OFF THE CUFF: Multi-challenges facing Canal Authority

TO SAY THAT “It never rains but it pours” would be inappropriate for Panama’s Canal Authority (ACP) at a time when  lack of rain  is one of a quartet of problems  that have surfaced this month.

The rain shortageis are leading to a reduction in the size of ships passing through the canal in September.

Meanwhile the construction consortium working on the canal expansion project is facing a strike call from workers claiming a back-dated pay raise.

To cap that, Salini Impregilo, one  of the consortium members  working on the  Canal’s third set of locks, has demanded a payment of more than $2 billion from the government for damages and cost overruns related to the project.

Company President Pietro Salini sent a letter on July 16 to President Juan Carlos Varela alleging  that cost overruns were the fault of the ACP.

In the letter, Salini warns that it could present claims against the state by using mechanisms established by a 2009 agreement between Panama and Italy that was signed to protect investors.

The six-page letter states that the company made a substantial investment in Panama since GUPC was awarded the $3.2 billion contract to build the third set of locks. It alleges that actions taken by the government and the ACP have damaged that investment.

The letter states that the claims being sought by the company are separate from the claims that have been submitted by GUPC, which total $2.6 billion.

To date, the consortium has been awarded slightly more than $290 million in cost overruns.

Pietro Salini became the chairman of Impregilo in 2012 following the purchase of a percentage of the company’s shares.

The company has encountered severe economic problems. In a note sent on April 15 to the other companies that comprise the consortium, Sacyr, Jan De Nul and CUSA, Salini warned that the company only had $45 million in cash, while its liabilities to suppliers and subcontractors was $200 million.

He pointed out that the companies do not have “a roadmap that ensures sufficient ACP funds to allow GUPC to complete the project.”

He added that, in his opinion, “it is compulsory to notify the ACP of the intention to suspend work to avoid falling into non-compliance.”

This situation, he warned, would be because “the lack of liquidity in the short term will cause a slowdown in work due to the lack of resources. Not notifying the ACP in the due time would put GUPC in breach of contract.”

Sources within the industry said the two letters are indicative that the company has severe economic problems and represent acts of “desperation” to address them. They also pointed out several potential problems with the claim, including:

The attempt to characterize the company as an investor rather than as a contractor;

The attempt to hold the state responsible for the actions of the ACP, which is an autonomous entity;

And the attempt to fundamentally change the contract, which placed the onus on the consortium for verifying the technical data for the project. Instead, the company’s claim states that the data provided by the ACP led to significant cost overruns.

With challenges like that, the attempt of an ACP board member to dodge the bullet in a corruption investigation seems like a drop of water.

It is also unclear whether the convention cited by the company would even apply to the contract, as it appears to have gone into force after the consortium signed the contract with the ACP.

Sources stold La Prensa that the letter appears to be an attempt by the company to change the venue of arbitration over the claims submitted by the contractors.

They said this move would most likely be taken because the contractor feels it will not receive a favorable ruling, and is seeking another arena for its claims to be heard