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Panama Canal Expansion

Big guns rolled out in wrangle over canal delays

Completing a world-scale construction project on time and to budget is never easy. Arguments between client and contractor are commonplace, especially when the bill runs into the billions of dollars.

So it came as no surprise at year end that a spat between the Panama Canal Authority (ACP) and the Spanish-led Grupos Unidos por la Canal (GUPC) consortium working on the waterway’s US$ 5.25 billion enlargement project broadened into something bigger and more serious – at least for those banking on a (delayed) first-half 2015 completion date.

GUPC is made up of the Italian firm Impregilo, the Belgian dredging contractor Jan De Nul and Panama’s Constructora Urbana and is headed up by the Spanish construction company Sacyr Vallehermoso.

Operational

Reports now suggest that it could be late 2015 or even early 2016 before the new locks are fully operational and open to commercial shipping, with the new locks on the Atlantic side being ready three months ahead of those across the isthmus.

And here lies the basis for the argument between the two parties. Late completion means penalties for GUPC. As has been well documented, these delays have been blamed on problems with the concrete for the new locks, adverse weather and the odd labour dispute.

GUPC says that US$ 1.6 billion in cost overruns must be met by the client and has accused ACP of contract violations. For its part, ACP says the work should be finished first and then matters can be resolved.

Given the high stakes and the money and reputations involved, the contractual wrangle quickly escalated as Panamanian ministers engaged their Spanish counterparts in order to find a solution. This was then ratcheted up to involve Panamanian president Ricardo Martinelli and Spanish Prime Minister Mariano Rajoy.

These high stakes really were in evidence, with GUPC threatening to walk away from the project unless matters were resolved, leaving the waterway expansion unfinished and, presumably, with the contractor not getting paid.

Synchronising

So East Coast United States ports and others in the Caribbean which had been synchronising investment in new facilities and costly dredging programmes were concerned that they would be ‘all dressed up with nowhere to go’ come early next year. Equipment standing idle or underutilised is not what they envisaged when gantry cranes and other items of cargo handling gear were ordered.

It doesn’t look as though 2014 is going to be a smooth one for those involved in the Panama Canal expansion project. All parties – Panama as a nation, the contractors, ACP, the East Coast US and Caribbean ports, the container shipping industry – have a lot to lose if the multi-billion-dollar scheme fails to go ahead in 2015 as planned.

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Rival waterway project in doubt

Meanwhile, further doubts still surround Nicaragua’s own efforts to build a rival canal with Chinese help. The Nicaraguan government says work on the US$ 40 billion project will start in late 2014. But many are sceptical about this time-scale or doubt whether the ambitious scheme will eventually see the light of day. The proposed canal was approved by Nicaraguan legislators in mid 2013, but no route for the inter-ocean waterway has yet been decided. Concern remains that the Chinese contractor, a telecommunications company, does not have the experience to build or operate such a waterway. But, then again, which company does?