Panama, consortium to negotiate $1.6 bn canal row

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PANAMA CITY, January 7, 2014 (AFP) – After emergency Spanish mediation, the Panama Canal Authority and a consortium expanding the major waterway will try Tuesday to resolve a $1.6-billion dispute threatening to disrupt the project.

Spanish Public Works Minister Ana Pastor flew to the Central American nation for crisis talks on Monday with Panama’s president, canal officials and executives of the Spanish-led companies.

The Grupo Unidos por el Canal (GUPC) consortium, headed by Spanish builder Sacyr, has threatened to halt the massive project unless local authorities pay for $1.6 billion in “unforeseen” charges by January 20.

While the ultimatum remains in place, the two sides agreed to hold negotiations Tuesday that will include talks on extra funds that have yet to be determined, officials said.

“We are talking about additional funds from them and from us to continue the work, but this will be discussed (Tuesday),” said Panama Canal Authority Administrator Jorge Quijano.

“We are seeing a little bit of the light at the end of the tunnel,” he said.

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

GUPC has a $3.2 billion contract to build new locks for the canal, which currently handles ships that carry up to 5,000 containers.

Pastor, who met first with 16 GUPC executives, including Sacyr chief Manuel Manriquez, said the consortium was committed to resolving the row “within the contract.”

“We are trying to reach an agreement that will be good for everybody,” Pastor said after talks with Panamanian President Ricardo Martinelli.

The construction group includes Impreglio of Italy, Belgium’s Jan de Nul and Constructora Urbana of Panama.

Martinelli said the consortium and canal authorities need to find a solution, even if it means going through international arbitration.

“Surely solutions will be found within the meeting. This is a project of global scope for Spain, Panama and the maritime community,” said Martinelli, who last week said he was ready to travel to Europe if necessary.

The dispute has hurt Sacyr’s share prices, but Spanish Ambassador Jesus Silva said that his government would not help provide financial aid to the company.

The consortium began work on a third set of 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 expansion has been estimated at $5.2 billion.

The canal authority says the contractor has already been paid 62 percent of its fee, including an extra five percent, or $160 million, for additional costs related to labor and material.

But GUPC says it ran into extra costs due to technical and geological problems, cement ingredients, weather conditions, as well as tax, labor and financial issues.

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

Canal officials say 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.

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

 

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