced the signing of a free trade agreement with the European Union to take effect in 2016. It could represent a reduction in duties of up to $52 per metric ton of exported bananas. It is expected that the signing of this treaty would have a positive impact on the Panama Canal, since its main purpose is to increase trade between these two markets, whether they decide to transport the cargo on refrigerated cargo vessels or container vessels. Trade flows on the route between the West Coast of South America and Europe remained the most important for this segment through the Panama Canal.

However, refrigerated vessels are at a great disadvantage having high operating costs, obsolete propulsion technology designed for high-speed navigation, and limited capacity for containers. Added to these variables is the average age of the fleet, which is over 25 years and the lack of new orders to replace them, putting pressure on the use of these vessels. Meanwhile in the containership market, significant technological advances are made to reduce fuel consumption, ensuring the preservation of perishable goods and increase efficiency through the transport of refrigerated goods in refrigerated containers. This is part of an evolving supply chain in the perishable cargo transportation market, which is looking for more efficient ways to move the cargo while saving in operating costs.

For the official budget of fiscal year 2015 is estimated, in the most likely scenario, less number of reefer vessel transits during fiscal year 2014, as well as a smaller tonnage, because it is expected that migration to reefer container reflected during the last year could continue to affect the traffic in refrigerated cargo ships through the Panama Canal. Drewry's forecast for refrigerated cargo, estimates a 22 percent increase in refrigerated container fleet capacity. This increase is expected to be detrimental to conventional refrigerated ship, similar to which has been given in recent years so. This will have a negative impact in toll revenue estimates for refrigerated ships in fiscal year 2015.

GENERAL CARGO VESSELS

The general cargo or multipurpose vessels carry different goods, bulk cargo, containers and, at times, even storage tanks. During the period between fiscal years 2010 and 2014, a diversity of products transited the Canal. Manufactures of iron and steel and ores and metals were the commodities with the highest long ton average participation, with 25.9 percent and 16.0 percent, respectively.

The general cargo vessels that transited the Panama Canal contributed with 2.8 percent of the total PC/UMS tons, 7.2 percent in transits and 2.4 percent in toll revenues.

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Fiscal year 2014 registered 16 less transits in comparison with the previous fiscal year. Nevertheless, this segment reported an increase in the average vessel size from 10,214 to 10,750 PC/UMS tons compared to the previous year, affecting positively the tolls revenues 11.0 percent. The total transported cargo volume registered an increase of 9.2 percent more than fiscal year 2013.

The main commercial route for the general cargo segment during fiscal year 2014 was Asia – East Coast of the United States, in both directions, accounting for 38.3 percent of all long tons transported by this market segment, followed by the West Coast of South America – East Coast of the United States which represented 14.5 percent.

The movement of manufactures of iron and steel ranked first among the commodities transported in general cargo vessels, registering 38.7 percent of all long tons of cargo during fiscal year 2014. Ores and metals were in second place, followed by grains, with 24.1 percent and 16.3 percent share respectively. During fiscal year 2014 a total of 6.9 million long tons of cargo on vessels belonging to this market segment were transported.

The general cargo vessels operate under private contracts on a "tramp" scheme causing a mixed performance, which is reflected in the traffic through the Canal in recent years. For fiscal year 2015 a decrease of 4.2 percent in the number of transits and 10.0 percent in the volume of PC/UMS tons is projected.

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New tolls proposal

The fleet of reefer vessels does not contain neopanamax vessels, and no orders have been made for Post-Panamax reefer vessels. Therefore, the proposed new tolls for the reefer vessels segment will maintain the current pricing structure, with a slight increase in the toll tariffs.

The proposed new toll for the reefer vessels segment does not affect the competitiveness of the Canal for the products transiting through in such vessels. The impact on the toll per PC/UMS proposed will be less than 3 per cent per box of bananas.

The new tolls proposal for the general cargo vessels segment will continue with the current toll structure. The pricing structure based on PC/UMS ton ranges will remain, with a 3 percent increase in rates per PC/UMS. Additionally, reefer and general cargo vessels transiting with containers on deck will be charged a fee of $90 per TEU transported at its time of transit as determined by the ACP. This rate represents an increase of 9.7 percent over the current rate.

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