A cruise liner sails by the Miraflores lock of the Panama
Canal in Panama City. REUTERS/Carlos Jasso
A planned extension of the Panama Canal, one of the
world's most important shipping routes, was thrown into doubt
after a group of companies said its talks with Panama's
government over how to expand the canal had fallen apart.
Group United for the Canal, a consortium led by Spanish
builder Sacyr , said in a statement that the government's
canal authority had broken off talks on who will pay some
$1.6 billion needed to complete the ambitious project. The
Panama Canal Authority said it would hold a news conference
at 9 a.m. local time.
The breakdown in talks is the latest setback to a project
mired in disputes since the consortium, which also includes
Italy's Salini Impregilo as well as a Belgian and Panamanian
firm, won a bid to double the capacity of the near 50-mile
(80 km) transoceanic cargo route.
Disagreements over cost overruns have already reached
international courts and talks between the two sides over how
to find the additional cash to finish the project had already
been extended twice.
It was unclear whether Wednesday's breakdown was final. In
its statement, GUPC - the Spanish acronym by which the
consortium is known - said the failure of the talks meant the
expansion and up to 10,000 local jobs were at immediate risk.
But the company said it was still seeking a solution for
completion of the project, which had been scheduled for 2015.
If the partnership between Panama and the builders is indeed
abandoned, it would likely mean further delays while Panama
seeks financing and a new construction group.
That in turn, would be a setback for companies worldwide
eager to move larger ships through the Panama Canal,
including liquefied natural gas (LNG) producers who want to
ship exports from the U.S. Gulf Coast to Asian Markets.
Delays could also cost Panama millions of dollars in
projected revenue from toll charges.
Last month, Panama President Ricardo Martinelli said that
Panama had the resources to complete the expansion of the
Canal even if talks with GUPC ended.
"We will finish the Canal in 2015 no matter what happens,
rain, thunder or lightening," Martinelli told an audience of
international investors and executives gathered in Davos,
Switzerland. He did not give details as to who would pick up
the work or the tab.
Shares in Sacyr plunged over 8 percent on the news before
recovering some lost ground while Salini Impregilo fell 1.9
"I wouldn't be surprised if Panama already had a plan B,"
said a Madrid-based trader who asked not to be named. "As for
Sacyr...they'll push forward with new contracts, but
everything they do will be looked at with a magnifying glass
from now on."
MONEY RUNS OUT
Disputes over the expansion of the Canal set in almost
immediately after GUPC won the bid in 2009. At the time,
officials and diplomats expressed concerns over the
consortium's ability to complete the project since its
requested tab was $1 billion lower than the nearest
Over the past months, the two sides had been discussing how
to fund the $1.6 billion needed to complete the project
through a co-financing deal. Disputes about liabilities for
the cost overruns, which tally with the amount the consortium
say it will cost to finish the work, are being fought out
within the terms of the contract and may end up in
international arbitration courts.
Spain's public works minister flew out to Panama earlier in
the year to mediate talks while the European Commissioner for
Industry Antonio Tajani had also offered to mediate
negotiations, an offer rejected by the Panamanians.
In its Wednesday statement, the Spanish-led consortium said
the Panama Canal Authority had broken off the latest talks,
but it did not spell out why. The GUPC said that, in its
latest proposal, it had offered $800 million in new and
existing funds, while asking the Panama Canal to put in $100
million in funds. It also asked the Canal to extend the
deadline by which the consortium needs to return $785 million
in advance payments made by the Canal in order to free up
"It is unjust and impossible for the PCA and Panama to expect
that private companies will finance $1.6 billion in costs on
a project that was to be fully funded by PCA," the consortium
said in the statement. It said the Panama Canal had not paid
a pending $50 million invoice that had meant to cover
salaries this week for subcontractors and workers.
"Without an immediate resolution, Panama and the PCA face
years of disputes before national and international tribunals
over their steps that have pushed the project to the brink of
failure," the consortium added.
For Sacyr, which has 48 percent of the consortium, the work
brings in a quarter of its international revenue. Like most
Spanish builders, the company relies heavily on foreign
orders to offset a sharp economic downturn at home.
Sacyr has provided 476 million euros in cash advances and
guarantees to the project. One analyst said this was the
worst-case scenario in terms of what losing the project would
mean for the builder.
"But the actual impact will only be determined after several
years in the courts if there is no final agreement," said
Juan Carlos Calvo, analyst at Espirito Santo, adding that
losing the contract would not represent a cash outflow for
Sacyr as it affected cash advances already paid.
Any loss of the contract would also affect insurer Zurich ,
which had been involved with discussions. The insurer had
proposed converting $600 million of surety bonds into a loan
that would free up money to help complete the project a
source with knowledge of the matter had said.