Spain stepped in on Friday to try to resolve a cost dispute over the expansion of Panama's canal, which has triggered a sell-off in the shares of Sacyr SA, the Spanish builder leading the project. Spain's Public Works minister, Ana Pastor, and Sacyr Chairman Manuel Manrique are due to travel to Panama on the weekend, Panama's president, Ricardo Martinelli, said.
A Spanish-Italian consortium working on the project, which would widen the canal so that ships three times larger than at present could use it, has asked Panama to pay for 1.6 billion in cost overruns on the 3.2 billion plan to build a third set of locks for the canal.
Panama rejected that demand, though it has hinted it could be willing to negotiate with the consortium.
The massive infrastructure development aims to make it easier for example to move cargo between Asia and the eastern coasts of the Americas, potentially reducing the cost of transporting commodities and manufactured goods.
The dispute with the consortium could bring the project to a halt.
But a senior source from the consortium played down the dispute, saying negotiations on cost overruns were normal, albeit seldom played out in the public eye.
To think a five-year project of the size and complexity of this one will not entail extra costs is absurd, the senior source said, on condition of anonymity.
The consortium includes Italy's Salini Impregilo, Belgium's Jan De Nul and Panama's Constructora Urbana.
Uncertainty over the outcome has wiped 263 million Euros off the market value of Sacyr in two days, while shares in Salini Impregilo were broadly flat.
On Thursday the spat seemed to escalate with President Martinelli accusing the companies of irresponsibility. But on Friday the parties said they were seeking a resolution.
We're going to continue talking to get this work built because the governments of Panama, Spain and Italy have an interest in seeing this project built and that the problems between the interested parties are resolved, Martinelli told reporters after a meeting with Spanish and Italian diplomats.
The project is more than two-thirds complete and is scheduled to conclude in 2015.
The consortium had said on Wednesday it would suspend the work unless the authorities came up with a solution within 21 days, and that overruns were due to unforeseen events during construction that it deemed normal on such large projects - a stance supported by some investors.
The dispute has experienced a further complication when it was revealed that a former CEO of Sacyr, Jose Manuel Loureda sold 2.87 million shares, equivalent to 0.597% of the company's stock last 23 December.
This, according to El Pais from Madrid, took place days before the ultimatum to the Panama Canal authorities and involved an 11 million Euros operation.
The Panama canal for Sacyr represents over 25% of its turnover according to Madrid sources.