Panama Canal, contractors extend talks on dispute

PANAMA CANAL

The headquarters of the Panama Canal Authority. EFE/File
The headquarters of the Panama Canal Authority. EFE/File

— The Panama Canal Authority, or ACP, said Friday that talks aimed at resolving a dispute with the contractors building a third set of locks for the waterway will continue through Feb. 4.

Though the parties set a deadline of Feb. 1 to reach agreement, they have now decided to continue negotiations through the weekend, the ACP said in a statement.

Discussions between the ACP and the GUPC consortium began Jan. 7.

Zurich Insurance Group, the guarantor of the expansion project, joined the process last week and will be part of the extended dialogue, the ACP said.

GUPC, which is led by Spanish construction giant Sacyr and Italy's Impregilo, confirmed Friday that talks would continue and that a threatened work stoppage would be delayed until at least Feb. 5.

The consortium formally notified the ACP on Dec. 30 that it would suspend work Jan. 20 if the canal authority did not agree to pay the contractors an additional $1.6 billion to cover cost overruns.

Since then, the date of the possible shutdown has been postponed twice.

"The objective of the negotiations has been, and continues to be, to reach an a longterm accord for the realization of the Panama Canal expansion project in the shortest time and at the lowest cost, within the contract and the law," GUPC said Friday.

Talks "center on a plan of cofinancing the costs for the completion of the project. The ultimate responsibility for the additional costs will be decided through international arbitration proceedings," the consortium said.

Both the ACP and GUPC want to complete the third set of locks and the most convenient way would be "to finish together," but only within the terms of the original contract, canal administrator Jorge Quijano has said.

The ACP said on Jan. 7 it would advance the GUPC $100 million and give the consortium a grace period of two months to repay a previous advance of $83 million, provided the contractors also put up $100 million and withdraw their threat to suspend work.

The consortium countered by proposing the ACP fork out an additional advance of $400 million while also pledging to contribute $100 million of GUPC funds to keep the project running.

Another proposal, presented unilaterally by Impregilo and made public on Jan. 9, called for the canal authority to make an additional payment of between $500 million and $1 billion to the GUPC to cover cost overruns.

Quijano rejected both of those formulas as "outside the contract."

The contract for the locks, which is the centerpiece of a $5.25 billion canal expansion, was awarded to GUPC in 2009 and calls for the ACP to pay the consortium a total of $3.12 billion.

So far, the ACP has paid GUPC $2.83 billion, including repayable advances, plus an additional $180 million for cost overruns.

The Panama Canal, which was 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.