Panama Canal expansion stalls over row with construction consortium
Published 24/01/2014 | 02:30
IT is estimated to cost almost €5bn and will double capacity on one of the world's most important shipping routes when completed.
But the expansion of the famous Panama Canal, which has been under way for more than six years, has hit a major stumbling block.
Panama's government said this week that the work rate on the project fell by up to 75pc due to a dispute with the European consortium hired to do the job.
Since the start of 2014, the Panama Canal Authority (PCA) has been embroiled in a public row with the consortium known as Grupo Unidos Por el Canal (GUPC) over $1.6bn (€1.2bn) in additional costs the GUPC says have arisen during work on the project.
Though the spat only recently went public, discussions over added costs have been going on since 2010.
Experts have warned that the massive project, which connects the Atlantic and Pacific oceans via an 80km canal through Central America, faces significant delays.
It was originally slated for completion this year, marking the centenary of its opening, before being pushed back to 2015.
With two-thirds of the expansion already completed, Panama's President Ricardo Martinelli this week vowed the work would be completed.
"Panama has the resources, and will finish work by 2015 regardless of what happens, rain, thunder or lightning," he said at the World Economic Forum in Davos.
The Panama Canal is of huge importance to global shipping companies. Opened in 1914 at a cost of $375m and 25,000 lives, the canal was dynamited and dug out by thousands of labourers, braving malaria and yellow fever.
It saves ships a long haul around South America's treacherous Cape Horn and handles about 4pc to 5pc of world trade.
The canal has influenced world trade patterns and spurred growth in developed countries. A vessel laden with coal sailing from the east coast of the United States to Japan via the Panama Canal saves about 4,800 kilometres versus the shortest alternative all-water route.
Most of the traffic through the canal moves between the east coast of the United States and the Far East, while movements between Europe and the west coast of the US and Canada comprise the second major trade route at the waterway.
The expansion will allow for the passage of larger container vessels, currently restricted by the dimensions of the existing canal locks.
Now it's emerged that if work is suspended, it could take up to five more years to finish, according to arbitrators helping to oversee the project.
If the canal authorities do not help pay for cost overruns, the consortium of construction companies – fronted by Spanish firm Sacyr – has threatened to suspend work.
The PCA has refused, warning the GUPC it could be dismissed and that other contractors could finish the project to build a third set of locks for the canal, the heart of the expansion.
The PCA held talks with GUPC earlier this week and canal administrator Jorge Quijano said a potential financing deal involving insurer Zurich North America had been proposed that could offer a long-term solution to the project.
Nevertheless, the two sides have yet to agree on how much each party could provide to bridge the funding gap.
As talks began on Tuesday, the consortium, which includes Italy's Salini Impregilo, Belgium's Jan De Nul and Panama's Constructora Urbana, pushed back its possible suspension of the work until the end of January. The clock is ticking to find a solution. (Reuters)