By Sarah White and Elida Moreno
MADRID/PANAMA CITY Jan 3 Spain stepped in on
Friday to try to resolve a cost dispute over the expansion of
Panama's canal, which has triggered a sell-off in the shares of
Sacyr SA, the Spanish builder leading the project.
Spain's Public Works minister, Ana Pastor, and Sacyr
Chairman Manuel Manrique are due to travel to Panama on the
weekend, Panama's president, Ricardo Martinelli, said.
A Spanish-Italian consortium working on the project, which
would widen the canal so that ships three times larger than at
present could use it, has asked Panama to pay for $1.6 billion
in cost overruns on the $3.2 billion plan to build a third set
of locks for the canal.
Panama rejected that demand, though it has hinted it could
be willing to negotiate with the consortium.
The massive infrastructure development aims to make it
easier for example to move cargo between Asia and the eastern
coasts of the Americas, potentially reducing the cost of
transporting commodities and manufactured goods.
The dispute with the consortium could bring the project to a
But a senior source from the consortium played down the
dispute, saying negotiations on cost overruns were normal,
albeit seldom played out in the public eye.
"To think a five-year project of the size and complexity of
this one will not entail extra costs is absurd," the senior
source said, on condition of anonymity.
The consortium includes Italy's Salini Impregilo,
Belgium's Jan De Nul and Panama's Constructora Urbana.
Uncertainty over the outcome has wiped 263 million euros
($358 million) off the market value of Sacyr in two days, while
shares in Salini Impregilo were broadly flat.
On Thursday the spat seemed to escalate with President
Martinelli accusing the companies of irresponsibility. But on
Friday the parties said they were seeking a resolution.
"We're going to continue talking to get this work built
because the governments of Panama, Spain and Italy have an
interest in seeing this project built and that the problems
between the interested parties are resolved," Martinelli told
reporters after a meeting with Spanish and Italian diplomats.
Spain's ambassador to Panama, Jesus Silva, said minister
Pastor would meet Martinelli and canal executives on Monday
after arriving with a team of Spanish officials.
The building consortium had stressed that it was committed
to finishing the job, Silva added.
"What it obviously can't do just now is take on economic
losses they've evaluated ... that are beyond the consortium's
capacities and that of any company in the world," he said.
The project is more than two-thirds complete and is
scheduled to conclude in 2015.
The consortium had said on Wednesday it would suspend the
work unless the authorities came up with a solution within 21
days, and that overruns were due to unforeseen events during
construction that it deemed normal on such large projects - a
stance supported by some investors.
"The way these contracts operate is that there is a certain
amount of agreed work, and then there are always modifications
that have to be agreed on by the two sides," said Cato Stonex,
fund manager and joint founder of equity investment firm Taube
Hodson Stonex Partners, which owns 4.94 percent of Sacyr.
"The situation is slightly clouded by upcoming elections in
Panama (in 2014)," he said. "It would be better if the parties
came to an agreement, but on balance the fact that the
consortium is willing to invoke the clauses in the agreement is
reassuring, as what you don't want is more spending without the
guarantee it will be repaid."
Sacyr has blamed part of the cost overrun on materials
included in the original budget being declared inadequate during
the construction phase. For example, the Panama Canal Authority
(PCA) rejected the concrete mix the consortium had planned to
use, the company said.
Jorge Quijano, the head of the PCA, told local radio the two
sides were prepared to discuss the cost issue and that Panama
could pay if the consortium's demands proved to be justified.
"We will pay, but at the same time we expect the other side
to play by the same rules," Quijano said.