The international consortium building a wider set of locks for the Panama Canal said it signed an agreement late Thursday with the Panama Canal Authority to ensure completion of the mega-infrastructure project considered critical to global trade, ending a three-month billing dispute that could have led to significant construction delays.
The official signing took longer than expected to complete. The Panama Canal Authority (ACP) and the consortium, Grupo Unidos por el Canal (GUPC), announced a tentative agreement on a path forward on Feb. 28 and Canal Administrator Jorge Quijano said the final agreement would be closed on March 6.
Under the agreement, ACP will advance another $100 million to GUPC (which is also committing $100 million of its own) and extend the repayment deadline for $784 million in previous loans, possibly until 2018. Zurich North America, the insurer backing the GUPC's $400 million performance bond, also has allowed the bond to be used to backstop new construction loans.
GUPC claimed it faced a liquidity crisis because of $1.6 billion in unexpected cost overruns on the project that prevented it from paying contractors and laborers. Work on the project had slowed to a crawl in recent months and even came to a complete halt for several days as negotiations hit their nadir. The ACP has questioned the validity of the contractor's claims, but said any request for expense reimbursement that is not approved must be challenged through the formal dispute resolution mechanism in the contract. The ACP to date has not agreed to any of GUPC's demands for more money, but is restructuring the payment terms to make it easier for the construction team to cover operating costs during construction.
The agreement calls for the remaining 12 lock gates to be delivered from Italy to Panama in stages by December. Four gates have been delivered so far.
GUPC has committed to complete the project in December 2015, 14 months behind the original schedule and six months later than previously expected. The expanded Canal, which will be able to accommodate much longer and wider cargo vessels, will not be open to maritime traffic until at at least late in the first quarter of 2016 because the locks must undergo testing and Canal personnel must be trained.
The Panama Canal expansion project is more than 70 percent complete. The locks will be the final piece.
Learn more about how the Panama Canal contract dispute got to this stage on the Panama Canal special coverage page at AmericanShipper.com