Panama Canal Expansion Faces a New Challenge

Panama Canal.  Photo shared on Flickr by dsasso, under license from Creative Commons(CC BY-SA 2.0)

Panama Canal. Photo shared on Flickr by dsasso, under a Creative Commons license (CC BY-SA 2.0)

The company in charge of the expansion of the Panama Canal has threatened to suspend work, demanding a multimillion dollar payment for cost overruns which the Panama Canal Authority refuses to pay.

The Panama Canal, inaugurated August 15, 1914, is one of the most important engineering works in the world and it is the engine that drives Panama’s economy. With increased trade and the size of the ships, it was necessary to think about expanding the waterway. Thus, in a national referendum on April 24, 2006, Panamanians voted in favor of expanding the canal, with an approval margin of 76.8%.

Panama budgeted the expansion at US $5.25 billion, which included the third set of locks, as well as a number of ports and other interconnections required for the amplification of the new route.

The contract for building the third set of locks was granted through a bid by GUPC, a multinational comprised of Sacyr Vallehermoso of Spain, Impregilo of Italy, Jan De Nul of Belgium, and Constructora Urbana SA (CUSA) of Panama.

GUPC won with the lowest bid of US $3.1 billion. The bid was lower than the reference established by the Panama Canal Authority (ACP).

According to wires from the U.S. Embassy in Panama released by Wikileaks, the U.S. company Bechtel (a competitor in the bidding), warned that the bid from Sacyr (GUPC leader) wasn’t enough to even pour the concrete, which would force renegotiation of the contract.

As prophesized, on January 1, 2014, GUPC demanded a payment of US $1.6 billion and threatened to suspend construction if payment was not received or the contract renegotiated within 20 days.

The ACP is sticking with the contract and has asked GUPC to do the same and complete construction within the terms already established. The group claims $1.6 billion in overruns and blames the ACP for providing inadequate information and requiring the use of materials not contemplated in the budget, according to El País. [es]

The ACP has expressed confidence that it can finish the expansion if the GUPC decides to completely pull out. La Nación [es] reports that the Panama Canal has insured the project for $600 million, which would allow it to finish the project (plus the difference not yet paid to the GUPC).

The same source says that “Sacyr and Impregilos’ methods, allowed in Spain and Italy, of securing contracts at a low price, and then raising them with addendums and presumably unexpected cost overruns, didn’t work this time and they have been unable to invalidate the contract, limiting their claim to $600 million.”

In an interview with El País, the administrator for the Canal, Panamanian Jorge Quijano, was upset with the GUPC:

Panama has given the Spaniards an opportunity to do business at a time when in their country there are no business opportunities. The same goes for the Italians and the Belgians, and look how they pay us back! How do you think the Panamanians feel? They really think that we still wear feathers on our heads; that they can twist our arms because they are big-time construction companies and instill fear by convincing us that we won’t be able to finish the project or that it is going to cost a lot more with another firm. Maybe it will cost a bit more with another partner — we don’t know that yet. We have a great plan of action under which, we hope we will complete this project without any additional expense.

It didn’t take long for reactions on social networks, and they go from those who blame the Spanish company for being unfair, to those who preach the inevitable ‘I told you so.’

Alfredo Mota, for example, tweets a picture of an article in the Spanish newspaper El Mundo and brands the companies as arrogant:

Sacyr and Impregilo. Arrogant and pushy! They think they are the last glass of water in the desert.
(Today in the Spanish daily)

Teresa Yaniz de Arias advises that, in the same way that Panamanians fought once for the canal, they will do it again to defend it against foreign interests:

Sacyr and Impregilo will find out that we will once again defend this canal that has cost us so much. Long live Panama. Long live the 9th of January.

The cartoonist Hilde shares an image comparing the looting of the original inhabitants of Latin American by European colonizers with the attempts of companies from the same continent to get more than the agreed upon amount of money:

They are in-SACYR-able. Not another dime.

The blog Mira en Panamá [es] shares an article by the Spanish journalist Paco Gomez Nadal where he claims to have known ahead of time that these delays and demands for money were going to happen, and compares it with other government tactics:

Es casi hilarante ver ahora cómo algunos se rasgan las vestiduras. Lo que está ocurriendo con el Grupo Unidos por el Canal ya lo sabíamos. Martinelli, que ahora interfiere y rofea para mostrarse como la salvaguarda de los intereses del país, no ha tenido ningún problema en multiplicar por 2.5 los costos iniciales de su proyecto insignia (el Metro), ni parece muy asustado por el incremento en los precios iniciales establecidos para la construcción de hospitales, ni tembló en adjudicar a dedo la cinta costera o las ampliaciones de la vía Tocumen o de la autopista Arraiján-La Chorrera a precios por kilómetro que marean a cualquier ingeniero menesteroso. Su preocupación por Sacyr, como mínimo, es sospechosa.

It’s almost funny watching now how some are tearing their hair out. We already knew what was going on with GUPC. Martinelli, who now insinuates himself and circles around to prove he’s the safeguard of the country’s interests, has had no problem increasing the initial costs of the flagship project by 2.5, nor is he very upset by the increase in the initial cost established for the construction of hospitals, or hesitate to give out no-bid contracts for the coastal strip for the Tocuman road or the Arraijan-La Chorrer highway at prices per kilometer that would make any destitute engineer dizzy. His concern for Sacyr is at least suspect.

User “The Truth” comments on an article from La Prensa [es]:

DEJA VU!!! Otro país europeo fracasa estrepitosamente en Panamá. Francia y España hermanados en el fracaso. El Canal de Panamá es la tumba de estos dos wannabes. Llamen al Tío Sam para que resuelva una vez más. Obama, el Teddy Roosevelt del siglo 21.

DÉJÀ VU! Another European country fails miserably in Panama. France and Spain united in failure. The Panama Canal is the tomb of these wannabes. Call Uncle Sam to fix it again. Obama, the Teddy Roosevelt of the 21st century.

What is certain is that the issue has Panamanians on tenterhooks waiting for the resolution of the conflict that has paralyzed this project which promised to propel the nation’s economy once and for all.

While the ACP and GUPC argue the issue, the president of Sacyr has given his assurance [es] that they intend to finish the expansion: “Sacyr is not going to abandon the project, work will continue and will finish, because we don’t contemplate any other scenario than agreement.”

Seven days before the deadline given by the GUPC, the conversations seem to be stalled.

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