Expanded Panama Canal Opening Jeopardized in Ongoing Cost Dispute

Talks between the Panama Canal Authority and the Spanish company hired to build the new lock system that broke down last week with such anger that many believed the rift to be insoluble, have apparently restarted. Still, the dispute continues as neither side is taking too big of steps to the high road at this stage and avoiding acceptance of blame for massive cost overruns.

The Authority has objected strenuously to the cost overruns tied to the project, which is expected to be a boon for activity from shippers based in the Western United States and some Latin nations. To date, overruns tallied $1.6 billion over a project originally budgeted at $3.6 billion. The Spanish consortium asserted that these costs have been due to constant changes and alterations to the original plan. The consortium said that they indicated to the authority that changes would result in higher costs. Now, the Spanish claim they are being stiffed and halted work on the project. Short of a quick resolution, this could jeopardize the goal of having the expanded Canal open by 2015.

While the hostile rhetoric toned down since last week, the two sides are without much bargaining room. The Spanish companies are in no position to eat these additional costs given their financial position and that of Spain itself. The Panama Canal renovation has been far more expensive than anticipated, and that doesn’t really shock anyone. The sense is that much of the expense is related to corruption and graft that has been taking place at the highest levels of the project, and the Panama Canal authorities are not ready to wade into that mess just now.

- Chris Kuehl, PhD, Armada Corporate Intelligence

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