Progress in talks on multi-billion dollar Panama Canal expansion

Monday, 13 January 2014 00:00 -     - {{hitsCtrl.values.hits}}

MEXICO CITY, (Reuters): Sacyr, the Spanish building company leading a consortium to expand the Panama Canal, said on Friday it was making progress in talks with the waterway’s operator over financing to avoid a damaging work stoppage on the multi-billion dollar project. Visiting Panama, Sacyr Chairman Manuel Manrique played down an acrimonious spat over cost overruns, in which the group demanded more money from the canal administrator to continue work on a third set of locks for the canal. “We are advancing day by day, and I am optimistic and hope we will soon have a happy ending,” Manrique told Reuters in an interview in the Panamanian capital. Manrique said the consortium, which includes Italian builder Salini Impregilo, would process its claim for $1.6 billion in cost overruns via arbitration. Earlier this month, the consortium threatened to halt work from Jan. 20 unless the Panama Canal Authority footed the bill. “We are going to continue with the project and we are going to follow what the contract says,” Manrique said. “The trouble is that arbitration takes longer than the project. There is a lack of cashflow which we have to solve.” The Sacyr chief said he hoped work would not stop, and expected to return to Panama in the middle of next week for further talks. The canal authority and consortium have both floated financing proposals. But it was not immediately clear how they would ensure cashflow in the short term to keep afloat the plan to expand one of the world’s most important cargo routes. The Panama Canal Authority said this week it was ready to bring in a third party to finish the expansion if no deal was reached with the consortium on financing. Halting construction on the project would be a setback for companies eager to move larger vessels through the century-old waterway such as liquefied natural gas (LNG) producers who want to ship exports from the US Gulf coast to Asian markets. Longstanding worries The Panama Canal on Wednesday rejected a consortium proposal that it pay $ 1 billion to continue work on expanding the waterway. Under a separate plan, the consortium has proposed that the canal authority pay out a $ 400 million cash advance. The canal has suggested it and the consortium each provide $ 100 million to keep work going, and said it would also delay repayment of a previously disbursed $ 83 million advance. Work began on the expansion in 2007 to create a new lane of traffic along the canal and double its capacity. The overall project is 72% complete. Last week, the consortium, which also features Belgium’s Jan De Nul and Panama’s Constructora Urbana, said it had faced the added costs due to unforeseen setbacks in the $ 3.2 billion section of the project to build the new locks. The group said flawed geological studies carried out by the authority had caused the cost overruns. US diplomatic cables published by Wikileaks showed the government of Panama President Ricardo Martinelli was worried about progress before six months had passed. Sacyr won the canal contract in 2009 with an offer considerably below the main rival bids and also below the $ 3.48 billion reference set by the canal authority.