Panama warns Spain, Italy over canal row

January 03, 2014 - 7:37:01 am

A file picture of a ship carrying four new gates for the Panama Canal heading for the port of Colon, 90km west of Panama City.

PANAMA CITY: Panama’s president said yesterday that he would visit Europe to force a consortium to back off a threat to suspend the Panama Canal’s expansion work in an escalating row over $1.6bn in cost overruns.

The Spanish-led construction group has threatened to halt the massive project within three weeks if the Panama Canal Authority fails to pay for the extra costs. President Ricardo Martinelli, however, said he expected the Grupo Unidos por el Canal (GUPC) consortium to finish the work “without any setbacks because these cost overruns are irresponsible.”

“I will go to Spain and Italy to demand these governments take moral responsibility for what happened, because it is not possible that a company put huge extra charges on expansion work,” he told reporters without disclosing a date for his trip.

Spanish builder Sacyr, the consortium’s leader, said it had set the canal authorities a 21-day deadline before suspending its $3.2bn contract to expand the capacity of the canal, notably by installing a third set of canal locks.

The project aims to make the 80km waterway — which handles five percent of global maritime trade — big enough to handle new, massive cargo ships that carry 12,000 containers.

“GUPC has formally informed the Panama Canal Authority that it will suspend work if the failures to comply are not put right within the advised period,” Sacyr said in a statement to Spanish market regulators.

The overall cost of the Panama Canal expansion project has been estimated at $5.2bn. News of the suspension threat sent Sacyr shares plunging by more than 18 percent on the Madrid stock exchange. They ended the day down 8.95 percent at ¤3.43.

On Wednesday, Panama canal administrator Jorge Quijano warned that the canal authority would use contractual mechanisms to ensure the completion of the canal expansion. “No matter what kind of pressure is exercised against the ACP (Panama Canal Authority), we maintain our demand that Grupo Unidos por el Canal respect the contract that they agreed to and signed,” he said in a statement quoted by Panama media.

A year ago, GUPC demanded an extra payment of $1.6bn from the Panama Canal Authority due to construction delays.

“There are many and varied unforeseen costs which came up during these gigantic works,” a Sacyr spokesman said.

“They are technical matters, questions over cement ingredients, geotechnical matters, geological questions, taxes matters, financial matters, labour issues and weather conditions,” he said.

Led by Spain’s Sacyr, the consortium also includes Impregilo of Italy, Belgian firm Jan De Nul and Panama’s Constructora Urbana.

It began work on a third set of locks for the canal in 2009 and expects to complete construction in June 2015, already a nine-month delay over the date set in the contract. Some 13,000 to 14,000 ships navigate the canal each year.


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