By Lomi Kriel and Sonya Dowsett
PANAMA CITY/MADRID Feb 18 The Panama Canal and
a Spanish-led construction consortium expanding the major global
waterway discussed options on Tuesday to keep the
multibillion-dollar project afloat amid a dispute over costs,
but any deal seemed unlikely ahead of a looming deadline.
The disagreement between the two parties over $1.6 billion
in cost overruns and how to maintain financing has already
halted work on the project for two weeks and has delayed its
projected completion until at least December 2015.
Delays could cost Panama millions of dollars in lost
shipping tolls and are a setback for companies worldwide that
are eager to move larger ships through the canal, including
liquefied natural gas (LNG) producers that want to ship from the
U.S. Gulf Coast to Asian markets.
"The Panama Canal Authority reports that despite efforts to
agree with (consortium) Grupos Unidos por el Canal to resume
work on the new locks project, positions between the parties
remain apart," the canal authority said in a statement.
"Although last week the parties seem to have come to an
agreement on certain components during the talks, there were
serious disagreements at the time of putting it in writing," it
added, saying the parties agreed to resume talks on Wednesday
Canal administrator Jorge Quijano last Wednesday set a
target of no more than a week to reach a deal to jump-start the
project, a deadline that will lapse in the coming hours.
Quijano had previously warned that the canal could terminate
the contract with the consortium and push ahead with a third
party if a deal proves elusive.
A major sticking point in the negotiations on Tuesday was
converting a $400 million bond from insurer Zurich North America
into backing for a loan so the consortium can secure a
short-term cash injection needed to continue its work, sources
familiar with the talks said.
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
The insurer was ready to provide the loan if shareholders of
the consortium, which is led by Spain's Sacyr and
Italy's Salini Impregilo and includes a Belgian and a
Panamanian company, shoulder the risk and are liable for
repaying the loan, one source said.
But the consortium's chief executive officers want the
insurer to be the primary risk-holder, which Zurich considers
unacceptable, one source said.
A key issue centered on the share of the risk the Italian
and Spanish governments would take, one source said.
Spain's majority state-owned insurer Cesce, set up to
financially aid international expansion of Spanish companies,
provided a guarantee for the Sacyr bid in 2009.
Although Cesce has declined to comment on how much was
guaranteed, a source with knowledge of the operation said it was
for $200 million and helped underwrite the $400 million Zurich
Officials at Zurich were not immediately available
for comment. A spokesman for Sacyr declined to comment.
The parties also continued to debate a weekend proposal by
the canal authority that would allow work to restart
immediately, with it and the consortium each contributing $100
But a source familiar with the negotiations said the
consortium had not yet accepted the deal and wanted to wait on
an answer from Zurich.
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