Panama Canal

Panama seeks international help in dispute over canal costs

The cost of expanding the Panama Canal has increased by 50 per cent above the estimate, and the government in Panama City wants help in the battle over the US$1.6b overrun

PUBLISHED : Friday, 03 January, 2014, 1:18pm
UPDATED : Friday, 03 January, 2014, 1:32pm

Panama’s president said on Thursday that he would travel to Italy and Spain to seek their governments’ help in resolving a US$1.6 billion dispute that is threatening to halt the expansion of the Panama Canal.

The consortium responsible for most of the expansion issued an ultimatum on Wednesday giving the Panama Canal Authority 21 days to pay for a cost overrun that’s roughly half of Grupo Unidos por el Canal’s original US$3.2 billion bid to build a third set of locks. The consortium is formed by Spain’s Sacyr Vallehermoso, Impregilo of Italy, Jan De Nul of Belgium and Constructora Urbana SA of Panama. The canal authority says it believes the companies are responsible for the extra costs.

President Ricardo Martinelli said that Italy and Spain “have a moral responsibility” to help resolve the dispute between the companies and Panama.

“It’s not possible for a company to just announce an enormous amount of cost overruns, when they had already fixed a price,” Martinelli said. “And now they’re coming forward saying that the price has risen.”

The Panama Canal Authority says the business consortium is unjustly trying to force it to pay for the cost overruns with the threat to halt work. Each side says the other is responsible for the added costs.

The Panama Canal’s administrator, Jorge Quijano, said the dispute won’t delay the completion of the canal expansion and that Panama is ready to finish it if necessary.

“We are committed to finish the work,” Quijano said.

He said Panama could get the funds to finish the canal’s expansion from insurance money and bonds.

Quijano said Grupo Unidos por el Canal claims part of the increase in costs has to do with a hike in concrete prices but he added that the contract has clearly-established “price escalation clauses”.

“We know concrete has additives that can increase in price … but they can [also] decrease in price,” Quijano said.

Calls to Sacyr’s headquarters in Madrid went unanswered but company spokesman Pedro Alonso, speaking on Spain’s Cadena SER radio station, defended the company’s record in Panama.

“The truth is it’s a job being carried out to maximum technical and quality standards that is going to last 100 years and everything that has been done has been necessary, nothing has been done on a whim,” he said.

The consortium won the contract to design and build a third set of locks with a US$3.2 billion bid in 2009.

Panama has estimated the full expansion programme will cost US$5.2 billion, with the new, wider locks allowing the 80-kilometre canal to handle ships far larger than those that can now navigate the century-old waterway.

Officials have most recently said the work should be finished by June next year. They say the overall expansion work is 72 per cent finished, with the locks themselves at 65 per cent.

Sacyr’s shares on the Madrid stock exchange plunged in value by some 15 per cent when trading began on Thursday. The stock price recovered by mid-afternoon but was still down 8 per cent at 3.5 euros.

WikiLeaks cables from the US Embassy in the Spanish capital said a confidential analysis by the American firm Bechtel, which lost the bid for the canal project, had claimed that Sacyr’s winning tender was unrealistic and would barely pay for the concrete, leading Spanish newspaper El Pais reported on Thursday.