I’ve been following the Panama Canal expansion project, and was interested to see that work resumed last week after a stoppage. Later in the week, the Panama Canal Authority and the consortium Grupo Unidos por el Canal (GUPC) announced “a final agreement in principle” that most likely ends the standoff, however, it is subject to documentation, review and final signature by the parties.
Work on the expansion project, already nine months behind schedule, had stopped in early February after talks to resolve a dispute broke down. At the center of the conflict is an estimated $1.6 billion in cost overruns and extra financing for the work, and more importantly, who is responsible for those costs. The overall canal expansion, of which the GUPC consortium is building the majority, was first expected to cost around $5.25 billion. Overruns and delays have led many observers to believe the actual bill has grown to nearly $7 billion.
The Panama Canal—which is 50 miles long and was completed by U.S. interests in 1914 to offer a quicker and considerably safer route between the Atlantic and Pacific—is used by 13,000 to 14,000 ships each year. The construction to add wider locks and channels capable of handling much larger container ships certainly is an ambitious civil engineering projects.
Under the original schedule, the canal expansion was supposed to have been ready this year. However, Jorge Quijano, the canal administrator, says that the new plan is for the canal to begin commercial operations in January 2016, an article in IndustryWeek reports.
The agreement offers co-financing of the construction, while awaiting the result of arbitration to assign final responsibility for the cost overruns, the consortium said. In their deal, both sides agreed to make an immediate payment of $100 million to the project, a cash infusion that will permit “the normal rhythm of work” to resume, the canal authority said. The accord also extends until 2018 a moratorium on payment of a $784 million loan which the canal authority had advanced to GUPC.
The good news is that the deal does provide the consortium immediate cash to resume work, but there are still harsh feelings from leaders of both parties. Indeed, there has been a bitter back-and-forth between the Panama Canal authority and the consortium this year, and as Reuters reports, mistrust over the process still lingers.
“I’m always very cautious because the relationship has not been very good with this contractor, I must admit,” canal chief Quijano said on a conference call with reporters.
Furthermore, Quijano cautioned that if GUPC does not comply with the agreement, the canal will find other ways to complete the work.
“We remain prepared for another option,” Quijano said.
Nonetheless, all parties have agreed—for now—on a plan to move forward. Two points that really stand out in the conceptual agreement are that the 12 lock gates in Italy must be in Panama by December 2014, to be transported in staggered shipments; and that the construction of the third set of locks will be completed by December 2015. Both are necessary if the expanded Panama Canal is to open January 16 as currently planned.