Top officials grapple to find a solution to $1.6bn row over Panama Canal expansion costs

Canals, People and Places, Trade and Commerce — By on January 7, 2014 at 11:20 PM
Panama Canal New Locks

Panama Canal New Locks

Panama Canal officials are striving to reach agreement with a Spanish-led consortium over how to deal with $1.6bn in cost over-runs alleged to have hit the waterway’s vital expansion project.

Earlier, as the dispute broke out, Spain’s public works minister Ana Pastor flew to Panama to meet the country’s president Ricardo Martinelli. Ms Pastor said that both sides should abide by the existing contract, and Mr Martinelli added: “”We are confident that these meetings will resolve these disagreements.”

The consortium has threatened to halt work on January 20 on the $5.25bn project to widen and deepen the canal. While the two sides are at odds over the claimed $1.6bn in unbudgeted costs, they are talking of putting up at least $100m each to keep the project running.

The Grupo Unidos por el Canal (GUPC), led by Spanish construction company Sacyr, said it had asked the canal administration for $400m. It was reported that the Panama Canal Authority (ACP) had proposed a $283m package, under which the authority and the consortium would each provide $100m, and the consortium would be given more time to repay an $83m advance.

The ACP said that cost overruns were normal in such a large construction project.

Observers note that massive cost miscalculations have in recent years been an alarming feature of mega-projects in transport and other fields.

The GUPC includes Impregilo of Italy, Belgian firm Jan De Nul and Constructora Urbana of Panama.

Under a deal priced at $3.2bn, construction of a third set of locks began in 2009 and is scheduled to open for commercial transits in June 2015.

At the start of the week, Jorge Quijano, administrator and chief executive of the ACP, issued an advisory to shipping agents, owners and operators. He said that the authority “reaffirms its commitment to the international maritime community and its customers to successfully complete the Expansion Program, thereby fulfilling its objective in offering a new era of opportunities to world maritime commerce.”

Mr Quijano said that to date, the plans had an overall completion rate of 72% and the new locks component was 65% complete.

He said that GUPC had expressed its intention to negotiate outside the terms of the contract, demanding additional funds, resulting from alleged cost overruns. “The ACP trusts that the contractor will comply with the terms and conditions agreed upon and that they file any claims through the three-step process explicitly established within the contract.”

Mr Quijano said: “We would like to reassure our customers that the contract was well drafted and includes guarantees for the completion of the new locks, even if the ACP is ultimately required to assume control of the project and deliver it within the shortest possible timeframe.”

The administrator emphasised that the situation with the contractor had no impact on current Canal operations.

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