Spain-Panama row ‘bad for world economy’

A $1.6 billion dispute over cost overruns paralyzed the Panama Canal's expansion for a second day on Thursday, with analysts warning that thousands of jobs and the economy are on the line.

Spain-Panama row 'bad for world economy'
Photo: Rodrigo Arangua/AFP

Talks between the Panama Canal Authority and a consortium led by Spanish builder Sacyr broke down on Wednesday as the two sides failed to bridge their differences over who should foot the bill.

Canal Minister Roberto Roy confirmed to AFP that the project was still halted. Construction cranes stood still above half-finished walls in silent work sites after the negotiations collapsed.

"The future of workers and the project is in doubt. There is a crisis here and we don't know how it will end," Saul Mendez, secretary general of the powerful Suntracs construction union, told AFP.

Union officials say around 3,000-3,500 workers were involved in the construction of new locks in the Pacific and Atlantic sides of the waterway, which handles five per cent of global maritime trade.

Before the dispute erupted in December, some 10,000 workers were employed in the project, which was already nine months behind schedule.

Canal administrator Jorge Quijano insisted that the project would be completed as planned "in 2015 with or without" the consortium known as Grupo Unidos por el Canal (GUPC), which includes Italy's Salini-Impregilo company.

GUPC wants the canal authority to compensate the firms for unforeseen costs of US$1.6 billion beyond the initial US$3.2 billion value of the contract.

The authority says it will take any step necessary, including tearing up the contract, to ensure that the project is completed next year.

"I don't believe in this date. It can easily be (delayed) until in 2016," economist Francisco Bustamante, a former Inter-American Development Bank official, told AFP.

The canal facilities are being widened to permit the passage of ships carrying up to 12,000 containers, almost triple the current capacity.

The work began in 2009 and was originally due to be finished this year, coinciding with the 100th anniversary of the canal's inauguration on August 15, 1914.

The delay will also be a fiscal nightmare for the government because it will have to wait longer to reap the financial benefits, experts say.

The use of the canal brings US$960 million per year to government coffers, representing almost 10 per cent of its revenue.

The expansion was expected to bring US$300 million in the first year of operation, US$400 million in the second year and US$2.0 billion in the third year.

Panama is not the only country that would suffer from a further delay.

Ports in the United States have invested millions to accommodate the new super-cargo ships that will travel across the isthmus.

"The United States has a lot of interest to see this expansion completed. They don't want to have facilities harmed and waiting," Quijano said.

The European Union's industry commissioner, Antonio Tajani, who has been mediating in the dispute, warned that the work stoppage was "bad news for employment, for the worldwide economy, for the expansion works of the canal."

Experts say the overall cost of the project will end up way more than the original estimate of US$5.2 billion.

Bustamante estimates that it will cost an additional US$2.0 billion.

"Whoever builds it, the canal will cost more," he said.

Economist Horacio Estrivi said there is "already a de facto increase in cost and time. The canal is taking more time than planned."

The extra costs will result from the arbitration fight that the canal authority and GUPC will likely face and the probability that a new builder would set conditions to take over.

"Finishing the work with another contractor will have a higher cost because it will start from scratch and will demand a different price because it is coming in to resolve a problem," said analyst Ebrahim Asvat.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Spanish company back in Panama Canal deal

Panama has reached partial agreements with Spanish construction company Sacyr that halted work to expand the Panama Canal in a dispute over a huge cost overrun, its administrator said on Wednesday.

Spanish company back in Panama Canal deal
Photo: Rodrigo Arangua/AFP

Agreements in principle have been reached on some issues although others remain outstanding. But the Panama Canal Authority will not negotiate forever and does not rule out resuming the mega-project on its own in a week if a final accord is not reached, administrator Jorge Quijano told reporters.

He spoke after holding videoconference talks Tuesday with executives of the Spanish-led consortium hired to expand the canal linking the Atlantic and Pacific so it can handle larger ships.

Despite the progress, "that does not mean we have given up on the other alternative, which is to take charge of the project ourselves," Quijano said.

He gave no details of what points the two sides had agreed on and what the remaining sticking points were.

"Our patience has limits and we really feel this has to end in a week at the most," Quijano said.

Work to expand the canal was suspended last week by the GUPC consortium made up of construction companies Sacyr of Spain, Italy's Salini-Impreglio, Belgium's Jan de Nul and Constructora Urbana of Panama.

The dispute is over $1.6 billion in cost overruns in the project, the main part of which is to equip the canal with a third set of locks.

GUPC wants Panama to add that sum to the initial contract fee of $3.2 billion.

The century-old waterway handles five percent of global seaborne trade.

GUPC claims unforeseen geological difficulties have forced them to spend much more on cement than expected. They say that they based their estimates on data provided by the Canal Authority that were incorrect.

The canal expansion is one of the world's most ambitious civil engineering projects and was due to be completed this year.

But the builders have said completion may now be delayed up to five years.

The original canal, built by the United States mostly with workers brought in from the Caribbean, was opened in 1914.

Don't miss stories about Spain, join The Local on Facebook and Twitter.