News / Problems over the cost of Panama Canal expansion were predicted three years ago

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The difficulties that the Panama Canal expansion project has recently found itself in, were predicted by the country’s vice-president over three years ago, according to documents unearthed by Wikileaks.

Among 250,000 US embassy documents released by the website is a report of a meeting at the beginning of 2010 between Panamanian vice-president Juan Carlos Varela and the then US ambassador to Panama Barbara Stephenson, during which he said that he was “seriously” worried about the financial strength of the winning consortium – Grupo Unidos Por Canal (GUPC) – and its bid to expand the canal to handle ships of up 12,000teu.

At the time it could only handle vessels of up to 5,000teu.

In a televised presentation of the announcement of the construction contract in July 2009, Panama’s president, Ricardo Martinelli, unsealed the bids from three consortia: GUPC, headed by Spanish construction company Sacyr Vallehermoso; a consortium headed by US construction firm Bechtel; and another led by another Spanish construction firm ACS.

The GUPC price to carry out the contract was $3.1bn, compared with $4.2bn from Bechtel and $6bn from ACS.

The US embassy cable reported Mr Varela as warning: “You don’t mess around with something as important as the canal. When one of the bidders makes a bid that is a billion dollars below the next competitor, then something is seriously wrong.

“Of course I hope for the best, but I’m afraid that Alberto [canal administrator Alberto Aleman] has made a big mistake.”

The cable adds that Mr Varela predicted the project would be a “disaster”.

Over the past fortnight, a dispute has developed between GUPC and the Panama Canal authority (ACP), with the former threatening to stop construction on January 20 due to what it claims are cost increases of $1.6bn.

In an advisory this month, ACP chief executive Jorge Quijano wrote: “Grupo Unidos por el Canal has expressed its intention to negotiate outside the terms of the contract, demanding additional funds, due to alleged cost overruns.

“ACP trusts that the contractor will comply with the terms and conditions agreed upon and that they file any claims through the three-step process explicitly established within the contract. ACP maintains the position that GUPC honours the contract that was agreed upon.”

He added that the expansion project was now 72% complete, including 65% of the construction of the crucial third set of locks, and he sought to allay fears that overall completion would be delayed.

Mr Varela, a candidate in this year’s presidential elections in Panama, took a similar line yesterday after meeting Mr Quijano, and said: “The differences that have arisen with the contractor as regards his claims above costs of the expansion of the canal must not prevent an important work for our country to proceed. Any difference should be settled on the basis of technical criteria, which includes the agreement entered into between the parties. We hope that the contractor complies with what is agreed in the contract.”

However, numerous concerns about the financial viability of Sacyr Vallehermoso were raised in another cable to the US state department from its embassy in Panama, which, the day after the results of the bid were announced,  predicted: “It is widely expected that during construction, Sacyr will attempt to renegotiate the price with the ACP.”

The cable’s author, Ambassador Stephenson, added that there were rumours that Sacyr was trying “to squeeze subcontractors to bring costs down” and that the Spanish construction firm was bankrupt when the bid bonds were requested, and was only able enter the bidding due to state support.

“We strongly suspect that the financially-troubled Sacyr was able to offer a surprisingly low price due to backing from the Spanish government,” Ms Stephenson said.

She also reported concerns by Mr Martinelli that the decision to award the contract to GUPC was affected by the presence in the consortium of Panamanian company CUSA, run by the cousin of former ACP chief executive Alberto Aleman.

However, Ms Stephenson also wrote: “Canal administrator Aleman remains very upbeat about the project, both in public and in private, and we have always regarded him as a highly capable manager with unimpeachable integrity.”