Spanish official headed to Panama to mediate canal contract dispute

PANAMA CANAL

The Panama Canal, designed in 1904, is too small to handle modern ships, making a third set of locks essential, but the expansion work is currently held up by a contract dispute, which the governments of Spain and Italy are attempting to mediate. EFE
The Panama Canal, designed in 1904, is too small to handle modern ships, making a third set of locks essential, but the expansion work is currently held up by a contract dispute, which the governments of Spain and Italy are attempting to mediate. EFE

— Panama's President Ricardo Martinelli announced Friday that next week he will receive Spanish Development Minister Ana Pastor to mediate the contract dispute that threatens to halt the work of expanding the canal.

Martinelli made the announcement after a "very friendly" meeting with the Spanish ambassador to Panama, Jesus Silva, and Italian charge d'affaires Massimo Tudini.

The consortium working on the $5.25 billion expansion of the Central American nation's interoceanic waterway is led by Spanish construction giant Sacyr Vallehermoso and includes Italy's Impregilo.

In a statement to reporters on the steps of the presidential palace, the president said that Pastor "will be arriving" in Panama on Saturday.

Silva told Efe that Martinelli is scheduled to meet with Pastor on Monday and that Spain's secretary of state for IberoAmerica, Jesus Gracia, will also be present.

Martinelli said that the Spanish minister will also meet with the chair of the Board of Directors of the Panama Canal Authority, Roberto Roy, and canal administrator Jorge Quijano.

"As a result of the meeting we'll continue our talks, because it's in the best interests of all parties the governments of Italy, Spain and Panama, and of the ACP (Panama Canal Authority) that the construction work continue until it's finished and that it turns out to be the project we all want and hope it to be," Martinelli said.

The Sacyrled GUPC consortium formally advised the ACP on Wednesday that it would suspend work in three weeks if the authority does not agree to pay an additional $1.6 billion to cover cost overruns.

GUPC, whose other members are Belgiumbased Jan de Nul and Panama's CUSA, insists that under the terms of the contract, the canal authority is responsible for absorbing those overruns.

Both the ACP and Martinelli reacted to the announcement with indignation, and the president said he would travel to Spain and Italy to urge the respective governments to prevail upon the companies to live up to the contract.

About that trip to Spain and Italy, Martinelli said Friday that it will all depend "on what happens" in the meeting with Pastor.

The president noted that Panama's diplomatic, economic and political relations with Spain and Italy are excellent, and that conflict over the canal is a dispute between the Panamanian state and some companies.

The Panamanian government also expects Sacyr President Manuel Manrique to arrive in Panama this weekend.

Silva told reporters this Friday that, while the problem is "obviously between contractor and client," the governments can step in to mediate a dialogue so the work can be finished.

GUPC began work on the third set of locks in 2007 and expects to complete construction in June 2015, nine months later than the date set in the contract.

The canal, designed in 1904 for ships with a 267meter (875foot) length and 28meter (92foot) beam, is too small to handle modern ships that are three times as big, making a third set of locks essential.