Italy's Impregilo Takes The Lead in Panama Canal Dispute

Italian builder Salini Impregilo took the lead in resolving the dispute over cost overruns on the Panama Canal expansion project last week, proposing a deal to keep work going on, but a deal that proposes that the canal authority assume much more of those costs than an earlier proposal. The latest proposal shows signs of a breakdown in the Spanish-led consortium that has been expanding the canal, with many insiders and observers claiming the it could represent an attempt by the Italian company to wrest control of the group from Spanish construction company Sacyr.

Originally the building consortium proposed putting up $100 million if the canal administrator agreed to contribute $400 million to plug a funding shortfall. Previously, the canal had proposed each side chip in $100 million and offered to delay repayment of an advance. But on Wednesday, amid talk of a rift within the consortium, Impregilo said it had proposed two alternative solutions that would involve the canal authority paying $1 billion to complete the work.

Jorge Quijano, who heads the Panama Canal Authority, said he could not negotiate over Impregilo's proposal.

"For the first time Salini makes a statement. The billion (dollars) comes from a proposal made prior to the letter with the intent to suspend," he said in an email to Reuters. "This of course takes us to negotiate outside the contract framework and law, which I cannot do as this is a state-owned enterprise which must follow explicitly what is dictated by law."

Halting construction would be a setback for companies eager to move larger ships through the century-old waterway 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.

The consortium, which also includes Belgium's Jan De Nul and Panama's Constructora Urbana, said last week it had faced the added costs due to unforeseen setbacks in the $3.2 billion project to build a third set of locks for the canal.

The group said flawed geological studies carried out by the Panama Canal Authority were responsible for the cost overruns. The authority has not yet responded. If the parties fail to reach an agreement, the project could potentially be offered up to other companies.

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