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Work stoppage enters second week
Since last week discussions between the Panama Canal Authority (ACP) and the GUCP have been ongoing as how to finance and complete the multi-billion dollar expansion works of the Panama Canal.
With Jorge Quijano’s hypothetical deadline passing yesterday and work still stalled on the already delayed project, the respective parties are still unable to reach a compromise.
Appearing in front of the Panama National Assembly last week, Quijano proposed that an agreement would be reached on February 18.
He also made clear that the ACP was not afraid to make a ‘hostile move’ and continue work without the consortium if the issue was not resolved.
The fallout between the two parties began when discussions between the ACP and the GUCP, a consortium of Sacyr Vallehermoso, Impregilo, Jan De Nul and Panama’s Constructora Urbana, collapsed as to whom should cover the costs of a US$1.6 billion overrun.
It is now the 15th day since construction has been put on hold.
Whilst talks are ongoing, the Panama Canal Authority announced that “despite efforts to agree with Grupos Unidos por el Canal to resume work on the new locks project, positions between the parties remain apart.”
“Although last week the parties seem to have come to an agreement on certain components during the talks, there were serious disagreements at the time of putting it in writing.”
The key issue in settling the dispute concerns the use of a $400 million bond that the consortium took out with US insurers Zurich, as an insurance policy in case they did not complete the project.
The plan is to convert this bond into a loan that will act as a financing mechanism and cover the cost of the overruns.
According to Reuters, Zurich are willing to provide this, but only if GUCP’s shareholders make themselves liable to repay the loan and shoulder any of the risk that comes with this.
However, the consortium has so far rejected this offer, proposing that Zurich take the role of primary risk holder, citing a fear as to how large a share of the risk the Italian and Spanish governments would take.
This comes after news that Spanish majority state-owned insurer Cesce provided a guarantee for the Sacyr bid in 2009
A Reuter’s source has said that the guarantee, which covers $200 million, would help underwrite the $400 bond made with Zurich.
A final proposal was made by the APC over the weekend in which both the authority and the consortium would contribute $100 million. This would allow works to restart immediately. GUCP is understood to be waiting to hear back from Zurich until it makes an official response.
With a new deadline scheduled for December 2015 and an expected cost of $7 billion a decision must be made, and it must be made soon.
Images courtesy of the Panama Canal Authority (ACP)
