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 As workers returned to the construction site after a stoppage
lasting more than two weeks, a source close to the consortium led by
Spanish builder Sacyr and Italy's Salini Impregilo said it had
resolved internal disagreements over the key issue of financing.
"The restarting of the works is being done in a way that will enable
it to reach full pace in the shortest time possible," the consortium
said in a statement. A source close to negotiations between the
consortium and the Panama Canal Authority confirmed that work had
resumed.
Panama Canal administrator Jorge Quijano said: "We believe that with
the discussion we had last night and the comments made, we can find
a path out of this." There are still problems to be sorted out, he
said, but the agreement with the consortium should allow work to get
going.
Work had been due to restart earlier on Thursday.
The canal authority said late on Wednesday it had agreed with the
consortium to iron out a host of remaining issues, including the
delivery dates of massive lock gates being built in Europe, over the
next three days.
Sources with knowledge of the negotiations said a final deal on
pending issues would be signed within three days.
The parties have agreed to deal with the core of the dispute, $1.6
billion in cost overruns that the consortium wants the Panama Canal
to pay for, via arbitration.
The canal has said a two-week work stoppage means the project will
not be completed until at least December 2015, a delay that could
cost Panama millions of dollars in lost shipping tolls.
Delays are also a setback for companies worldwide that want to move
larger ships through the waterway that links the U.S. Gulf Coast to
Asian markets.
A key part of negotiations is the role that insurer Zurich plays and
whether it will convert a $400 million surety bond, taken out by the
consortium in case the project was not completed, into backing for a
loan to help raise the $1.5 billion in funding the canal authority
says is needed to finish the project, sources with knowledge of the
matter said.
Zurich does not want to put money into the project but has asked
banks to do so, another source familiar with the matter said. The
banks are asking for counter-guarantees, the source said. The
parties of the consortium are each liable for their own obligations,
not jointly, the source said.
Shares in Sacyr rose 4.3 percent on Thursday after news of the
agreement to restart work. The project represents a quarter of the
company's international revenue.
Salini Impregilo shares gained around 3.2 percent.
Zurich said it was in talks with both parties and was comfortable
with its level of exposure to the project, which it said was limited
due to reinsurance mechanisms and was well within its risk
tolerance.
"As the discussions are still ongoing, we are not in the position to
provide any further details," it said in a statement.
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SPAIN STEPS IN
The Spanish government is likely to agree to change the status of a
$200 million state-backed guarantee it gave heavily indebted Sacyr
in 2009 when Panama awarded it the contract, turning it into backing
for finance to finish the project, sources told Reuters on
Wednesday.
The guarantee was originally drawn up by Spanish state-backed
insurer Cesce as a counter-guarantee to the Zurich bond. The
government insurance bonds must be changed if Zurich changes its
insurance into backing for a loan.
Cesce and Spain's Economy Ministry declined to comment. Italian
state-backed export credit agency Sace, also a part of the guarantee
scheme with Zurich, was not immediately reachable for comment.
There has been disagreement within the Spanish government over
whether to interfere with the private project, one source with
knowledge of the matter said, but it is likely to tweak the
conditions of the guarantee because the Sacyr-led contract is such a
high-profile one for Spanish business.
Spanish builders are working on big engineering projects around the
world, including a train linking the Islamic holy cities of Mecca
and Medina, and a metro in Riyadh, Saudi Arabia. Overseas
construction has been one of the few bright spots for companies as
the domestic economy splutters.
Under Wednesday's deal, the Canal agreed to pay the consortium $36.8
million to cover work done in December once works resume.
The project to expand the nearly 50-mile (80-km) transoceanic cargo
route was originally expected to cost about $5.25 billion, but that
could increase to nearly $7 billion.
When the contract was awarded to the consortium in 2009, officials
and diplomats expressed concern over its ability to complete the
work, since its winning bid for the work was $1 billion lower than
that of the nearest competitor.
The Wood Mackenzie consultancy said on Thursday it expected the cost
overrun dispute to be resolved with limited disruption, but
cautioned that longer delays would affect U.S. liquefied natural gas
producers and create a tighter LNG shipping market.
"If the delays last 6-12 months, it will have limited impact, as
trade will carry on much as it does now," Andrew Buckland, senior
LNG shipping analyst at Wood Mackenzie, said in a research note.
"But further delays threaten the investments of a significant number
of groups that are set to benefit from expanded capacity on the
waterway."
(Additional reporting by Danilo Masoni
in Milan, Jose Elias Rodriguez in Madrid and Alexandra Ulmer in
Chile; editing by Simon Gardner and Mohammad Zargham)
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