Game on Sacyr-Panama Canal’s dispute is over… is it?

Parties involved in Panama Canal’ extension, mainly Spain’s Sacyr and the Latin American country’s authorities decided last month to extend the negotiation period until February 4th about the project finalisation. The deadline came with no agreement, and perception suggests the end point of dialogue, but interests are too high for both of them to give up.

Shall they do not find a formula to resolve the conflict, the United Group for the Canal (GUPC for its Spanish initials), in which Sacyr holds a 48% stake, has warned the Panama Canal Authority (PCA in its English acronym) that disputes in national and international courts could last for long, and works may be delayed. Furthermore, consequences would also mean 10,000 dismissals and late payments to numerous Panamanian and other countries’ subcontractors.

Last offer made by GUPC included confinancing by fifty fifty, despite contract conditions and the law in force points out that the project’s owner must be responsible for the whole financing. GUPC’s contributions would comprise $100 million of new funds, an amount of $300 million the company has already anticipated, and another sum of $400 million which will be financed. On PCA’s side, they should also give $100 million as well as postpone the repayment of $785 million that Sacyr gave in advance according to contract terms. GUPC will guarantee in turn PCA’s financing. An international arbitration body will decide about who will finally cover the $ 1,600 million in overtime costs the consortium demands to finalise the Canal’s third set of locks.

The question now is which real terms of relation between both parts are at this critical moment.

“The negotiation is just blocked but not broken, and Sacyr also considers a deal feasible since they are still waiting for PCA’s response to its last  proposal,” said analyst Juan Moreno at Ahorro Corporación, who talked directly to the company. However, “ we think current situation of negotiations approaches Sacyr to a pessimistic scenario, which would have a negative impact of 11% over our present company’s valuation at 4.51 euros per share.”

Panama Canal Authority assured works will finish in foreseen 2015 “with or without the United Group for the Canal.” In this sense, the project ‘s administrator Jorge Quijano pointed out that PCA “ is starting a careful decision taking process” always “according to contract terms” and “considering the highest interests of Panama.” Neverthelss, he also confirmed his willingness to dialogue “to find the best option to resolve the conflict,” in spite of his limited confidence on a deal. On the the other hand, Sacyr’s chairman Manuel Manrique has stated he “will not give up” even though the “little room for manoeuvre”.

The dispute on Panama Canal’s extension is a complex diplomacy affair in which not only has participated Spanish Sacyr and the PCA, but also the Italian company Impreligo, the Belgium Jan de Nul, the respective national governments which have supported their companies; the EU which has accepted to mediate in the conflict through European Comission Vice-president Antonio Tajani; the project’s insurer Zürich America International and also the Dispute Adjudication Board (DAB, in its English initials), the arbitration body created when signing the agreement.