Consortium resumes work on Panama Canal expansion

SPAIN STEPS IN

The Spanish government is likely to agree to change the status of a $200 million state-backed guarantee it gave heavily indebted Sacyr in 2009 when Panama awarded it the contract, turning it into backing for finance to finish the project, sources told Reuters on Wednesday.

The guarantee was originally drawn up by Spanish state-backed insurer Cesce as a counter-guarantee to the Zurich bond. The government insurance bonds must be changed if Zurich changes its insurance into backing for a loan. and Spain's Economy Ministry declined to comment.

Italian state-backed export credit agency Sace, also a part of the guarantee scheme with Zurich, was not immediately reachable for comment.

There has been disagreement within the Spanish government over whether to interfere with the private project, one source with knowledge of the matter said, but it is likely to tweak the conditions of the guarantee because the Sacyr-led contract is such a high-profile one for Spanish business.

Spanish builders are working on big engineering projects around the world, including a train linking the Islamic holy cities of Mecca and Medina, and a metro in Riyadh, Saudi Arabia. Overseas construction has been one of the few bright spots for companies as the domestic economy splutters.  

Under Wednesday's deal, the Canal agreed to pay the consortium $36.8 million to cover work done in December once works resume.

The project to expand the nearly 50-mile (80-km) transoceanic cargo route was originally expected to cost about $5.25 billion, but that could increase to nearly $7 billion.

When the contract was awarded to the consortium in 2009, officials and diplomats expressed concern over its ability to complete the work, since its winning bid for the work was $1 billion lower than that of the nearest competitor.  

The Wood Mackenzie consultancy said on Thursday it expected the cost overrun dispute to be resolved with limited disruption, but cautioned that longer delays would affect US liquefied natural gas producers and create a tighter LNG shipping market.

"If the delays last 6-12 months, it will have limited impact, as trade will carry on much as it does now," Andrew Buckland, senior LNG shipping analyst at Wood Mackenzie, said in a research note.

"But further delays threaten the investments of a significant number of groups that are set to benefit from expanded capacity on the waterway."