Photo: Panama Canal
A deal resolving a financial dispute that had threatened completion of a new set of locks for the Panama Canal, the centerpiece of a $5.25 billion expansion project, has been signed by all parties involved, the consortium building the locks said.
“Grupos Unidos por el Canal (GUPC) has announced the signing of the agreement reached (last month) with the Panama Canal Authority (ACP) to facilitate the continued construction of the third set of locks” for the inter-oceanic waterway, the consortium said in a statement Friday.
GUPC, which was awarded the locks project in 2009 with a $3.1 billion bid, is led by Spanish construction giant Sacyr Vallehermoso and Italy’s Impregilo, each with a 48 percent stake, and also includes Belgium’s Jan de Nul and Panama’s CUSA.
As part of the agreement, insurer Zurich, which has also signed the deal, is to convert a $400 million performance bond - which GUPC was required to take out as an insurance policy - into backing for a new loan to help fund the project.
The canal authority said Thursday night that the conceptual agreement it announced late last month had been inked by Sacyr, Impregilo and Jan de Nul, but that CUSA and Zurich still needed to sign the deal for it to enter into force.
The consortium halted work on the project on Feb. 5, alleging a cash-flow crisis stemming from $1.6 billion in cost overruns that it insisted the ACP should cover, but it gradually resumed construction 16 days later.
On Feb. 27, the canal authority announced that it had reached a conceptual agreement with GUPC to inject fresh funds into the project and ensure its completion.
Besides the performance-bond provision, the conceptual accord also stated that GUPC would pay $100 million and ACP would advance $100 million to enable work on the new locks - to be completed by December 2015, 15 months after the date specified in the contract - to regain a normal pace in March.
It also said a moratorium for the repayment of previous advances made by the ACP to the consortium may be extended until 2018, subject to fulfillment of certain milestones and other conditions.
The ACP also stated then that the conceptual agreement did not include any payment for the consortium’s claims, which “must be processed through the mechanisms within the contract,” and did not modify the price of the contract.
The consortium, for its part, reiterated Friday that its cost-overrun claims would be resolved through arbitration, as specified in the contract.
Construction of the third set of locks is about 70 percent complete and the ACP has paid the consortium some $2.8 billion to date, including $784 million in repayable advances and at least $160 million for cost overruns.
The Panama Canal, which was designed in 1904 for ships with a 267-meter (875-foot) length and 28-meter (92-foot) beam, is too small to handle modern ships that are three times as big, making a third set of locks essential.
The inter-oceanic waterway handles roughly 6 percent of global trade.