Negotiations over Panama Canal rift continue
Panama Canal Authority officials met with representatives for Grupo Unidos por el Canal on Tuesday in an effort to resolve their dispute over who is responsible for $1.6 billion in cost overruns associated with the building of wider locks on both sides of the 50-mile waterway to allow for the transit of much larger cargo vessels.
GUPC, the international consortium led by Spanish contractor Sacyr Vallehermoso of Spain, had fought behind the scenes for many months to get reimbursed for cost overruns it claims are not its fault. One of the biggest expense items was a new batch of concrete needed after the Panama Canal Authority (ACP) rejected the initial mix for not meeting specifications for durability. GUPC has blamed the ACP, saying it provided incorrect geological information used for determining the concrete recipe. The group also has claimed expenses for delays from bad weather and other factors.
The dispute erupted into public view a month ago when GUPC, which is facing a liquidity crisis, tried to put pressure on the ACP to meet its demands. It issued an ultimatum that it would suspend work on Jan. 21 if it was not reimbursed for its costs. GUPC has since extended its deadline to allow more time for negotiations. GUPC said it merely wants to agree on a co-financing plan to bridge the cost gap and allow work to continue. It says it is spending $100 million per month on operations.
Although work has not stopped, it has slowed considerably. ACP officials say construction is progressing at about a quarter of the normal speed as cash flow difficulties have led GUPC to lay off many workers. The ACP has offered to advance GUPC $100 million. GUPC is seeking a $400-million advance, among other considerations.
The ACP has paid more than $150 million for price escalation of certain construction materials stipulated in the contract and said the GUPC has not gone through proper claims channels, which includes a dispute resolution board and arbitration, and provided proper documentation to justify its claims.
The ACP reiterated at Tuesday's meeting that GUPC should seek remedies by following the terms of the contract and Panamanian law, rather than using its leverage to halt the megaproject to achieve its demands.
Insurer Zurich North America also attended the meeting.
The parties will meet again on Wednesday to discuss alternatives for a financing solution, the ACP said in a statement.
The ACP has said it will terminate the contract and find another engineering partner to complete the job, if necessary. It has downplayed the possibility of further delays if such a step is necessary, but others have suggested the project could be set back as much as two or three years.
(American Shipper has set up a special Panama Canal section on its homepage for easy access to all the stories about the contract rift that threatens to delay one of the most important infrastructure projects in the world and one that is expected to have major implications for trade flows and international transportation costs.)
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