Canal contractor says co-financing demand is fair
As the public dispute over who is responsible for unexpected expenses in building a third set of locks for the Panama Canal continued into its third week, the contractor involved on Monday said its demand to be repaid is not a shakedown of the canal authority for extra money, but a way to jointly bridge the gap until differences can be sorted out in a legal setting.
Grupo Unidos por el Canal issued an ultimatum Dec. 30 for the Panama Canal Authority (ACP) to reimburse $1.6 billion in unforeseen cost overruns or else the consortium would suspend work on the biggest piece of the $5.2 billion Panama Canal expansion project. On Sunday, GUPC slightly softened its stance, saying the Jan. 20 deadline to resolve matters is not firm and only the point after which it could decide to pull the plug on construction. The ACP says it has paid $150 million to $160 million of compensation for extra costs for certain materials pre-approved in the contract, but that GUPC is trying to circumvent the normal claims process and not providing the evidence necessary to justify its assertion that it should be reimbursed.
A major area of disagreement involves about $1 billion in extra cost associated with the ACP's rejection of the initial concrete mix because it did not meet specifications.
GUPC has proposed that the ACP advance it $400 million so it has the necessary cash on hand to pay suppliers and subcontractors as the project proceeds.
The ACP has offered a $100 million advance, plus delayed repayment of $83 million in prior advances, on condition that GUPC commits $100 million of its own funds for operational expenses.
On Monday, GUPC issued a statement in which it insisted "it is not asking for extra profits but for the co-financing of the unforeseen costs pending the decision of the international arbitration.
"In this way, the resources financed by the canal authority are fully covered by bank guarantees and insurance obtained by the consortium pending the outcome and final decision of the arbitrators on the responsibilities of these extra costs."
GUPC - consisting of Spanish construction firm Sacyr, Salini Impregilo of Italy, dredge specialist Jan de Nul of Belgium and Constructora Urbana SA (CUSA) of Panama - said it is spending more than $100 million a month on construction operations for the locks project, which is 65 percent complete according to the ACP and 70 percent finished according to GUPC.
"Technically speaking, nothing prevents us from reaching the finishing line. The only impediment is the difficult financial situation which has arisen due to the additional costs which occurred during the execution of the works, for which GUPC has requested relief," the statement said.
GUPC said the cost overruns have been "extensively documented and verified by the ACP" and audited by independent experts.
"Failure to reach an agreement on co-financing of the unexpected costs will result in a serious delay and will mean that the works will not be finished in 2015 causing damages to all parties involved," GUPC warned.
The ACP has said it has contingency plans to switch to another contractor to complete the job if necessary, but such a scenario is likely to delay the project, which is already nine months behind schedule, several more months.
GUPC said a work stoppage would result in lost income for thousands of laborers and subcontractors, cost Panama new toll revenue needed for its economy and to pay down construction debt, and delay expected revenues for U.S. ports and other entities that have invested in infrastructure to handle the bigger cargo flows from super post-Panamax vessels.
The consortium said it welcomed the offer by European Commissioner Antonio Tajani to mediate the dispute so that the project can proceed.
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