A group led by Sacyr SA said it will need more money than the Panama Canal Authority is offering to continue expansion work on the waterway as a dispute over $1.6 billion in cost overruns threatens to delay its 2015 completion.
The consortium, which includes Milan-based Salini Impregilo SpA, said it would continue building a third set of locks if the canal authority pays $400 million in addition to $100 million the waterway previously offered. A separate proposal made by Impregilo today for $1.5 billion was rejected by the authority’s administrator, Jorge Quijano, who said negotiations with a single company were outside the contract.
“It would be astonishing and irresponsible if no solution was found, particularly as the means necessary are staring us in the face,” Impregilo said in an e-mailed statement. “As are the implications and consequences of a possible shutdown of the project and the works.”
The construction group on Dec. 31 threatened to suspend work on the $5.25 billion expansion project within 21 days if its demands weren’t met. The companies are due to build locks on both sides of the 80-kilometer (50-mile) waterway, shortening voyages from the U.S. to Asia and potentially reducing transport costs for commodities such as liquefied natural gas.
Sacyr shares on Jan. 2 fell the most on an intraday basis since at least 1989 when the dispute was made public. About 25 percent of Sacyr’s 1.32 billion euros ($1.8 billion) of nine-month international revenue came from Panama, according to the company’s latest earnings report. Sacyr fell 2.7 percent to 3.45 euros in Madrid trading. Impregilo shares rose 0.4 percent to 4.90 euros.
About 65 percent of the consortium’s work on the locks has been done and if the builders don’t finish the project, the canal authority can use “mechanisms in the contract” to force its completion, the authority said last week. Quijano said at the time that the canal has a “Plan B” if the group backs out of the contract, without giving further details. Impregilo called the idea of an alternative “absurd” and said it could result in a delay of up to three years.
“It will be necessary, then, to find someone to explain to the Panamanian citizens that, in addition to not recovering the lost revenues from the lack of a shipping channel, they will also have to pay for the damages ruled against them by the arbitration,” Impregilo said.
The canal authority said yesterday that the companies must match their $100 million contribution, which they have so far refused to do. The canal would also allow the group more time to repay $83 million it owes in addition to providing $200 million to keep the canal expansion on track. In return, the consortium must rehire workers that have been fired during the dispute and end threats to stop work this month, Quijano told reporters in Panama City.
Panama President Ricardo Martinelli and Spain’s Public Works Minister Ana Pastor, who have tried to broker an accord, said they believe the two sides will reach an agreement.
“We’ve worked to find a solution to this conflict and we’re confident that it will be resolved,” Pastor said in an e-mailed statement from Panama’s presidential palace yesterday.
The canal expansion project was originally expected to be finished by the end of 2014, on the waterway’s centennial. The project has since been pushed back almost a full year, according to the most recent projections by Quijano.