Panama Canal Expansion Work Suspended After Talks Break Down

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February 5, 2014

in a January 2014 update, the Panama Canal Authority said lock construction was just 66% complete.

By Emma Ross-Thomas, Nick Leiber and Eric Sabo

Feb. 5 (Bloomberg) — The $5.25 billion expansion of the Panama Canal was suspended today as negotiations between a construction group led by Spain’s Sacyr SA and the waterway’s authority broke down, threatening to delay work beyond 2015.

The Panama Canal Authority’s director said today that work on the expansion, meant to accommodate larger ships traveling from North America to Asia, will continue “with or without” the construction group. Sacyr shares fell as much as 8.4 percent, the biggest intraday drop since Jan. 3, and were down 6.2 percent at 3.64 euros as of 4:19 p.m. in Madrid.

Sacyr and Italy’s Salini Impregilo SpA said in December they were seeking compensation for $1.6 billion in cost overruns, about half the value of their contract, and gave the canal authority, which is independent from the government, one month to reach an accord. Talks were extended until yesterday, when no agreement was reached and work was suspended.

“They put a threat on the table and today they executed it,” Jorge Quijano, head of the canal authority, told reporters in Panama City today, vowing to finish the project on time.

Sacyr and Salini continue to seek a solution to finish the project in 2015, they said in a regulatory filing today in Madrid. The work, which is about 70 percent finished, needs the extra financing to be completed, they said.

A breakdown in the talks “would be bad news for everyone,” Spanish Economy Minister Luis de Guindos told reporters in Madrid today, before Quijano’s news conference.

Fallback Plan

Panama’s ambassador to Spain, Roberto Eduardo Arango, said yesterday the country needs a fallback plan to ensure the project is completed even if talks fail. Panamanian President Ricardo Martinelli vowed on Jan. 22 that the expansion would be finished.

It’s “normal in such a complex project that there are cost overruns, that’s reasonable,” Pablo Ortiz de Juan, an analyst at Interdin in Madrid, said by phone. “So we shouldn’t be scaring ourselves.”

The Sacyr-led group was hired to build locks on both 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. The expansion will allow ships 1,200 feet (366 meters) long and 160 feet wide, holding as many as 12,600 containers, to transit the waterway.

Copyright 2014 Bloomberg.

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