January 8, 2014 / 4:21 PM / 7 years ago

Panama Canal spat deepens as Italy's Impregilo wades in

PANAMA CITY (Reuters) - Italian builder Salini Impregilo on Wednesday proposed a deal to keep work going on expanding the Panama Canal despite huge cost overruns, but would cost the canal authority much more than an earlier proposal.

Workers are seen at the construction site of the Panama Canal Expansion project on the outskirts of Colon City January 7, 2014. REUTERS/Carlos Jasso

The latest proposal showed signs of a schism in the Spanish-led consortium that has been expanding the canal. Observers said it could represent an attempt by the Italian company to wrest control of the group from Spanish construction company Sacyr.

The building consortium, Grupo Unidos por el Canal (GUPC), has threatened to stop work on part of a project to widen and deepen the canal, a major global cargo artery, that was originally expected to cost about $5.25 billion.

On Tuesday, the building consortium proposed putting up $100 million if the canal administrator agreed to contribute $400 million to plug a funding shortfall. Previously, the canal had proposed each side chip in $100 million and offered to delay repayment of an advance.

But on Wednesday, amid talk of a rift within the consortium, Impregilo said it had proposed two alternative solutions that would involve the canal authority paying $1 billion to complete the work.

A source familiar with the situation said the move was a sign that “Salini would be keen to take the lead in the project”.

There was no immediate word from Sacyr on the move.

Jorge Quijano, who heads the Panama Canal Authority, said he could not negotiate over Impregilo’s proposal.

“For the first time Salini makes a statement. The billion (dollars) comes from a proposal made prior to the letter with the intent to suspend,” he said in an email to Reuters.

“This of course takes us to negotiate outside the contract framework and law, which I cannot do as this is a state-owned enterprise which must follow explicitly what is dictated by law.”

Halting construction would be a setback for companies eager to move larger ships through the century-old waterway such as liquefied natural gas (LNG) producers who want to ship exports from the U.S. Gulf coast to Asian markets.

Last week, the building consortium threatened to stop work on January 20 unless it was paid for $1.6 billion in cost overruns, which could put the overall project bill at close to $7 billion.

Work on the expansion, which will create a new lane of traffic along the canal and double the waterway’s capacity, began in 2007, and the project is 72 percent complete, according to the Panama Canal Authority’s website.

The consortium, which also includes Belgium’s Jan De Nul and Panama’s Constructora Urbana, said last week it had faced the added costs due to unforeseen setbacks in the $3.2 billion project to build a third set of locks for the canal.

The group said flawed geological studies carried out by the Panama Canal Authority were responsible for the cost overruns. The authority has not yet responded.

If the parties fail to reach an agreement, the project could potentially be offered up to other companies.

Additional reporting by David Adams in Miami, Gabriel Stargardter, Dave Graham and Julia Symmes Cobb in Mexico City, Danilo Masoni in Milan and Sonya Dowsett in Madrid; Writing by Simon Gardner; Editing by David Gregorio

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