Panama, Spain seek to resolve $1.6 bn canal row

Panama, Spain seek to resolve $1.6 bn canal row

The governments of Panama and Spain scrambled Friday to resolve a dispute with a consortium threatening to halt expansion work on the Panama Canal over a $1.6 billion cost overrun.

File picture shows a ship carrying four new gates for the Panama Canal heading for the port of Colon, west of Panama City, on August 20, 2013

Panamanian President Ricardo Martinelli said Spanish Public Works Minister Ana Pastor will fly to the Central American country this weekend to mediate between his government and the construction group led by Spanish builder Sacyr.

The president and minister will meet on Monday with Panama Canal Authority Administrator Jorge Quijano.

Martinelli spoke after hour-long talks with senior Spanish and Italian diplomats at his presidential office, describing the meeting as "very successful."

"We will keep talking. The three governments want this work to conclude and that any anomaly be corrected," he told reporters.

Sacyr executives may also travel to Panama on Saturday, Martinelli said.

The Grupo Unidos por el Canal (GUPC) consortium, which includes Italian, Belgian and Panamanian companies, has threatened to suspend the project in three weeks if canal authorities fail to pay the massive extra charges.

The project aims to make the 80-kilometer (50-mile) waterway, which handles five percent of global maritime trade, big enough to handle new, so-called mega cargo ships that can carry 12,000 containers.

The suspension threat has infuriated Martinelli, who said Thursday that he would travel to Spain and Italy to tell each government that they have a "more responsibility" to make GUPC honor its contract.

But he said Friday that his trip would now depend on the results of his meeting with Pastor and Quijano.

"I will go anywhere to defend the interests of Panama," Martinelli said.

Martinelli held talks with Spanish Ambassador Jesus Silva and Italy's charge d'affaires Massimo Tudini along with Panama's Foreign Minister Fernando Nunez and Presidency Minister Roberto Henriquez.

Silva told reporters that the Spanish government offered its "good offices to find a solution."

"This is not a diplomatic conflict," he said. "The Spanish government is not part of this conflict. We will help mediate a solution so that the canal expansion opens to the world."

Tudini said there was "willingness to find a solution through dialogue."

The Sacyr-led group building the third set of locks along the canal includes Impregilo of Italy, Belgian firm Jan De Nul and Panama's Constructora Urbana.

In a letter to canal authorities dated December 30, Sacyr gave a 21-day deadline for Panama to pay the extra charges or they will suspend its $3.2 billion contract to expand the capacity of canal.

The overall cost of the project has been estimated at $5.2 billion.

The consortium began work on a third set of locks for the canal in 2009 and expects to complete construction in June 2015, already a nine-month delay over the date set in the contract.

A year ago, GUPC demanded an extra payment of $1.6 billion from the Panama Canal Authority for "unforeseen" costs.

A Sacyr spokesman said the extra charges were due to "technical matters, questions over cement ingredients, geotechnical matters, geological questions, tax matters, financial matters, labor issues and weather conditions."

But according to the canal authority, there was a delay of four months shortly after the project began to reverse a GUPC plan to use lower-quality cement.

The new locks will accommodate larger ships with a capacity of 12,000 containers -- instead of those with 5,000 containers that are now able to navigate the canal.

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