Talks Break Off in Panama Canal Contract Dispute

February 5, 2014 by and Sonya Dowsett

The Panama Canal Authority (PCA) has broken off talks with a Spanish-led building consortium in a dispute over $1.6 billion in cost overruns during work to expand one of the world’s most important shipping routes, the consortium said on Wednesday.

Consortium GUPC, led by Sacyr, said the breakdown in talks puts the Panama Canal expansion and up to 10,000 jobs at immediate risk.

The development is a setback for companies eager to move larger ships through the Panama Canal, including liquefied natural gas (LNG) producers who want to ship exports from the U.S. Gulf Coast to Asian Markets.

“The international consortium … continues to seek a solution for funding the completion of the project and completion of the works in 2015, even as the PCA broke off negotiations,” the consortium said in a statement.

“This looks like the definitive end to the talks and I wouldn’t be surprised if Panama already had a plan B,” said a Madrid-based trader who asked not to be named.

“As for Sacyr, the shares are losing what they’d gained yesterday when the market was discounting an agreement, but the damage in terms of image was done already. They’ll push forward with new contracts, but everything they do will be looked at with a magnifying glass from now on.”

The consortium had stalled work on the project, which is more than 70 percent complete, while demanding the PCA foot the bill for the unforeseen additional costs.

Apart from the dispute over the huge cost overruns, the parties had been trying to find ways to come up with additional cash to finish the project, due to be completed in mid-2015.

Delays could cost Panama millions of dollars in projected revenue from toll charges.

(Additional reporting by Tracy Rucinski; Editing by Pravin Char)