Panama president warns Spain and Italy over canal row

PANAMA CITY (AFP) - Panama's president said Thursday he would visit Europe to force a consortium to back off a threat to suspend the Panama Canal's expansion work in an escalating row over US$1.6 billion (S$2 billion) in cost overruns.

The Spanish-led construction group has threatened to halt the massive project within three weeks if the Panama Canal Authority fails to pay for the extra costs.

President Ricardo Martinelli, however, said he expected the Grupo Unidos por el Canal (GUPC) consortium to finish the work "without any setbacks because these cost overruns are irresponsible."

"I will go to Spain and Italy to demand these governments take moral responsibility for what happened, because it is not possible that a company put huge extra charges on expansion work," he told reporters without disclosing a date for his trip.

Spanish builder Sacyr, the consortium's leader, said Thursday it had set the canal authorities a 21-day deadline before suspending its US$3.2 billion contract to expand the capacity of the canal, notably by installing a third set of canal locks.

The project aims to make the 80-kilometre waterway - which handles five per cent of global maritime trade - big enough to handle new, massive cargo ships that carry 12,000 containers.

"GUPC has formally informed the Panama Canal Authority that it will suspend work if the failures to comply are not put right within the advised period," Sacyr said in a statement to Spanish market regulators.

The overall cost of the Panama Canal expansion project has been estimated at US$5.2 billion. News of the suspension threat sent Sacyr shares plunging by more than 18 per cent as trade opened on the Madrid stock exchange. They ended the day down 8.95 per cent at 3.43 euros.

On Wednesday, Panama canal administrator Jorge Quijano warned that the canal authority would use contractual mechanisms to ensure the completion of the canal expansion. "No matter what kind of pressure is exercised against the ACP (Panama Canal Authority), we maintain our demand that Grupo Unidos por el Canal respect the contract that they agreed to and signed," he said in a statement quoted by Panama media.

A year ago, GUPC demanded an extra payment of US$1.6 billion from the Panama Canal Authority due to construction delays. "There are many and varied unforeseen costs which came up during these gigantic works," a Sacyr spokesman told AFP.

"They are technical matters, questions over cement ingredients, geotechnical matters, geological questions, taxes matters, financial matters, labour issues and weather conditions," he said.

Led by Spain's Sacyr, the consortium also includes Impregilo of Italy, Belgian firm Jan De Nul and Panama's Constructora Urbana. It began work on a third set of locks for the canal in 2009 and expects to complete construction in June 2015, already a nine-month delay over the date set in the contract.

The new locks will accommodate larger ships with a capacity of 12,000 containers - instead of those with 5,000 containers that are now able to navigate the canal.

Some 13,000 to 14,000 ships navigate the canal each year.

According to the canal authority, there was a delay of four months shortly after the project began to reverse a GUPC plan to use lower-quality cement.

But Sacyr said the cost overruns were due to "unforeseeable" circumstances and had been reported to the relevant authorities, including the Dispute Adjudication Board.

"GUPC is maintaining communication with the Panama Canal Authority to reach a satisfactory agreement to put an end to the contractual imbalance," it added.

Join ST's Telegram channel and get the latest breaking news delivered to you.