Dispute at Panama Canal drags on as costs mount

A $5.3-billion (€3.9-billion) project to expand the Panama Canal has come to a grinding halt due to a dispute over its cost between local authorities and the European consortium that is carrying out the work.

Grupo Unidos por el Canal (GUPC), which is led by Spain's Sacyr and Italy's Impregilo, confirmed last week that it had suspended work on the canal due to its failure to reach an agreement with the ACP canal authority.

GUPC has been demanding $1.6 billion (€1.2 billion) in compensation from ACP in order to complete the expansion, citing unforeseen cost overruns. But the canal authority, which is independent of the Panamanian government, has insisted that the contracted companies should finance the shortfall.

The impasse means 10,000 workers have had to down tools until a solution is found.

Panama’s president Ricardo Martinelli says the canal’s former administrator is largely to blame for the dispute and should have flagged doubts about Sacyr.

Martinelli, who took office days before the contract was awarded in July 2009, said former canal administrator Alberto Aleman, who headed the canal authority from 1999 to 2012, shouldered much of the blame for the dispute, which he called “a chronicle of a death foretold”.

“Everyone here knew the state Sacyr was in, that it had financial problems,” Martinelli told local television when asked about Aleman. “European companies in general, and particularly those in construction, many of them are having problems. I think he knew and should have said it.”

Suspension of work
Aleman told local television he was proud of his work, and has previously said that claims and cost overruns are common in large-scale infrastructure projects. He says the consortium won for technical prowess.

Despite the suspension of the work, GUPC presented a package of proposals last Friday in a bid to break the deadlock. In a statement made to Spain’s CNMV stock market regulator it said that both parties sharing the overspend was “the solution that allows the immediate continuation of the work and the swift and most efficient termination of the project, to the benefit of ACP and Panama.”

Meanwhile, ACP has responded with its own series of proposals, saying it will not increase the overall cost of the project, but suggesting that both GUPC and the authority provide funds to get the project up and running again.

ACP head Jorge Quijano said the authority was "keeping open the possibility of reaching an agreement". However, he added that he was ready to pull the plug on the contract if the sides fail to reach a deal soon.

In 2009, GUPC won the contract to expand the 50-mile canal so that larger vessels can travel through it between the United States and Asia. Belgium's Jan De Nul and Panama's CUSA are the other companies in the GUPC group.

The project has faced difficulties almost since the start. In 2010, the consortium complained of anomalies in land studies carried out by ACP and in 2012 it requested an expansion of the completion deadline and an extra €588 million, rising to its current claim of €1.2 billion. The expansion is currently due to be finished by mid-2015.

Diplomatic cables
The Spanish government has closely followed the wrangle and public works minister Ana Pastor travelled to Panama in early January in an effort to mediate between the two sides. But on February 5th it emerged that negotiations had broken off.

Confidential diplomatic cables released by Wikileaks revealed that Washington had doubts about the GUPC consortium's ability to carry out the expansion, due to financial issues. US ambassador to Panama Barbara Stephenson described Sacyr as "a bankrupt company sustained only by the Spanish government".

GUPC’s bidding price for the contract, she claimed, was “not enough even to pay for the concrete”. – (Additional reporting, Reuters)