Panama canal threatens to take over key expansion project

Reuters News
Posted: Jan 14, 2014 4:45 PM

By Lomi Kriel

PANAMA CITY (Reuters) - The Panama Canal Authority (PCA) said on Tuesday it might take over a key part of the waterway's expansion if the consortium in charge of the project makes good on a threat to suspend work.

PCA chief Jorge Quijano told reporters the remaining work, which could be taken over as early as February, would cost about $1.5 billion. He added the PCA has the means to cover the sum.

The consortium, known as Grupo Unidos por el Canal (GUPC), threatened to suspend work by January 20 unless the PCA paid $1.6 billion in cost overruns. The authority has rejected that demand and asked GUPC to withdraw the threat of suspension, but Quijano said the consortium has yet to reply.

The canal authority has said it is willing to consider detailed claims through arbitration.

The consortium won the contract to build a third set of locks for the century-old canal, the biggest part of the expansion project, in 2009.

"We have to act immediately to make sure that the project isn't suspended for an excessive time," said Quijano.

He added that PCA could take over the project after any work suspension lasting about 15 days.

"At that point we are talking about the possibility that we could take over the project," he said.

Quijano said he expects to make a decision Monday or Tuesday of next week, depending on what action is taken by GUPC.

The consortium, which is led by Sacyr SA of Spain, includes Italy's Salini Impregilo SpA, Belgium's Jan De Nul and Constructora Urbana from Panama.

Sacyr's chairman, Manuel Manrique, said at a Monday press conference in Madrid that the dispute will not have a significant impact on the company's earnings and is not putting its solvency at risk. He said he expects that the consortium will finish the project.

The canal is one of the world's most important shipping routes. The entire project was due to cost about $5.25 billion, but the overruns could bump that up to nearly $7 billion.

Quijano has previously said that the PCA had $600 million in surety bonds with insurer Zurich in North America that could be used to support the project.

"Right now, we're in a position to have access to the necessary funds to be able to keep pushing forward in a definitive manner with the help of Zurich," said Quijano.

He added that a meeting with representatives from the PCA, GUPC and Zurich had been scheduled for January 13, but GUPC postponed the meeting for a week until after the suspension could take effect.

The PCA has proposed a $283 million joint financing package to resolve the row. But that proposal is less attractive for the firms because it requires them to put up fresh cash while the authority would simply advance funds it would have paid anyway.

GUPC has asked the PCA for a $400 million advance, while Salini Impregilo proposed the authority pay $1 billion. Quijano has said such payments are "impossible."

(Reporting by Lomi Kriel. Editing by Andre Grenon and Andrew Hay)