By Lomi Kriel
PANAMA CITY Feb 28 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
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
etrepreneurship, 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 Feb. 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.