Panama Canal chief reports progress in dispute

PANAMA CITY -- Panama Canal Administrator Jorge Quijano said Wednesday the agency has reached tentative agreement with contractors on some of the issues that have stalled work on the biggest expansion of the waterway in a century.

But Quijano also told a meeting of Panama's Chamber of Commerce and Industry that the Panama Canal Authority might take over the project if no final agreement is reached this week.

The canal chief said he spoke by telephone Tuesday with executives from Grupos Unidos por el Canal, the consortium led by Spain's Sacyr SA and Italy's Salini Impreglio SpA. It has been seeking to have the canal authority pay for $1.6 billion in cost overruns on what had been planned as a $3.1 billion chunk of the canal project.

"We had agreements in principle on several of the topics," he said, without giving details. "We still have some topics to resolve and we are working in that direction."

"That is not to say that we have abandoned the other alternative, which is that we take over the work ourselves," said Quijano. "We are preparing more each day in case that is necessary."

Sacyr declined Wednesday to comment on the report of agreements in principle.

Quijano said that one question to be resolved is if insurer Zurich American, which holds a guarantee bond of at least $450 million, will play a role in financing renewed work.

"Zurich has not yet expressed itself in a conclusive way. We know that they have the willingness to do so," he said.

After Quijano spoke, Sacyr's shares in Madrid's stock market rallied 4.7 percent on Wednesday to close at 4.03 euros per share.

Later Wednesday, Quijano told Panama's legislature that without Zurich's financial participation "a possible agreement could fall apart."

"We are searching for a solution that is good for the country," he said.

The dispute threatens to delay a project that has led ports and shipping companies around the globe to make costly new investments to take advantage of the ability to move larger ships through a waterway that already handles 5 to 6 percent of world commerce.

The canal authority and the construction consortium blame each other for the overruns. They were negotiating how to pay for the unplanned extra costs when talks broke down.

Other foreign contractors and project managers have expressed an interest in completing the 30 percent of work that remains on the third canal lock, according to canal officials.

Associated Press writer Jorge Sainz contributed from Madrid.