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Published: Thursday January 9, 2014 MYT 4:50:02 AM
Updated: Thursday January 9, 2014 MYT 4:50:02 AM

Panama Canal rejects call for $1 billion payment, has contingency

PANAMA CITY (Reuters) - The Panama Canal Authority on Wednesday rejected as "impossible" a proposal by Italian builder Salini Impregilo that would make the authority pay an additional $1 billion (607 million pounds) to keep work on an expansion project going, and said it has a contingency plan ready.

Jorge Quijano, the canal's administrator, said the authority's plan envisaged bringing in a third party to finish the expansion project if no deal is reached with the Spanish-led consortium carrying out the work.

Impregilo said earlier it had proposed two alternative solutions that would involve the canal authority paying out $1 billion to complete the work. That was much steeper than the payment envisaged in an earlier proposal and doused hopes of an imminent deal.

The building consortium, Grupo Unidos por el Canal (GUPC), has threatened to stop work on part of a project to widen and deepen the canal, a major global cargo artery. The project was originally expected to cost about $5.25 billion.

The $1 billion payment "is impossible. It is outside the contract," Quijano told reporters, referring to Impregilo's proposal.

"We are not going to have another contract like we have with GUPC right now. We'll have another contractor that works directly for us to administrate the rest of the contractors and people," he said of the contingency plan.

Impregilo's proposal showed signs of a schism in the consortium that has been expanding the canal. Observers said Impregilo perceived Spanish construction company Sacyr as too soft in negotiations and said the Italian company could be trying to wrest control of the project.

A source familiar with the situation said the move was a sign that "Salini would be keen to take the lead in the project".

There was no immediate word from Sacyr on the move.

Halting construction would be a setback for companies eager to move larger ships through the century-old waterway such as liquefied natural gas (LNG) producers who want to ship exports from the U.S. Gulf coast to Asian markets.

Last week, the building consortium threatened to stop work on January 20 unless it was paid for $1.6 billion in cost overruns, which could put the overall project bill at close to $7 billion.

(Additional reporting by Julia Symmes Cobb in Mexico City, Danilo Masoni in Milan and Sonya Dowsett in Madrid; Writing by Simon Gardner; Editing by David Gregorio)

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