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Sunday, December 21 2014 @ 08:29 AM EST

Panama says canal work suspended, company denies

Canal ExpansionA dispute over a $1.6 billion cost overrun in the Panama Canal's expansion took a new twist Wednesday after a Spanish company leading the project denied it halted work over the spat.

The Panama Canal Authority said the consortium led by Spanish builder Sacyr had halted work after negotiations broke down, but the company later announced that it made a "final offer" to prevent a shutdown.

The two sides have locked horns since December over unforeseen expenses in a project to widen the canal to accommodate massive cargo ships in the century-old waterway, which handles five percent of global maritime trade.

Panama Canal Authority administrator Jorge Quijano said the "inflexible position" of the consortium known as Grupos Unidos por el Canal (GUPC) had derailed the negotiations.

"They put a threat on the table, and today (Wednesday) they carried it out," he said.

"We demand the work be restarted immediately," Quijano said, adding that a proposal to cancel the GUPC contract is still on the table.

In a statement, Sacyr said the Panama Canal Authority had decided to "break off negotiations" but company president Manuel Manrique later said that the company would keep the talks alive.

"What happened is that the ACP (canal authority) rejected our last proposal without proposing a viable alternative, and this is why we released the statement," Manrique told Spain's Cadena Ser radio.

"But later we sent a letter proposing to continue and so we will see what happens... We have made a final offer to the canal (authority)," he said, adding that there was "no concrete date" to suspend the work.

"This depends on the response" from the canal authority, Manrique added.

The project to widen the canal, one of the biggest civil engineering operations in the world, is due to be completed next year but GUPC has said that the dispute threatens to delay completion by up to five years.

In its earlier statement, Sacyr said the collapse of the talks "puts in danger the widening of the canal and up to 10,000 jobs."

Sacyr said that if a solution were not found immediately, Panama would face years of litigation before national and international courts "on the events which have brought this project to the edge of failure."

'Bad' for world economy

The European Union's industry commissioner, Antonio Tajani, who has mediated the dispute, warned that "the interruption of the works would be bad news for employment, for the worldwide economy, for the expansion works of the canal."

Spain's Public Works Minister Ana Pastor called for an agreement be found quickly "because what is at stake is infrastructure that has an impact not only on the economy (of Panama) but also the world economy."

The canal facilities are being widened to permit the passage of ships carrying up to 12,000 containers, twice the current limit.

But the disputed contract to build locks, due initially to be completed this year, was already running nine months late and since the beginning of this year work has slowed down further.

GUPC says that unforeseen costs total $1.6 billion (1.2 billion euros) beyond the initial $3.2 billion value of the contract.

GUPC is in dispute with the Panama Canal Authority mainly over who was responsible for the quality of geological information and who should bear the cost of problems and delays arising from unexpected geological difficulties.

The consortium is proposing that the two sides each pay half of the extra costs until the project is completed.

They would then go before an international arbitration court for a decision on who is responsible for the unforeseen costs and who should pay.

Tajani said the breakdown was unexpected as the Panamanian president had said the previous day that the parties were "very close" to an agreement.

The consortium warned at the end of December that it would suspend work in three weeks' time if Panamanian authorities did not provide the extra finance demanded, and the deadline for progress in the talks ended on Tuesday.

The canal, completed in 1914 to offer a short cut and safer journey for maritime traffic travelling between the Pacific and Atlantic oceans, is about 80 kilometers (50 miles) long and is used by 13,000-14,000 ships each year. (Bangkokpost.com)

Editor's Comment: Man, this should go into the Business Management textbooks on how not to conduct business. First the GUPC guys win the contract by putting in a low-ball bid. Their management of the project has been crap from day one. Now they are talking about geological studies that were supposedly faulty. What happened to their original argument about the concrete being the cause of them falling behind?

The truth of the matter is GUPC gambled, and lost. The mistakenly calculated the ACP would capitulate to their demands, which they timed to fall just a few months before the upcoming presidential elections. They never thought for a moment the ACP would tell them to pound sand, refuse to hand over the $1.6 billion they were basically trying to extort from them, toss them off of the project, and hire someone else. Yeah, there were lots of surprises in the way this went down for the GUPC.

Oh, and when Martinelli told the press the two sides were about to reach an agreement - in reality the decision to tell them to fuck off had already been reached. That was just a play by Martinelli to put some psychological separation between him and Quijano. In fact, they are consulting about this every day, and making decisions together. Now Martinelli can look right at the television cameras and say "I support the independent decisions being made by the Board of Directors of the Panama Canal Authority." He appointed the majority of them, so they are doing his bidding. Trust me on this one - Martinelli is the hard edged negotiator who is making the big play calls here, from the sidelines. He does the "who, me?" thing better than anyone.

Regarding the jobs in Panama - this will just be a short delay. The GUPC had about 5,000 workers and right now about 70% of them are off the job. The ACP will bring in someone else, and those guys will hire the same workers, who will go back to work. Big deal, carnival is coming up, so they will take a break then go back to work.

Regarding economic impact - instead of spending $5.25 billion to expand the Panama Canal, the government of Panama will now be spending more than $7 billion. Most of that money stays in the country in the form of salaries, services, supplies, logistics, etc. So it's just more money flowing through the washing machine. No big deal.

Regarding the additional expense - the Panama Canal generates its own income. The traffic through the Canal will pay for the expansion. Again, no big deal.

Almost everyone quoted in this article from Spain, Italy, and the European Union don't want the GUPC to be tossed off the project. The governments of Spain, Italy and the EU will not be screaming bloody murder. The ACP will quietly execute clauses in their contract with the GUPC, take over the project, and hire someone else. Then, they will sue the GUPC for about $1.6 billion dollars (the additional expense of finishing the project.)

Sacyr said the ACP "rejected our last proposal without proposing a viable alternative." Yup, that's officially the end of negotiations. They were due to fail at some point anyway, and that failure came today. I expect there are phones ringing at Bechtel right now, and there are other companies sharpening up their pencils to take over this project - which will still have about $1.6 billion dollars left of juice in it. That's billion. With a "B".

So now Sacyr is saying "no wait, we're not done yet." Yes, you are. Pack your bags and get out. Game, set, and match.

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Panama says canal work suspended, company denies | 1 comments | Create New Account
The following comments are owned by whomever posted them. This site is not responsible for what they say.
Panama says canal work suspended, company denies
Authored by: j todd on Thursday, February 06 2014 @ 08:38 AM EST

Therte was a "piece" in today's USA Today regarding this issue.
John Todd