Dispute over Panama Canal Construction

Professional Mariner Forum
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“A Man A Plan A Canal Panama” Was always my favorite palindrome in elementary school :slight_smile:

Spain Weighs Into Sacyr Row Over Panama Canal Work
BY REUTERS ON JANUARY 3, 2014

By Jose Elías Rodríguez

MADRID, Jan 3 (Reuters) – Spain’s government is pushing for talks to settle a dispute over $1.6 billion in cost overruns for expanding of the Panama Canal, a project led by Spanish builder Sacyr, Spain’s ambassador to Panama said on Friday.

Ambassador Jose Silva told Spanish state radio that Public Works Minister Ana Pastor and Sacyr Chairman Manuel Manrique may visit Panama in the coming days.

“We’re trying to get them to sit down for talks to see if they can reach an agreement, and to make all sides understand that everyone loses if the contract is terminated,” Ambassador Jesus Silva told Spanish state radio.

The expansion will triple the size of ships that can ply the canal, helping the small Central American nation compete in global trade. It will affect shipping routes – for example making it easier for cargo to move between Asia and the eastern coasts of the Americas – and the cost of transporting commodities and manufactured goods.

Silva said Sacyr stood to lose money on the contract – one of its biggest – if the issue was not resolved, but said it would be an “acceptable” loss.

Sacyr, Italy’s Salini Impregilo, Belgium’s Jan De Nul and Panama’s Constructora Urbana said on Wednesday the overruns on the $3.2 billion project to build a third set of locks along the canal should be met by Panama, and it would suspend the work unless the authorities came up with a solution within 21 days.

The project is more than two-thirds complete and is scheduled to conclude in 2015.

The consortium said the overruns were due to unforeseen events during construction that it deemed normal on such large projects.

Sacyr blamed part of the cost overrun on materials included in the original budget being declared inadequate during the construction phase. For example, the Panama Canal Authority (PCA) rejected the concrete mix the consortium had planned to use, the company said.

The PCA dismissed the complaints by the consortium, known as Grupo Unidos por el Canal.

“Regardless of what kind of pressure is put on the PCA, we will maintain our demand that Grupo Unidos por el Canal respects the contract that they themselves accepted and signed,” the head of the PCA, Jorge Quijano, said in a statement.

Shares in Sacyr fell sharply for a second straight session, dropping 5.7 percent to 3.236 euros by 1204 GMT.

Panamanian President Ricardo Martinelli accused the companies on Thursday of “great irresponsibility” and said they had endangered the massive construction project, a major driver of Panama’s economy.

I 2014 Thomson Reuters, All Rights Reserved[/I]

I have a theory about all this mess. Maybe I’m just off my rocker, not that that would be a surprise, but I’d like to see what all yous guys think. Personally, I see the Chinese in this. Given the recent revelation that they have signed a 50-year agreement with the Nicaraguan Government, effectively leasing part of that country for the purpose of building a canal, it is only to the advantage of the Chinese to see the new American-influenced Panama Canal stumble, or even fall. This would serve to shine more confidence on Chinese endeavors in Nicaragua among the international community.

Convenient though it may be for them that doesn’t necessarily mean that they had anything to do with it. If what this report says is true and construction costs have run as high as $3.2 Billion over budget then I’d probably be pretty pissed too. However, it would not have taken much for some Chinese investors to pour honey in the ear of some Spanish and and Italian businessmen and throw a wrench into the whole thing over night. I have to wonder just how bad the Chinese want their own Central-American canal and just how serious they are about doing it.

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What the hell is the PCA? Its the effing ACP! Anyone who has been to Panama knows that the government agency that controls the canal is the ACP (which stands for Autoridad del Canal de Panamá). Wouldn’t we be amused if the foreign press started writing articles about the misdeeds of the AIC, instead of calling it the CIA.

Panama is a very very difficult place to do business. Maybe Panama is the Spanish word for corruption. Trying to get anything done is a total snafu wrapped within a cluster-fk. People are friendly, they want to help you, and they want your money, so at the start everything is no problemo. They’ll promise to do anything for you, even if they don’t have a clue how to do it, or don’t have any of the equipment or materials necessary, or don’t have any intention of ever doing anything at all (except taking your money). The government is totally inept. It can take a day, a week, or a month, or three, to clear ordinary duty paid goods through customs. People retire to Panama only to have all their cherished possessions ruined as they sit in a container in the sun and/or high humidity for a month or more. There are projects in Panama that have had their permits granted and revoked several times (with each new administration) over the last decade or more. The ever changing taxes and fees for this and that are insane. There is a very strong culture of ripping off gringos. Its almost a patriotic duty.

Now there are problems with the ACP changing specifications for construction materials. Surprise, surprise, surprise, or no surprise at all?

On the flip side of the coin, Spanish construction companies are not known for the quality of work they do in Latin America. It would not be surprising if this European group doesn’t know what its doing, and grossly under bid the job.

One thing is for sure, Panama is absolutely booming, bustling with construction projects, and being flooded by foreign investment. Let’s see, a $3.2 billion canal expansion that is a year behind schedule with a 50% cost over run already in the works. There is a $2 billion new subway system underway (they need off street public transit), and a $1 billion new international airport. Let’s not even mention any of the projects that are less than $1 billion. What happens when $8 billion worth of major projects that are driving the economy all get completed at about the same time? All this in a country with a mostly uneducated population of less than 4 million people? A country that manufactures absolutely nothing. Where the average worker makes $600 a month. A country that just gave up its tax free secret banking status. Then there are all those high rise $500,000 condos that have sprouted up downtown, but only about 25% of them have the lights on at night.

Panama is at the peak of a classic bubble economy. Brace yourself for the economic implosion that is soon to be heard around the world.

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We are the People’s Front of Judea (PFJ)!!!

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[QUOTE=OSV-Florida;127555]We are the People’s Front of Judea (PFJ)!!!

No we’re not you silly git, we’re the f***ing Judean People’s Front (JPF)!

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A new update today. I can hear the excavators firing up in Nicaragua as we speak! Can’t you smell the “Yuan” floating in the air!?

By Eric Sabo

Jan. 7 (Bloomberg) — A group led by Sacyr SA said it will need more money than the Panama Canal Authority is offering to continue expansion work on the waterway as a dispute over $1.6 billion in cost overruns enters its second week.

The consortium, which includes Milan-based Salini Impregilo SpA, said it would continue building a third set of locks if the canal authority pays $400 million in addition to $100 million the waterway offered earlier today. The canal authority said that the companies must match the contribution, which they have so far refused to do.

“The two sides agree to go to arbitration to resolve the contract claims,” the group, known as GUPC, said in an e-mailed statement. “The GUPC and Panama Canal Authority are studying ways to reach an agreement on cash flow problems.”

The European builders beat rivals including San Francisco- based Bechtel Group Inc. to win the contract in 2009 as part of a $5.25 billion expansion that will allow larger ships to transit between the Pacific and Atlantic oceans. They are due to build locks on both the sides of the 80-kilometer (50-mile) waterway, shortening voyages from the U.S. to Asia and potentially reducing transport costs for commodities such as liquefied natural gas.

Earlier today, the Panama Canal Authority said it would also allow the group more time to repay $83 million it owes in addition to offering $200 million to keep the canal expansion on track. In return, the consortium must rehire workers that have been fired during the dispute and end threats to stop work this month, Jorge Quijano, the canal administrator, told reporters in Panama City.

The canal expansion project was originally expected to be finished by the end of 2014, on the waterway’s centennial. The project has since been pushed back almost a full year, according to the most recent projections by Quijano.

Copyright 2014 Bloomberg.

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The Messiah! The Messiah!

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The Chinese have a lot going on in our backyard. The are supposedly building a big new port on the West Coast of Mexico and a rail line to carry double stack container trains to Houston (bypassing both the Canal and overpaid American longshoreman). Anyone know how much Mexican longshoremen and railroad workers make? The Chinese are supposedly building another rail line to carry containers across Colombia from an undisclosed location on the Pacific side to near Cartagena. That rail line will also have spurs to the mines and oil fields in Colombia.

The Panama Canal is already losing business because they got too greedy. Maersk stopped using the Panama Canal because its cheaper for them to slow steam a little further with Asian goods through the Suez Canal.

Now the Chinese want to build a second canal in Nicaragua? Why? Would it reduce the price of typical Chinese crap at Walmart from $9.99 to $9.98? The French figured out that a Nicaragua canal was a dumb idea 150 years ago. Teddy Roosevelt was smart enough not to try it in Nicaragua either. Even though that meant he had to instigate a revolution in Colombia and back it with gunboat diplomacy to split Panama off as a new country. How do the Chinese think they are going to build a canal in Nicaragua? They don’t have a Teddy Roosevelt. Today, even Teddy couldn’t get a big new project with such environmental impacts past world review.

Let the Chinese try to build another canal in Nicaragua. We’ll be glad to print more devalued dollars to help them finance it.

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[QUOTE=tugsailor;127840]Let the Chinese try to build another canal in Nicaragua. We’ll be glad to print more devalued dollars to help them finance it.[/QUOTE]

Whether the Chinese go through with building a canal of their own or not I think they’re still taking an active interest in seeing the Panama Canal diminished in favor of their own rail projects. Their idea for a new canal doesn’t have too much to do with it, that was sort of just a side thought to the whole thing. The simple fact is that their looking for greater dominance in the Americas because they want to increase their already astronomically large exports to Europe, and perhaps even to a lesser extent the Eastern seaboard of the United States. Whatever the case may be you’re overwhelming right about one thing: in our infinite wisdom someone in this country will be only too happy to use our rapidly-becoming-toilet-paper-like money to help them finance it.

Post Script: I have appreciated your input on this topic since you’re clearly more well-informed than most, I was just wondering how it was that you came to be so well-informed. Is this just something you took a particular interest in or do you work down there? I only ask because I would also like to enrich myself further on this topic.

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I’ve spent a little time in Panama. I keep in touch with a friends, and try to keep up on the news.

Good book about the construction of the canal: "A Path Between the Seas, David McCullough

http://www.newsroompanama.com/panama/6990-canal-construction-dispute-gets-more-clouded.html

http://www.newsroompanama.com/panama/6978-nicaragua-canal-construction-to-start-in-2015.html

http://www.theguardian.com/world/2011/feb/14/china-rail-rival-panama-canal

http://gcaptain.com/mexicos-900-million-mega-container/

http://www.newsroompanama.com/real-estate/panama-city/5016-us-realtors-flock-to-panama-for-greener-fields.html

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Panama got too greedy. Isn’t APM the big investor in Lazaro Cardenas?

Manzanillo is pretty impressive for what it is, with room to expand but that land cut could be an issue for larger and larger ships. I know they can double-stack out of there too.

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[QUOTE=z-drive;127863]Panama got too greedy. Isn’t APM the big investor in Lazaro Cardenas?

Manzanillo is pretty impressive for what it is, with room to expand but that land cut could be an issue for larger and larger ships. I know they can double-stack out of there too.[/QUOTE]

The Panama Canal Railroad Company moves less than 1 million TEU per year with double stack trains which is around half of its capacity. Its no competition for the Canal.

http://gcaptain.com/mexicos-900-million-mega-container/ Yes, Maresk. Apparently, there is more than one proposed West Coast Mexico port / railroad to the US project.

Nobody wants to build a new port in the US. High land costs, union rules, environmental rules, and long permitting delays make it impractical.

The South China Morning Post article was interesting. It says that Chinese companies intend to assemble Chinese goods in Mexico and then sell them into the US through the NAFTA backdoor as Mexican goods.

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[QUOTE=tugsailor;127840]
Even though that meant he had to instigate a revolution in Colombia and back it with gunboat diplomacy to split Panama off as a new country. [/QUOTE]

Exactly. That is why it drives me nuts when they say that Carter gave the Canal BACK to the Panamanians. No, he gave it to them. It was never Panamanian (nor the Canal Zone) to begin with. . .

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Jimmy Carter was the worst President we’ve had since Herbert Hoover. His Panama Canal give away was nothing short of high treason.

The stupidest thing Panama has ever done was to give up its status as one of the world’s best secret banking and tax havens. It did this in exchange for a free trade agreement with the US. The problem is that they don’t make anything to export to the US. Tax haven banking is their 2nd largest industry after the Canal. They pissed it away for nothing.

And they continue being stupid.

Faux Pas In Panama—This Could Have Been A Game-Changer

Jan. 7, 2014
Baltimore, Maryland

Dear Live and Invest Overseas Reader,

Last week, while we were all recovering from Christmas and preparing for New Year’s, the guy in charge of the tax department in Panama got an idea. “I know how to bring in more tax revenue,” this guy seems to have said to himself one morning. “I’ll change the country’s approach to taxation!”

And in a move that qualifies as bold, brash, and absurd, this guy did just that. He attached two articles to an already-in-process bill that changed Panama’s tax system from jurisdictional to one that would tax the worldwide income of both corporations and individuals.

Because the original bill (the version without the tax riders) had already passed the first round of reviews and approvals by Panama’s legislative board…and because, by the time the tax riders were added, that legislative board was mostly incommunicado, at the beach, and enjoying the holidays…the adjusted bill, with the tax riders, made it into law.

The backlash was immediate and brutal. One colleague who helps people set up entities offshore copied me on a note to his staff stating that his firm was not to open another new Panama corporation for any client until the issue was clarified. If the situation were as bad as it seemed, and Panama did in fact intend now to tax on the basis of worldwide income, the country would be off that firm’s list of go-to jurisdictions altogether.

Another colleague began planning the relocation of his business. After years in Panama, he was prepared to bug out immediately.

In other words, this was a big deal. A game-changer move.

Fortunately, people with some sense got involved to begin working to set things right, and the process to repeal the two offending articles was begun almost immediately after the law had been passed.

However, the damage had been done, and it will take time for Panama to recover from this embarrassment. The scar left by this world-class show of poor judgment will be long-lasting. Those with Panamanian structures, residency, and businesses in place likely now will stay put. But they will plan exit strategies to have ready just in case another Panamanian government official loses his mind. And those shopping for where to set up offshore structures or entities will think twice before establishing themselves in Panama.

What was the Tax Chief thinking? He was thinking he’d make a name for himself. He reminds me of the FBI agent in “American Hustle,” who, similarly, had big ambitions, big ideas, and no clue what he was doing.

Panama is the top investment, business, and offshore hub for the region and increasingly recognized as one of the top investment, business, and offshore hubs in the world. Call centers, logistical offices, and administrative headquarters of big international companies based in this country employ many thousands of Panamanians. Dozens of law offices exist solely for the purpose of setting up corporations for foreigners. Those law firms also employ Panamanians. Retirees inject large amounts of money into the local economy, buying goods, services, and real estate. Most if not all of that goes away, overnight, if this country shifts its approach to taxation.

But all of this was lost on this Tax Chief guy. Some are speculating that the debacle was a test, an attempt by the Panamanian government to see if they could get away with a change like this. Others think that the OECD was behind this; their anti-tax haven position is well known.

Conspiracy theories aside, this was a dumb move. Sure, the country needs loads of money in the short-term to help fund all the ongoing infrastructure projects, from the Panama City metro to the new international airport and from the expansion of Tocumen to all the major roadwork, both in the capital and countrywide…not to mention the US$1.2 billion Canal expansion cost overrun currently in dispute. Fair enough. This country is spending money like…well, like it’s got a really big and continual supply of it.

And it does, thanks to the Panama Canal…and the big and growing financial services industry that is so well established here. This industry has been bruised, thanks to the recent error in judgment, but it will recover.

As one source in a position of power in this country told me last week, “If there is anything positive out of this experience it is that the President and the Tax Department Chief are now very clear on the fact that no one wants this for Panama. If there was any doubt that Panama would keep its tax territoriality, the massive response from all different sides of the economy have sent a very loud and strong message to this government and to governments to come.”

Lief Simon

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[QUOTE=tugsailor;127878]The Panama Canal Railroad Company moves less than 1 million TEU per year with double stack trains which is around half of its capacity. Its no competition for the Canal.

http://gcaptain.com/mexicos-900-million-mega-container/ Yes, Maresk. Apparently, there is more than one proposed West Coast Mexico port / railroad to the US project.

Nobody wants to build a new port in the US. High land costs, union rules, environmental rules, and long permitting delays make it impractical.

The South China Morning Post article was interesting. It says that Chinese companies intend to assemble Chinese goods in Mexico and then sell them into the US through the NAFTA backdoor as Mexican goods.[/QUOTE]

OOps, should have said manzanillo, in mexico, not panama. In the context of west coast ports with rail links to the US.

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UPDATE: Somebody’s put their foot in it again.

[B]Talks Break Down Over Panama Canal Construction Dispute[/B]
BY BLOOMBERG ON FEBRUARY 5, 2014

Feb. 5 (Bloomberg) — The Panama Canal Authority broke off talks about a $1.6 billion cost overrun with the Sacyr SA-led group working to expand the waterway, Sacyr said, pushing its shares as much as 8.4 percent lower.

Sacyr and partners including Salini Impregilo SpA continue to seek a solution to finish the project in 2015, they said in a regulatory filing today in Madrid. The work, which is about 70 percent finished, needs $1.6 billion of additional financing to be completed, they said.

The builders and Panamanian authorities have been negotiating since the start of the year on the overrun, which amounts to about half the original contract price. Sacyr wants Panama to pay and had threatened to halt work on the waterway used for global transport of commodities unless it did so.

The company has since pulled back from its threat to stop the project as Panama said it would seek alternative ways of finishing the expansion.

Sacyr shares fell as much as 8.4 percent, the biggest intraday drop since Jan. 3, and were down 5.3 percent at 3.67 euros as of at 9:55 a.m. in Madrid.

Panama’s ambassador to Spain, Roberto Eduardo Arango, said yesterday the country needed a fallback plan to ensure the project was completed even if talks failed. Panamanian President Ricardo Martinelli vowed on Jan. 22 that the expansion would be finished.

The Sacyr-led group was hired to build locks on both sides of the 80-kilometer (50-mile) waterway, shortening voyages from the U.S. to Asia and potentially reducing transport costs for commodities such as liquefied natural gas.

  • Emma Ross-Thomas, Copyright 2014 Bloomberg.
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Another loop-dee-loop in the roller coaster ride that the Panama Canal expansion project has become:

[B][U]Panama Canal Authority Reaches Deal With Sacyr on Expansion[/U][/B]
BY BLOOMBERG ON FEBRUARY 28, 2014

Feb. 28 (Bloomberg) — The Panama Canal Authority agreed with a group of builders led by Sacyr SA on a deal to end a two- month dispute over expansion of the waterway, setting a deadline for the work to be finished by the end of next year.

The canal authority reached a “conceptual” agreement with the consortium, it said in an e-mailed statement late yesterday in Panama. Sacyr shares rose as much as 2.9 percent in Madrid.

Sacyr and its partners had been in talks since the start of the year over the project to build a new set of locks, which would allow the canal to accommodate larger ships and help reduce transport costs for commodities such as liquefied natural gas. As part of the agreement, the locks must be completed by December 2015, a year later than the initial target, which was originally set to coincide with the centennial of the waterway, which links the Atlantic and Pacific Oceans.

A spokeswoman for Sacyr confirmed today by phone that the Panama Canal Authority’s statement is accurate. In a regulatory filing today, the building group, known as GUPC, said it expected to finalize the agreement and financing soon in order to finish the work.

Awaiting Signature

Under the agreement, which still needs to be signed, the canal authority and GUPC will each provide $100 million to enable work to resume at its normal pace. The canal won’t pay the companies’ claims for cost overruns, while it may extend a moratorium for the repayment of advances until 2018,

The two sides reached an outline deal on Feb. 12 to end the dispute over $1.6 billion of extra costs, even as the canal authority said it continued to explore alternatives to getting the expansion work finished. Madrid, Spain-based Sacyr had threatened to abandon the project if the group’s demands weren’t met.

A set of lock gates that’s now in Italy must be delivered to Panama by December, the authority said in the statement. A $400 million bond may be released to insurer Zurich North America to obtain financing to complete the work, the authority said, without giving more details.

Indebted Spanish builders are increasingly reliant on foreign projects amid public-works spending cuts and a real- estate market struggling to absorb surplus homes. More than half of Sacyr’s revenue comes from foreign markets, and 25 percent of its 1.32 billion euros ($1.8 billion) of nine-month international revenue came from Panama.

Sacyr is due to report full-year earnings today and will hold a conference call at 1:30 p.m. in Madrid.

  • Eric Sabo and Nick Leiber, Copyright 2014 Bloomberg.
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Let me get this straight,
.

The projected cost overruns are $1.6 Billion.

Panama is NOT going to pay for any cost overruns.

Panama and GUPC are each going to put up $100 million, totaling $200 million, to resume work.

So what is this $100 million payment that Panama is putting up, if its not for cost overruns?

$1.6 billion - $200 million = $1.4 Billion in still unfunded projected cost overruns necessary to complete the canal.

So how does this “conceptual agreement” solve anything?

Why in hell have Sacyr’s shares risen 2.9 percent on this meaningless news?

I’m not crazy enough to invest in the Spanish stockmarket, but if I were, I’d be shorting Sacyr. Its still headed for default and bankruptcy.

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They’re stock is rising because the Chinese are pumping capital into them like A-Rod pumps steroids.

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[QUOTE=PaddyWest2012;131933]They’re stock is rising because the Chinese are pumping capital into them like A-Rod pumps steroids.[/QUOTE]

Why in the world would the Chinese do that? They would be much better off to just lat Sacyr and GUPC default, and then send in a state owned Chinese company in to pick up the pieces and finish the project.

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What’s the latest on their endeavor in Nicaragua? All bark and no bite?