Saturday, February 22, 2014

Panamá: Update--PCA, Spanish Consortium Continue to Squabble Over Cost Overruns for Third Set of Locks

According to The Latin American Tribune, while workers building a third set of locks for the Panama Canal were back on the job Thursday (February 20) after the European-led GUPC consortium ended a 15-day shutdown, the waterway’s administrator, Jorge Quijano, said the parties have yet to resolve the dispute that led to the suspension.

“We are making any effort in good faith. It remains to be seen whether the job can be completed with GUPC,” the head of the Panama Canal Authority (PCA) said, minutes before the consortium led by Spanish construction giant Sacyr and Italy’s Impregilo, released a statement confirming that work had resumed.

The PCA said Wednesday (February 19) that the consortium had agreed to resume work, although it added that some issues remain unresolved and were preventing the two sides from putting a definitive end to a dispute that dates back to December 30.

COMMENT: Those points include the dates for the delivery of the new lock gates, the timetable for completing the remaining work, the repayment schedule for cash advances the PCA has made to the consortium and “other key aspects for the project’s development,” the authority said.

The PCA said Wednesday that “as soon as the work is resumed” it would pay GUPC $36.8 million corresponding to December 2013 invoices so that workers receive their wages and the consortium can meet its obligations to its suppliers.

Nevertheless, GUPC was awarded the third-locks project – the centerpiece of a $5.25 billion canal expansion – in 2009 with a bid of $3.1 billion.

Yet, GUPC stopped work on the locks, now roughly 70% completed on February 5, saying the project was plagued by some $1.6 billion in cost overruns and demanding that the PCA finance the remaining work.

The PCA said the project must continue while the two sides agree on a plan to fund the remaining work, noting that the contract provides for independent arbitration of disputes that GUCP and the PCA can’t resolve through negotiations.

The Panama Canal, which was designed in 1904 for ships with a 267-meter (875-foot) length and 28-meter (92-foot) beam, is too small to handle modern ships that are three times the size of those in 1904, making a third set of locks essential.