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Consortium upgrading Panama Canal says won't immediately halt work

A cargo ship is seen at the Panama Canal in Panama City January 8, 2014 file photo. REUTERS/Carlos Jasso
A cargo ship is seen at the Panama Canal in Panama City January 8, 2014 file photo. REUTERS/Carlos Jasso

By Lomi Kriel and Sonya Dowsett

PANAMA CITY/MADRID (Reuters) - A consortium of construction companies, led by Spain's Sacyr , backed down on Sunday from a threat to immediately halt work expanding the Panama Canal in a dispute over cost overruns, but said it could still do so at a later date.

The consortium, known as Grupo Unidos por el Canal (GUPC), had threatened to suspend work by Monday, January 20 unless the Panama Canal Authority (PCA) paid $1.6 billion in cost overruns. The authority has rejected that demand and asked GUPC to withdraw the threat of suspension.

But with neither side backing down, and with Monday's deadline looming, it had seemed a hiatus in one of the world's largest construction projects was inevitable, until the consortium clarified its position on Sunday.

"GUPC does not necessarily have to make any change in the status of the project tomorrow," the consortium said in a statement.

However, the threat that construction could stop has not yet dissipated, with the consortium adding that a letter sent on December 30 demanding payment for cost overruns gave it the right to suspend work at any time from January 21 onwards.

The consortium is set to meet with the PCA and insurers Zurich North America on Tuesday to discuss the status of the work, including its $600 million bond on the $3.12 billion locks project, the most difficult part of the expansion.

Canal Administrator Jorge Quijano has said the PCA is already in discussions with other third-party contractors in case it cannot resolve its dispute with the GUPC. He estimated the remaining work would cost about $1.5 billion.

GUPC - which also includes Italy's Salini Impregilo SpA , Belgium's Jan De Nul and Constructora Urbana from Panama - won the contract to build a third set of locks for the century-old canal in 2009.

The canal authority has said it is willing to consider detailed claims for the overruns through arbitration.

Sacyr's chairman, Manuel Manrique, said at a press conference last week in Madrid that the dispute will not have a significant impact on the company's earnings and is not putting its solvency at risk.

The canal is one of the world's most important shipping routes. The entire project was due to cost about $5.25 billion, but the overruns could bump that up to nearly $7 billion.

(Reporting by Lomi Kriel in Panama City and Sonya Dowsett in Madrid; Editing by Gabriel Stargardter and Eric Walsh)

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