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Negotiation over the canal

For Panama and the consortium, the best option is to finish the work, and then trust to arbitration

The conflict between the Panamanian government and the consortium that is carrying out the project to widen the Panama Canal — a group headed up by the Spanish construction firm Sacyr — has arrived at a situation in which political negotiation is now an urgent necessity.

Panama is refusing to disburse the $1.6 billion (in addition to the $3.118 billion agreed in their contract) that the consortium is asking for on the grounds of cost overruns and unforeseen factors in the work. The Panamanian government’s firmness is founded on the consortium’s clear contractual responsibility — shared by the Italian firm Salini Impreglio and the Belgian Jan De Nul Group — but the arguments adduced by Sacyr and its partners are authoritative enough to constitute a basis for negotiation. The liquidity problems are real; it is by no means clear that they are due to a bid set artificially low in order to win the contract; and any option that would involve changing the contractor would delay the work, and render it considerably more expensive.

Pragmatism, then, is the best solution, and pragmatism with a certain urgency. On Monday, two significant — though still unconfirmed — indications emerged as to what line may be taken to resolve the conflict. On the one hand, Sacyr and the consortium have announced that they will not stop the work, despite the 21-day deadline that they gave as an ultimatum for the Panama Canal Authority to pay the additional $1.6 billion having passed.

It is abundantly clear to Sacyr and its partners that in a situation like this, where the possibility of negotiation may be said to remain intact, stoppage of the work would be considered a hostile and probably irreversible act. It is more pragmatic to keep the project going, and to trust that time and negotiations will bring about a solution.

Damage to “Brand Spain”

And this probability is further increased if, as has been announced, the European Commission agrees to mediate in the conflict. “Brand Spain” has suffered once more thanks to Sacyr’s dominant position in the consortium. As such Brussels will be keen not to allow the case of the Panama Canal to tarnish the image of European efficiency and responsibility as a whole, given that a total of three European firms are involved in the operation.

The solution that is beginning to take shape — albeit still vaguely — implies the consortium’s fundamental decision to finish the work, either with the Panamanian contribution, or with external financial input; and, in conclusion, to make a demand after the fact for international arbitration to decide who will bear the additional costs.

A plan of this nature stems from the principle that the greater good would be to conclude the widening of the canal. This is also the case from the viewpoint of the client, for whom the estimated delays of between three and five years in the case of stoppage and change of contractor would be too onerous. It would be indispensable, of course, for an agreement of this nature to enjoy political coverage, both European and Panamanian. For the moment, such a negotiation seems to be in the incubation stage.

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