European Company Threatens Completion of Panama Canal Expansion

By Thomas Sparrow
BBC News
From BBC News

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More than four years ago, when Panama awarded the lucrative contract to expand its inter-oceanic canal to a mostly European consortium, the United States was not pleased.

An American company whose bid was unsuccessful, Bechtel, thought the winning tender would barely pay for pouring the concrete and that the consortium would probably try to renegotiate the price at some stage during the construction process.

Some might argue that those American doubts have been justified, especially in view of the ongoing economic row between the European consortium and the Panamanian government agency that runs the waterway. The spat has threatened to bring work to a grinding halt, unless the two parties manage to resolve a $1.6bn (£1bn) dispute over cost overruns.

A series of WikiLeaks cables from the US embassy in Panama that were revealed by the Spanish daily newspaper El Pais in 2010 providedan inside view of the frustration that was felt in the US at not having been able to get that contract. Bechtel had been strongly backed by the US embassy, which was fully aware that the deal would have meant millions of dollars' worth of business for US suppliers.

US ports expanding

Instead, the contract was secured by the GUPC consortium (co-led by Spanish company Sacyr and Italian Impregilo), which had offered considerably less money than other bidders but whose proposal, in the opinion of the canal authority, had the best value. GUPC stressed that the project would be built to the highest quality standards, but even so, the decision did not go down well in the US.

The cables also revealed that the US has retained a "fundamental interest" in the expansion project. This is hardly surprising, since the government has calculated that two-thirds of everything that passes through the canal is either coming from or going to the US.

In Washington, the new canal is viewed as an important element in the country's economic recovery, and industry and government officials alike are counting on it being completed. Last November, for instance, Vice-President Joe Biden travelled to Panama with a handful of local and national politicians in order to stress the "profound effect" the new waterway will have on the US economy.

That effect can be mostly seen across US ports, and especially in cities like Miami, Baltimore and Norfolk, which have been investing heavily in order to ensure that they will be able to take the supersize container ships that will travel through the canal. The American Association of Port Authorities projected in 2012 that about $46bn will be spent in US ports by 2017 on modernising their infrastructure.

But there is much more to understanding US interests in the isthmus than just economics. The Panama Canal, after all, was not only built by the Americans in the early years of the 20th century, they also controlled its operations until 1999.

Danger

Throughout its history, the canal has embodied a long-term historical goal of the US, namely to have a waterway that will facilitate international maritime trade, and it has been seen as a strong reminder of US technological and economic prowess. The expansion scheme was supposed to continue this idea, but the story has turned out differently, and Americans were left with no contract and with a series of doubts. Now they are hoping that the current dispute can be resolved expeditiously, as PortMiami Director Bill Johnson has said.

The 100th anniversary of the opening of the canal, which is being marked this year, has in any case been tarnished by this international spat, and a stoppage is not in anyone's interest. Although the works are already behind the original schedule, the expansion project as a whole is 72% finished, and the new locks are two-thirds complete. Some people believe that the new canal is, in fact, too far advanced to be in real danger, and others argue that these types of delays are normal for such an enterprise.

Both Panama and GUPC, despite their serious differences, have said that they want to finish the work. Canal Administrator Jorge Quijano even went to the extreme of stressing that everything will be completed, even if he has to go and dig himself.

On 20 January, the day by which an agreement must be reached, he will know whether he has to pick up his shovel.