UPDATE 2-Panama Canal, consortium reach preliminary deal to finish work

Thu Feb 27, 2014 11:35pm EST

By Lomi Kriel
    PANAMA CITY, Feb 27 (Reuters) - The Panama Canal and a
Spanish-led consortium expanding the major maritime artery have
reached a preliminary deal to complete work on a project stymied
in a row over $1.6 billion in cost overruns, the canal's
administrator said on Thursday. 
    The deal foresees the consortium, which is led by Spanish
builder Sacyr alongside Italy's Salini Impregilo
, finishing work by December 2015.
    Limited work on the project resumed last Thursday after a
two-week stoppage. The dispute has fanned fears of delays that
could cost Panama millions of dollars in lost shipping tolls.
    Hold-ups in the massive project posed a setback for
companies worldwide that want to move larger ships through the
waterway that links the U.S. Gulf Coast to Asian markets.
    "We have reached a conceptual agreement that protects the
interests of the Panama Canal," Panama Canal Administrator Jorge
Quijano said in a statement.
    He said the agreement was under review and still needed to
be signed.
    
    Under the deal, the Panama Canal Authority and consortium
GUPC would each inject $100 million for immediate cash flow
needs to fully resume work, the authority said.
    The deal would also extend repayment of advanced payments
made by the Panama Canal Authority to the consortium that are
worth $784 million until 2018 at the latest.
    The overall expansion project, of which the consortium is
building the lion's share, was originally expected to cost about
$5.25 billion, but the overruns could increase that to nearly $7
billion. 
    Parties have agreed to resolve the row over the excess costs
via international arbitration.
    As part of the deal, the Panama Canal Authority agreed that
the consortium could use a $400 million surety bond through
insurer Zurich North America as backing to seek
financing.
    The consortium took out the bond as a required insurance
policy in case it did not finish the project. The bond is
payable if the project is not completed by the consortium for
any reason.
    "The GUPC expects a swift closing of the deal and
financing," the consortium said in a statement.
    According the deal, 12 giant lock gates which are currently
in Italy will arrive in Panama by December 2014.   
    A last-minute disagreement over the deal would punish Sacyr,
which receives a quarter of its international revenue from the
project.
    Quijano had previously warned that the canal could terminate
the contract with the consortium and push ahead with a third
party.
    The consortium also includes Belgian firm Jan de Nul Group
and Panama's Constructora Urbana, S.A.
    When the contract was awarded to the consortium in 2009,
officials and diplomats expressed concern over its ability to
complete the work, since its winning bid for the work was $1
billion lower than that of the nearest competitor.
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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