Spain's government urging talks to settle dispute over US$1.6B in cost overruns in Panama Canal expansion project, being led by Spanish builder Sacyr; government officials may visit Panama in coming days

Cindy Allen

Cindy Allen

Jan 3, 2014 – Thomson Reuters Corp.

MADRID , January 3, 2014 () – Spain's government is pushing for talks to settle a dispute over $1.6 billion in cost overruns for expanding of the Panama Canal, a project led by Spanish builder Sacyr, Spain's ambassador to Panama said on Friday.

Ambassador Jose Silva told Spanish state radio that Public Works Minister Ana Pastor and Sacyr Chairman Manuel Manrique may visit Panama in the coming days.

"We're trying to get them to sit down for talks to see if they can reach an agreement, and to make all sides understand that everyone loses if the contract is terminated," Ambassador Jesus Silva told Spanish state radio.

The expansion will triple the size of ships that can ply the canal, helping the small Central American nation compete in global trade. It will affect shipping routes - for example making it easier for cargo to move between Asia and the eastern coasts of the Americas - and the cost of transporting commodities and manufactured goods.

Silva said Sacyr stood to lose money on the contract - one of its biggest - if the issue was not resolved, but said it would be an "acceptable" loss.

Sacyr, Italy's Salini Impregilo, Belgium's Jan De Nul and Panama's Constructora Urbana said on Wednesday the overruns on the $3.2 billion project to build a third set of locks along the canal should be met by Panama, and it would suspend the work unless the authorities came up with a solution within 21 days.

The project is more than two-thirds complete and is scheduled to conclude in 2015.

The consortium said the overruns were due to unforeseen events during construction that it deemed normal on such large projects.

Sacyr blamed part of the cost overrun on materials included in the original budget being declared inadequate during the construction phase. For example, the Panama Canal Authority (PCA) rejected the concrete mix the consortium had planned to use, the company said.

The PCA dismissed the complaints by the consortium, known as Grupo Unidos por el Canal.

"Regardless of what kind of pressure is put on the PCA, we will maintain our demand that Grupo Unidos por el Canal respects the contract that they themselves accepted and signed," the head of the PCA, Jorge Quijano, said in a statement.

Shares in Sacyr fell sharply for a second straight session, dropping 5.7 percent to 3.236 euros by 1204 GMT.

Panamanian President Ricardo Martinelli accused the companies on Thursday of "great irresponsibility" and said they had endangered the massive construction project, a major driver of Panama's economy.

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