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Panama Canal dispute may delay project by five years

Sacyr-led consortium offers to co-finance cost overruns to finish widening the waterway on time

The ongoing dispute between a Spanish-led consortium and the Panamanian authorities over the Panama Canal project's cost overruns could delay the inauguration of the expanded waterway by between three and five years, according to a mediation panel.

Sources at the Dispute Adjudication Board (DAB) said that if the contract between the Panama Canal Authority (PCA) and Grupo Unidos por el Canal (GUPC) to widen the canal is broken it won't open next year as planned. GUPC head Sacyr said it hopes to resolve the dispute over $1.6 billion in cost overruns in the coming weeks.

The DAB said that if the contract is broken the project would not be finished until between 2018 and 2020, instead of 2015, which would already mean a delay of eight months.

The mediator said the cash-flow problem of the consortium is real and not a means to secure extra profits from the work. However, it ruled in favor of the Panamanian authorities with respect to one of the major areas of dispute, which is the cost overruns incurred in building a provisional dam. It said the most cost effective way to finish the project would be for GUPC to continue working on it, and proposed an injection of the required liquidity to avoid delays and more costs.

In a statement released late Monday, GUPC acknowledged that a lack of an agreement on the additional costs would mean the “work would not be finished on time and that there would be a serious delay to the detriment of all parties.”

The consortium said the cost of project, which is 70-percent completed, is more than 100 million dollars per month, but added that nothing technically is preventing it from being finished on time.

GUPC offered to co-finance the additional costs with the PCA. “GUPC (…) is not asking for more profits, only for co-financing until there is a ruling on the costs by international arbitration.” It did not provide a breakdown of how much each of the two parties would put on the table.

The consortium said that the additional funds the PCA would supply are guaranteed by insurers and banks until the mediators decide who should shoulder the burden of the overruns. “There is no debate about the existence of these unforeseen costs; the only thing in question is who should pay for them, the contractor or the client.”

Apart from Sacyr, the other members of the consortium are Italy’s Impregilo, Jan de Nul of Belgium and the Panamanian company Constructora Urbana (CUSA).

Brussels’ mediation

THE PCA had rejected an offer by the European Commission to intervene in the conflict, arguing that the solution “should be found within the mechanisms indicated in the contract that had been signed.”

Spanish Foreign Minister José Manuel García-Margallo said Monday that the Commission’s offer to mediate between the two parties had been misunderstood. “What the Commission is proposing is to find a formula, a financial solution, in order for the companies (in the consortium) to resolve the liquidity problem in which they are immersed and so that the work can continue at the agreed pace.”

One of the insurers of the project, Zurich, tried to find a solution to the conflict in December. It subsequently got in touch again with the administrator of the PCA, Jorge Quijano, to underscore its belief that there are ways within the terms of contract for the PCA to fund the remaining work.

Zurich will have to cover the guarantee of the additional funds the PCA would require to finish the project in the case of the contract with GUPC being broken. Zurich said it is too early to raise the issue of this guarantee being paid.

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