Though embroiled in a financial dispute with its main contractor, the Panama Canal Authority doesn’t envision delays that would push its massive expansion project past its late 2015 launch date, a top canal official said in Atlanta.
Grupos Unidos por El Canal, a mostly European consortium handling construction of the new super-sized locks, has slowed work on the project and in the past threatened a full stoppage if the canal authority continues to withhold payment on cost overruns estimated at $1.6 billion.
The dispute could stall a project that would double the canal’s capacity and that leaders say would significantly reduce costs for shippers calling on the U.S. East Coast from Asia.
Ports like Savannah have been clamoring to deepen their ports to take full advantage of the larger ships, now called “post-Panamax” because they can’t fit through the locks at the current canal. The newer ships can handle about three times the number of containers.
Georgia Gov. Nathan Deal and Atlanta Mayor Kasim Reed separately visited Panama and praised the project in 2013.
Grupos Unidos blames the cost discrepancies on bad geological surveys provided by the canal authority for the ground beneath the locks, the most complex and costly piece of the expansion project.
But Manuel Benitez, the Panama Canal Authority’s deputy administrator, believes the claims are unfounded and that the consortium is simply trying to force the canal to pay for its mismanagement.
He said that Unidos ran out of cash late last year even after receiving a one-year grace period on a $600 million advance that initially came due December 2012. The locks were designed to be a “cash-flow positive” piece of the whole project, which includes dams and dredging and was initially estimated to cost $5.25 billion.
Dispute resolution mechanisms were built into the deal. Within this framework, a dispute goes to a three-member board with one member each appointed by the two parties and the other selected jointly by those two members.
“We are not going to make any global settlement outside the contract,” Mr. Benitez said at the SMC3 Jump Start 2014 logistics conference at the Loews Hotel Jan. 20.
He noted that claims about bad concrete mixtures and heavy rains worth nearly $150 million have been completely rejected by the review board.
The canal authority sent a letter Jan. 6 that gives a three-week deadline for resolution. After Jan. 27, the canal would have the right to issue a termination letter that would go into effect in 14 days.
“Under the contract, if they don’t complete the work were are going to terminate their right to complete the project,” Mr. Benitez said.
The consortium said Jan. 13 that it would finish the job, but should worse come to worst, the canal authority would be able to continue construction.
“We have a Plan B,” Mr. Benitez said, noting that the authority has letters of credit worth $600 million and bonding capacity to cover the rest.
American firm CH2M Hill has been the project coordinator since the beginning and could handle the hiring and paying of subcontractors working to finish the locks, he said.
But with the locks 65 percent done and the most intricate engineering aspects out of the way, Mr. Benitez was confident that a resolution was imminent. The parties began discussions on a new financing package on Jan. 21, the day after his remarks.
“Nobody walks off a project this advanced,” Mr. Benitez said.
Mr. Benitez said the European group, led by Spain’s Sacyr SA, would find it hard to rebuild their reputations globally if they failed to deliver on such a high-profile project.
He also said it would be a blow for Europe if “history repeats itself” and an American firm had to step in to finish the expansion, much like 100 years ago when Americans completed the canal started by the French.
Some have criticized the European consortium’s $3.1 billion bid for being too low. Its bid was about $1 billion cheaper than the bid led by American infrastructure giant Bechtel Corp.
Bechtel’s bid called for larger gates, which added significant steel costs when multiplied by eight. Also, its design called for water-saving basins on both sides of the locks, which would’ve impeded later expansions that are integral to the canal’s future plans. The winning design had basins only on one side.
Already ships with a capacity of 18,000 containers are in service on routes from Europe to Asia. Those would not even fit through the canal after the current expansion.