Cargo Business Newswire

Thursday, February 6, 2014

Top Story

Conflict over Panama Canal cost overruns could delay expansion

The $5.25 billion Panama Canal expansion project is at risk of being delayed after talks on $1.6 billion in cost overruns between a building consortium and the canal's authority broke down Wednesday.

The Panama Canal Authority said that the construction group building the new, wider locks suspended work on the project today. The consortium is made up of Spain's Sacyr, Impregilo of Italy, Belgian firm Jan De Nul and Constructora Urbana, a Panamanian firm. A spokeswoman for Sacyr said work had been slowed, not stopped.

"Any delay is rather bad for the market," said Nigel Prentis, head of ship broker Hartland Shipping Services, to Bloomberg in a phone interview. "Many ships have been ordered based on the new Panama Canal so it'll be quite a disappointment to have a delay."

Sacyr and Impregilo said in December they wanted compensation for $1.6 billion in cost overruns, about half the value of their original contract. They gave the canal authority one month to reach an accord.

Negotiations were ongoing until Wednesday, when no agreement was reached. The dispute puts as many as 10,000 jobs at "imminent risk," the companies said.

"They put a threat on the table and today they executed it," Jorge Quijano, head of the canal authority, told reporters in Panama City today, vowing to finish the project on time. "We demand they restart the expansion work."

Sacyr and Salini continue to seek a solution to finish the project in 2015, they said in a regulatory filing Thursday in Madrid. They said their work, which is about 70 percent complete, needs the extra financing to be finished. Quijano also said talks would continue, saying he has received offers from other companies to take over the project.

"There have been unforeseen costs" that arbitration should resolve, said Manuel Manrique, Sacyr's CEO, on a radio program in Spain. "But after four years the claims haven't been resolved and there's a liquidity problem and that's what we're discussing."

Prentis said it is unlikely the building consortium's contract will be rescinded.

"Can you imagine? Just taking them off and putting a new construction company that knows nothing about the construction to date?," Prentis said. "I can't imagine that's possible."

For more of the Bloomberg story: bloomberg.com