Panama Canal Expansion Builder Names Price in Cost Dispute

By Bloomberg On January 7, 2014

The first four new gates for the Panama Canal’s third set of locks are seen on top of a cargo ship during their arrival to Colon in Colon City August 20, 2013. REUTERS/ Carlos Jasso

By Eric Sabo

Jan. 7 (Bloomberg) — A group led by Sacyr SA said it will need more money than the Panama Canal Authority is offering to continue expansion work on the waterway as a dispute over $1.6 billion in cost overruns enters its second week.

The consortium, which includes Milan-based Salini Impregilo SpA, said it would continue building a third set of locks if the canal authority pays $400 million in addition to $100 million the waterway offered earlier today. The canal authority said that the companies must match the contribution, which they have so far refused to do.

“The two sides agree to go to arbitration to resolve the contract claims,” the group, known as GUPC, said in an e-mailed statement. “The GUPC and Panama Canal Authority are studying ways to reach an agreement on cash flow problems.”

The European builders beat rivals including San Francisco- based Bechtel Group Inc. to win the contract in 2009 as part of a $5.25 billion expansion that will allow larger ships to transit between the Pacific and Atlantic oceans. They are due to build locks on both the sides of the 80-kilometer (50-mile) waterway, shortening voyages from the U.S. to Asia and potentially reducing transport costs for commodities such as liquefied natural gas.

Earlier today, the Panama Canal Authority said it would also allow the group more time to repay $83 million it owes in addition to offering $200 million to keep the canal expansion on track. In return, the consortium must rehire workers that have been fired during the dispute and end threats to stop work this month, Jorge Quijano, the canal administrator, told reporters in Panama City.

The canal expansion project was originally expected to be finished by the end of 2014, on the waterway’s centennial. The project has since been pushed back almost a full year, according to the most recent projections by Quijano.