Cash row hits Panama Canal project

PUBLISHED : Tuesday, 21 January, 2014, 11:23pm
UPDATED : Wednesday, 22 January, 2014, 3:05am


A conflict about US$1.6 billion in cost overruns, and who should pay up, has slowed work to expand the Panama Canal.

The project's Spanish-led consortium said it proposed that the canal authority help pay the higher costs, but the Panama Canal Authority rejected the idea.

The United for the Canal construction group, led by Spain's Sacyr Vallehermoso, has threatened to halt the biggest part of the expansion project if the financial dispute isn't resolved.

But the group said a stoppage was "not a scenario being considered at this moment".

Officials said expansion work had dropped 70 per cent since November and that hundreds of workers had been let go because of the vast project's slow pace.

In a statement, the consortium said that sharing payment for the unforeseen costs with the authority would allow it "to continue the work, which directly employs nearly 10,000 people, and it would achieve the completion of the project by 2015".

The consortium also said it welcomed an offer by the European Union to mediate in the dispute.

But the canal authority also turned down the EU's proposal. The contract for completing the third set of locks already includes mechanisms to resolve disputes and none involved third parties, the authority said.

It said the contract allows the consortium to stop work only if the agreed monthly payments by the authority are not disbursed, which has not happened. The project, now three-quarters complete, would double the capacity of the 80-kilometre canal, which carries about 6 per cent of world commerce.

The consortium blames cost overruns on problems with the studies carried out by the Panamanian authority before the work began.

It says geological obstacles encountered while excavating prevented it from getting the basalt needed to make the massive amounts of concrete required for the expansion.

Many experts say the conflict began when the consortium underestimated the project's costs when it won the canal expansion contract in 2009 with by far the lowest bid - US$3.1 billion for its portion of the job, US$1 billion less than a bid led by the US construction giant Bechtel.

US ports have invested billions in dredging, raising bridges and renovating docking infrastructure to accommodate the new generation of larger ships that could pass through the expanded canal.