The Panama Canal Authority and the contractor for the biggest portion of the waterway's expansion project made counter proposals Friday to try and resolve a billing dispute that has led to the suspension of work.
The Panama Canal Authority (ACP) last Tuesday broke of talks after more than a month of discussion failed to bring a compromise on who is responsible for $1.6 billion in cost overruns associated with building a massive set of new locks for bigger cargo vessels on the Atlantic and Pacific sides of the strategic waterway. Grupo Unidos por el Canal, the international consortium hired in 2009 to build the locks for $3.2 billion, says it has run out of money and needs financial assistance from the ACP to temporarily cover the cost of ongoing operations while it fights for reimbursement for the disputed amount through international arbitration.
On Friday, GUPC issued a statement saying that talks with the ACP had resumed and were expected to continue into this week. It made a new offer it said addressed the ACP's concerns "while also seeking reasonable financial equilibrium" for the remainder project, which is almost 70 percent completed.
The ACP has offered another $100 million in advances and to postpone the repayment of $83 million in previous advances, but the GUPC has said the amount is not enough to fix its cash flow problem.
GUPC — Sacyr Vallehermoso, S.A. (Spain), Impregilo, S.p.A. (Italy), Jan de Nul Group (Belgium, dredging specialist), and Constructora Urbana, S.A. (Panama) — said it has invested $300 million of its own funds beyond its obligations and is willing to borrow more if the ACP contributes more to keep the project going.
Zurich North America, the insurance company that issued the bond guaranteeing GUPC's satisfactory completion of the work, has also been closely involved in the talks.
GUPC said it remains open to the assistance of a mediator. It said it wants to complete the project and pay subcontractors and workers.
The ACP has threatened to drop GUPC and find a new contractor to complete the project if work doesn't start, but the latest counter proposal indicates authorities hope they don't have to go that route.
"While we prepare to take the actions allowed within the contract to reactivate the project, we maintain open the possibility of reaching an agreement, and that is why we are making this effort," Canal Administrator Jorge L. Quijano said in a statement.
The ACP said its proposal does not increase the contract price or accept any of GUPC's claims, but does include financing to help GUPC with its operating costs.
The proposal, as with previous ones, sets specific dates for GUPC to deliver the remaining lock gates from Italy and complete the project. The ACP said it would extend the moratorium for the repayment of advances if GUPC meets various milestones during the remainder of the contract.
Meanwhile, representatives from multilateral institutions financing $2.3 billion of the $5.2 billion expansion project on Friday visited the site of the lock construction on the Pacific side of the Canal as part of their regular monitoring of the project's progress. Experts from the Inter-American Development Bank, the European Investment Bank, the Japan Bank for International Cooperation, International Financing Corporation and the Andean Development Bank were briefed for two days and visited the site.
The cost of the project is likely to significantly exceed the $5.2 billion budget because of delays and cost overruns. The Canal Authority insists the new locks will still be able to open for vessel traffic by late 2015, but many observers expect the project won't be ready until 2016 or later because of the contract situation.
Construction had slowed considerably for the past couple of months before coming to a halt last week, as GUPC was unable to pay all its subcontractors and workers.