Delays in canal construction prove costly

Quicker access from Asia to the east coasts of the US and South America as well as to Western European markets have prompted canal plans in Central America. However, each plan it seems appears to have certain issues associated with it.

The much heralded widening of the Panama Canal may have hit a stumbling block as a dispute between the building consortium and canal authorities may delay expansion. At the heart of the matter is over $1.6bn in extra costs. According to Grupo Unidos por el Canal, the construction consortium consisting of Spain’s Sacyr, Impreglio of Italy, Belgium’s Jan de Nul and Constructora Urbana of Panama, the group ran into extra costs due to technical and geological problems, cement ingredients, weather conditions, as well as tax, labor and financial issues. As such, it threatens to suspend work within 21 days (January 20) if canal authorities do not pay for the extra costs. Meanwhile, the Panama Canal Authority said the contractor’s claims “have no legal standing and are not clear,” and are not reason enough to halt the project.

Even though work is about 70% complete, this current delay could stretch further past the anticipated completion date of June 2015 which according to various newspaper accounts is already nine months past the contractual date.

A $283m joint financing package to ensure work continues while a resolution is discussed has been proposed. Under the plan, the canal authority and the consortium would each put up $100m, while the canal would give the group an extension to repay $83m that was advanced to them. As of January 8, the consortium has not yet decided to accept this proposal.

Another proposed canal in Central America is also making headlines. In June 2013 the Nicaraguan government approved granting Beijing-based telecommunications CEO Wang Jing a concession to build and operate a canal through the country. However, plans to build a canal in Nicaragua have already been delayed by a year because “the waterway’s path has yet to be defined” according to the country’s government.

If this project does get underway in 2015, it could not only surpass the Panama Canal in size, but it could also result in a major shift in international trade. For shippers and ocean vessels alike, two competing canals could also mean more competitive rates and fees. However, the potential political consequences of the Chinese in the US’ “backyard” may prevent it from even reaching the ground-breaking stage.