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Panama Canal and construction companies closer to understanding on over-costs

Wednesday, January 8th 2014 - 05:19 UTC
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Spanish minister Ana Pastor with Panamanian President Ricardo Martinelli Spanish minister Ana Pastor with Panamanian President Ricardo Martinelli

Panama Canal officials offered Tuesday to share the burden in a 283 million dollars fund to end a spat with a consortium threatening to halt the waterway's expansion over huge cost overruns. The proposal came after two days of intense talks under mediation of a Spanish cabinet minister who flew to Panama City for emergency meetings aimed at preventing a shutdown of the major project.

 “If they don't accept the proposal and they don't withdraw the work suspension threat, then we would take the next step to terminate the contract, if necessary,” canal administrator Jorge Quijano said after two hours of negotiations with the companies.

The Panama Canal Authority said it was ready to provide 183 million while the Grupo Unidos por el Canal (GUPC) consortium, led by Spanish builder Sacyr, would have to contribute 100 million.

The consortium has threatened to suspend the expansion work by January 20 unless Panama pays for 1.6 billion in extra charges.

The authority's proposal “does not mean that everything is resolved,” Quijano said, adding that the GUPC will study the offer but that officials want to find a long-term solution. The two parties may meet again in the next few days.

“We have to wait and see how they respond,” he said. “We can't wait too long.”

The negotiations began after Spanish Public Works Minister Ana Pastor held separate meetings on Monday with Panamanian President Ricardo Martinelli, company executives and canal officials.

The GUPC, which includes Impreglio of Italy, Belgium's Jan de Nul and Constructora Urbana of Panama, agreed to negotiate with the canal authority within the contract.

The already delayed project aims to make the 80-kilometer waterway, which handles five percent of global maritime trade, big enough to handle new, giant cargo ships that can carry 12,000 containers.

GUPC has a 3.2 billion contract to build a third set of locks for the century-old canal, which currently welcomes ships that carry up to 5,000 containers.

The work began in 2009 and was supposed to conclude this year, but it is nine months behind schedule and is now expected to be finished in June 2015.

But GUPC says it ran into unforeseen costs because the canal authority gave the builders the wrong information regarding the area's geology.

The canal authority has countered that the contractor's claims “lack any foundation” and that GUPC must make its complaint in the legal bodies outlined in the contract. The extra funds proposed by canal officials would be used to pay contractors and subcontractors.

Under the offer, GUPC would be required to deliver next month four canal lock-doors that were supposed to arrive last November and have already been paid for.

The canal authority says it has paid almost two thirds of its contract with GUPC. The fund would “allow the continuation of the work while the demands of the contract are resolved under established mechanisms,” the authority said.

Categories: Investments, Latin America.

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