Panama Canal work suspended after costs overrun

Spanish construction giant Sacyr is suspending work on the expansion of the Panama Canal citing escalating costs as a result of “unforeseen circumstances”, according to a filing with the Madrid Stock Exchange on Thursday.
Sacyr heads up the Grupo Unidos por el Canal consortium, which is expanding the Canal to cater for larger vessels – including some of the world’s largest LNG tankers. The $5.25 billion project is expected to cut journey times for Gulf Coast tankers from 34.5 days to 22.5 days.

The Spanish group said it has lodged an arbitration notice with the International Court of Arbitration at the International Chamber of Commerce to resolve the dispute, which involves a cost overrun of $1.63 billion.

Other members of the consortium include Italy’s Impregilo, Belgium group Jan de Nul and CUSA. The group added that it had kept an open dialogue with the Panama Canal Authority “to reach a satisfactory agreement to end the current contractual imbalance”. Sacyr is one of Spain’s largest construction companies.

Only 8.6% of the world’s LNG fleet is able to fit through the Panama Canal’s locks, but this should increase to 88% once the expansion is completed. Both entrances of the canal are ready for larger ships, since the deepening and widening of the Atlantic and Pacific access channels have already been completed. The Sacyr contract refers to a third lane of traffic which will double the canal’s capacity. The Panama Canal Authority said in July 2013 that the project was more than 60% complete.

The ACP has argued that tolls, safety and security issues, and infrastructure required by specific vessels were more likely to be the factors used by LNG carrier operators to decide whether to use either canal.

Transit fees for the Panama Canal expansion are designed to attract Asia-bound traffic and should be “competitive” with alternative routes. Fees have been reported in a wide range – from $200,000 up to $1 million – although tolls for 2015 have not yet been determined. Export plants on the Gulf Coast of the United States could use the canal as a quicker option to supply Asia with LNG.