PANAMA CITY The Panama Canal Authority said on Friday it expects to sign a financing deal next week to finish work on expanding the waterway and end a dispute over cost overruns that has held up the multibillion-dollar project.
Following bitter wrangling with the Spanish-led building consortium since the start of the year, the authority announced a preliminary deal Thursday night. Canal Administrator Jorge Quijano said he expected the agreement to be signed on Thursday.
The deal with the construction group led by Spanish builder Sacyr and Italy's Salini Impregilo foresees work finishing by December 2015 and would require the canal and the consortium to immediately each inject $100 million.
Both sides have agreed to continue disputing the $1.6 billion in extra costs through international arbitration. In the meantime, the deal gives the consortium immediate cash to resume work.
The expanded waterway connecting the Atlantic and Pacific oceans was originally due to open this year, but disputes over the funding and delays have pushed that deadline back.
Mistrust over the process still lingers, and canal chief Quijano was far from jubilant as he discussed the accord with reporters in a conference call from Panama City.
"I'm always very cautious because the relationship has not been very good with this contractor, I must admit," he said.
"We will very closely supervise whatever is happening in the field. All of the monies ... will go directly into the project. It cannot be siphoned out to the shareholders," he added.
Quijano said he expected the $100 million cash injections to be in place by next Friday, and stressed the consortium would not be "getting any more money from me."
The overall canal expansion, of which the Grupo Unidos Por el Canal (GUPC) consortium is building the lion's share, was first expected to cost around $5.25 billion. But the overruns could increase that bill to nearly $7 billion.
The agreement with the GUPC envisages extending repayment of advanced payments made by the canal authority to the consortium worth $784 million until 2018 at the latest.
Antonio Tajani, the European commissioner for industry and entrepreneurship, said the deal was "crucial."
"This is one of the most important infrastructure (projects) in the world," he said in an interview.
As part of the deal, the Canal Authority agreed that the consortium could use a $400 million surety bond through insurer Zurich North America as backing to seek financing.
However, the Zurich part will take up to six weeks to arrange, for which reason the $100 million cash injections were necessary to jump-start work at full capacity, Quijano said.
Limited work on the project resumed on February 21 after a two-week stoppage. The dispute has fanned fears of delays that could cost Panama millions of dollars in lost shipping tolls.
Holdups in the prestigious 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.
Following the deal, Quijano said the newly expanded waterway would begin operating commercially by January 2016.
But he cautioned that if GUPC does not comply with the agreement, the canal will find other ways to complete the work.
"We remain prepared for another option," Quijano said.
The agreement contains safeguards related to the payback of the advances so that if the companies fail to comply they have to return the money straight away, he added.
Sacyr, which receives a quarter of its international revenue from the canal project, reported on Friday a net loss of 496 million euros ($679 million) for 2013.