* Deal reached on lock gate delivery, time of tests -source
* New financing and role of Zurich still up in air - source
* Project could be delayed even if agreement reached - PCA
By Lomi Kriel and Sonya Dowsett
PANAMA/MADRID, Feb 12 The Panama Canal Authority
said on Wednesday it had reached an initial agreement to resolve
a weeks-long dispute over cost overruns on a project to widen
the 100-year-old waterway that connects the Atlantic and Pacific
The builders, led by Spain's Sacyr, have stopped
work on doubling the canal's capacity while a dispute rages over
$1.6 billion in cost overruns and extra financing for the work
that is 70 percent done and due to be finished next year.
Delays could cost Panama millions in lost shipping tolls.
For Sacyr - whose partners are Italy's Salini Impregilo
, a Belgian and a Panamanian company - the project
brings in a quarter of international revenue.
"We have preliminary agreements, there are still some issues
to resolve and we are working in that direction," the head of
the Panama Canal Authority (PCA), Jorge Quijano, said.
He said that did not mean the PCA had abandoned the
alternative of handing over the contract to a third party and
did not give details about what any agreement would involve.
A spokesman for Sacyr declined to comment.
A source familiar with the situation said no agreement had
been signed but a deal could be sealed soon.
An agreement was likely to centre on both sides bearing some
of the additional costs and involve more bank loans, a second
source with knowledge of talks said.
Shares in Sacyr traded 6.1 percent higher while Salini
Impregilo, which has a 48 percent stake in the consortium
(GUPC), traded up 3.1 percent.
Aside from the cost dispute, the two sides are negotiating
over a deadline for the consortium returning $785 million in
advance payments made by the PCA and the delivery date for 12 of
16 lock-gates, a major part of the project.
Another sticking point is the role of insurer Zurich North
America which may convert a $400 million completion
bond into backing for another loan.
Agreement on a date for delivering the lock gates was near,
a third source with knowledge of the matter said, but issues
around financing and Zurich's role were yet to be resolved.
The Italian company was on board with the PCA, the source
said without specifying on which aspects of the dispute.
The PCA and the GUPC were also in agreement regarding the
date of tests of the new structures and a payment plan for
suppliers and subcontrators, this source said.
The consortium has said it is willing to let third party
arbitrators decide who pays for overruns but has also said it
needs $1.6 billion to finish the work.
"We are not afraid of finishing the project ourselves, we
know that we can do it and we have the technical confidence and
the economy capacity," PCA head Quijano told journalists on
Wednesday, Spanish news agency EFE reported.
"But that also means bigger delays than if GUPC finished the
Quijano said the project was likely to suffer delays even if
it reached an agreement with the consortium, but could be
finished by December 2015.
Talks over how to find the additional cash to finish the
project have been extended twice. Panama called off talks last
week but started them again soon afterwards.