Panama Canal widening troubles may Impact World Trade

For several weeks now, the local Panama newspapers have been carrying the story of how the winner of the canal widening bidding has been reneguing on the contract. They are claiming that the preliminary study by the Panama Canal Authority (ACP) was not accurate and that if they had been more diligent, the contracting consortium Grupo Unidos por el Canal, S.A. (GUPC) would have bid higher.

Dredging Today reports, “The Panama Canal Authority (ACP) has warned that the suspension announced for today [January 20, 2014] by Grupo Unidos por el Canal, S.A. (GUPC) is not valid, lacks merit and goes against what is established in the Contract for the Design and Construction of the Third Set of Locks. Currently, the production levels are low in the new locks project without any justification.”

But two of the other consortiums, one including the American company Bechtel Corporation and two Japanese companies, warned shortly after the award was made that the offer by GUPC was not safe (with regard to the seismic safety features, which, they maintained would not withstand a major earthquake) and were based on what seemed to be fictitious figures for the costs, which could not have been as low in reality as offered.

The consortium that won the bid was constituted of three companies, all European.

Shortly after the award, a free trade agreement was signed with the EU and food prices soared in some sectors here in Panama. Now GUPC is running to Daddy EU for refinancing with still more German money thrown down still another hole.

GUPC has suspended 70% of its operations in the middle lock. The problem is compounded by the fact that most of the work should have been completed in the dry season, which lasts only about 2-3 more months.

Of course, the widening will be done eventually, but there is something further to this story:

Nicaragua is planning to build a competing canal with Chinese assistance and financing. That project is due to start in 2014.

Panama is way over its head in debt thanks to what the hostile media call “pharaonic” construction projects, and if this canal project fails to tilt the fiscal balance sheet in its favor, a tsunami of debt could take it into dangerous territory.

The current President Martinelli of Panama belongs to a party called Democratic Change (Cambio Democrático).