Deadline looms as Panama Canal, consortium seek end to cost dispute
Wednesday, February 19 2014 @ 10:29 AM EST
Contributed by: Don Winner
The disagreement between the two parties over $1.6 billion in cost overruns and how to maintain financing has already halted work on the project for two weeks and has delayed its projected completion until at least December 2015.
Delays could cost Panama millions of dollars in lost shipping tolls and are a setback for companies worldwide that are eager to move larger ships through the canal, including liquefied natural gas (LNG) producers that want to ship from the U.S. Gulf Coast to Asian markets.
"The Panama Canal Authority reports that despite efforts to agree with (consortium) Grupos Unidos por el Canal to resume work on the new locks project, positions between the parties remain apart," the canal authority said in a statement.
"Although last week the parties seem to have come to an agreement on certain components during the talks, there were serious disagreements at the time of putting it in writing," it added, saying the parties agreed to resume talks on Wednesday morning.
Canal administrator Jorge Quijano last Wednesday set a target of no more than a week to reach a deal to jump-start the project, a deadline that will lapse in the coming hours.
Quijano had previously warned that the canal could terminate the contract with the consortium and push ahead with a third party if a deal proves elusive.
A major sticking point in the negotiations on Tuesday was converting a $400 million bond from insurer Zurich North America into backing for a loan so the consortium can secure a short-term cash injection needed to continue its work, sources familiar with the talks said.
The consortium took out the bond as a required insurance policy in case it did not finish the project. The bond is payable if the project is not completed by the consortium for any reason.
The insurer was ready to provide the loan if shareholders of the consortium, which is led by Spain's Sacyr and Italy's Salini Impregilo and includes a Belgian and a Panamanian company, shoulder the risk and are liable for repaying the loan, one source said.
But the consortium's chief executive officers want the insurer to be the primary risk-holder, which Zurich considers unacceptable, one source said.
A key issue centered on the share of the risk the Italian and Spanish governments would take, one source said.
Spain's majority state-owned insurer Cesce, set up to financially aid international expansion of Spanish companies, provided a guarantee for the Sacyr bid in 2009.
Although Cesce has declined to comment on how much was guaranteed, a source with knowledge of the operation said it was for $200 million and helped underwrite the $400 million Zurich bond.
Officials at Zurich were not immediately available for comment. A spokesman for Sacyr declined to comment.
The parties also continued to debate a weekend proposal by the canal authority that would allow work to restart immediately, with it and the consortium each contributing $100 million.
But a source familiar with the negotiations said the consortium had not yet accepted the deal and wanted to wait on an answer from Zurich.
The overall expansion project, of which the consortium is building the lion's share, was originally expected to cost about $5.25 billion, but the overruns could increase that to nearly $7 billion.
Editor's Comment: The ACP simply can't afford to keep negotiating with GUPC. At some point in time, the ACP is going to have to pull the plug. They will probably make a public statement this afternoon that negotiations with the GUPC have officially ended without a deal, and the GUPC has failed to build the third set of locks as required and specified under the contract. And because the GUPC walked off of the job and stopped working, that means the ACP can then exercise the clauses in the contract which were put there exactly to protect the government of Panama from the sort of shenanigans the GUPC is trying to pull. They will then hire someone else to finish the project, or at the very least to manage the process for them, because the many of the same subcontractors and employees will still be doing the same work, but just answering to a different boss.
My prediction holds. I think the GUPC is toast, and they will be finished today. Remember this whole thing started almost two months ago. It's time to end it, one way or the other. And the "billion dollar bitch slap" foretold the way things were going to go.