20, 010.00

6, 700.43

26, 710.43

221, 212.06

20, 010.00

7,854.86

27,864.86

234, 253. 12

20, 010.00

7, 185.55

256, 621.02

283, 500.56

20, 010.00

5, 536.28

25, 546.28

343, 189.13

344, 066.76

369, 613.04

PANAMA CANAL COMPANY AND CANAL ZONE GOVERNMENT OUTSTANDING ACCOUNTS RECEIVABLE PANAMA GOVERNMENT BY CALENDAR YEAR

1959-Water processing costs are unpaid for the calendar year with the exception of $25,000.00 which was received in March 1961 and applied as partial payment to the oldest account (January 1959). In column "Other" are such services as Taboga Launch, which averages approximately $2,200.00 per month; transporting mail on the SS CRISTOBAL; medical care furnished tuberculosis patients and members of the National Guard; rental of space in Panama Railroad Station; electric current furnished the Hotel Washington, Fort Delesseps Area and Colon Sump Pump; and Storehouse materials furnished from time to time.

1960-The unpaid accounts here are much the same as those in 1959. In addition, one item in the amount of $19,020.05 covering repairs to garbage and trash collection equipment, remains unpaid.

1961-All accounts were paid with the exception of $3,998.40 for medical services rendered TB patients.

1962-Payment was received for miscellaneous services and supplies furnished from January through June 1962. The Panama Tourist Institute was billed for the Taboga Launch service effective January 1962 and payments were received throughout the year. With the exception of charges for garbage disposal, Colon, the unpaid accounts are mostly for public utilities. Such services as transporting mail on the SS CRISTOBAL, furnishing electric current to areas in Colon, medical care of TB patients, and rental of space in Panama Railroad Station have been discontinued.

1963-Payment was received from the Tourist Institute for Taboga Launch service from January 1963 to August 15, 1963. On August 16, 1963, Panama took over the operation of this service. With the exception of garbage disposal, Colon, the unpaid accounts consist of public utilities, Storehouse stock, storage charges, and labor costs at Summit Magazine.

1964-75-Unpaid accounts in column "Other" include public utilities, Storehouse stock, storage and labor costs at Summit Magazine and handling mail from Panama to Colon. Since 1964 Storehouse stock sales have been kept to a minimum. 1972-During June 1972 Invoice No. C2-13-321 dated February 16, 1970 in the amount of $94,518.71 stated against Instituto Panameno de Turismo was reclassified from Receivable-General to Receivable-Republic of Panama.

1976-No payment was received for water processing costs during February 1976. Water processing costs for October 1975 through February 1976 are unpaid. In accordance with the terms of the loan agreement with the U.S. Aid Mission to Panama, water processing costs are to be paid within ninety days from invoice date. On this basis, the account for October 1975 in the total amount of $138,422.00 is overdue.

Pt. II-I(1) How does the existence of treaty negotiations affect the capital programs of the Canal organization?

Answer: The current treaty negotiations have little effect on the capital programs. The Canal operation is viewed generally an on-going concern and, accordingly, the evaluation of capital projects is within that concept. Capital projects are evaluated on the assumption that Canal operations will continue. Pt. II-I (2) How does the existence of ongoing negotiations affect the planning of the Canal organization, with respect to both the marine services and the jurisdictional services provided?

Answer: The existence of ongoing negotiations has little effect on the planning of the Canal organization because of the uncertainty as to the details to be contained in a final negotiated agreement.

The Committee letter of Feb. 2, 1976, continues as follows:

PART III. ALTERNATIVE FINANCIAL INITIATIVES DESIGNED TO IMPROVE THE FINANCIAL POSITION OF THE CANAL ORGANIZATION

Those concerned with the Panama Canal have conceived of many different alternatives for alleviating the financial difficulties of the waterway. We have listed many of the alternatives which have been brought forward by one source or another. We desire an analysis of each of these twenty alternatives using the following criteria and any other criteria you may wish to cite: (1) The public financial efficiency of the alternative, including its direct and indirect administrative costs to the Canal organization and its impact upon those who would be affected by the alternative.

(2) The public financial equity and the savings or cost of the alternative for each of the following: (a) the Canal organization; (b) Canal users; (c) Canal employees-in the aggregate, and for the U.S. and non-U.S. citizen employees; (d) the U.S. Government; (e) the U.S. taxpayer; (f) the Republic of Panama, including the Government of the Republic and citizens who are not Canal employees.

(3) The international legal or political ramifications which are likely to ensue if the alternative were implemented.

(4) The revisions of domestic U.S. law required for implementation of the alternative.

We hope that the Company/Government will use all appropriate techniques, including macro and microeconomic analysis to adequately assess the alternatives, which are as follows:

[The alternatives raised by the committee and the response of the Panama Canal Company to those alternatives follow:]

A (1) Reducing the tropical differential of U.S. citizen employees. Answer: The tropical differential is a highly emotional issue to the U. S. citizen employees. Any movement to adjust or change the amount of tropical differential or the terms of its application is deeply resented and resisted. As you are aware, a proposal by the Canal Zone Civilian Personnel Policy Coordinating Board (CZCPPCB) which would, along with other pay changes, eliminate the tropical differential for almost all future locally hired U. S. citizens is one of the sensitive actions that triggered employee "job action" resulting in a virtual closing of the Panama Canal.

The Panama Canal is back in full operation at this time based on my firm commitment to recommend and support significant changes to the CZCPPCB proposals. Although my initiative would not alter the tropical differential proposal, I do not feel any further adjustments at this time would be advisable. Pt. III-A (2) Conversion of the wage base for certain positions in the Canal organization from the U.S. to the Canal Zone wage base.

Answer: It was such a proposal as this by the Canal Zone Civilian Personnel Policy Coordinating Board that triggered an unfortunate "sick out" of Canal employees (primarily U. S. citizens). Specifically, the proposal was to convert grades NM-4, 5, and 6 and the M10 Journeyman craft grade to the Canal Zone Wage Base. Present incumbents were to have current rates of pay saved indefinitely. There are approximately 2,200 Panama Canal employees, two-thirds non-U. S. citizens, who would be affected.

As previously mentioned I have proposed to modify the proposals. My recommendation is to apply the change in pay base only to NM-4 and NM-5. Furthermore, pay base changes would be applicable only to employees hired after the effective date. Further adjustments are not recommended at this time. Pt. III-A (3) Provision of transit/marine services and/or jurisdictional services by firms/individuals under contract rather than public employees. Answer: The Company has no objection to contracting for services and currently does so. The Company is continually seeking ways of carrying out its mission of servicing shipping in a dependable, efficient and economical

manner.

Pt. III-A (4) Work incentive bonuses to recognize increased productivity. Answer: The work requirements of the Panama Canal are in most part not conducive to individual means of measurement for incentive pay that would provide a net return, such as lower costs to the Canal. There are over 1,000 occupations represented in the Canal organization. The work volume of the Canal is either beyond its control, such as the number of ships transiting, or of the type generally not readily associable to incentive pay. For example, a policeman, school teacher, truck driver, launch operator, seaman. A possible exception is the handling of cargo on the piers. Most of the output of the Panama Canal results from team efforts to accommodate to workload and in that environment performance does not lend itself to measurement.

Pt. III-B (1) Greater recovery of costs of Canal non-transit activities by raising user charges for such activities, and by charging for licenses and permits.

Answer: The pricing policies for user charges, other than for tolls, in both transit and non-transit activities, consider the cost of the service provided and recognizes that charges should be fair and equitable to both parties. User

charges are undergoing continual change as dictated by fluctuations in costs and volume and, in those areas where comparability pricing prevails, by price changes in other locations.

Fees are assessed for licenses and permits.

Pt. III-B (2) Changes in cash management procedures to allow for public or private investment of such balances and return on cash balances and reinvestment of such.

Answer: Section 7.1 of the Company's Bylaws provides:

Section 7.1 Deposit or Investment of Funds. In accordance with applicable laws and regulations, funds of the corporation shall be kept with the Treasurer of the United States or with a Federal Reserve bank or a bank designated as a depositary or fiscal agent of the United States, or invested as determined by the Board of Directors. The Financial Vice President shall from time to time establish, and report to the Board of Directors the cash balances needed for current requirements.

Pt. III-B (3) Use of temporary borrowing within the fiscal year to attain savings by more rapid payment of obligations.

Answer: The Company's cash position is such that there is no delay in the payment of its liabilities as they fall due.

The borrowing authority is used to backstop obligations but has not been required for purposes of making payments nor is it foreseen that it will be needed for making payments in the future under normal operating circumstances.

Pt. III-B (4) Shift of certain functions from operating to capital budget to allow for payment of the asset over its useful life.

Answer: The costs of Panama Canal capital assets are recovered over its useful life. The Company, as a regulated public utility and Government corporation must follow generally accepted accounting principles in determining whether an item is financed through its capital or operating budget. Accordingly, the determination of a capital outlay versus an operating expense cannot be determined arbitrarily, but must be supportable in the light of accepted accounting principles. The General Accounting Office audit of the Company's financial operation is directed, in part, to compliance with accepted accounting principles.

Pt. III-B (5) Paying the depreciated cost of any property, plant, or equipment transferred from another Government agency rather than its original cost, as would seem to be indicated in 2 CZC 62 (d).

Answer: The section referred to provided that in valuing a transferred asset adequate provisions shall be made for depreciation and other reasonably determinable shrinkages in values. Any item transferred to the Company is so valued in the accounts of the Panama Canal and in the U. S. Government's investment.

Pt. III-C(1) (a) Finance capital programs by debt issuance, including as one alternative the sale of bonds to the Treasury to finance capital expenditures.

Answer: To date the Company, through prudent financial planning, has been able to finance its capital program through internally generated funds. The proposal of debt issuance is one alternative to financing a major capital program, but would require statutory authority. There are other alternatives requiring Congessional actions, e.g., changing the level of the borrowing authority, or obtaining appropriations. In any event, the issuance of debt should be a cost to the users of the Canal and not the U. S. taxpayers. An alternative not requiring Congressional action would be leasing.

Pt. III-C(1)(b) Provision for the Company to make profit to cover its capital investment.

Answer: Section 412 (b) provides for the recovery of all costs, as nearly as practicable. If this section were amended to provide for a profit, beyond costs, the Company would accordingly adjust toll rates to provide for the added return.

Pt. III-C(2) (a) Dismissal/deferral of interest payment on contributed capital of Canal.

Answer: The dismissal or deferral of any cost to the Company would obviously have the effect of reducing tolls through a U.S. taxpayer subsidy.

If interest payments were dismissed by the Congress, it is assumed that the Company would no longer be required to pay interest on the U. S. Government's

investment. It follows then that cost of operation to be recovered through the toll rate would be less.

If the interest payment were deferred, an action which the Company is permitted to take under existing legislation, interest would continue as an operating cost and the amounts deferred would, under existing statute, be recoverable from subsequent earnings.

Pt. III-C(2) (b) Dismissal/deferral of repayment to Treasury of the net cost of Canal Zone Government.

Answer: The comment to the previous question on dismissal/deferral of interest are equally applicable to net cost of Canal Zone Government.

Pt. III-C(2) (c) Provision for interest income on funds maintained with Treasury.

Answer: The Government Corporation Control Act provides generally that the banking or checking accounts of all Government Corporatins shall be kept with the Treasurer of the United Sates, or, with the approval of the Secretary of the Treasury, with a Federal Reserve Bank or depositary or fiscal agent of the United States. (31 U.S.C. 867). No provision is made for payment of interest on such deposits. The Panama Canal Company maintains a substantial amount of cash on deposit in the U.S. Treasury, currently some $35 million, which does not earn interest. On the other hand, the Company is required to pay interest to the Treasury on the net direct investment of the Government in the Company, at rates established by the Secretary of the Treasury (2 C.Z. Code § 62(e)). Legislation would be required to authorize payment of interest to the Company on the funds in the account maintained by the Company in the Treasury.

Pt. III-C(2)(d) Elimination of Company's responsibility for payment of portion of the annuity to Panama.

Answer: Elimination of the Company's responsibility for payment of the annuity would reduce the Company's cost by $522,000 annually.

Pt. III-C(3) Establishment of Canal organization banking facility with allowance for automatic deposit of employees' pay and ability of Canal organization to invest reserves of the bank.

Answer: The Company questions the practicability and desirability of establishing its own banking facility. Ignoring the cost involved, which would be substantial, there are other factors that require consideration. For example: a. There are approximately 62 different banking institutions in the Republic-two of which have Canal Zone branches. The Republic of Panama is an international financial center and the political implications of the Panama Canal establishing a banking facility must be considered.

b. The Chase Manhattan Bank and the First National City Bank, both resident in the Canal Zone, would be opposed to such action.

c. The extent to which, or reason for which, an employee would use a Company banking facility is questionable. The Panamanian orients his banking to the Republic. The American to a bank located in the States. There would be no advantage to the employee unless the interest paid on balances was very attractive.

d. An action such as this would require a study by the U.S. Treasury Department.

e. Congressional approval would be required.

Pt. III-C(4) Provision for Canal organization to earn and retain profit once every so many years. The Company could then retain that profit in a special fund to cover losses for other fiscal years.

Answer: The present law contemplates that the Company will be selfsupporting over a period of time although it may fail to recover costs in any given year or years. The devise proposed would accomplish substantially the same result.

Pt. III C(5) General sale of stock and preferred stock in corporation for specific ends or for financing organization (users could be either encouraged to buy stock or prohibited from buying).

Answer: A study to determine if the Canal should go “public” requires initially, short of legislation, much more study than can be made available within the time limit for reply to this communication.

Superficially, for anything like this to be successful, there would have to be a profit incentive which would have to be passed on to Canal users.

Pt. III-D(1) Imposition of an ad valorem general sales tax in Zone (setting of tax rate and base invested in Congress).