Panama Canal authority proposes end to dispute over expansion costs

PANAMA CITY -- The Panama Canal Authority said Tuesday that it wants to end a standoff over the expansion of the canal by splitting construction costs with the international consortium that was threatening to halt work unless the authority came up with $1.6 billion in extra funding.

The authority said Tuesday that it would pay $183 million and Grupo Unidos por el Canal would put in $100 million to continue work for at least two more months while a long-term solution is negotiated.

The Spanish-led consortium would have to withdraw its threat to halt work on the canal by Jan. 20. The consortium, which has said it has run out of cash to fund construction, offered no immediate response to the authority's offer.

The consortium is formed by Spain's Sacyr Vallehermoso, Impregilo of Italy, Jan De Nul of Belgium and Constructora Urbana SA of Panama. It says unexpected problems with the quality of material supposed to be used to make cement spawned massive overruns, and blamed the canal authority for carrying out insufficient geological studies before work began.

"They haven't accept the proposal or rejected it," canal administrator Jorge Luis Quijano said after meeting with consortium representatives. "At least we're talking and on their part there's a will to follow through with this."

Tuesday's meeting was the first between the authority and the consortium. The authority met Monday with Spain's public works minister, who said the consortium wanted to work out the dispute within the terms of its contract with the canal administrator.

The claimed cost overrun is roughly half of Grupo Unidos por el Canal's original $3.2 billion bid to build a third set of locks. Each side has said the other is responsible for the added costs. The canal authority claimed the business consortium was unjustly trying to force it to pay by threatening to halt work.

Panama has estimated the full expansion program will cost $5.2 billion, with the new, wider locks allowing the 50-mile (80-kilometre) canal to handle ships far larger than those that can now navigate the century-old waterway.

Officials have most recently said the work should be finished by June 2015. Officials say the overall expansion work is 72 per cent finished, with the locks themselves at 65 per cent.