The International Information Center for Structural Engineers

Friday, 07 February 2014 13:07cat

Panama Canal Expansion Cost Negotiations Break Down

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Any delays to the canal expansion project could have wide reaching economic effects Any delays to the canal expansion project could have wide reaching economic effects

Negotiations relating to a financial dispute on the Panama Canal Expansion project between the European building consortium GUPC, or Group United for the Canal, and the Panama Canal Authority, a government agency, broke down on Tuesday.  While it is unclear if work has completely stopped on the project, it is confirmed that the GUPC has reduced their work by at least 75 percent from when the consortium was working at full capacity.  Any delays to the expansion project will have far reaching economic impacts, particularly for ports on the Atlantic Ocean.  Many U.S. cities have already invested millions of dollars to increase the size of their docks in order to handle the larger ships passing through the expanded canal.  Liquefied natural gas producers from the Gulf of Mexico who are shipping their product to Asian markets must still travel around South America at Cape Horn, a two-week delay compared to crossing the Panama Canal.  Also, Panama will be able to increase its annual toll revenue from the canal from $1 billion to $4 billion once the project is finished.

The financial dispute arises from the $1.6 billion in cost overruns on the project.  The GUPC had their bid of $3.1 billion win the project contract and began working on the canal in 2007. The Panama Canal Authority has offered to pay $100 million of the $1.6 billion the GUPC is asking for.  The Canal Authority believes, though, the GUPC's claims are unsubstantiated.  A diplomatic cable from losing bidder Bechtel released by Wikileaks states that the GUPC’s bid would not even cover the costs to pour the concrete for the expansion.  In fact, Bechtel also said that they expect the contractors to attempt to renegotiate the price with the Canal Authority during the project.

The GUPC released a statement saying, “The break in negotiations puts the Panama Canal expansion and up to 10,000 jobs at immediate risk.”  The head of the Canal Authority placed the blame on the builders and accused them of demanding exorbitant amounts and undeserved funding for cost overruns that have not been substantiated.  The GUPC is still willing to negotiate, but it demands that the canal authority abandon its “unreasonably rigid position.” Meanwhile, Panama Canal Authority head Jorge Quijano announced that he has had general talks with other companies but would still prefer to negotiate with the GUPC.  He also stated the project will be completed in 2015 with or without the GUPC.  If the two parties cannot reach an agreement, the canal authority could tell insurer Zurich North America that it wants to end the contract.

Sources: ReutersWall Street Journal

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