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Spanish minister in Panama to end $1.6-bn canal impasse

panama-canal4

PANAMA CITY, January 6, 2014 (AFP) – A Spanish cabinet minister is to meet Panama’s president Monday to help break a $1.6-billion impasse that threatens to halt work on a major expansion of the Panama Canal.

Spanish Public Works Minister Ana Pastor arrived in the Central American country late Sunday and is to meet President Ricardo Martinelli and Panama Canal Authority Administrator Jorge Quijano.

Pastor’s goal is to mediate in a conflict between Panama and the construction group working on the canal expansion led by Spanish builder Sacyr.

The Grupo Unidos por el Canal (GUPC) consortium, which also includes Italian, Belgian and Panamanian companies, has threatened to halt the project in three weeks if canal authorities fail to pay a massive extra $1.6-billion charge.

Ahead of the Martinelli meeting, Pastor will hold a closed-door meeting with top consortium officials, including Sacyr CEO Manuel Manriquez.

Major canal expansion work

The Panama Canal expansion project aims to make the 80-kilometer (50-mile) waterway, which handles five percent of global maritime trade, big enough to handle new, so-called mega cargo ships that can carry 12,000 containers.

Currently the canal can handle only ships large enough to carry 5,000 containers.

The United States built the canal between 1904 and 1914 and had full control of the waterway until handing it over to Panama in late 1999.

The consortium began work on a third set of larger canal locks in 2009 and expects to complete construction in June 2015, already nine months over the contractual date. Work is about 70 percent complete.

The overall cost of the project has been estimated at $5.2 billion.

A year ago, GUPC demanded that the Panama Canal Authority pay the extra $1.6 billion for “unforeseen” costs.

A Sacyr spokesman said the extra charges were due to “technical matters, questions over cement ingredients, geotechnical matters, geological questions, tax matters, financial matters, labor issues and weather conditions.”

Jose Pelaez, in charge of building the third set of locks, said Saturday that the cost overrun problems were due to problems in the regional geology that the Canal Authority had not detected.

The payment conflict reached a boiling point when, in a letter to canal authorities dated December 30, Sacyr gave a 21-day deadline for Panama to pay the extra charges or they will suspend work.

“We’re being cornered,” Quijano said, adding that the Canal Authority cannot become “hostage to a contractor.”

According to the Canal Authority, there was already a four-month delay shortly after the project began caused by the reversal of a GUPC plan to use lower-quality cement.

On Sunday, the Canal Authority said that the contractor’s claims “have no legal standing and are not clear,” and are not reason enough to halt the project.

Moreover, the consortium had “14 months before submitting their bid to closely study the components of the project” in order to submit a “solid” bid.

 

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  • stfree

    “…the cost overrun problems were due to problems in the regional geology…” Yea, who would have ever thought that when digging a hole that you might run into rocks? Or that holes dug in a waterway might fill with seeping water?

    This is a age old contractors trick. Give ‘em the boot.

  • expatin paradise

    This minister is to end the impasse – how, by talking the Panamanian government into giving in? Contractors should be on the hook for “unforeseen” complications. A contract is a binding agreement, and contractors should know what they are getting into before making bids. If they screw up and underestimate costs, they should eat the loss. I suspect that this contractor won the contract by bidding lower than another contractor that did the appropriate research and made a reasonable bid.

    I hope that Panama has not paid more than the percentage of the agreed-upon amount equal to the amount of work completed. I would suggest that they demand immediate resumption of the work and fine the contractor for all days lost to the stoppage of work, deducting fines from any money due under the contract. If the contractor refuses to finish the work, Panama should charge them for every day their equipment stands in the way of work by another contractor. this form of extortion should not be tolerated.