Saturday, March 15, 2014

Panamá: Update--Cost Overun Agreement Signed Between Panama Canal Authority, GUPC Consortium

According to The Latin American Tribune, the agreement reached last month to resolve a dispute affecting the Panama Canal Authority (PCA) third set of locks project, which had been briefly stalled over cost overruns, has been partially signed, the waterway’s authority said.

After its board of directors approved the agreement on Thursday (March 13), the Panama Canal Authority (PCA) proceeded to gather the signatures of three of the four companies that make up the GUPC consortium responsible for the project: Spain’s Sacyr Vallehermoso, Italy’s Impregilo and Belgium’s Jan de Nul.

Panamá's Constructora Urbana’s representative, who is currently out of the country, and insurer Zurich still must also sign the accord for it to be ratified.
COMMENT: GUPC, which was awarded the third-set of locks project, the centerpiece of a $5.25 billion canal expansion in 2009 with a $3.1 billion bid, is led by Sacyr and Impregilo, each of which has a 48% stake.

The consortium halted work on the project on February 5, 2014, alleging a cash-flow crisis stemming from $1.6 billion in cost overruns that it insisted the PCA should cover, but it slowly resumed construction 16 days later.

On February 27, the PCA announced that it had reached a conceptual agreement with GUPC to inject fresh funds into the project and ensure its completion.

The accord, among other things, provided that GUPC would pay $100 million and PCA would advance $100 million to enable work on the new locks, to be completed by December 2015, 15 months later than the date specified in the contract, to regain a normal pace in March.

It also said a moratorium for the repayment of previous advances made by the PCA to the consortium may be extended until 2018, subject to fulfillment of certain milestones and other conditions.

The PCA also stated then that the conceptual agreement did not include any payment for the consortium’s claims, which “must be processed through the mechanisms within the contract,” and did not modify the price of the contract.

Construction of the third set of locks is about 70% complete and the PCA has paid the consortium some $2.8 billion to date, including $784 million in repayable advances and at least $160 million for cost overruns.

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 today that are three times as large, rendering a third set of locks essential.