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Published: Thursday February 20, 2014 MYT 12:20:02 PM
Updated: Thursday February 20, 2014 MYT 12:20:02 PM

Panama Canal says consortium agrees to restart work Thursday

An idle digger is seen at the construction site of the Panama Canal Expansion project on the outskirts of Colon City February 12, 2014. REUTERS/Carlos Jasso

An idle digger is seen at the construction site of the Panama Canal Expansion project on the outskirts of Colon City February 12, 2014. REUTERS/Carlos Jasso

PANAMA CITY (Reuters) - Work on the multibillion dollar Panama Canal expansion project, which ground to a halt amid a cost row, will restart on Thursday, the administrator of the major world waterway said on Wednesday.

A Spanish-led construction consortium and the Panama Canal Authority have also given themselves 72 hours to agree on other key issues that have divided them, the authority said in a statement.

The agreement was reached in phone calls between top executives from the companies and Panama Canal Authority officials, the statement said.

"There are still some issues on which an agreement has not been reached," it added.

The dispute between the two parties over $1.6 billion in cost overruns and how to maintain financing halted work on the project for two weeks, delaying its projected completion until at least December 2015.

The delays could cost Panama millions of dollars in lost shipping tolls and are a setback for companies worldwide that are eager to move larger ships through the canal, including liquefied natural gas (LNG) producers that want to ship the fuel from the U.S. Gulf Coast to Asian markets.

The Panama Canal Authority said that when the work restarts it will pay the consortium, led by Spanish builder Sacyr, $36.8 million to cover work done in December.

COST OVERRUNS

The project to expand the near 50-mile (80 km) transoceanic cargo route was originally expected to cost about $5.25 billion, but overruns could increase that to near $7 billion.

The consortium, which includes Italy's Impregilo, won the contract for the main part of the expansion work in 2009 and disputes began soon after.

Officials and diplomats also expressed concerns when the contract was awarded to the consortium over its ability to complete the work, since its winning bid for the work was $1 billion lower than that of the nearest competitor.

A major sticking point in recent discussions has been the conversion of a $400 million bond from insurer Zurich North America into backing for a loan so the consortium can secure the cash it needs to continue work, sources familiar with the talks said earlier this week.

Earlier on Wednesday sources told Reuters that a Spanish government working group would consider changing the status of a state-backed guarantee given to Sacyr for the original work.

The working group is considering changing the contract of the guarantee, worth around $200 million, into backing for a loan to get the project finished, the sources said.

The guarantee was originally drawn up in 2009 by Spanish state-backed insurer Cesce as a counter guarantee to the Zurich bond.

(Writing by Elinor Comlay; Editing by Simon Gardner, Lisa Shumaker and Tom Hogue)

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