Cargo Business Newswire

Friday, February 21, 2014

Panama Canal work stoppage at 2 weeks with no agreement in sight

The Panama Canal and the building consortium expanding it, Grupos Unidos por el Canal, discussed possibilities on Tuesday to keep the multibillion-dollar project going amid a conflict over cost overruns, but a deal seemed unlikely ahead of a looming deadline.

The dispute over $1.6 billion in cost overruns and how to maintain financing has stopped work on the project for two weeks and has delayed its expected completion until at least December 2015.

Delays could cost the authority millions of dollars in lost shipping tolls and are a setback for companies ready to move larger ships through the canal, including liquefied natural gas producers who want to ship from the U.S. Gulf to Asia.

"The Panama Canal Authority reports that despite efforts to agree with (consortium) Grupos Unidos por el Canal to resume work on the new locks project, positions between the parties remain apart," the canal authority said in a statement.

"Although last week the parties seem to have come to an agreement on certain components during the talks, there were serious disagreements at the time of putting it in writing," it added, saying the parties agreed to resume talks on Wednesday morning.

Canal administrator Jorge Quijano set a target of no more than a week last Wednesday to reach a deal to reconvene the project, a deadline that has lapsed. He had previously warned that the canal could terminate the contract with the consortium and continue with a third party.

Sources said a major issue in the negotiations on Tuesday was converting a $400 million bond from insurer Zurich North America into backing for a loan so the consortium can secure a short-term cash infusion to continue its work.

The consortium took out the bond as a required insurance policy in case it did not finish the project. The bond is payable if the project is not completed by the consortium for any reason.

The insurer was ready to provide the loan if shareholders of the consortium take on the risk and are liable for repaying the loan, one source said. But the consortium's chief executive officers want the insurer to be the primary risk-holder, which Zurich considers unacceptable, a source said.

For more of the Reuters story: reuters.com