Panama Canal Contract Dispute Endures as Both Parties Offer Proposals
The Panama Canal Authority (ACP) released a proposal (here) on Jan. 7 that urged joint contributions to the continued construction of a third set of canal locks in an attempt to resolve an on-going contractual dispute that threatens to derail the expansion effort. The contractor consortium, GUPC, led by the Spanish building company Sacyr, pledged in a Dec. 30 letter to the ACP to discontinue construction of the project unless the ACP pays out cost overrun claims. The ACP proposal, however, calls for cancellation of the intent to suspend work, along with the delivery of four lock gates that were allegedly due to arrive in Panama in November and have been nearly paid for, according to the ACP.
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“The contractor claims a $1.6 billion overrun for several different issues and claims, some which have been presented using the mechanisms in the contract…and others that have not been officially presented,” said an ACP source. “The contractor must present claims using the three mechanisms contained within the contract to present them. Some claims have been presented and others are just intentions of claims. These add the amount they claim in cost overruns.” The consortium also includes Impreglio of Italy, Belgian firm Jan De Nul and Constructora Urbana of Panama.
The canal currently allows the passage of vessels that can carry up to 5,000 twenty-foot equivalent units (TEUs), but the expansion will make Post-Panamax vessels able to transit with up to 13,000 TEUs, the ACP says (here). The ACP proposal pledges a $183 million contribution but mandates GUPC pay $100 million to continue construction. The consortium is attempting to avoid the contractual dispute route that involves initial ACP consideration, then third party adjudication at the International Chamber of Commerce (ICC) Dispute Adjudication Board and the International Court of Arbitration, said the ACP source. The ACP has also criticized alleged GUPC downsizing of project staff, claiming GUPC is intentionally stopping work.
“We’d rather finish the job with this consortium. I hope that they have the wisdom to see it’s beneficial to them as well with this project and that they have a process where they can claim...What they have to do is provide us with additional information so we can respond before the 19th," said ACP Administrator Jorge Quijano in a Jan. 2 conference call with reporters, referring to the day prior to the date GUPC is threatening to discontinue work. “We don’t have full detail of their last claim that pumps it up all the way to $1.6 or $1.5 billion. Their numbers seem to vary day to day so we’re concerned about that as well. At this point in time we have not enough information for this big claim that they put in to the first step, because it hasn’t even reached the dispute adjudication board level.” The Dec. 30 GUPC letter was only two pages long and did not detail claims, said Quijano.
Following a meeting between the two sides on Jan. 7, Javier Rosado, the CEO of Llorente & Cuenca, the public relations firm representing GUPC, said GUPC was the first party to offer a proposal to resolve the dispute. GUPC, in an emailed press statement on Jan. 7, released by the public relations firm Llorente & Cuenca, said both sides agree to work within the bounds of the contract. “GUPC...has submitted a proposal with a view to seeking a final solution, provided under the contract and Panamanian Laws which has agreed to inject 100 million and has asked the ACP an advance of 400 million, in addition to extending the current moratorium on payment until the end of the period of arbitration,” said the consortium in an emailed press statement on Jan. 7, released by the public relations firm Llorente & Cuenca. The ACP proposal extended the moratorium for a fixed two months.
But ACP has not yet responded to the GUPC proposal, according to the ACP source, saying the ACP is unable to publicly comment on whether the two sides will reconvene today. Quijano said the ACP expects, if work does not stop due to this dispute, the project will be open for commercial use in the last quarter of 2015. “Now if in the event that they decide to actually stop the work, of course every day you stop the work is a day that it is going to take longer to complete the whole work,” said Quijano in the Jan. 2 conference call.
The canal expansion is expected to significantly impact U.S. trade with Northeast and Southeast Asia, according to a Department of Transportation Maritime Administration report dated November 2013 (here). Across the globe, the U.S. registered the highest import growth at 4.4 percent annually from Northeast Asia, primarily China, followed by Southeast Asia at 3.6 percent annually, the report said. The expansion is also poised to benefit certain U.S. exports, according to the report. The Panama Canal Authority “has estimated that 86 percent of the world’s current LNG fleet will be able to pass through the expanded Canal, compared to only six percent now,” said the report. “This ability may facilitate LNG trade on specific routes, particularly from the U.S. Gulf to Northeast Asia, where demand for natural gas is large and market prices for natural gas are significantly higher than in the United States.”
Panamanian President Ricardo Martinelli met with Spain's Public Works Minister Ana Pastor in Panama City on Jan. 6 in an attempt to resolve the dispute. “Even though this is a dispute between individual companies, we are here to help them reach an agreement,” said Spanish Public Works Minister Ana Pastor, the BBC reported(here).-- Brian Dabbs