PANAMA CITY (Reuters) - Spain will not provide financial help to a Spanish company leading a consortium locked in a dispute over the costs of expanding the Panama Canal, its ambassador said on Monday, as both governments distanced themselves from the spat.
Visiting Spanish public works minister, Ana Pastor, met with officials from building consortium Grupo Unidos por el Canal (GUPC), which is fronted by Spanish construction company Sacyr, and with Panamanian President Ricardo Martinelli.
Spanish Ambassador Jesus Silva said his government would provide no financial help to Sacyr in sorting out the row overshadowing one of the world’s most important maritime cargo routes.
Halting work on the $5.25 billion project to widen and deepen the canal would be a setback for companies eager to increase cargo volumes passing through the century-old waterway, especially the first-ever liquefied natural gas (LNG) exports from the U.S. Gulf coast to Asian markets as well as other bulk commodity shipments.
“The Spanish government is not a party to this; it is a problem between a contractor and its client,” Silva said as he accompanied Pastor ahead of the meetings. “Under no circumstances is it contemplated that the Spanish government contribute funds.”
Last week, Martinelli accused the GUPC of “great irresponsibility” when it threatened to suspend work on January 20 if the canal operator, the Panama Canal Authority, did not pay for big cost overruns.
The GUPC also includes Italy’s Salini Impregilo, Belgium’s Jan De Nul and Panama’s Constructora Urbana.
Arguing that the project to build a third set of locks for the canal had suffered unforeseen setbacks, the GUPC said last week it had faced $1.6 billion in added costs. It blamed the Panama Canal Authority for carrying out flawed studies of the geological terrain.
Martinelli has turned on Spain and Italy, saying their governments had given him assurances that they would finish the $3.2 billion project to build the locks, prompting Pastor to fly to Panama to seek an end to the impasse.
On Monday, both he and Pastor said their governments would stay out of the spat.
“The canal authority and the consortium need to resolve all their problems between themselves,” Martinelli said after meeting with Pastor. “We are sure that the meetings being held will resolve any conflict.”
“What the Panamanian government and the government of Spain want most, what everyone wants, is for the Panama canal expansion to be finished,” he added.
Pastor said she viewed the spat as “a problem between a private entity and an independent entity,” saying she was trying to help make relations fluid to help the parties reach a deal.
PCA head Jorge Quijano has said Panama is prepared to discuss the cost overruns if they prove justified, and a Panamanian official told Reuters the government had considered putting together a bailout with the parties involved.
However, Spain has been coping with a deep economic crisis that has put a strain on the country’s finances.
Pastor is due to meet the canal operators and give a statement to the media at about 5:30 p.m. local time (2230 GMT).
If the parties fail to reach a middle ground to split the difference over the cost overruns, the project could potentially be offered up to other companies.
On Sunday, the PCA maintained a firm stance, again rejecting the GUPC’s arguments on the overruns, and referred the consortium to the arbitration panels the two sides agreed on when the contract was signed.
Quijano told Spanish newspaper El Pais that the two-page letter the GUPC had submitted last week did not justify its demands and that the consortium would need to provide more detailed information to make a viable case.
If work on the project did stop, the authority could take steps to ensure it was completed regardless, “be it by a third party or by the PCA,” Quijano told the paper.
Sacyr won the canal contract in 2009 with an offer that was considerably lower than that of at least one rival, as well as below the $3.48 billion reference set by the PCA.
Less than six months later, Martinelli, Panamanian Vice President Juan Carlos Varela and other top officials were already worried about how the project was progressing, according to U.S. diplomatic cables published by Wikileaks.
The canal expansion, whose total cost is about $5.3 billion, has been one of the top priorities for the government of Martinelli, whose term in office ends midyear.
Sacyr, whose debts at the end of September were three times its market capitalization, has also staked a lot on the canal expansion.
The company made 55 percent of its revenue outside Spain in the first nine months of 2013, and Panama contributed 25 percent of its 1.3 billion euros ($1.78 billion) in international sales, according to its 2013 nine-month earnings statement.
The Panama Canal dispute has put a spotlight on another project in the works in Central America, a $40 billion canal planned in Nicaragua, which is also trying to cash in on the North American energy boom.
In June last year, Nicaragua granted a 50-year concession to the Hong Kong-based HKND Group to design, build and manage a canal aimed at giant oil and gas-bearing supertankers, many heading from the United States to Asia, that will not fit through the Panama Canal even post expansion.
HKND is currently conducting feasibility studies and construction on the project, viewed by many with scepticism, is not set to begin until at least January 2015.
Manuel Coronel Kautz, the head of the Nicaragua Canal authority, told Reuters on Monday Panama’s impasse would not affect its own project timetable.
“What’s going on in Panama is totally off our radar,” he said. “The decisions to construct the Nicaragua canal were based on the perspective of serving the vessels that can’t pass through the Panama canal.”
Additional reporting by David Adams in Miami, Fiona Ortiz in Madrid and Gabriel Stagardter in Mexico City; Writing by Dave Graham; Editing by Simon Gardner and Nick Zieminski