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  HOME | Central America

Panama Canal Authority to Fight Arbitration Award

PANAMA CITY – The Panama Canal Authority, known as the ACP, will challenge an arbitrator’s finding that it must pay $233 million to the consortium at work on the expansion of the inter-oceanic waterway, a senior administrator told Efe on Thursday.

“We will issue a note of dissatisfaction with that judgment and we will study the possibility of appealing it,” ACP Executive Vice President Ilya Marotta said.

The Dispute Adjudication Board, the second level of arbitration established to solve contractual disputes between the ACP and the GUPC consortium, said in its Dec. 31 resolution that canal administrators “unfairly” manipulated the contract to avoid the consequences of their negligence.

The DAB said GUPC was entitled to $233 million of the $463 million the consortium is seeking from ACP in connection with two specific issues.

GUPC has standing claims before the DAB for $2.3 billion in what the consortium describes as cost-overruns for which it is not responsible.

“Obviously, we don’t think there was any kind of negligence on the part of the ACP,” Marotta said Thursday.

The consortium is building an additional set of locks for the canal, the centerpiece of the $5.25 billion expansion project.

GUPC, which won the locks contract in 2009 with a $3.1 billion bid, is led by Spanish construction giant Sacyr Vallehermoso and Italy’s Impregilo, each with a 48 percent stake, and also includes Belgium’s Jan de Nul and Panama’s CUSA.

The DAB ruled that GUPC was right in claiming that at the start of the work the consortium was unable to obtain basalt – a key ingredient in cement – of the quality and the quantity the ACP said would be available.

The ACP was also at fault for “unjustified” delays caused by its failure to give timely approval for the concrete mix proposed by GUPC, the DAB concluded.

“All the basalt that has been used in the construction comes from the place established in the outline of conditions (for the original bidding process), and if that basalt were not suitable, they would not have used it,” Marotta told Efe.

The claims related to basalt and the concrete mix were submitted by GUPC as the work began three years ago, but the ACP refused to discuss them on the first level of dispute resolution provided by the contract, leaving the issue to be taken up by the DAB.

The release of the note of dissatisfaction opens the door for the ACP to take the case to the third and final arbiter, the International Chamber of Commerce arbitration tribunal in Miami.

Last August, the ACP and the GUPC sealed an accord amending the original contract to include the terms of the agreement reached in March ending a dispute between the parties.

GUPC halted work on the locks on Feb. 5, 2014, alleging a cash-flow crisis stemming from $1.6 billion in cost overruns that it insisted the ACP should cover.

On Feb. 27, the ACP announced that it had reached a conceptual agreement with GUPC to inject fresh funds into the project and ensure completion.

The parties then signed a Memorandum of Understanding embodying the terms of the conceptual agreement, which stated that GUPC would pay $100 million and ACP would advance $100 million to enable the work to continue.

The Panama Canal, which was designed in 1904 for ships with a 267-meter (875-foot) length and 28-meter (92-foot) beam, is too small to handle modern ships that are three times as big, making a third set of locks essential.

The inter-oceanic waterway handles roughly 6 percent of global trade.

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