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Consortium threatens to stop Panama Canal expansion

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(Globalpost/GlobalPost)

A Spanish-led consortium threatened Thursday to halt a massive expansion of the Panama Canal, which handles five percent of world maritime trade, because of a row over cost overruns.

Spanish builder Sacyr, leader of the Grupo Unidos por el Canal consortium, said work will stop unless the canal pays $1.6 billion in cost overruns for work on the 80-kilometre (50-mile) waterway connecting the Atlantic and Pacific Oceans.

"GUPC has formally informed the Panama Canal Authority that it will suspend work if the failures to comply are not put right within the advised period," Sacyr said in a statement to Spanish market regulators.

The consortium said it had set the canal authorities a 21-day deadline before suspending its $3.2 billion contract (2.3 billion euros) to expand the capacity of the canal, notably by installing a third set of canal locks.

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

News of the suspension threat sent Sacyr shares plunging by more than 18 percent as trade opened on the Madrid stock exchange. By mid-afternoon, they were down 7.75 percent at 3.475 euros.

On Wednesday, Panama canal administrator Jorge Quijano warned that the canal authority would use contractual mechanisms to ensure the completion of the canal expansion.

"No matter what kind of pressure is exercised against the ACP (Panama Canal Authority), we maintain our demand that Grupo Unidos por el Canal respect the contract that they agreed to and signed," he said in a statement quoted by Panama media.

A year ago, GUPC demanded an extra payment of $1.6 billion from the Panama Canal Authority due to construction delays.

"There are many and varied unforeseen costs which came up during these gigantic works," a Sacyr spokesman told AFP.

"They are technical matters, questions over cement ingredients, geotechnical matters, geological questions, taxes matters, financial matters, labour issues and weather conditions," he said.

Led by Spain's Sacyr, the consortium also includes Impregilo of Italy, Belgian firm Jan De Nul and Panama's Constructora Urbana.

It began work on a third set of locks for the canal in 2009 and expects to complete construction in June 2015, already a nine-month delay over the date set in the contract.

The new locks will accommodate larger ships with a capacity of 12,000 containers -- instead of those with 5,000 containers that are now able to navigate the canal.

Some 13,000 to 14,000 ships navigate the canal each year.

According to the canal authority, there was a delay of four months shortly after the project began to reverse a GUPC plan to use lower-quality cement.

But Sacyr said the cost overruns were due to "unforeseeable" circumstances and had been reported to the relevant authorities, including the Dispute Adjudication Board.

"GUPC is maintaining communication with the Panama Canal Authority to reach a satisfactory agreement to put an end to the contractual imbalance," it added.

The canal uses a system of locks to raise ships from sea level and enable them to sail through the continental divide.

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http://www.globalpost.com/dispatch/news/afp/140102/consortium-threatens-stop-panama-canal-expansion-0