Delay expected in Panama Canal expansion as dispute over additional costs drags on

PANAMA CITY (AFP) - Work on expanding the Panama Canal is unlikely to resume on Saturday as local officials face negotiations with foreign builders after the project was halted in a dispute over cost overruns.

The multi-billion-dollar plan to build larger locks on the 80-kilometre waterway linking the Atlantic and Pacific Oceans stopped on Friday in a row over who will pay an additional US$1.6 billion (S$2.03 billion) bill.

The independent Panama Canal Authority (ACP) and GUPC consortium - a group of international builders headed by Spain's Sacry Vallehermoso - exchanged proposals throughout the day, but without a deal.

"We keep open the possibility of reaching an agreement, and we are making an effort towards that goal," said ACP chief Jorge Quijano.

According to the builders, "talks with the ACP are ongoing and are expected to continue next week." Bankers financing the US$3.2 billion contract to expand the canal visited the worksite on Friday.

The project is designed to widen the canal so that massive cargo ships can pass through. It is one of the world's most ambitious biggest civil engineering projects and was due to be completed next year.

The builders have said completion may be delayed by up to five years.

The consortium has accused the Panama Canal Authority of breaking off negotiations. It says the authority failed in obligations to pay a US$50 million bill and to help pay workers and subcontractors.

GUPC had offered to split the cost of finishing the dig with the Canal Authority and then let arbitrators decide who pays for the overrun.

The Panamanians suggest a deal could be reached if the builders commit to specific dates for stages of the job to be ready. There would also be a ban on further cost overruns.

The GUPC claims unforseen geological difficulties have forced them to spend much more on cement than expected. They say that they based their estimates on data provided by the Canal Authority that was incorrect.

The consortium of builders includes Italy's Impreglio, Jan de Nul from Belgium, and Panama's Constructora Urbana.

The original canal, built by the United States mostly with workers brought in from the Caribbean, was completed in 1914.

It offers a shortcut and safer journey for maritime traffic, is used by 13,000-14,000 ships each year, handling five per cent of world sea trade.

The canal generates US$960 million a year for Panama, nearly 10 per cent of the country's total annual income.