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Panama Canal Confirms Breakthrough In Contractor Dispute

by Mike Godfrey, Tax-News.com, Washington

03 March 2014


The Panama Canal Authority (ACP) has reached an agreement with the consortium charged with the completion of the new locks, as part of the multibillion dollar expansion project. The consortium, Grupo Unidos por el Canal, S.A. (GUPC), had earlier threatened to down tools indefinitely unless the Authority stumped up further cash.

The contract, awarded to GUPC in 2009, was originally projected to cost USD3.2bn, but funds reportedly had run dry by the end of last year. GUPC called for a further USD1.6bn in funding to resume work.

The Authority announced that work had resumed on February 20, 2014, after consultations had yielded some progress. At this time, Panama Canal Administrator Jorge L Quijano confirmed: "Works have restarted this afternoon. The consortium has guaranteed that it will continue working, which was our main objective so we can move forward and discuss other issues for a longer-term agreement." The Authority confirmed that it would pay the consortium USD36.8m to cover December invoices.

At the time, the authority underscored that the preliminary agreement to resume works did not imply a negotiation on the alleged cost overruns claimed by the contractor, and reiterated that "these claims most be process[ed] through the mechanisms within the contract."

On February 27, 2014, the Authority announced that these talks had been completed. A conceptual agreement has been reached, it said, subject to documentation, review, and final signature by the parties. The Authority said that the conceptual agreement falls within the terms of the Contract for the Design and Construction of the Third Set of Locks, and does not include any payment for claims. It continued to state that GUPC's claims must be process[ed] through the mechanisms within the contract, and said that the price of the contract remains the same, and is not modified by this agreement.

Quijano said: "We have reached a conceptual agreement that protects the interests of the Panama Canal, within the terms of the contract and respecting our position. The agreement is under review and pending signature; however, our commitment to Panama and our customers has been to inform these recent developments."

"The Third Set of Locks will be completed within the terms of the contract, as requested from the very first day," he concluded.

According to the authority, the terms of the conceptual agreement have been agreed as follows:

  • The construction of the Third Set of Locks is to be completed by December 2014;
  • The twelve lock gates in Italy must be in Panama by December 2014, to be transported in staggered shipments;
  • The Performance Bond for USD400m may only be released to Zurich North America, to obtain financing to complete the work;
  • GUPC will pay USD100m and ACP will advance USD100m, which will enable works to regain a normal pace in March; and
  • The moratorium for the repayment of advances may be extended until 2018, subject to fulfillment of certain milestones and other conditions.

The agreement brings forward the date for the completion of the project to December 2014, after the Authority had previously agreed to push back the launch date to the middle of 2015 from October 2014.

TAGS: marine

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