MILAN / BRUSSELS (Reuters) — The Panama
Canal Authority (PCA) has turned down an offer by the European
Commission to mediate in a multi-billion dollar dispute with a
Spanish-led construction consortium which threatens to halt work on
widening the century-old waterway.
The consortium, known as Grupo Unidos por el Canal (GUPC), had
threatened to suspend work by Monday unless the Panama Canal
Authority (PCA) paid $1.6 billion in cost overruns on one of the
world's largest construction projects. But on Sunday the group
backed down from the threat.
The European Commission said on Monday GPUC, led by Spanish builder
Sacyr <SCYR.MC>, had requested mediation by the European
commissioner for industry Antonio Tajani, who accepted.
But the PCA immediately rejected it.
"The contract over a third set of locks has already mechanisms to
resolve disputes and none of them includes the intervention of a
third party," PCA said in a statement.
"This will only be dealt with in accordance with what the contract
says," it also said.
Earlier on Monday Tajani had told Reuters by telephone he believed a
compromise could be found allowing Panama to have the work done and
the European companies not to lose the contract.
"In the meantime it is important that the deadline date (to stop
work) be put back. This is the first step and it looks to me as if
we are heading in this direction," he had said.
Tajani also said he had spoken with the Italian and Spanish foreign
ministers and would now discuss the issue with the European
Investment Bank, which financed the project, and the representatives
of Panama in Brussels.
GUPC — which also includes Italy's Salini Impregilo SpA <SALI.MI>,
Belgium's Jan De Nul and Constructora Urbana from Panama — won the
contract in 2009 to build a third set of locks, the main part of the
project to double capacity of the near 50-mile cargo route.
The consortium's winning bid was $1 billion lower than that of its
The entire project was due to cost about $5.25 billion, but the
overruns could bump that up to nearly $7 billion.
GUPC is set to meet with the PCA and insurer Zurich North America
<ZURN.VX> on Tuesday to discuss the status of the work, including
its $600 million bond on the locks project.
Canal Administrator Jorge Quijano has said the PCA is already in
discussions with other third-party contractors in case it cannot
resolve its dispute with the GUPC. He estimated the remaining work
would cost about $1.5 billion.
The canal authority has said it is willing to consider detailed
claims for the overruns through arbitration.
The canal is one of the world's most important shipping routes and
halting construction on the project would be a setback for companies
eager to move larger ships through the waterway such as liquefied
natural gas (LNG) producers who want to ship exports from the U.S.
Gulf coast to Asian markets.
(Additional reporting by Elisa Anzolin
in Milan and Jose Elias Rodriguez in Madrid; writing by Fiona Ortiz
in Madrid; editing by Julien Toyer and Greg Mahlich)