According to The Latin American Tribune, The Spanish-led consortium building a third set of locks for the Panama Canal announced Wednesday (January 1) that it will halt work due to the impossibility of completing the project for the amount specified in the original contract.
The locks are the key element in the $5.25 billion plan to double the waterway’s annual capacity from 300 million tons to 600 million tons.
“Grupo Unidos por el Canal sent to the Panama Canal Authority (PCA) the pre-notification of the suspension of work, in accord with Sub-clause 16.1 of the conditions of the contract,” GUPC said in a statement sent to EFE.
The canal authority now has 21 days to meet GUPC’s demand for an additional $1.6 billion to cover cost overruns.
Under the contract and relevant Panamanian law, the canal authority is responsible for absorbing those overruns, GUPC said.
COMMENT: Work will continue during the 21-day period, although it is presumed that work will cease at the end of the 21 days if PCA does not authorize the cost-overruns of $1.6 billion.
Agreeing to GUPC’s proposal represents the canal authority’s lowest-cost option for getting the locks completed in the shortest possible time, the consortium said.
GUPC, led by Spain’s Sacyr Vallehermoso, began work on the third set of locks in 2007 and expects to complete construction in June 2015, nine months later than the date prescribed in the contract.
The consortium, whose other members are Italian firm, Impregilo, Belgium’s Jan de Nul and Panamá’s Constructora Urbana, said it resorted to the threat of suspension after the PCA rebuffed repeated requests for talks.
GUPC also accused canal Administrator Jorge Quijano of failing to honor existing agreements.
The canal authority responded to the GUPC statement within hours, rejecting what it described as an attempt to negotiate “outside the contract.”
If GUPC does not fulfill the contract, the PSA will make use of existing contractual mechanisms to ensure completion of the project, Quijano said in a brief statement.
“No matter what type of pressure is exercised against the PCA we main our demand that Grupo Unidos por el Canal respect the contract that they accepted and signed,” he said.
The contract provides for independent arbitration of disputes that GUCP and the PSA cannot resolve through negotiations.
The Canal, designed in 1904 for ships with a 267-meter (875-foot) length and 28-meter (92-foot) beam, is too small to handle post-Panamax ships that are three times as big, making a third set of locks.