Panama and a consortium of European builders agreed to end a two-month-long dispute over US$1.6 billion in cost overruns for a project to widen the Panama Canal, raising hopes the work can be completed in about two years.
The preliminary deal calls for independent arbitrators to rule on who should carry the extra costs, reported The Wall Street Journal.
Both parties also agreed to provide for more than $1 billion in funds needed to complete the expansion project, which the shipping industry views as a boon to global trade.
The work on the 100-year-old waterway, which connects the Atlantic and Pacific oceans, began in 2007 with the overall cost pegged at $5.2 billion. The purpose is to widen and deepen the canal, given that many of today's vessels, including oil tankers and many container ships, are too big to fit through the canal's narrowest, 110-ft-wide stretches.
Jorge Quijano, head of the Panama Canal Authority, a government agency that operates the 50-mile waterway, said that the project won't be finished until early 2016. The previous target was late 2015.
With the project's completion, Panama stands to greatly increase its more than $1 billion in annual revenue from toll fees. The US, which built the canal in 1914 and is the passageway's biggest customer, also is expected to benefit, as a wider canal could allow it to start exporting liquefied natural gas, or LNG, to Asia from ports in the eastern US.
The expansion was thrown into doubt in early January when the construction consortium Groups United for the Canal, or GUPC, demanded an additional $1.6 billion for its portion of the undertaking, a $3.1 billion project to build a third set of locks on both ends of the canal. The consortium is 96 percent-controlled by Spanish builder Sacyr and Italy's Salini Impregilo.
The canal administrator said a resolution came into focus once the two sides concentrated on how to fund the 30 percent of the project that remains uncompleted.
The deal to be signed next week calls for both sides to start by ponying up $100 million each, which would allow work to fully resume in March.
Another $400 million would come in the form of so-called surety bonds issued by Zurich Insurance Group. Representatives at Zurich Insurance weren't immediately available for comment.
The bonds normally come into play when a contract is broken, allowing a party to make a monetary claim, but in this case Quijano said even with the contract intact the funds would be made available.
The agreement also would give GUPC more time, in some cases until 2018, to repay some $784 million in advance payments made to the consortium by the Panama Canal Authority.
GUPC representatives said the agreement would also unlock some $500 million from the canal authority under the original budget plan.
The construction group said that the accord "meets the GUPC aim of a comprehensive approach to provide funding for the project through a co-financing arrangement". It added, however, that completion of the project could hinge on "the outcome of arbitrations to allocate final responsibility for additional costs".
-
Company DirectoryFreight RateExport RateAgency PartnershipCargo Leads