Panama canal expansion in doubt as president confronts European firms

http://www.theguardian.com/world/2014/jan/03/panama-canal-expansion-doubt-european-firms

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The president of Panama said on Thursday he would go to Spain and Italy to pressure companies to honour contracts to expand his country's canal after a building consortium behind the project threatened to suspend work because of a row over costs.

The consortium – Spain's Sacyr, Italy's Salini Impregilo, Belgium's Jan De Nul and Panama's Constructora Urbana – said on Wednesday that $1.6bn in cost overruns on the $3.2bn plan to build a third set of locks for the canal should be met by Panama.

The consortium, known as Grupo Unidos por el Canal, said the Panama Canal Authority (PCA) had 21 days to respond to its demands during which work would continue, but the project would be suspended if that requirement was not met.

Just a few hours later, the PCA rejected the demand, hinting it could find others to complete the job. Shares in Sacyr, which heads the consortium, slumped 9% on Thursday.

Panamanian President Ricardo Martinelli accused the companies of "great irresponsibility" and said they had endangered the massive construction project.

Martinelli, who took power in 2009, said he expected Italy and Spain to uphold commitments to back the project which the countries' leaders made to him during his first year in office.

"So I'm going to go to Spain and Italy to demand this from them, because a company should not be able to put such a high amount of overrun costs on a project that belongs to humanity," he told reporters in Panama City.

The Spanish and Italian governments had a "moral responsibility" to help resolve the dispute because their companies were engaged in the construction, Martinelli said.

The head of the PCA, Jorge Quijano, said if the project were delayed due to the dispute, Panama would see it through.

"This work will be finished, never fear, even if it takes longer to complete," he told reporters.

Panama has already moved back the scheduled completion date for the expansion from October 2014 into mid-2015.

The new locks represent the biggest chunk of the canal expansion plan, which overall is worth some $5.3bn.

The PCA says the total expansion is just over 70% finished with the locks 65% complete. The canal's extension aims to broaden and deepen existing channels so that more and bigger vessels can sail through.

The consortium said the overruns were due to unforeseen events during construction, which it said was "normal" in such projects. It also said the PCA had failed in its obligations and given the consortium "inexact" information for the project.

But the PCA said that if the consortium was not capable of honouring its agreements, it would initiate "mechanisms from the contract that would allow the work to be completed."

It did not explain what those would be.

Sacyr won the bid on the canal contract in 2009 with a $3.12 billion offer, which was considerably lower than that of rivals, as well as below the $3.48 billion reference set by the PCA.

Political columnist Pepe Oneto, writing in opinion blog republica.com, said the news was terrible for Spain's attempt to rebuild its image abroad following a severe economic crisis with the collapse of the country's building and property sector.

"The Spanish government ... knew that it was impossible for the budget to be met. Sacyr bid low, convinced that, in the end, the cost overruns it is demanding now would be met," he said.

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