The Panama Canal Expansion Might Be Delayed For Half A Year If GUPC And The Canal Authority Do Not Reach An Agreement

While the Panama financial crisis appears to finally be ending, a conflict still remains. The Autoridad del Canal de Panamá (Panama Canal Authority, or ACP) announced on Thursday that the canal's expansion will not be ready by June 2015, as first planned, but by December of that year.

The recent conflict, which has brought construction to a halt, will not only push the inauguration date of the new and improved canal six months ahead, but possibly to an even later date if the negotiations do not end well next Tuesday, which is the deadline established by the ACP.

Such was the message of Jorge Quijano, administrator of the canal and head of the ACP, in his appearance before the Panamanian Congress on Thursday. The authority assured the government in 2007 that the construction, with a budget of $5.2 billion, would be finished by October 2014. Barely three years later, the first delay was announced, changing the completion date to June 2015 -- even before the current conflict started in late 2013.

The current issue arose when the Grupo Unidos por el Canal (United for the Canal Group, or GUPC), the building consortium in charge of the expansion, claimed ACP an overcharge of $1.6 billion for unreported problems in the construction -- namely faulty materials, wrong equipment and an aging of the current establishment.

ACP denied the claims by GUPC -- formed by Spanish Sacyr (MCE:SYV), Italian Salini Impregilo (BIT:SAL), Belgian Jan de Nul and Spanish Constructora Urbana -- which prompted a halt to the construction on Feb. 5 that has yet to be resolved.

GUPC made it clear in its disposition to continue the negotiations, and ACP gave an ultimate deadline of Feb. 18 to come to a solution and restart the works. What would happen if the negotiations do not end with a satisfactory resolution for both parties remains to be seen, but Quijano said on Wednesday that the Canal expansion, which is already 70 percent complete, will be finished in 2015 “with or without GUPC.”

Based on calculations by the Panamanian Economy Ministry, the country’s economy would suffer “important losses” if construction is not restarted immediately. Panama could lose up to $95 million, since the canal could be unusable for six months -- too long a time for a major international trade channel, and the backbone of Panama’s economy, to sport a sign of “out of order.”