By the Blouin News Business staff

Panama Canal expansion spat looks to go global

by in Americas, Europe.

A general view of the site where the new Panama canal locks are being constructed, led by Spanish company Sacyr, in Puerto Colon, Panama, next to the Atlantic Ocean on March 19, 2013. Photo: AFP/Getty Images

A general view of the Panama Canal expansion site in Puerto Colon, Panama, on March 19, 2013. Photo: AFP/Getty Images

The dispute over expansion costs of the Panama Canal that rang in 2014 has been elevated to a political row. Even if both sides of the spat — the Panama Canal Authority, the government agency that runs the waterway, and the international consortium behind the expansion, led by Spanish builder Sacyr, which threatens to abandon the expansion project if the waterway doesn’t meet a cost overrun estimated at $1.63 billion (the initial projected cost was $3.1 billion) — reach an agreement much will be left to do. An initial, temporary agreement may be close, but analysts believe that the consequences will be long-lasting.

On January 6 Panamanian President Ricardo Martinelli met with Spain’s Public Works Minister, Ana Pastor, in Panama City; on January 7 the Panama Canal Authority said it would be willing to split extra construction costs with the international consortium, known as Grupo Unidos por el Canal (and which includes alongside Sacyr Impregilo of Italy, the Belgian firm Jan De Nul and the Panamanian Company Constructora Urbana). The Panama Canal Authority said that it would pay $183 million and the international consortium would put in $100 million to continue work. While the outcome of the first meeting between the authority and the consortium may be positive, the amount of money currently on the table would only cover works for two more months. The international consortium had given Panama’s authorities until January 20 to pay up the $1.6 billion in extra funding. They’ve threatened to stop all expansion operations if the full amount isn’t raised by then.

The change in attitudes hints at the importance both sides give to controlling fallout from the spat and putting the whole affair behind them. On its behalf, Sacyr, as leader of the consortium, asked the waterway government agency that to approve a $400 million payment in advance — a move that has received no reaction so far. The intermediate agreement may be a patch but a long-term solution must be negotiated. Otherwise Madrid-based Sacyr will face reputational damage on the international scene and Panama will see a blemish on its investment-drawing record.  Many saw this very problem coming from the start of the project in July 2009 when the consortium won the job with a low bid of $3.12 billion. The bidding ranged as high as $5.2 billion; With the cost overrun, the new pricetag will be $4.73 billion. A case of a sovereign state being, so to speak, pennywise and pound foolish.