• Costa Rica Real Estate

Panama Canal expansion slowed by $1.6 billion financial dispute

April 24, 2014

PANAMA CITY — Work on expanding the Panama Canal went ahead at a reduced pace Monday despite the builder’s threat to shut down the project over huge cost overruns, officials said.

“They continue working at low intensity as they did last week,” canal administrator Jorge Quijano told AFP.

The Grupo Unidos por el Canal (GUPC) consortium, led by Spanish builder Sacyr, had said it might stop work by Monday unless Panama agreed to pay for $1.6 billion in “unforeseen” costs.

However, the consortium said Sunday in a statement that there was “no reason to make any change tomorrow in the status of the construction,” adding that GUPC could cease work at any time as it deemed necessary.

The pace of work last week, however, already has slowed to less than 30 percent what it should be, according to Quijano.

Union and government officials have said less than half the project’s 5,000 workers were still on the job as of last week.

Quijano had said previously that contact with the consortium continued over the weekend but that so far no deal had been struck, despite dialogue and mediation efforts by Spanish and Panamanian authorities.

He stressed that construction would go ahead with or without GUPC.

GUPC, which includes Impreglio of Italy, Belgium’s Jan de Nul and Constructora Urbana of Panama, has agreed to negotiate with the canal authority within the contract.

The overall canal upgrade was supposed to cost $5.2 billion, including GUPC’s $3.2 billion contract to build a third set of locks for the century-old canal, which currently welcomes ships that carry up to 5,000 containers.

Already facing delays, the project aims to make the 80-kilometer (50-mile) waterway, which handles five percent of global maritime trade, big enough to handle new cargo ships that can carry 12,000 containers.

In the current dispute, GUPC says it ran into costly overruns because the canal authority gave the builders the wrong information regarding the area’s geology.

The expansion work on the canal began in 2009 with the goal of being done by 2014 to coincide with the waterway’s 100th birthday, but completion was pushed back to 2015 after a first disagreement between the canal authority and GUPC over cement quality.

Then on December 30, the consortium threatened to halt work on the third set of locks, the most important part of the expansion project, giving the canal authority 21 days to agree to pay the $1.6 billion in unanticipated costs.

The dispute has reached the European Commission, whose vice president Antonio Tajani has offered to mediate.

The European Commission is seeking “a financial solution so that the companies can resolve an immediate liquidity problem and the work can continue at the expected pace,” Spanish Foreign Minister Jose Manuel Garcia-Maragallo said Monday.

A meeting was scheduled Tuesday with insurer Zurich America International to discuss a $600 million guarantee on the construction of the third set of locks.

“They are not going to stop (work), they tell me. But we will have to wait until Tuesday, because the meeting with the insurer could clear up some things,” Panama’s Minister for Canal Affairs Roberto Roy told AFP.

A construction delay could cost Panama an estimated $300 to $400 million in lost business from the huge container ships.

The ripple effects would be broader still, given the importance to East-West trade of a widened waterway, which would double the amount of cargo that could be moved between the Pacific and the Atlantic.

The United States already has spent millions of dollars adapting its ports on the Gulf of Mexico and the U.S. East Coast to receive the large container ships.

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