A dispute between the Panama Canal Authority (ACP) and the consortium responsible for building a new set of locks on the system threatens the Panama Canal expansion project.
The contract is already nine months behind schedule and with cost overruns piling up the contractor, Grupo Unidos por el Canal S.A. (GUPC), is threatening to stop work if $1.6 billion in cost overruns isn’t paid within the next 21 days.
The ambitious project was awarded to GUPC in July 2009. After proposals from three large consortiums were reviewed extensively by the ACP it was determined that GUPC had accumulated the highest points in the bidding process. Their final price for the construction of the locks was just over $3.1 billion, undercutting the ACP’s target price by $363 million.
As the cost overruns mounted GUPC fell under financial pressure. They claim the ACP is responsible for cost overruns but maintained they would continue working while the dispute was settled. Part of the cost overruns stem from different concrete being used in the project. Overruns also mounted as the canal was closed temporarily in 2010 which added to the costs of the builders. It was the first time that rain has closed the canal since 1989.
The consortium’s major contractor, Sacyr, of Spain, had looked at the expansion project as a way out of financial pressure created when the Spanish construction industry crashed in 2008. With Sacyr facing cost overruns equaling half the original contract price for expenses they believe the ACP were responsible for due to a breach of contract, they want the dispute resolved.
The ACP believes GUPC are forcing the “ACP to negotiate outside the terms established in the contract,” and claim they will not be pressurized. If the dispute continues it could seriously threaten the Panama Canal expansion.
The construction of the new locks is the largest part of the expansion project which is calculated at $5.25 billion, making it the largest infrastructure project underway in Central America at present. Other contracts were awarded for dredging and widening the canal in places but the contract for the new set of locks is considered the heart of the project.
If the dispute is settled the new completion date for the expansion will be June 2015. At present the locks are 65 per cent finished with the rest of the project at 72 per cent. The original plan was to have the entire project completed by Oct. 2014, in time for the 100th anniversary of the beginning of operations of the Panama Canal.
Each year roughly 14,000 vessels traverse the canal. Once the expansion project is completed it will allow ships double the size of today’s vessels to pass the 51 miles linking the Atlantic and Pacific oceans. The largest ships that ply the canal today are Panamax vessels that are built specifically to run the canal and can carry 5,000 containers. Once the project is completed new purpose built vessels will be able to carry up to 13,000 containers each. The new larger locks will also reduce locking time which should speed up transit time in the canal.
The ACP has 21 days to settle the dispute. If a settlement isn’t reached the $1.6 billion cost overrun threatens the Panama Canal expansion project.
By Scott Wilson