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Panama row over costly canal contract

Thursday, January 09, 2014 - 02:05

Jan 09 - The Panama Canal has rejected a proposal to pay $1 billion to continue work on expanding the waterway, and warned the building consortium behind the project that it could bring in others to finish the job. As Sonia Legg reports there are fears the row could lead to costly delays to expansion at one of the world's most important cargo routes.

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It's one of the most important cargo routes in the world. And a third set of locks for the Panama Canal would double its capacity. But the project has hit a brick wall. The Spanish-led consortium building it says flawed geographical studies carried out by the Canal authority had caused unforeseen setbacks. It wants an extra $1 billion to complete the final quarter of the contract. That, says the canal administrators, is not acceptable. (SOUNDBITE) (Spanish) JORGE QUIJANO, THE CANAL'S ADMINISTRATOR, SAYING: "We simply can't violate the law and regulations. That sum of money is outside the contract unless we go through the three steps usually taken to resolve a row." Three major European builders and one Panamanian one are involved in the project. And there are signs of infighting - with Italy's Salini Impregilo reportedly trying to take control of the project from Spain's Sacyr. The Canal Authority has now added to the confusion by saying it may employ a new builder to do the extra work. (SOUNDBITE) (Spanish) JORGE QUIJANO, THE CANAL'S ADMINISTRATOR, SAYING: "Let's hope they are sensible when making decisions that help us complete the work with them. But we definitely aren't scared if we have to do the job ourselves with another builder." One thing is certain - the project will exceed the original $5.25 billion costs - possibly topping $7 billion. And Panama's President has clearly felt the need to offer some assurances. (SOUNDBITE) (Spanish) PANAMA'S PRESIDENT RICARDO MARTINELLI, SAYING: "We are going to finish our Panama Canal. Let there be no doubt in the international maritime community and the world that Panama will conclude the canal whatever happens." Spain's Sacyr certainly has a lot to lose if the deal goes pear-shaped. Its debts at the end of September were three times its market value. And Panama made up a quarter of its 1.3 billion euros of international sales. Its shares fell three percent on Wednesday, And the consortium's next move will be closely watched - it had originally threatened to suspend work by January 20 unless the authority agreed to pay the overrun costs.

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Panama row over costly canal contract

Thursday, January 09, 2014 - 02:05