* Panama Canal project may be suspended
* Cost overruns represent half of original contract value
* Sacyr shares fall 9 pct
By Elida Moreno and Elisabeth O'Leary
PANAMA CITY/MADRID, Jan 2 The president of
Panama said on Thursday he would go to Spain and Italy to
pressure companies to honor contracts to expand his country's
canal after a building consortium behind the project threatened
to suspend work because of a row over costs.
The consortium - Spain's Sacyr, Italy's Salini
Impregilo, Belgium's Jan De Nul and Panama's
Constructora Urbana - said on Wednesday that $1.6 billion in
cost overruns on the $3.2 billion plan to build a third set of
locks for the canal should be met by Panama.
The consortium, known as Grupo Unidos por el Canal, said the
Panama Canal Authority (PCA) had 21 days to respond to its
demands during which work would continue, but the project would
be suspended if that requirement was not met.
Just a few hours later, the PCA rejected the demand, hinting
it could find others to complete the job. Shares in Sacyr, which
heads the consortium, slumped 9 percent on Thursday.
Panamanian President Ricardo Martinelli accused the
companies of "great irresponsibility" and said they had
endangered the massive construction project, which has been a
major driver of the Central American nation's economy.
Martinelli, who took power in 2009, said he expected Italy
and Spain to uphold commitments to back the project which the
countries' leaders made to him during his first year in office.
"So I'm going to go to Spain and Italy to demand this from
them, because a company should not be able to put such a high
amount of overrun costs on a project that belongs to humanity,"
he told reporters in Panama City.
The Spanish and Italian governments have a "moral
responsibility" to help resolve the dispute because their
companies were engaged in the construction, Martinelli said.
Jorge Quijano, the head of the PCA, said if the project were
delayed due to the dispute, Panama would see it through.
"This work will be finished, never fear, even if it takes
longer to complete," he told reporters.
Panama has already moved back the scheduled completion date
for the expansion from October 2014 into mid-2015.
To see that the work was concluded, Quijano said the PCA had
since November been in contact with insurer Zurich in North
America, with which it had $600 million in surety
bonds that could be used to support the project.
In addition, the PCA could tap the $1.2 billion it had not
yet paid to the consortium to finish the work, he added. So far
the PCA had only paid the contractors $2 billion, he said.
The new locks represent the biggest chunk of the canal
expansion plan, which overall is worth some $5.3 billion.
The PCA says the total expansion is just over 70 percent
finished with the locks 65 percent complete. The canal's
extension aims to broaden and deepen existing channels so that
more and bigger vessels can sail through.
The consortium said the overruns were due to unforeseen
events during construction, which it said was "normal" in such
projects. It also said the PCA had failed in its obligations and
given the consortium "inexact" information for the project.
But the PCA said that if the consortium was not capable of
honouring its agreements, it would initiate "mechanisms from the
contract that would allow the work to be completed."
It did not explain what those would be.
Sacyr won the bid on the canal contract in 2009 with a $3.12
billion offer, which was considerably lower than that of rivals,
as well as below the $3.48 billion reference set by the PCA.
Political columnist Pepe Oneto, writing in opinion blog
republica.com, said the news was terrible for Spain's attempt to
rebuild its image abroad following a severe economic crisis
with the collapse of the country's building and property sector.
"The Spanish government ... knew that it was impossible for
the budget to be met. Sacyr bid low, convinced that, in the end,
the cost overruns it is demanding now would be met," he said.
A spokesman for Sacyr said that part of the cost overrun was
because some building materials as originally budgeted were not
adequate for the final work. The PCA had rejected the concrete
mix the consortium had planned to use for the project.
"The consortium's intention is also to find a solution
within the terms of the contract, as there are mechanisms that
make it possible," Sacyr's spokesman said, without elaborating.
The company's debts at the end of September were three times
its market capitalization. Analysts at the brokerage of Banco
Sabadell said the news was not good for Sacyr or its image, but
played down the impact on the builder's results.
Newspaper El Pais reported in 2009 that Panama's foreign
minister, Juan Carlos Varela, had predicted the project would
fail because the builders were in financial trouble.
Sacyr made 55 percent of its revenue outside Spain in the
first nine months of 2013, and Panama contributed 25 percent of
its 1.3 billion euros ($1.78 billion) in international sales,
the company said in its 2013 nine month earnings.