Pt. II—A (5) Indicate the recent trend in the expenditure of funds for the use of outside consultants and analysts by the Canal organization. What have been the reasons for any changes or trends in this regard?

Answer: The level of consultant and advisor services for the Panama Canal Company is a minor cost, never exceeding 2 of 1% of total expenses in any one year. In relation to total expenses this cost has varied from a low of 0.15% in 1973 to a high of 0.42% in 1970, as may be seen from the following tabulation:

Throughout the ten year period from 1966 to 1975, consultant usage has included services in the areas of enginering studies; management information systems; tolls studies relating to methods of assessment, sensitivity, and traffic forecasts; and various computer applications.

Increases for consultant services were required in 1970 and 1974. In 1970, in addition to the above type of services, the Company employed a consulting firm to conduct a comprehensive organization and management survey of Panama Canal activities and to recommend cost reductions. The unusual increase in 1974 reflects employment of consultants to perform economic research relative to evaluation of toll rates.

Pt. II—A (6) Indicate the trends in the revenues and expenses the Canal Zone Government vis-a-vis the Panama Canal Company. If the proportions of the total Canal budget for each of these sister organizations have changed significantly, indicate the reasons.

Answer: In the past ten years, 1966-1975, the net cost of the Canal Zone Government has represented, on the average, some 15.8% of total Panama Canal Company costs, and, additionally, has not varied significantly from the average in any year (High 1973-16.7%; low 1975—14.6%).

In general, the trend of the Canal Zone Government vis-a-vis the Panama Canal follows the same inflationary pattern.

The following tabulation shows, by year, how the revenues and expenses of the Canal Zone Government and the Panama Canal Company have increased over the 1966 base.

Pt. II-A (7) Specify, for each program and function of the Canal organization budget, the causes of increased expenditures (e.g., wages, workload, requirements, depreciations) and the relative weight of each of these causes in increased or decreased expenses.

Answer: Per telephone conversation with Mr. Terry Modglin, the response to this question is to cover detail analysis of actual operations for fiscal years 1973-1975. The attached exhibits compare fiscal years 1973 and 1975 operating expenses and present an analysis of the increases in expense by operational activity. A summary of the variations by cause is included in the answer to question 2.

STATEMENT OF OPERATING EXPENSES FOR FISCAL YEARS 1973 AND 1975

1 Wage increases have been determined consistent with the description contained in the answer to question A-2. 2 Employment levels decreased 78 man-years by 1975. This was primarily due to the transfer of towboat personnel to the Navigation Service and control activity and the transfer of the guard force to the newly formed Canal Protection Division The increase in the cost of services received from other Company activities reflects principally wage and material cost escalations.

The increase in depreciation results from the initiation in 1974 of depreciation of the channel and other excavations. The depreciation of these assets was recommended by the Comptroller General and was included in the 1974 budget as approved by the Congress.

The increase in other expenses results primarily from escalations in the cost of fuel and other materials.

1 Wage increases have been determined consistent with the description contained in the answer to question A-2. 2 Employment levels increased 182 man-years by 1975. This included additional pilots, supervisory transit officers, ship line handlers, tug and launch personnel and marine traffic control employees which were necessary for a more expeditious and safe navigation of ships in canal waters.

The decrease in the cost of services received from other Company activities was due principally to the takeover of towboat operations by the navigation service and control activity.

The increase in other expenses resulted from an unprecedented increase in the cost of fuel used for towboat and launches and the charter of tugs from 3d parties. The costs of port pilotage, tug and launch operations, and handling of ship since were recovered by specific charges for the services rendered. OPERATING EXPENSES-LOCKS

1 Wage increases have been determined consistent with the description contained in the answer to question A-2. 2 Employment levels increased a net of 30 man-years by 1975. These additional man-years were required for locks operating crews at Gatun and Pedro Miguel to expedite lockages of vessels in transit and for locks maintenance personnel to perform maintenance projects scheduled to minimize operational failures. The increases in these areas were partially offset by the transfer of locks security guards to the newly formed Canal Protection Division.

3 The increase in the cost of services received from other Company activities is attributable principally to wage and material cost escalations, plus the increased scope and frequency of cyclical maintenance work. The 1975 costs reflect costs of multiyear programs to reinforce concrete, rehabilitate rubber fendering, repair towing track and switches, and replace bullwheels and gear mechanisms in the locks.

The increase in depreciation includes depreciation of locks excavations, which commenced in 1974.

OPERATING EXPENSES-GENERAL REPAIR, STOREHOUSE, ENGINEERING, AND MAINTENANCE SERVICES [In thousands of dollars]

I Wage increases have been determined consistent with the description contained in the answer to question A-2. 2 Employment levels increased 78 man-years by 1975. Additional manpower was required for centralized maintenance services to perform expanded locks maintenance and locks overhaul projects done on a cyclical basis and for vessel repair services to perform additional work associated with the overhauls of floating equipment.

3 The increases in the cost of services received from other Company activities and other expenses reflect principally wage and material cost escalations.

The cost of services rendered to 3d parties is recovered by revenues.

1 Wage increases have been determined consistent with the description contained in the answer to question A-2. 2 Employment levels increased a net of 63 man-years by 1975. This increase was required to accommodate a substantial ncrease in marine bunkering and cargo workload. The increases in these areas were partially offset by the transfer of terminal and marine bunkering guards to the newly formed Canal Protection Division.

The increase in the cost of services received from other Company activities was due principally to wage and material cost escalations.

The costs of these operations were recovered by revenues.

1 Wage increases have been determined consistent with the description contained in the answer to question A-2. Employment levels decreased a net 7 man-years in 1975 due to reductions in the power system brought about by the elimination of diesel generating units from service, a reorganization of maintenance gangs, and the transfer of the transmission line maintenance function to another activity.

3 The increase in the cost of services received from other Company activities was due principally to wage and material cost escalations.

The increase in depreciation reflects new plant items placed in service.

The increase in other expense is due principally to unprecedented increases in costs of fuel oil and gasoline used by the various transportation operations and for the generation of power. In addition, contract stevedoring costs in the Port of New Orleans have increased substantially.

The cost of these operations was generally recovered by revenues.