53
with the shippers to see whether or not they would agree to what
you are suggesting.
As I say, I think our preliminary information is that there may
be problems under their insurance policies with our pilots control-
ling the ships during transit.
Mr. LENT. I understand that in January 1981, the monthly provi-
sion for accident reserves was doubled from a half a million dollars
to a million dollars per month for fiscal year 1981, effective with
the October 1981 accounts. Is that correct?
Mr. GIANELLI. I think that information is correct.
Mr. McAULIFFE. That is correct.
Mr. LENT. The question I had then was can you tell us how much
the company set aside for accident reserves in 1979, the last day of
its operation? The last year of its operation?
Mr. GIANELLI. Mr. Lent, could we double check those figures and
present them to you?
Mr. LENT. Yes. I realize these questions perhaps should have
been submitted to you in advance.
Mr. GIANELLI. We will certainly submit responses to those.
Mr. LENT. Along that line, I would like to know what specific
events might have required the doubling of the monthly reserve
during the first year of canal operations under the 1977 Panama
Canal treaties and whether or not the $1 million per month re-
flects actual monthly accident costs or potential liability.
In other words, is it the Commission's policy to set aside for in-
surance against all possible risks in the canal operation?
[The following was received for the record:]
QUESTIONS SUBMITTED BY MR. LENT AND ANSWERED BY THE PANAMA CANAL
COMMISSION
Question 1. Please tell us how much the Panama Canal Company set aside for
accident reserves in fiscal year 1979, the last year of its operation?
Answer. The monthly accrual or reserve for marine accidents in fiscal year 1979
was $0.5 million for the first three months and somewhat more than $0.9 million for
the remaining months, for a total of $10.0 million. The increase in monthly accrual
was made in January based on the high ship accident cost experience for the first
quarter of the fiscal year. This increased accrual proved insufficient for current
year costs and revised estimates for pending claims for prior years and an addition-
al $5.7 million accrual was booked for 1979 to sustain the reserve account balance.
The total charge to operations in 1979, therefore, was $15.7 million. Compounding
the inflationary impact on vessel accident costs in 1979 was the occurrence of two
major marine accident collisions-Quidnet/Seatide and Amilla/Star Capella.
Question 2. What specific events required the doubling of the monthly reserve
during the first year of Canal operation under the 1977 Panama Canal Treaties?
Answer. For fiscal year 1980, the first year under the treaty it was calculated that
a $6.0 million reserve would be adequate to cover marine accident costs that the
Commission was authorized to settle. After reconsideration and consultation with
the General Accounting Office, the Commission believed it was appropriate to pro-
vide for all Marine accident costs sustained even those outside of the locks with
claims in excess of $120,000. All accident costs in 1980 amounted to $11.3 million,
and accordingly, the accrual for marine accidents was adjusted in the latter part of
FY 1980. The total accrual for FY 1980 was $10.5 million. The reserve accrual for
Marine accidents was increased to $12.0 million in 1981 and 1982.
Question 3. Does the $1 million per month reflect actual monthly accident costs or
potential liability? In other words, is it the Commission's policy to set aside for in-
surance against all possible risks in the Canal operation?
Answer. No, the Commission does not reserve for all possible risks in Canal oper-
ation. The $1 million accrual each month establishes a "reserve" to account for the
normal costs arising from marine accidents only. Under this method of accounting,
a reserve is built up to cover normal losses from marine accidents by charging oper-