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Tuesday, December 12 2017 @ 12:57 PM EST

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Insight: Lowball bid comes back to haunt Panama Canal expansion

Canal ExpansionBy Lomi Kriel and Sonya Dowsett (Reuters) - A bitter dispute between the Panama Canal and a Spanish-led consortium of construction companies over the spiraling cost of expanding one of the world's busiest waterways was years in the making.

The two sides are at odds over who should pay for $1.6 billion in cost overruns to build a third set of locks for the canal, the main part of the expansion of the 50-mile cargo route that connects the Atlantic and Pacific oceans.

The impasse over the 100-year-old waterway could delay construction, which aims to double the canal's shipping capacity and bring in billions of dollars in new revenue for Panama.

Reuters interviews with people involved in the 2009 bidding for the contract, local officials and leaked diplomatic cables reveal their concerns that the Grupo Unidos por El Canal (GUPC) consortium would not be able to finish the job with a bid that was $1 billion lower than its nearest rival.

The GUPC, led by Spanish company Sacyr, said the overruns were caused by problems including flawed geological studies carried out by the Panama Canal Authority (PCA), a semi-independent government entity that has managed the waterway since the United States transferred ownership to Panama in 1999.

But the PCA has rejected the GUPC's assertions.

A top Panamanian official close to the bidding process, who spoke on condition of anonymity due to the sensitive nature of the matter, said within months of the project being awarded, Sacyr executives were saying the work would not stay on budget.

"The PCA knew some years ago that Sacyr authorities were saying that openly, but felt they were protected by the contract," the official told Reuters.

A second Panamanian official, also speaking on condition of anonymity, said even before the deal was signed, discussions with consortium officials showed they believed they would be able to negotiate a higher cost at a later stage.

"But they found in Quijano a brick wall," the official said, referring to the head of the PCA, Jorge Quijano.

Large infrastructure projects often run over budget, and GUPC officials have said overruns are an occupational hazard.

But Sacyr denies it ever planned to ask for more money and says flawed data from the geological studies of the canal pushed up costs, because it meant that local basalt excavated for the work was not right for the concrete mix it planned to use.

"It was not a deliberately underbid offer," the company's chairman Manuel Manrique told reporters this month. "Sacyr has successfully carried out a great number of projects ... and we are still winning and carrying out projects."

The PCA has dismissed that basalt claim, and points out that its contract offered no assurances over the rock.

"The employer in no way guarantees that such (material) is adequate, or meets the requirements for the contractor's proposed design, or is suitable for the works," says the contract, which is publicly available on the PCA's site.

COSTLY DISPUTE

The dispute could prove costly for both sides.

Expansion was originally due to be finished in 2014 to coincide with the canal's centenary celebrations, but that deadline was pushed back to the middle of next year.

If work is delayed, Panama could lose out on millions of dollars in projected revenue from toll charges.

For Sacyr, which has 48 percent of the consortium, the work brings in a quarter of its international revenue. Like most Spanish builders, the company relies heavily on foreign orders to offset a sharp economic downturn at home.

Winning the bid gave the company a major lift.

At the end of 2008, Sacyr was grappling with falling core earnings, punished by weak construction and property markets as Spain's economy swung from boom to bust. The company was swamped with 14.5 billion euros ($19.7 billion) of debt, around seven times its market value. Sacyr's shares had lost nearly 90 percent of their value from the 2006 all-time peak.

In July 2009, GUPC clinched the contract for the locks with an offer worth $3.12 billion - significantly below the $3.48 billion target reference issued by the PCA for the process.

That was $1 billion below the second lowest offer tendered by a group fronted by U.S. engineering company Bechtel.

Both Bechtel and another consortium led by Spanish company ACS, whose bid was worth $6 billion, quickly sent letters to the PCA complaining the GUPC proposal did not meet the bid requirements and had inherent structural risks.

But neither losing bidder formally challenged the process, and Canal Administrator Quijano told Reuters those structural concerns had since been resolved.

Jorge Sanchiz, a Panamanian engineer with experience in canal work, said both the PCA and the consortium were to blame: one for underestimating the costs, the other for allowing it.

"They only way (the consortium) was going to be able to cover this was asking the Canal Authority to meet the overruns," said Sanchiz, who forecast before the PCA made its choice in 2009 that the winner would run substantially over budget.

The overall expansion of the canal was initially forecast to cost $5.25 billion in total. But the overruns now being claimed by the consortium are pushing it close to $7 billion.

"COST OVERRUNS COMMON"

A senior figure within the GUPC said the PCA was being unrealistic if it thought the project would not cost more than originally projected by the consortium.

"To think that a five-year project with the complexity and size of this one won't have overruns is absurd," the official said, asking not to be identified. "In a lot of projects the deviations were much bigger than in this one."

One of the biggest academic studies on the issue in recent years was a 2003 investigation at Aalborg University in Denmark which looked at 258 transport infrastructure works worldwide and found they had an 86 percent chance of incurring cost overruns.

On average, the costs were 28 percent higher than forecast, the study said - but below the 50 percent jump on the GUPC bid.

Sacyr's main partner is Italy's Salini Impregilo, which has a similar share in the project. The GUPC also includes Jan De Nul from Belgium and Panama's Constructora Urbana (CUSA).

A day after the PCA published its evaluation of the bids, the U.S. embassy, which had backed the Bechtel-led consortium, described the GUPC proposal as a "bargain basement bid," according to cables published by WikiLeaks.

"It is widely expected that during construction, Sacyr will attempt to renegotiate the price," the cable said.

Less than six months later, the U.S. embassy cabled Washington that Panamanian vice president Juan Carlos Varela had expressed grave misgivings about the winning offer.

"When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong," the cable quoted him as saying at the end of 2009.

Alberto Aleman, who headed the PCA from 1999 to 2012, said all the competitors had faced the same rules and that the Sacyr-led group had offered both the best design and the best price.

"Bechtel's offer had a different design in which the gates were 50 percent bigger, using much more concrete," he said.

But costs were always likely to be an issue, he admitted.

"We knew before we put this together that any project of this complexity would have claims. No matter who would win."

The dispute has not surprised industry experts in Spain.

The practice of making low offers for a contract, then negotiating costs later has been a popular strategy for Spanish construction firms for years, industry officials told Reuters.

Companies put in low bids in the hope of booking extra pay-outs on modifications and extensions as revenue, they said.

"We've all done that at some time or another, making low bids was a typical Spanish tactic," said one official, speaking on condition of anonymity.

The Spanish government passed a law in 2011 aimed at preventing the practice of underbidding, and said at the time that 98 percent of public contracts signed in the previous 15 years had ended up with cost overruns.

The PCA said this month it could take over the project from early February if GUPC made good on its threat to suspend work unless the authority footed the bill for the cost overruns.

The dispute over costs looks likely to be settled by arbitration panels agreed in the contract, but a question remains over whether the GUPC will finish the project.

The first Panamanian official said he expected the expansion to be taken out of the GUPC's hands. The consortium's suspension was due to take effect Monday, but GUPC said work would continue for now while it remains in talks with the canal authority.

However the row plays out, the expansion looks unlikely to suffer the fate of the 19th century scheme to build a canal through Panama led by Frenchman Ferdinand de Lesseps.

Starting work in 1880, it collapsed after the loss of thousands of lives and millions of dollars, allowing the United States to step in and take control of the canal project in 1903.

Panama's President Ricardo Martinelli said the expansion of the waterway could not be stopped.

"The Canal will be finished regardless of what's said, come rain, wind or hail," he said. ($1 = 0.7352 euros)

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GUPC Trying To Indefinitely Extend Their Threat To Suspend Work on Panama Canal Expansion Project

Canal ExpansionThe consortium Grupo Unidos por el Canal (GUPC) changed the deadline they imposed on the Panama Canal Authority as part of the warning they issued with a threat to stop working to construct the new third set of locks as part of the project to expand the Panama Canal, which according to the letter they issued to the ACP was supposed to take effect today.

The consortium said yesterday in a statement the notice they sent on December 30 to the ACP entitles the consortium to suspend work at any time, starting tomorrow.

However, the ACP said the suspension announced today by the GUPC "is invalid, without merit, and is contrary to the contract for construction of the third set of locks."

"Currently, levels of work on the project are low without any justification," said a statement issued by the ACP.

The ACP went on the explain sub-clause 16.1 of the contract cited by the consortium as their justification for suspending work on the project is "wrong" because the clause cited only applies if the employer - the ACP - should fail to make monthly payment to the contractor for bills, and this has not occurred.

ACP officers toured the construction site on the Pacific side of the Panama Canal yesterday, where they noted the slow pace of work being conducted, the statement said.

Although it is not established in the contract , the European Commission offered to mediate in the conflict between the ACP and the GUPC. (Prensa)

Editor's Comment: So, now the GUPC thinks they can simply hold their threat to suspend work over the heads of the ACP? While simultaneously having laid off more than 2,600 workers (more than half of the workforce)? And that their perpetual threat to walk off the job will end up with them getting paid $1.6 billion dollars more than what they agreed to by signing the contract to build the new locks for $3.118 billion? Money they are trying to force the ACP to pay, by exploiting the leverage they have due to their current participation in the project? All of this adds up to simple extortion. Blackmail.

No princess, that's not going to work. This entire scenario will eventually wide up in textbooks around the business world on "how not to" manage your way through this sort of problem. The GUPC made their first mistake when they underbid the project in the first place, in order to win the contract. The GUPC also overplayed their hand when they threatened the ACP. I don't think they ever suspected the ACP's answer would basically come down to "screw you." The GUPC gambled that their leverage, created by their simple presence on the work site, would be enough to force the ACP to negotiate with them and to pay them $1.6 billion dollars in "cost overruns." They also thought the timing would work in their favor, being just a few months before the next general election to select the new Panamanian president. But really, who is advising these idiots? They've blown it, several times, and at many levels. Phale, on a massive scale...

I had some conversations with several people on the ground over the weekend, who are involved in the process from various angles and at different levels. The general consensus is that it's going to cost the ACP and the government of Panama another $1.5 billion dollars, at least, in order to finish the project. So why in the name of God should they pay that money to these morons, who have repeatedly negotiated in bad faith and acted in bad faith? It makes no sense whatsoever. And besides, it's probably even illegal for the ACP to simply hand $1.6 billion dollars to the GUPC that's not in the contract. This comes down to an attempted extortion - blackmail. Pay us, if you ever want to see your baby alive. And right now the ACP and Martinelli are pissed. Severely pissed.

The Panamanian people are almost 100% behind the ACP and president Ricardo Martinelli, so there will be no political backlash over this kerfuffle. By demonstrating strong leadership and a steady hand, the ACP and the Panamanian government will gain even further political support - not that it's even necessary. The ACP and Martinelli are fearless, and the polls show strong support and a probable win for their presidential candidate Jose Domingo Arias in the May 2014 election. I have not seen them directly blame the PRD (yet) for this mess, but that will probably emerge in the final run to the election, in the last few days before the vote. So politically speaking, the GUPC made a big mistake when they thought they could gain the upper hand by timing their attempted gut-shot for January 2014.

All of this adds up to one conclusion. The GUPC will get tossed off of the job, and they will be replaced. Someone else will finish the job. The newly expanded Panama Canal will eventually be opened, albeit with a delay. No big deal there, it's already going to be delayed, thanks to the ineptitude of the GUPC. The additional money - $1.5 billion or so - is a ho-hum, so what, no big deal part of the equation. But having a responsible builder on the ground who will drag the project through to completion will be a significant improvement over the current situation. The ACP and the Cambio Democratico will come out smelling like a rose. The share prices of the companies making up the GUPC will get pummeled in the exchanges where they are traded. Locally, construction workers will get laid off for awhile, until the new builder gets up and running.

Stay tuned as this situation continues to slowly develop. I expect all of this to be resolved, and there will be a new group working, before the May elections. But it's going to take that long to get all of the details sorted out. Expect a three to four month delay in the progress of work. I expect the project to be completed in early 2016.

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The ACP Has Been Talking To Other Contractors

Canal ExpansionThe Panama Canal Authority revealed today they have been talking to contractors other than those currently responsible for building the new third set of locks, in order to face the possible suspension of work on Monday, but they have not lost all hope the GUPC will reconsider their position, and resume work on the project "at full speed."

The Administrator of the Panama Canal Authority of Panama (ACP), Jorge Quijano told reporters he is holding the names of the new companies in reserve "until we are ready to act," after a meeting with with the Panama Business Executives Association.

"We are ready for the eventuality (but ) we still have some hope that the contractor will reconsider and re-focus on resuming work at full speed," said Quijano.

After these statements, Quijano held a closed-door meeting with Manuel Manrique, the President of the Spanish company Sacyr leader GUPC, and representatives of Belgium's Jan de Nul and the Panamanian company CUSA, during which "they agreed to keep channels of communication open in the coming days" to overcome the conflict, according to an official statement.

These three companies, along with Italy's Impregilo, comprise the Grupo Unidos por el Canal (GUPC) , who announced they would suspend work on the project starting next Monday due to liquidity problems arising from "overruns" in excess of $1.6 billion that the ACP refuses to recognize.

Sacyr and Impregilo each have a 48% stake in the GUPC consortium, while Jan de Nul has 3% and CUSA has 1%.

In brief statements made to the press today as he left the headquarters of the ACP, Manrique told reporters the talks "continue" without further details.

In the statement released by the ACP after the meeting between Quijano and the three companies, the Authority said "the situation remains similar to the points made this morning" by the administrator, and that "in the event of any significant progress presented (in the conversations) we will release it."

Quijano revealed this morning that yesterday he met with Manrique and the contractors but so far they had not presented a "positive" solution to the crisis.

Sacyr "is willing to keep talking and is keen" to finish the construction of the new locks, a project that was awarded in 2009 to the GUPC for $3.118 billion dollars, which is currently 65% finished, according to the ACP.

The ACP has paid $2.831 billion, including $ 784 million in repayable advances, plus $180 million in additional costs which represent about 6% of the contract cost.

Quijano reiterated this morning that the ACP maintains its proposal to grant a two-month moratorium on the payment of an advance of $83 million given to GUPC, and for both parties to disburse $100 million to revive the project and ensure the work for the next "two to four months."

He also said during a tour of the project yesterday they have confirmed the consortium "has significantly slowed" the rate of work being done on the project, by about 70% compared to last November, which he considers to be a violation of the current contract.

"Or, it is not only that they are waiting for next week to stop work, but rather what we see now is not the same level of activity from two months ago and that (...) is totally outside of the contract," he said.

Quijano also stressed the ACP's commitment to see the project through to completion, and that next week "there will be decisions one way or the other" because it is not in their plans for work on the project to remain stopped "for three to four months."

He announced he has a meeting scheduled "next Tuesday" with the insurer Zurich International, which has a $600 million dollar bond as part of the contract to build the third set of locks, which is the first option to continue work on the project if the GUPC walks off the job.

Quijano explained the contract states if the consortium stops working, the project can be taken over directly by the insurer, or they can pay the bond to the ACP, which would then take direct control and finish the project through subcontractors.

In the scenario in which the ACP takes control of the project, Quijano said the work could "start walking quickly," and although he avoided quantifying the delay the conflict would cause, he said the ACP would establish a work schedule that would allow for the project to be completed "well within the 2015 time frame."

Under the current contract the GUPC has to have construction finished by October 2014, but the GUPC had already warned - before the current conflict - that it would be delayed until June 2015. (Critica)

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More Than 2,600 Construction Workers Laid Off - Panama Canal Expansion Project

Canal ExpansionMore than half of the workers involved in the project to expand the Panama Canal have been laid off in the past five months, according to the Minister of Labor and Workforce Development, Alma Cortés, who believes the consortium in charge of the project is facing economic problems.

"Here many have been laid off and they have not been called back to continue the work," Cortes said Thursday after meeting with the administrator of the Panama Canal, Jorge Quijano.

According to Cortés, more than 1,600 workers have been laid off in the past five months and another 1,000 have stopped working on the project voluntarily.

"We are talking about 2,600 workers who are no longer working on the project to expand the Panama Canal." She said the total labor force was more than 5,000 workers before the layoffs started.

The meeting between Quijano and Cortés occurred in the context of the crisis triggered last December 30, when the consortium Grupo Unidos por el Canal ( GUPC ) threatened to suspend work on the canal next Monday if the ACP refuses to recognize cost overruns of $1.6 billion dollars.

Quijano said on Thursday work on many of the elements of the construction for the expansion of the Panama Canal and the new third set of locks "have been discontinued and stopped" in recent weeks.

"I get the impression that they (the GUPC consortium ) were already suffering some kind of economic situation," he said.

"It seems like this was a problem they have been dealing with for months," added Cortés.

The GUPC consortium led by the Spanish company Sacyr, with the Italian company Impregilo, Belgium's Jan de Nul, and the Panamanian company Constructora Urbana (CUSA) threatened to suspend all work on the the construction of the third set of locks, the largest contract (at $3.118 billion) of an overall $5.25 billion for the entire project.

The GUPC argues that cost overruns were caused by "unforeseen" and erroneous geological reports of the ACP.

In response, the ACP says GUPC had the information for 14 months, and had ample time to conduct their own tests and studies. (Estrella)

Editor's Comment: So, more than half of the work force working to expand the Panama Canal has been laid off. Further evidence the GUPC knew what they were doing. They planned this, and tried to time it for maximum effect by making their announcement just a few months before the upcoming national general elections in May. They gambled that the ACP and the government of Panama would be willing to roll over and take the $1.6 billion dollar hit, rather than suffer the headlines relating to a work stoppage. Well, it seems like they overplayed their hand, and misjudged the political calculus. Did they forget that they were hired by the PRD? Or maybe it's more simple. Maybe they just ran out of cash and had to quit now. Either way, they're done.

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ACP and GUPC Agree To "Keep Communications Open"

Canal ExpansionThe Panama Canal Authority (ACP) and three of the four contractors responsible for building the new third set of locks as part of the Panama Canal expansion project agreed today to "keep the channels of communication open in the coming days," while looking for a solution to the conflict threatening to stop work on the project next Monday.

In a brief statement, the ACP said this was the result of a closed door meeting held on Thursday between the Administrator of the ACP Jorge Quijano, and representatives of the construction company Sacyr, the Belgian company Jan de Nul, and the Panama company CUSA.

These three companies, together with Italy's Impregilo, comprise the Grupo Unidos por el Canal (GUPC).

The GUPC announced they will suspend work on the construction of the third set of locks starting next Monday, 20 January 2014, due to a lack of liquidity caused by "cost overruns" of more than $1.6 billion - which the ACP will not recognize.

Both Sacyr and Impregilo each have a 48% share in the consortium, while Jan de Nul has 3% and CUSA 1%.

The Panama Canal Authority said in its statement "the situation remains similar to the points made by the ACP administrator this morning," when Quijano told reporters the contractors had not presented a "positive" solution to the crisis.

"We are prepared for the eventuality," a suspension of work on Monday, as announced by the GUPC, but "we still have some hope that the contractor reconsider and re-focus on resuming work on the project at full speed," said Quijano.

The administrator reiterated this morning the Canal stands by its proposal to grant a moratorium of two months for the GUPC to repay an advance of $83 million dollars, and for both parties to disburse $100 million each to revive the project and ensure that work continues for the next "two to four months."

Last week the GUPC asked the ACP to give them between $400 million to $1 billion, which Quijano rejected because it was "outside" the provisions of the contract.

At the meeting on Thursday " the ACP told the GUPC that any solution must be developed in accordance with the agreements in the contract," the statement said.

They added "in the event of any significant progress in the talks, the ACP will let the public know, in accordance with our policy of transparency and accountability."

The GUPC was awarded the contract in 2009 for the construction of the new third set of locks for 3.118 billion dollars, and so far the construction is 65% completed.

Thus far the ACP has paid $2.831 billion on the contract, including $784 million in repayable advances, plus an additional $180 million in additional costs representing about 6% of the contract cost. (Panama America)

Editor's Comment: Yeah, it's not going to happen. I think both sides have already come to the same conclusion. The GUPC is going to stop working and walk away, and the ACP is going to hire someone else to complete the job. The ACP is legally bound to stick to the letter of the contract, and the $1.6 billion the GUPC wants has nothing to do with the contract - it's not in there, so why should the ACP pay it?

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Alemán Zubieta defends ACP contract

Canal ExpansionThe former Administrator of the Panama Canal, Alberto Alemán Zubieta, yesterday revealed the details of a solid system used by the ACP to guarantee a shielded contract, awarded for the construction of the third set of locks as part of the project to expand the Panama Canal.

Alemán Zubieta, who led the ACP until September 2012, explained that all of the elements were considered as part of the effort to mitigate the risks involved in the project, passing through an outside evaluation and oversight by a group of international technicians in the selection process, as well as auditors, and a group of qualified Canal workers who were responsible for the technical evaluations, as part of the bidding process.

They spent 14 months clarifying doubts, and the necessary changes were made to the specifications.

"No one can talk about concerns or surprises," said the former official, who defends the posture of the current manager Jorge Luis Quijano.

In turn, yesterday the board of the ACP reaffirmed its full support for the canal administration in the management of the awarding of the contract for the construction of the third set of locks.

At the same time, the Society of Engineers and Architects of Panama provided support to the administration of the Canal, and asked the entity to exercise its autonomy and to manage and implement the contract, without being influenced by external pressures and strangers. (Prensa)

Editor's Comment: Before Alberto Alemán Zubieta was appointed by former (PRD) president Martin Torrjos to take over as the Administrator of the Panama Canal, he was the President of the CUSA construction company - probably the largest in Panama - creating an obvious conflict of interest in the awarding of the contract to the GUPC. But of course "this is Panama" where people are paid good money to look the other way and ignore these sorts of things. So, what do the political tea leaves say on this one?

Early in the selection process for the upcoming presidential election, everyone already knew that Juan Carlos Varela would be the presidential candidate representing the Panameñista political party, and Juan Carlos Navarro would be representing the PRD. However president Ricardo Martinelli and the ruling Cambio Democratico (CD) party had not yet made up their minds as to who they should run as their candidate in the 2014 elections. Many possible candidates were being considered, among them Alberto Alemán Zubieta.

There was a period of time at the end of 2012 and going into 2013 during which Alberto Alemán Zubieta was a leading candidate. The CD actually tried to "woo" him into being their man. See the following articles;

So, the PRD appointed Alemán Zubieta to the post of Panama Canal Administrator. His company CUSA won the biggest contract worth $3.118 billion dollars to build the third set of locks for the Panama Canal expansion. The CD tried to lure him away from the PRD and to get him to run as their candidate in 2014 - but he refused. Apparently his links (money and kickbacks) to the PRD were too deep and strong to overcome - even with the potential of becoming Panama's next president. Fast forward to today...

Ricardo Martinelli is nothing if not vindictive. He doesn't like it when people say "no" to him. If Alemán Zubieta had accepted the CD's offer made during this week last year and if he was now the presidential candidate for the CD political party, then we would not be having this discussion regarding the cost overruns and the GUPC right now. It would have waited until after the elections in May 2014.

And then the money would have flowed. The ACP and GUPC would have shared responsibility in public. The project would have been built - relatively harmoniously - and the "cost overruns" would have been taken care of. All of that was part of Martinelli's plan.

However because Alemán Zubieta snubbed him and decided to remain loyal to the PRD, Martinelli sharpened his sword. Now the GUPC (and CUSA) are about to get screwed. You can ignore the content of this article which is little more than an exchange of hugs between the former ACP administrator and the new regime. The reality is that the ACP is part of the government of Panama - whether or not they are supposed to be "independent" - and Martinelli calls the shots.

I expect the ACP and the government of Panama will be saying "screw you" to the GUPC (and CUSA and Alemán Zubieta). They will toss them off of the job and find someone else whose willing to finish the project - and so what if it costs a couple of billion dollars more to build. Remember, Martinelli and his crew redefined the art of building shit and skimming government tax dollars into offshore accounts. Whoever the new contractor is, it won't be anyone with deep ties to the PRD, you can bet on that.

(And this is why you subscribe to this website ... you won't hear this anywhere else. Well, now that I've published it you will. These are the things that all Panamanians know, but they are too afraid to talk about either in the press or in public.)

Editor's Comment: Clarification - in response to a comment. Alberto Alemán Zubieta was appointed to the Panama Canal Commission in 1996, under the PRD administration or Ernesto Perez Balladares. Two years later, in 1998, he was appointed as the Administrator of the Panama Canal Authority. In 2005, during the administration of the PRD's Martin Torrijos, he was reelected by the Panama Canal's Board of Directors to lead the Panama Canal Authority for another seven years. His term in office ended in 2012.

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Crucial meeting in Panama to unlock conflict over canal construction

Canal ExpansionBy Juan José Lagorio - The consortium responsible for expanding the Panama Canal, Grupo Unidos por el Canal (GUPC), and government authorities will meet on Thursday (Jan 16) to try to unlock a conflict over increased costs that threatens to halt the US$5.25bn project.

GUPC - a consortium led by Spanish construction firm Sacyr and Italy's Impregilo, along with Belgian firm Jan De Nul and Panama's Constructora Urbana - warned it would down tools on January 20 unless the Panama Canal Authority (ACP) met US$1.6bn in cost overruns.

The authority has declined to provide all those funds and only agreed to pay US$283mn.

The meeting between Panama Canal Authority (ACP) head Jorge Quijano and Sacyr president Manuel Manrique is seen as one of the last opportunities to settle the dispute.

Despite initial tensions, the parties involved have tried to tone down the rhetoric.

Earlier this week, Sacyr said it was committed to completing the canal construction, while the head of Latin American development bank CAF, Enrique García, said the expansion "will not be halted".

This "is an iconic project, not only for Panama, but also for Latin America ... I think there will be an agreement," García told Spanish news agency EFE. CAF is helping to finance the canal expansion with US$300mn.

ACP canceled a scheduled meeting with its insurance provider Zurich on Monday, suggesting that a deal might be imminent.

Still, the canal authority said it was ready to continue with the expansion on its own if GUPC suspended works next week.

"We are ready to access the funding needed to move on," Quijano said, adding ACP could restart expansion works within 15 days.

Construction of the third set of locks, the largest project of the expansion plan, is nine months behind schedule and is now set to wrap in June 2015. GUPC has blamed the delays on the ACP. (Business News Americas)

Editor's Comment: And now the GUPC has figured out that they severely overplayed their hand, and they are looking for a way to negotiate their way out of the mess they have created for themselves, with the least amount of pain (financial loss). They understand that if they follow through on their threat and actually walk off of the job, then they will be held legally responsible for any future costs associated with getting the job done. The ACP recognizes that it will cost about $1.5 billion more to finish the job, but the GUPC is not either necessary or crucial to getting from here to there. I don't think the ACP or the government of Panama will be willing to give up a whole lot to the GUPC. Let's see what comes out of the meeting tomorrow...

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It Will Cost $1.5 Billion (more) To Complete Third Set Of Locks - Panama Canal Expansion

Canal Expansion The Panama Canal Authority said it will take approximately $1.5 billion to complete the construction of the third set of locks, of which they have $1.389 billion available.

The calculations made by the canal administration is very different than the requests being made by the Grupo Unidos por el Canal (GUPC), which was awarded the contract for $3.118 billion, and now they are requesting an additional $1.6 billion, for a total of $4.718 billion. (Prensa)

Editor's Comment: Everything I'm seeing seems to indicate the Panama Canal would prefer to use the funds they have to pay someone else to finish off the project. Right now they are simply waiting until Monday, 20 January 2014, to see if the GUPC actually follows through on their threat and suspends work on the project to build the third set of locks. As soon as that happens (if it does) then the ACP will step in, take over, and move forward without the GUPC. Of course they will then sue the GUPC for failing to perform on the contract, as agreed. Meet the $1.6 billion dollar yuca, that's about to get rammed up GUPC's ass...

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"The Panama Canal Expansion Will Be Completed 'With or Without' the GUPC" - Martinelli

Canal ExpansionPanamanian President Ricardo Martinelli said today the Panama Canal expansion project will be completed "with or without " the consortium currently responsible for the project, which announced a suspension of work next Monday due to a lack of liquidity.

"We will finish the project to expand the Panama Canal with or without them," meaning the consortium Grupo Unidos por el Canal (GUPC ), Martinelli told reporters after attending a public event.

The GUPC, led by Sacyr, and comprised of Italy's Impregilo, Belgium's Jan de Nul, and the Panamanian company CUSA announced last December they plan to stop work on the project on Monday, 20 January 2014, because they can no longer continue with "cost overruns" of more than $1.6 billion dollars.

In brief remarks to reporters, the Panamanian president again expressed his support for the actions of the Panama Canal Authority (ACP), which rejected the alleged "cost overruns" as "unjustified," and they asked the consortium to use the routes available to them through the contract for the resolution of disputes.

The ACP and GUPC have said they are in ongoing negotiations in order to achieve, within the framework of the contract, a solution to the "cash flow" problem faced by the consortium which would force them to suspend work.

"We expect between Monday and Tuesday (next) to take more decisive and deep decisions, and it will depend on the actions of GUPC," which may include taking over the project to complete it, said the ACP Administrator Jorge Quijano on Tuesday. (Critica)

Editor's Comment: More signals from the government of Panama saying they don't really need GUPC all that much. Martinelli is saying "we got this..."

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Panama canal threatens to take over key expansion project

Canal ExpansionBy Lomi Kriel (Reuters) - The Panama Canal Authority (PCA) said on Tuesday it might take over a key part of the waterway's expansion if the consortium in charge of the project makes good on a threat to suspend work.

PCA chief Jorge Quijano told reporters the remaining work, which could be taken over as early as February, would cost about $1.5 billion. He added the PCA has the means to cover the sum.

The consortium, known as Grupo Unidos por el Canal (GUPC), threatened to suspend work by Jan. 20 unless the PCA paid $1.6 billion in cost overruns. The authority has rejected that demand and asked GUPC to withdraw the threat of suspension, but Quijano said the consortium has yet to reply.

The canal authority has said it is willing to consider detailed claims through arbitration.

The consortium won the contract to build a third set of locks for the century-old canal, the biggest part of the expansion project, in 2009.

"We have to act immediately to make sure that the project isn't suspended for an excessive time," said Quijano.

He added that PCA could take over the project after any work suspension lasting about 15 days.

"At that point we are talking about the possibility that we could take over the project," he said.

Quijano said he expects to make a decision Monday or Tuesday of next week, depending on what action is taken by GUPC.

The consortium, which is led by Sacyr SA of Spain, includes Italy's Salini Impregilo SpA, Belgium's Jan De Nul and Constructora Urbana from Panama.

Sacyr's chairman, Manuel Manrique, said at a Monday press conference in Madrid that the dispute will not have a significant impact on the company's earnings and is not putting its solvency at risk. He said he expects that the consortium will finish the project.

The canal is one of the world's most important shipping routes. The entire project was due to cost about $5.25 billion, but the overruns could bump that up to nearly $7 billion.

Quijano has previously said that the PCA had $600 million in surety bonds with insurer Zurich in North America that could be used to support the project.

"Right now, we're in a position to have access to the necessary funds to be able to keep pushing forward in a definitive manner with the help of Zurich," said Quijano.

He added that a meeting with representatives from the PCA, GUPC and Zurich had been scheduled for Jan. 13, but GUPC postponed the meeting for a week until after the suspension could take effect.

The PCA has proposed a $283 million joint financing package to resolve the row. But that proposal is less attractive for the firms because it requires them to put up fresh cash while the authority would simply advance funds it would have paid anyway.

GUPC has asked the PCA for a $400 million advance, while Salini Impregilo proposed the authority pay $1 billion. Quijano has said such payments are "impossible."

Editor's Comment: Yup, that's exactly how this is going to play out. The GUPC overplayed their hand, so now they are left with their (empty) threat. If they actually do walk off the job, then they will be fired and tossed. The Panama Canal Authority will hire someone else to finish it up, and then they will go after (the bones of) GUPC in court to recoup their losses.

Ladies and Gentlemen - the GUPC signed a contract in which they promised to do a job for a price. At the most basic and fundamental level, they never actually intended to be able to complete the project for that price. Their plan - practically the definition of bad faith - was to simply underbid in order to lock-in the contract, and then force (blackmail) the APC to pay them more money. In this case $1.6 billion dollars. They are actually trying to take the project hostage, and use their involvement as leverage to extort more money out of the government of Panama. So yeah, screw those guys. They are "drawing dead" as they say at the card table ... GUPC is holding a losing hand, they just haven't realized it yet.

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Sacyr confident of reaching agreement to finish Panama Canal project

Canal ExpansionSacyr, the Spanish builder heading a consortium that is working on a project to widen the Panama Canal, expects to reach an agreement with the administrator of the waterway on cost overruns, thus allowing the job to be completed.

“Work will continue; we are only looking at a scenario of an agreement. The work will be finished,” Sacyr’s chairman, Manuel Manrique, told reporters on Monday.

The consortium threatened to suspend work on the project at the start of the year over the cost dispute, which the Grupo Unidos por el Canal (GUPC) consortium estimates at 1.625 billion dollars (1.2 billion euros). Manrique explained Monday that “early warning” had not yet been withdrawn.

Manrique said the negotiations with the Panama Canal Authority (PCA) are focused “on different scenarios aimed at improving the cash flow” of the consortium to avoid freezing work. “The situation is better than a few days ago,” he added. A guarantee by the Spanish government is not one of those scenarios, after Public Works Minister Ana Pastor ruled out such an idea during her visit to Panama on January 6.

The Sacyr chief said the amounts of cost overruns in dispute are of a sizable nature, such as the 500 million dollars the consortium is claiming for basalt. There are others of smaller amounts, between 10 and 50 million dollars, which could be resolved more readily.

Manrique insisted that there was no “conflict” per se with Panama, with the issue at stake being a “time lag” between the liquidity required to finish the project and the resolution of the discrepancies over costs, some of which will go to international arbitration while others will be dealt with within the terms of the contract signed with the PCA.

The project, which involves adding a third set of locks to the 80-kilometer-long waterway, is due to be completed in 2015, eight months behind schedule.

“There are offers on the table,” Manrique said. GUPC on January 7 proposed that the PCA advance the consortium 400 million dollars, with the consortium supplying 100 million dollars in cash flow. PCA had offered 183 million dollars in return for the consortium injecting 100 million and withdrawing its threat to freeze work on the project.

Manrique insisted that Sacyr’s financial solvency “would not be compromised” as a result of the canal project, adding that the builder is “financially solid.”

Sacyr and its partners won the tender for the project with a bid that was one billion dollars below the next lowest offer. That prompted US auction rival Bechtel to say that GUPC’s bid was not enough to even cover the cost of the cement involved, as revealed in the WikiLeaks cables from the US Embassy in Panama.

Manrique insisted the consortium’s bid was not “reckless,” and that the group received the most points for the technical aspect of its bid, which accounted for 55 percent of the valuation of offers. He also said “that no rival at the time made a formal claim” against the awarding of the contract to GUPC.

Editor's Comment: Hmmm. The Panama Canal Authority can now just sit there for another week and wait until Monday, 20 January 2014, to see if the GUPC follows through on their threat and actually walks off of the job. With that in their back pocket, they can activate clauses in the contract which will allow them to basically fire and then sue GUPC, while hiring someone else to finish the project. So these most recent statements from the Sacyr boss are little more that wishful thinking, from someone who's already overplayed their relatively weak hand.

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Spain's Sacyr calls news conference to discuss Panama Canal

Canal Expansion(Reuters) - Sacyr, the Spanish building company leading a consortium to expand the Panama Canal, said on Monday that Chairman Manuel Manrique would hold a news conference to discuss the project at 1700 GMT.

Sacyr said this weekend that it risks losing $574 million in guarantees and advance payments if a dispute over cost overruns at the multi-billion dollar project is not resolved.

Editor's Comment: Wait a minute. Didn't Sacyr just call for the talks with the ACP to be "confidential"? Now they are going to hold a news conference? GUPC simply overplayed their hand in this matter. I've received some documents over the weekend marked "Confidential" indicating the Panama Canal Authority has known GUPC and especially Sacyr have been on the verge of bankruptcy since at least 2010. The ACP has known for a long time this was coming so they were not surprised by this turn of events, and they had a contingency plan in place. Now Sacyr and the rest of the GUPC members are scrambling. Their plan from the beginning was to simply underbid the project in order to lock it in, then get themselves up to the hips in the project and then to use their involvement as "leverage" against the ACP and the Panamanian government, in order to force them to pay more money. The fact they pulled this stunt just four months before the next presidential election highlights and exposes their true interests - Blackmail. So once again, screw those dudes. I hope the Panamanian government boots them all back to Europe and hires another contractor to do it right. The PRD really screwed this one up, didn't they? (grin)

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Dispute Between Panama, Canal Contractors No Closer to Solution

Canal ExpansionPANAMA CITY – Both the GUPC consortium building a third set of locks for the Panama Canal and the waterway’s administrators dug in their heels Thursday in a dispute that threatens to delay completion of a $5.25 billion expansion project.

GUPC – Spanish construction giant Sacyr Vallehermoso, Italy’s Impregilo, Belgium-based Jan de Nul and Panamanian firm CUSA – said last week that it would suspend work Jan. 20 if the canal authority did not agree to pay an extra $1.6 billion to cover cost overruns.

Canal administrator Jorge Quijano denounced the threatened suspension as illegal and urged GUPC to continue working.

He also said that under the contract, the canal authority, or ACP, could find “other contractors” to complete the locks – now about 65 percent done – if the GUCP can’t or won’t.

The ACP and GUCP held talks this week at the urging of Spanish Development Minister Ana Pastor, who traveled to Panama as part of Madrid’s efforts to mediate the dispute.

The ACP said it would advance the GUPC $100 million and give the consortium a grace period of two months on a previous advance of $83 million, provided the contractors also put up $100 million and withdraw their threat to suspend work.

That proposal is the only “reasonable offer” on the table, Quijano told Panamanian lawmakers Wednesday.

The ACP’s stance is “unacceptable and ridiculous,” Impregilo said in a statement released Thursday in Panama, adding that a decision by the canal authority to turn to other contractors at this late date would delay completion of the project by at least three years.

Conversely, if the ACP agreed to pay GUPC an additional $1 billion, the third set of locks would be ready at some point during the first half of 2015, Impregilo said.

The contract for the locks, which is the centerpiece of the canal expansion, calls for the ACP to pay GUPC a total of $3.12 billion.

So far, the ACP has paid GUPC $2.83 billion, including repayable advances, plus an additional $180 million for cost overruns.

The parties are expected to meet again Friday, but neither the ACP nor the consortium has officially confirmed that talks will take place.

The Panama Canal, which was designed in 1904 for ships with a 267-meter (875-foot) length and 28-meter (92-foot) beam, is too small to handle modern ships that are three times as big, making a third set of locks essential. (Latin American Herald Tribune)

Editor's Comment: Notice the ACP has already paid $2.83 billion dollars plus another $180 million - or a total of $3.01 billion to GUPC. And remember the original contract was for a total of $3.118 billion dollars, so by contract the ACP should only have to pay the GUPC another $108 million for the whole project. And, it's only 65% done. Goodbye, low-balling GUPC...

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ACP Urged To Abandon GUPC, Move Quickly To Complete Panama Canal Expansion

Canal ExpansionThe former Comptroller José Chen Barría urged the Panama Canal Authority to execute the surety bond and complete the construction of the third set of locks.

With the primary contractor on the third set of locks the Grupo Unidos por el Canal (GUPC) facing financial problems, the ACP presented a proposal to the consortium consisting of a proposal to make a joint joint contribution of $283 million, but so far there has been no response from GUPC.

"Rescind the contract with GUPC and don't waste time in delaying processes that will cause work on the project to fall behind even more," said Chen Barria .

In an interview with EFE, the president of Sacyr, Manuel Manrique, said GUPC would finish the project, and he asked for "confidence" in the talks.

The President of the National Council of Private Enterprise (Conep), Gabriel Diez, said if the GUPC is thinking about finishing the project then they should "specify a completion date."

The movement Retired Canal Employees for the Defense of the Panama Canal plan a protest at 11:30 am at the Goethals Memorial in Balboa, demanding that the GUPC fulfill the contract to build the third set of locks. (Prensa)

Editor's Comment: Highlight! Notice when the President of Sacyr said he is asking for "confidence" in future discussions with the Panama Canal authorities, what he really means is they don't want the details of the discussions to be made public. Ah-hem. Gentlemen, this is a multi billion dollar project voted on an approved by the Panamanian people in a national referendum. The fact of the matter is Sacyr is damn near broke and bankrupt, and those details are likely to become more and more clear as the talks and negotiations with the ACP move forward. Sacyr is a publicly traded company in Spain and on other boards - so if it becomes apparent they are going to be thrown out of Panama by the scruff of the neck then their stock price will go down like a Colombian hooker.

In this article José Chen Barría is expressing what many others have already decided as a foregone conclusion - the GUPC will be tossed aside and the ACP should not waste any more time with them, and move on to a different and better plan with a more responsible builder, to get the project done as quickly as possible.

Politically speaking, this is really a no-lose situation for the CD, Martinelli, and their party's candidate Jose Domingo Arias. All they have to say is "we didn't hire these dudes, the PRD did." Then they can follow that up with indirect allegations of bribes and kickbacks, and promise to do things right with the new builder. I have not heard them make those kinds of references yet, but it's bound to happen, and it's only a matter of time before the PRD gets blamed for the current kluuster-fuugen.

Economically speaking, it's a wash. So it's going to take another billion or two to complete the expansion project. So what? the Panama Canal generates a few billion dollars of revenue every year so it will pay for itself - no big deal. And it will cost what it should have cost in the first place. Remember GUPC only got the contract in the first place because they submitted an unrealistically low (low-ball) bid. Reality is now kicking in. Economists prefer reality, over magic.

All of this means strategically speaking, the only ones likely to take it in the shorts on this deal are the members of the GUPC consortium and the PRD. So yeah, that's why the president of Sacyr is asking for the talks to be "confidential." If I were the Director of the Panama Canal, I would respond by publishing the minutes of the meeting, and make every statement, inference, request, comma and period part of the public record. Fuck those guys...

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Panama Canal row could cause three year delay

Canal ExpansionThe Italian builder Salini Impregilo has warned the Panama Canal Authority (PCA) that a failure to find a solution to the current financial wrangling could delay the development by up to three years.

For the past week, the PCA has been fighting with the consortium led by Spanish builder Sacyr over cost overruns in the plan to install a third set of locks for one of the world's most important cargo routes.

Impregilo said it had put forward two alternative solutions that involved the authority paying $1bn to the consortium, known as Grupo Unidos por el Canal (GUPC), to complete the work.

But the announcement from Italy prompted an immediate rebuff from the head of the PCA, Jorge Quijano.

The $1bn payment "is impossible. It is outside the contract," Quijano told reporters in Panama City.

The consortium had threatened to suspend work on the massive infrastructure project by 20 January unless the PCA paid for $1.6bn in cost overruns. The authority has rejected that demand but has said it is willing to consider detailed claims.

Quijano said the PCA had a plan ready to bring in a third party to finish the expansion if no deal is reached with the consortium to keep the project running in the weeks ahead.

But a statement from Impreglio said: "There is no alternative to honoring the contract and the law. PCA still has at its disposal hundreds of millions of dollars from the financial plan for contingencies and unforeseen events, which it has not yet used. Now is the time to do so."

The project was originally expected to cost about $5.25bn, but the overruns could raise it to near $7bn.

"The PCA’s threat to put in place the so-called Plan B- that is, to terminate the contract with the consortium and entrust the implementation of works to others- is not only illegal and against the terms of the contract, but it is also against the interests of the State of Panama and squanders the money of Panamanian citizens," the statement added.

"The alternative to the completion of the works by the current consortium would result in a delay of at least three years, the expected time for the construction of a new set of gates by any new contractor, even if it were ever possible to replace the consortium without further delays to the civil works."

In 2007, work began on the expansion, which will create a new lane of traffic along the canal and double its capacity. The overall project is 72% complete.

Should the sides fail to reach an agreement, the issue would pass to the international arbitrator, which is based in Miami. (constructionweekonline.com)

Editor's Comment: Yeah, well, maybe. I think the GUPC would not have been able to deliver the third set of locks on time, anyway. I think their projections of when it will be done have been overly rosy and optimistic. I think their timing in asking for this $1.6 billion dollars is basically blackmail, timed perfectly to create a serious problem for the administration of Ricardo Martinelli, just four months before Panamanians are to select their next president in May 2014. Yeah - screw those guys. They were playing fast and loose with the rules themselves. It's jaw-dropping to hear the Italians say the ACP's plan to have someone else finish the project is "illegal and against the terms of the contract." Good point, Poindexter. Now go finish the project yourself, according to the terms of the contract you signed, for $3.1 billion. Bye. I'm sure the lawyers are salivating over this one...

Historically speaking - it's appropriate that the Europeans fucked up the first go-round (as did France with the original Panama Canal) and then the Americans come in to save the day and actually build the damn thing. I really hope the ACP hires Bechtel - simply because it gives me a warm fuzzy in that sense. The French were also sloppy, crappy engineers, had a bad plan, worse execution, spent their money poorly, and screwed over their investors. You know, like the GUPC guys are apparently doing. Yeah, I like it. Come on, Bechtel! Bid that puppy and build it for cost. I can see the plaque now - "Started by GUPC (they fucked up) Finished by Bechtel." Perfect.

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ACP Preparing To Take Over Panama Canal Expansion Project From GUPC

Canal Expansion Yesterday the Panama Canal Authority (ACP ) rejected a financial proposal put forward by the Italian company Salini Impregilo - one of the member companies of the Grupo Unidos por el Canal (GUPC) consortium - in which they asked for $1 billion - and reiterated its willingness to take control of the construction of the third set of locks, currently 65% completed.

The administrator of the ACP, Jorge Luis Quijano, flatly rejected Salini Impregilo's proposal, which controls 48% of GUPC, because it exceeds the amount of $3.188 billion agreed to in the contract by hundreds of millions of dollars.

Quijano said on Monday he has planned a meeting with representatives of the Zurich American insurance company, which backs the majority of the bond the ACP holds, worth $600 million dollars.

In case the GUPC consortium abandons the project, the intervention by the insurer is the first option.

The insurer may decide to continue the project with the GUPC, to find another contractor to complete the project, or to credit money to the ACP to finish the work.

If the ACP becomes responsible for the project directly, one option is to hire a management company to complete the construction of the third set of locks.

GUPC, exploring by all means the billion dollars it needs to overcome its financial hole, has turned to international banks for support. (Prensa)

Editor's Comment: Please - for the love of God - ignore the rants and raves of idiots who don't know the first thing about macroeconomics, when they talk about the potential impacts of this whole fight between the GUPC and the ACP in terms of the Panamanian economy.

Let me spell this out for you in clear and precise terms. Right now - today - the Panama Canal as it exists (before the expansion) receives about $3 billion dollars per year in revenues from all sources (tolls, services, selling electricity, selling water, etc.) It spends about $2 billion dollars of that money on operations, maintenance, salaries, services, fuel, and what have you. Most of that money (almost all of it) is spend inside of Panama, so it has direct impact on the Panamanian economy, one of the reasons why Panama's economy has been growing by about 8% per year (or more) for the past decade. The other $1 billion is handed over to the Panamanian government, for them to spend as they see fit as part of the general budget.

So if the expansion of the Panama Canal is to cost $5.25 billion dollars, then the pre-expansion canal itself can pay off the cost in about five years or less. No sweat. Any bank in the world will take those numbers.

But here's what happens once the newly expanded Panama Canal opens. Those revenues will jump to $5 billion per year. About $3 billion will be spent on operations and maintenance. And the remaining $2 billion will be turned over to the Panamanian government.

In short, who gives a rat's ass if there are cost overruns? The bottom line is the GUPC submitted a low-ball bid to win the contract. The contract was issued by the PRD's Martin Torrijos. This little kerfuffle will now allow the Martinelli (or Arias) administration to toss out the PRD cronies, take over control of the expansion project, and make some money on bribes and kickbacks.

Will there be any sort of negative economic impact on the Panamanian economy? No. Of course not. There are abject morons out there who are painting scenarios of woe and doom - spouting off as if they have a clue. They don't. It's no surprise to anyone (and literally, no one, except the morons maybe) that this problem with GUPC occurred. I've been reporting on their problems for years, and predicted this exact scenario a long time ago. So, yawn.

The Panama Canal expansion project will be built. There will be cost overruns, and it won't cost a total of $5.25 billion but probably more like $7 billion. Again, so friggin' what? The newly expanded Panama Canal can pay for that in no time. The banks will finance the costs and make money on the interest because that's what banks do. Newly elected president Jose Domingo Arias will continue with the CD's programs of "change" (code for "build shit") and the Panamanian economy will now chug up to 11% expansion per year, now that the global financial crisis is finally winding up, for real.

But the real bottom line here is - please ignore the rants and raves of idiots. If there's a crazy man alone and screaming in the basement of the house next door, does it make any sense to try to figure out what he's saying? Of course not...

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Panama Canal refuses to pay $1 billion more for expansion work

Canal ExpansionBy Lomi Kriel and Elida Moreno - PANAMA CITY (Reuters) - The Panama Canal on Wednesday rejected a proposal that it pay $1 billion to continue work on expanding the waterway, and warned the building consortium behind the project that it could bring in others to finish the job.

For the past week, the Panama Canal Authority (PCA) has been fighting with the consortium led by Spanish builder Sacyr over cost overruns in the plan to install a third set of locks for one of the world's most important cargo routes.

On Tuesday, there were signs the two sides were narrowing their differences. But on Wednesday, Italian builder Salini Impregilo weighed into the debate with a separate proposal that suggested a deal was still some distance away.

Impregilo said it had put forward two alternative solutions that involved the authority paying $1 billion to the consortium known as Grupo Unidos por el Canal (GUPC) to complete the work.

But that announcement from Italy prompted an immediate rebuff from the head of the PCA, Jorge Quijano.

The $1 billion payment "is impossible. It is outside the contract," Quijano told reporters in Panama City.

The consortium had threatened to suspend work on the massive infrastructure project by January 20 unless the PCA paid for $1.6 billion in cost overruns. The authority has rejected that demand but has said it is willing to consider detailed claims.

Quijano said the PCA had a plan ready to bring in a third party to finish the expansion if no deal is reached with the consortium to keep the project running in the weeks ahead.

Bechtel, a U.S. engineering company which lost out to Sacyr when the project was awarded in 2009, had been tipped by some analysts as a likely beneficiary of the dispute.

Quijano said the third party was not Bechtel, but did not elaborate on which other companies could step up.

"We are not going to have another contract like we have with GUPC right now. We'll have another contractor that works directly for us to administer the rest of the contractors and people," he said of the contingency plan.

The project was originally expected to cost about $5.25 billion, but the overruns could raise it to near $7 billion.

Impregilo's proposal showed signs of a split in the consortium that has been expanding the canal.

People familiar with the discussions said that Impregilo perceived Sacyr as too soft in negotiations and said the Italian company could be trying to wrest control of the project.

There was no immediate word from Sacyr on Impregilo's move.

Halting construction on the project would be a setback for companies eager to move larger ships through the century-old waterway such as liquefied natural gas (LNG) producers who want to ship exports from the U.S. Gulf coast to Asian markets.

BLAME GAME

In 2007, work began on the expansion, which will create a new lane of traffic along the canal and double its capacity. The overall project is 72 percent complete.

Last week, the consortium, which also includes 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 were responsible for the cost overruns. The authority has not yet responded.

U.S. 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.

Sacyr, whose debts at the end of September were three times its market capitalization, made 55 percent of its revenue outside Spain in the first nine months of 2013.

Panama contributed 25 percent of the company's 1.3 billion euros ($1.78 billion) in international sales, according to its 2013 nine-month earnings statement.

Spain's ambassador to Panama has said his country's government will not provide any financing.

Sacyr's shares fell 2.65 percent on Wednesday, after rebounding sharply earlier in the week following a steep sell-off when the dispute flared in early January.

Shares in Impregilo rose 0.37 percent.

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GUPC requests 400 million dollars

Canal ExpansionThe Panama Canal Authority (ACP) made the first efforts to temporarily solve the financial problems of its largest contractor, Grupo Unidos por el Canal (GUPC), however they responded to the offer by "raising the bar" and requested more money than the ACP is willing to disburse.

The Canal Administrator Jorge Luis Quijano, met yesterday morning with representatives of GUPC and proposed a contribution of $283 million under the parameters set by the contract for the design and construction of the third set of locks.

The ACP's plan is to advance a payment of $100 million (against bank guarantees) and extend to the company, for two months, the $83 million moratorium for "repayment." Under this scheme, GUPC must contribute another $100 million.

In the afternoon, and after two hours of conversations with the representatives from the GUPC consortium, Quijano made ​​public the plan the ACP put on the table.

The cash injection would have to be approved by GUPC. What's more GUPC would have to agree to lift (cancel) their notice of suspension of construction work on the project slated for 19 January, and deliver the second shipment of four of the new lock gates in February.

Four hours after Quijano told the press about his plan, the GUPC unveiled their counteroffer. They are asking for three times the amount the ACP was willing to advance.

The GUPC promised to inject $100 million, but they asked the ACP for an advance of $400 million, in addition to extending the moratorium from now now until the end of the period of arbitration for their claims for $1.6 billion that the ACP has not been able to fully account for.

This newspaper (La Prensa) learned the GUPC's proposal was not formally presented at the meeting, although one of the consortium's representatives had it "in his pocket."

Superficially they talked about the consortium's plans to continue working, but the sum of $400 million was not an issue.

As of 6:00 pm yesterday the ACP still had not formally received the counter offer from GUPC.

The company reiterated its willingness to define the differences only in the ways specified in the contract. (Prensa)

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Panama Canal offers $283 million deal to continue expansion

Canal ExpansionBy Lomi Kriel and Elida Moreno (Panama City) The Panama Canal's operators on Tuesday proposed a $283 million joint financing package to ensure work to expand the top world trade route continues while it seeks to resolve a dispute with the building consortium over massive cost overruns.

Under the plan, the canal authority and the consortium would each put up $100 million, while the canal would give the companies more time to repay $83 million that was advanced to them.

The authority's head, Jorge Quijano, said the proposal was conditional on the consortium, led by Spanish construction company Sacyr withdrawing a threat to stop work on January 20 and to process its claim for $1.6 billion in cost overruns separately via agreed arbitration panels.

Halting work on the $5.25 billion project to widen and deepen the canal would be a setback for companies eager to push liquefied natural gas (LNG) exports from the U.S. Gulf coast to Asian markets through the century-old waterway.

Work on the expansion, which will create a new lane of traffic along the canal and double the waterway's capacity, began in 2007, and the project is 72 percent complete, according to the Panama Canal Authority's Web site.

There was no immediate word from building consortium Grupo Unidos por el Canal (GUPC) on the financing proposal. Quijano said the consortium had neither accepted nor rejected it.

Sacyr's consortium, which also includes Italy's Salini Impregilo (SALI.MI), Belgium's Jan De Nul and Panama's Constructora Urbana, said last week it had faced the added costs due to unforeseen setbacks in the $3.2 billion project to build a third set of locks for the canal. (Reuters)

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ACP Deal Would Keep GUPC Liquid - So They Can Continue To Work

Canal ExpansionThe Panama Canal Authority proposed to the Grupos Unidos Por el Canal (GUPC) a deal involving the payment of 100 million dollars of the 794 million dollars the contractor already has backed by various guarantees, and giving them an extension on the moratorium for the repayment of outstanding debts for about two months.

This deal would allow for the regular work on the third set of locks to continue while the contractor's claims are resolved using the mechanisms established by the contract.

This was announced by the administrator of the ACP, Jorge Luis Quijano, at a press conference, who also said the GUPC should make a similar contribution ($100 million).

Quijano explained that contributions - made under mechanisms that exist within the contract - would allow the GUPC to meet its financial obligations, while clarifying that the funds need to be secured by letters of credit.

However, the ACP established some conditions for the delivery of the funds, including the removal of GUPC's threat to suspend work on the project to expand the Panama Canal, in addition to expediting the process of dispute resolution on appeal.

What's more, the GUPC would have to guarantee that the ACP will receive the four lock doors that are ready to ship in Italy, no later that during the month of February, and the identified contributions - about $ 283 million in total - must be directed to subcontractors and suppliers, particularly those who have not been paid.

"The proposal has not been accepted or rejected by the GUPC, but this would be a way to inject cash flow to the proejct," Quijano said.

On 30 December, the GUPC consortium led by the Spanish company Sacyr, sent a letter to the ACP in which they warned of their intentions to suspend work on the project, if the ACP did not recognize their demands for "cost overruns" of 1.6 billion dollars by 20 January. (Panama America)

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GUPC Consortium Will Abide By Contract With ACP

Canal ExpansionThe consortium Grupo Unidos por el Canal (GUPC) promised Spain's Minister of Development, Ana Pastor, they will abide by the stipulations of the contract they signed with the Panama Canal Authority to submit their claims for cost overruns in the construction of the third set of locks.

This was stated by the Spanish official to the President of the Republic, Ricardo Martinelli, and the administrator of the Panama Canal Authority (ACP), Jorge Luis Quijano.

"We see a little bit of light at the end of the tunnel," Quijano said at the end of the meeting with Pastor in the afternoon in the offices of the ACP, in Balboa.

A few hours earlier Pastor had pointed the way for the GUPC to continue, with whose executives she met before going to the Presidency and the offices of the Panama Canal.

"The commitment by the consortium is that all economic claims will go through the way of the contract," said Pastor, who has been acting as a mediator with Sacyr, the Spanish company that is leading the GUPC consortium.

The ACP and GUPC resolved to arrange a model today - yet to be defined - to provide capital to the project and prevent the work from being stopped.

"We talked about some additional (funding) that we have to verify, as long as the GUPC makes an equal contribution. That is the condition," Quijano said.

This additional disbursement would give solvency to the consortium, while the Dispute Resolution Board resolves the claim for $585 million that the GUPC filed before them.

"The problem they have now is cash flow," said Quijano, noting that the decision of the DAB may take two to three months.

Despite the initial approach, GUPC's decision to suspend work on the Panama Canal expansion project remains, if the ACP does not respond to their request for the payment of cost overruns for $1.6 billion.

Quijano said this issue is not up for debate, and the GUPC must follow the channels established in the contract for filing claims. (Prensa)

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Spain won’t help Sacyr financially in Panama canal row

Canal ExpansionBy Lomi Kriel and Elida Moreno - PANAMA CITY (Reuters) – Spain will not provide financial help to a Spanish company leading a consortium locked in a dispute over the costs of expanding the Panama Canal, its ambassador said on Monday as he headed to a meeting with Panamanian officials.

Spain’s public works minister, Ana Pastor, began a day full of meetings by holding discussions with officials for building consortium Grupo Unidos por el Canal, which is fronted by Spanish construction company Sacyr .

As Pastor entered the meeting, Spanish Ambassador Jesus Silva said his government would provide no financial help to Sacyr in sorting out the row overshadowing one of the world’s most important maritime cargo routes.

“The Spanish government is not a party to this; it is a problem between a contractor and its client,” he said as he accompanied Pastor to the meeting. “Under no circumstances is it contemplated that the Spanish government contribute funds.”

Later in the morning Pastor is due to meet Panamanian President Ricardo Martinelli, who last week accused the GUPC of “great irresponsibility” when it threatened to suspend work on January 20 if the canal operator, the Panama Canal Authority, did not pay for big cost overruns.

The GUPC also includes Italy’s Salini Impregilo , Belgium’s Jan De Nul and Panama’s Constructora Urbana.

Arguing that the project to build a third set of locks for the canal had suffered unforeseen setbacks, the GUPC said last week it had faced $1.6 billion in added costs. It blamed the Panama Canal Authority for carrying out flawed studies of the geological terrain.

Martinelli has turned on Spain and Italy, saying their governments had given him assurances that they would finish the $3.2 billion project to build the locks, prompting Pastor to fly to Panama to seek an end to the impasse.

PCA head Jorge Quijano has said Panama is prepared to discuss the cost overruns if they prove justified, and a Panamanian official told Reuters the government had considered putting together a bailout with the parties involved.

However, Spain has been coping with a deep economic crisis that has put a strain on the country’s finances.

After her discussions with Martinelli, Pastor is due to meet the canal operators and give a statement to the media at about 5:30 p.m. local time (2230 GMT).

THIRD PARTY?

On Sunday, the PCA maintained a firm stance, again rejecting the GUPC’s arguments on the overruns and referred the consortium to the arbitration panels the two sides agreed on when the contract was signed.

Quijano told Spanish newspaper El Pais that the two-page letter the GUPC had submitted last week did not justify its demands and that the consortium would need to provide more detailed information to make a viable case.

If work on the project did stop, the authority could take steps to ensure it was completed regardless, “be it by a third party or by the PCA,” Quijano told the paper.

Sacyr won the canal contract in 2009 with a $3.12 billion offer that was considerably lower than that of at least one rival, as well as below the $3.48 billion reference set by the PCA.

Less than six months later, Martinelli, Panamanian Vice President Juan Carlos Varela and other top officials were already worried about how the project was progressing, according to U.S. diplomatic cables published by Wikileaks.

The canal expansion, whose total cost is about $5.3 billion, has been one of the top priorities for the government of Martinelli, whose term in office ends midyear.

Sacyr, whose debts at the end of September were three times its market capitalization, has also staked a lot on the canal expansion.

The company made 55 percent of its revenue outside Spain in the first nine months of 2013, and Panama contributed 25 percent of its 1.3 billion euros ($1.78 billion) in international sales, according to its 2013 nine-month earnings statement.

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Politics is involved in Panama Canal litigation

Canal ExpansionRicardo Martinelli's decision to intercede with the governments of Spain and Italy, in the conflict between the Panama Canal Authority (ACP) and its largest contractor, establishes the precedent of a President who is interfering internationally with the contractual matters of the waterway.

When the Grupo Unidos por el Canal (GUPC), the consortium responsible for the design and construction of the third set of locks, threatened to suspend the work due to cost overruns reaching 1.6 billion dollars, Martinelli said he would require both governments to make their companies meet the contract, because they have a moral responsibility to do so.

But neither the government nor the State of Panama have any legal authority to mediate the dispute.

The contract signed by the ACP and GUPC states that the relationship is between the contractor and the Panamanian company (the Panama Canal). The Canal used its income to guarantee the project, and not the financial backing of the State.

Tomorrow on Monday morning there will be a meeting between the Minister of Development of Spain, Ana Pastor, and the Panamanian President Ricardo Martinelli, from which two likely scenarios might emerge, according to people who are familiar with the topic.

One, is that the governments of Spain and Italy might decide to inject capital into their businesses, in order to avoid the international embarrassment of abandoning the work. And the other option - they might choose to try to generate greater pressure on the ACP to abandon the contract and to agree upon new terms.

This conflict would not be new for the president. His chief political consultant Aníbal Galindo is also a partner in the law firm that advises GUPC in Panama. (Prensa)

Editor's Comment: Leave it to La Prensa to try to find a way to bash Martinelli - no matter what he does. If Martinelli had gone to the microphones and said "this is a contractual matter between the ACP and GUPC in which the government of Panama and me as its chief executive have no legal power" then La Prensa would have eaten his lunch for ignoring such an important issue. OBVIOUSLY there's a massive moral imperative for Martinelli to step up and lead in this case. I'm sure it would not be hard to go back and read La Prensa's archives - to see how many times Mireya Moscoso opened her mouth with regards to Canal issues when she was president. In short - whenever you read something out of La Prensa just remember they are always (always) anti-Martinelli, no matter what. Severely biased...

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Panama botched geological studies in canal cost row

Canal ExpansionFlawed geological studies of the terrain of the Panama Canal by its operator has led to big cost overruns in the project to expand the waterway, the building consortium at the center of a dispute with Panama's government over the plan said on Saturday.

Earlier this week, the consortium led by Spanish builder Sacyr said the scheme to build a third set of locks for the canal had incurred additional costs of $1.6 billion, and demanded Panama foot the bill or work would be suspended.

Panama rejected those arguments, but has hinted it could negotiate some kind of compromise with the consortium, which also includes Italy's Salini Impregilo, Belgium's Jan De Nul and Panama's Constructora Urbana.

Complaints by consortium officials on Saturday about geological problems provided some of the most detailed explanations yet on what pushed costs above the projections to expand one of the world's major maritime cargo routes.

The consortium known as Grupo Unidos por el Canal (GUPC), on Saturday reiterated that it did not plan to abandon the project, but would suspend works on Jan. 20 if no deal was reached.

GUPC officials told reporters that when excavations to build the locks began, they found the geology of the area was more complex than had been made clear when the project was tendered.

"The main part of (the cost overruns) is due to geological flaws and is related to problems with the concrete," said Paolo Moder, a member of the GUPC's board of directors.

After the group began digging in the Pacific zone of the canal, the basalt they found there was not right for the mix of concrete they planned for the locks, so they had to bring in basalt from elsewhere, resulting in higher costs, said Jose Pelaez, head of the GUPC section building the Atlantic locks.

But the canal authority rejected that mix, and for seven months the GUPC had to develop other mixes until in the end the authority finally approved the original one, he added.

He said the geological studies were carried out by the canal authorities in tandem with international advisors, and formed the basis for the subsequent tender the consortium won.

"The (Panama Canal Authority) studied these technical conditions for more than seven years and didn't detect them, and it's not fair to assign GUPC or any contractor unlimited risks for something the GUPC only had months to study," Pelaez said.

A team of Spanish government officials is traveling to Panama this weekend to try to help resolve the dispute over the massive infrastructure project, which aims to broaden and deepen existing channels so bigger vessels can sail through.

The canal authority responded to the comments by stating that the GUPC could present its arguments to the arbitration authorities set out to resolve disputes under the contract.

Asked whether the companies could seek government aid, Pelaez said the consortium was "a private group and the actions undertaken by the government are strictly diplomatic".

The canal expansion, whose total cost is estimated at around $5.3 billion, is at the center of the Panamanian government's plans to modernize the Central American country, and President Ricardo Martinelli is insistent the project must be completed.

Spain is also keen to demonstrate its builders can be relied on after a slump in the local construction industry plunged the country into an economic crisis that has dragged on for years. (worldbulletin.net)

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Panama seeks int’l help on canal cost row

Canal ExpansionPanama City/Madrid (Reuters) – The president of Panama said on Thursday he would go to Spain and Italy to pressure companies to honor contracts to expand his country’s canal after a building consortium behind the project threatened to suspend work because of a row over costs.

The consortium – Spain’s Sacyr, Italy’s Salini Impregilo, Belgium’s Jan De Nul and Panama’s Constructora Urbana – said on Wednesday that $1.6 billion in cost overruns on the $3.2 billion plan to build a third set of locks for the canal should be met by Panama.

The consortium, known as Grupo Unidos por el Canal, said the Panama Canal Authority (PCA) had 21 days to respond to its demands during which work would continue, but the project would be suspended if that requirement was not met.

Just a few hours later, the PCA rejected the demand, hinting it could find others to complete the job.

Shares in Sacyr, which heads the consortium, slumped 9 percent on Thursday.

Panamanian President Ricardo Martinelli accused the companies of “great irresponsibility’’ and said they had endangered the massive construction project, which has been a major driver of the Central American nation’s economy.

Martinelli, who took power in 2009, said he expected Italy and Spain to uphold commitments to back the project which the countries’ leaders made to him during his first year in office.

“So I’m going to go to Spain and Italy to demand this from them, because a company should not be able to put such a high amount of overrun costs on a project that belongs to humanity,’’ he told reporters in Panama City.

The Spanish and Italian governments have a “moral responsibility’’ to help resolve the dispute because their companies were engaged in the construction, Martinelli said.

Jorge Quijano, the head of the PCA, said if the project were delayed due to the dispute, Panama would see it through.

“This work will be finished, never fear, even if it takes longer to complete,’’ he told reporters.

Panama has already moved back the scheduled completion date for the expansion from October 2014 into mid-2015.

To see that the work was concluded, Quijano said the PCA had since November been in contact with insurer Zurich in North America, with which it had $600 million in surety bonds that could be used to support the project.

In addition, the PCA could tap the $1.2 billion it had not yet paid to the consortium to finish the work, he added. So far the PCA had only paid the contractors $2 billion, he said.

The new locks represent the biggest chunk of the canal expansion plan, which overall is worth some $5.3 billion.

The PCA says the total expansion is just over 70 percent finished with the locks 65 percent complete. The canal’s extension aims to broaden and deepen existing channels so that more and bigger vessels can sail through.

The consortium said the overruns were due to unforeseen events during construction, which it said was “normal’’ in such projects. It also said the PCA had failed in its obligations and given the consortium “inexact’’ information for the project.

But the PCA said that if the consortium was not capable of honouring its agreements, it would initiate “mechanisms from the contract that would allow the work to be completed.’’ It did not explain what those would be.

Sacyr won the bid on the canal contract in 2009 with a $3.12-billion offer, which was considerably lower than that of rivals, as well as below the $3.48 billion reference set by the PCA.

Political columnist Pepe Oneto, writing in opinion blog republica.com, said the news was terrible for Spain’s attempt to rebuild its image abroad following a severe economic crisis with the collapse of the country’s building and property sector.

“The Spanish government... knew that it was impossible for the budget to be met. Sacyr bid low, convinced that, in the end, the cost overruns it is demanding now would be met,’’ he said.

A spokesman for Sacyr said that part of the cost overrun was because some building materials as originally budgeted were not adequate for the final work. The PCA had rejected the concrete mix the consortium had planned to use for the project.

“The consortium’s intention is also to find a solution within the terms of the contract, as there are mechanisms that make it possible,’’ Sacyr’s spokesman said, without elaborating.

The company’s debts at the end of September were three times its market capitalization. Analysts at the brokerage of Banco Sabadell said the news was not good for Sacyr or its image, but played down the impact on the builder’s results.

Newspaper El Pais reported in 2009 that Panama’s foreign minister, Juan Carlos Varela, had predicted the project would fail because the builders were in financial trouble.

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GUPC Has Slowed The Pace Of Work Being Done On The Panama Canal Expansion Project

Canal ExpansionThe Panama Canal Authority (ACP ) said today that the consortium Grupo Unidos por el Canal ( GUPC ) has "reduced" the pace of work being done on the construction of the third set of locks for the waterway, and they reiterated that it is "invalid" for GUPC to call for a "suspension" of the project over a claim for cost overruns.

A spokesman for the ACP said "it is visible" that since 30 December 2013, they day GUPC presented the "notice of suspension" letter, that the "pace of work" has fallen, but they said they do not have any accurate estimate of this decrease.

The ACP reiterated the position of the Canal Administrator Jorge Quijano, when he said the GUPC has invoked a suspensive clause (in the contract) "which can only be applied if you're not paying someone for having done the job, which is not the case, because they have received more than 2 billion dollars" of the original contract, which was for $3.118 billion, signed in 2009.

"Invoking this clause, which does not a mean termination of the contract but rather a temporary suspension, is invalid," said the source.

GUPC, led by the Spanish company Sacyr Vallehermoso in partnership with Italy's Impregilo, Belgium's Jan de Nul, and the Panamanian company Cusa, is demanding that the ACP recognize more than $1.3 billion in cost overruns to complete construction of the giant third set of locks of the Panama Canal expansion.

The deadline is January 20, according to the letter given to the ACP by the GUPC.

On another front, the same ACP source said the works on the fourth and final phase to dig the access channel to the new Pacific locks, being built by a consortium led by the Spanish company Fomento de Contratas y Construcciones (FCC), is running "smoothly and without any important delays," contrary to previous reports published in the Spanish electronic press which speak of delays.

The source also clarified that the construction of the third bridge over the Panama Canal, to be located in the Atlantic sector, has started without difficulty. It is being built by the French company Vinci Construction Grands Projets for $365.9 million. The company received the order to proceed with construction on 8 January 2013. (Panama America)

Editor's Comment: So, GUPC is already slowing down, and preparing to either walk off the job or get booted...

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GUPC Has Received $2.831 Billion For Panama Canal Expansion Project

Canal ExpansionThe Panama Canal Authority (ACP ) said it has paid $2.831 billion to the Grupo Unidos por el Canal (GUPC), of which $ 2.47 billion was for work that has been completed, and $784 million in advances.

The contract for the design and construction of the third set of locks for the Panama Canal was awarded to GUPC in July 2009, after they made an offer to build the project for $3.118 billion, the lowest among two other contractors.

The payments to GUPC are made according to progress of work as it advances, and the ACP notes they have always made the payments within 15 days after receipt of invoice, although according to the contract they are allowed a period of 56 days to make the payments.

In January 2010, the ACP made ​​the first advance payment for "mobilization" to the GUPC (to get them started). The ACP paid this amount to the contractor to buy equipment, install fabrication plants, and to build other required infrastructure.

As part of the agreement , the consortium has to return these funds to the ACP, according to an established schedule. (Prensa)

Editor's Comment: Hmmm. Interesting. So according to the ACP, if the GUPC walks off the job and the ACP has to hire someone else to complete the project, then as of right now the GUPC has already been paid for all the work they have completed, and what's more they now owe the ACP $784 million dollars.

It's been coming out in the Spanish press that the government of Spain basically subsidized the Spanish company Sacyr Vallehermoso, S.A., one of the four companies comprising the GUPC consortium. Their stock (SCYR:SM) is tanking in Spain on the news of this fight with the Panamanian government over payments for "cost overruns."

In reality, everyone knew the GUPC consortium simply underbid in order to get the contract. They knew (everyone knew) from day one that they would not be able to build this project for the $5.25 billion dollars offered. No one should be surprised by this news. I know the guys at Bechtel are not surprised, at all.

The math does not lie. There's no way in hell GUPC can build this project for $5.25 billion and either make a profit or stay in business. If they don't get the (at least) $1.6 billion they are demanding, then they will walk off of the project. The ACP and the Panamanian government will then be left to scramble to hire someone else (Bechtel) to replace them and to finish the project. If that happens then Sacyr will be either seriously or fatally wounded as a company - they were already on shaky ground financially speaking. The government of Spain will lose all of the money they "loaned" (subsidies) to Sacyr to help them get the contract. The government of Panama will be somewhat embarrassed - but Martinelli will be able to say "hey, I didn't hire these idiots - the PRD and Martin Torrijos did. I'm just going to clean up their mess..." So politically speaking it won't be much of a black eye for either the CD or Jose Domingo Arias as a presidential candidate.

With regards to the expansion of the Panama Canal - it will eventually be built. No problem there, because remember the Panama Canal already generates about $1 billion per year in straight profits (and an additional $2 billion that's spent on operations and maintenance inside of Panama). And it will be generating about $2.5 billion per year in profits after the expansion is complete. It will be built (by someone) and it will open, albeit with a substantial delay from the initial projections. Name me one massive infrastructure ever built anywhere that came in one time and under budget. It's a rarity.

So, while on the surface it appears that Sacyr and the GUPC have the ACP by the balls - in reality it's the other way around.

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Spain weighs into Sacyr row over Panama Canal work

Canal Expansion(Reuters) - Spain's government is pushing for talks to settle a dispute over $1.6 billion (974.3 million pounds) in cost overruns for expanding the Panama Canal, a project led by Spanish builder Sacyr, Spain's ambassador to Panama said on Friday.

Ambassador Jesus 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," 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 (SALI.MI), 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 12:04 British time.

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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Panama Will Pressure Spain and Italy To Force Companies To Comply With Panama Canal Expansion Contract

Canal ExpansionPanama's President Ricardo Martinelli announced today he will travel to Spain and Italy to ask those governments to make their companies comply with the Panama Canal expansion contract, a project that might be suspended this month according to an announcement issued by the international consortium responsible for completing the work.

"I'm going to Spain and Italy to make a demand before these governments. This cannot be. These companies created a massive amount of cost overruns in the project to expand the Panama Canal, a project for the benefit all of mankind. When they bid on the project they won the competition based on the price they offered. Now they come to us with a little story about rising prices," said Martinelli at the doors of Panama's National Assembly.

Without specifying the date of his trip, Martinelli said the Spanish and Italian governments have a "moral responsibility" in the affair, because two of the four companies that make up the consortium in charge of the expansion project are from these countries.

"I think there is a very high responsibility to the Spanish government and the Italian government because companies in these countries are the ones who are constructing" the expansion of the waterway, repeated Martinelli, who on Thursday presided over the ceremony to mark the start of the new legislative session in the National Assembly.

The Grupo Unidos por el Canal (GUPC), led by the Spanish comapny Sacyr Vallehermoso, Italy's Impregilo, Belgium's Jan de Nul, and the Panamanian company CUSA, announced yesterday they would suspend the project (stop working) in 21 days if the Panama Canal Authority does not recognize "cost overruns" of 1.625 billion dollars.

The GUPC won the contract for the project to expand the Panama Canal for a total value of 5.25 billion dollars.

Of that, 3.118 billion dollars was the cost of the contract to build the new complex of locks that will allow for the amount of cargo passing through the canal to double.

The president was visibly upset as it said it was "very irresponsible on the part of some companies that for other reasons, for financial reasons, because they are having problems elsewhere, come to harm the Panama Canal."

"(The contractors) are not going to come (to us) with this (little story) about how we have left them with (two thirds) in Panama and around the world," warned Martinelli.

He further highlighted that the Board of Directors of the ACP has the "total and full support" of his government, and he expects the expansion project "will continue in the context of what was negotiated with the Canal" through the contract.

"I hope there is no (work stoppage). And I hope that the work will continue, because people are making a lot of investments globally, in ships and in ports" following the expansion of the Panama Canal, through which more than 5% of all world trade passes," said Martinelli.

In a letter of notice sent to the ACP and released yesterday, the GUPC said they decided to announce the suspension of work "in response to a lack of response from the ACP and a failure to follow the conversations that have been started" with regard to their economic claims.

" The GUPC reiterates it cannot continue with a project in which there are more than 1.6 billion dollars in cost overruns, which are the responsibility of the employer, provided under the contract and the Panamanian laws, and although GUPC has sent different specific proposals, so far the ACP has refused to discuss them," said the statement from the international consortium.

The ACP categorically rejected the notice yesterday and classified the statement as "pressure" being created by the GUPC in an attempt to negotiate their economic claims "outside of the contract." The ACP demanded that the consortium should submit their requests through the channels established by law, and expressed the hope that the GUPC will complete the expansion project.

In a statement, the administrator of the ACP, Jorge Quijano said legally the "intent to suspend" expressed by the consortium "does not imply a termination or abandonment of the project," but if that were to happen, "I will put into action the contract mechanisms that allow for the project to be completed," without being more specific. (Panama America)

Editor's Comment: Panama is going to have to spend the additional 1.6 billion dollars (or more) to complete the expansion project, one way or the other. And here's my prediction. Martinelli will tell the GUPC to pound sand and throw them out of the country. The ACP will take over the project, and award the contract to someone else to complete. These four companies will then be forever painted as those who were fired from the Panama Canal project (like the French) and who were replaced by someone else. Umm, I dunno - who might that be? Why Bechtel, of course. And history repeats itself. The Europeans come in, fuck things up royally, and then the Americans come in and build it right. Perfect, and historically appropriate considering what happened the first time around. Spanish, Italians, and Belgium? Are you friggin' kidding me? Yeah, what could possibly go wrong...

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Contract Conflict Threatens Panama Canal Expansion

Canal ExpansionThe project to expand the Panama Canal now faces another possible delay, after the consortium responsible for the project announced today they would suspend the project (stop working) in 21 days, if they do not receive 1.6 billion dollars for cost overruns, a move the Panamanian government deemed as "unacceptable pressure," and they even spoke about the possibility of taking over the project.

The Panama Canal Authority (ACP) said on Wednesday that from a legal point of view, the "intention to suspend" the project expressed by the consortium Grupo Unidos por el Canal (GUPC) "does not imply a termination or abandonment of the project," but if that were to happen, "we would put into action mechanisms in the contract that would allow for the project to be completed," without going into details.

This is how the Administrator of the ACP Jorge Quijano responded to the notice sent by GUPC on Wednesday, the group which is lead by the Spanish company Sacyr, announcing they would suspend the Panama Canal expansion project within 21 days if their economic claims are not honored by the Panamanian authorities.

The consortium argued that by meeting their requirements they "would be the alternative with the lowest cost and shortest possible execution time" for the expansion project, which began in 2007 and is expected to be ready by June 2015, nine months after the provisions of the contract.

The GUPC is comprised of Spain's Sacyr, Italy's Impregilo, Belgium's Jan de Nul, and and the Panamanian company CUSA. They have said so far the delay is mainly due to repeated rejection by ACP technicians of the cement mix that should be used in the casting of the structures of the new locks of the canal.

In a statement issued on Wednesday the consortium blamed the delays and associated costs on the Quijano administration of the ACP, who they say "has failed to fulfill its obligations under the contract, as well as the inaccuracy of the information provided to the consortium to implement the project."

They also accused Quijano of supposedly doing "everything in their power to avoid resolving the various disputes and claims."

"Therefore, GUPC reiterates that we cannot continue to work on a project with a projected cost overrun of 1.6 billion dollars, which are the responsibility of the employer (...) and although GUPC has sent different specific proposals, the ACP has so far refused to discuss them," said the press release issued by the consortium.

But the Panamanian authorities said that no matter "what kind of pressure is made," the ACP maintains the "requirement that Grupo Unidos por el Canal respect the contract that they agreed and signed."

The contract establishes "clearly three levels of resolution" of claims, two of which "are decided by third parties," said the Panamanian authority.

Under the contract, the contractor may file a claim in the first instance to the ACP. If their claim is not resolved they can go to the Dispute Resolution Board, and as a last resort they can appeal for international arbitration.

The GUPC was awarded the expansion project worth a total of 5.25 billion dollars, 3.118 billion of that is for the contract to build the new locks.

The consortium has presented over time various economic demands, including one in 2012 for $585 million which was rejected by the ACP, so the consortium appealed to the DAB .

Last December the GUPC submitted another claim to the ACP for 850 million dollars, and at that time in the local press Quijano said given the complexity of the issues it would "take a long time to resolve."

At the time Quijano complained the GUPC was looking for ways to negotiate multi million dollar claims outside of the contract, and he said the ACP would be able to take over the project if it was abandoned by the consortium.

The National Front for the defense of economic and social rights of Panama (Frenadeso) said Wednesday in a statement that they had warned from the beginning of the "enlargement scams" of the Panama Canal.

"The uncertainty and questions increased with the act of invitation, when the GUCP was awarded the contract at a price 1.7 billion dollars below the price set by the ACP. We knew they were just being slick (underbidding in order to get the contract), and that in the future the consortium would seek via an addenda and other claims to recover the costs or more than what was missing," said Frenadeso.

The Canal expansion program is now 72% complete, while the construction of the new locks is 65% complete, said the ACP on Wednesday.

The expansion involves the construction of a third set of locks, which will add a third lane to the transit of vessels with a capacity of up to 12,600 containers, almost three times the actual capacity. (Panama America)

Editor's Comment: No shit, Sherlock. When the GUPC was awarded the contract I was contacted by several people who represented the US companies that participated in the bidding. They told me at the time "there's no way in hell they will be able to build that project for that price." Everyone knew it then. Everyone knows it now. This is the ACP's (read: Ricardo Martinelli's) opportunity to take the project away from the GUPC and give it to one of "his" guys. Remember, the GUPC got the contract under the PRD administration of Martin Torrijos. I would not be at all surprised if the ACP tells the GUPC to pound sand, then the government of Panama gives the contract to someone else - who is willing to pay bribes to the CD. Only God knows how much money Martin Torrijos has in the bank somewhere, paid by the GUPC for the existing contract...

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