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Panama rejects EU offer to mediate canal dispute

Panama rejects EU offer of mediation in canal dispute sought by contractors

By Juan Zamorano, Associated PressJanuary 20, 2014 1:29 PM

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In this Jan. 14, 2014 photo, a man fishes where a cargo ship sails en route to the Pacific Ocean in Panama City. The Panama Canal is being expanded to accommodate a new generation of larger ships, known as post-Panamax, which have more than twice the carrying capacity of those able to pass through the canal today. But cost overruns are threatening a work stoppage on the canal's expansion. (AP Photo/Arnulfo Franco)

PANAMA CITY, Panama (AP) -- The Panama Canal Authority continued informal talks with a Spanish-led consortium on Monday, seeking to resolve a $1.6 billion cost-overrun dispute that has threatened to halt the biggest part of the project to expand the canal.

The consortium, led by Spain's Sacyr Vallehermoso, had given a Sunday deadline for the authority to come up with funds or face a work stoppage. But the project continued at the same 25 to 30 percent activity level it has seen since the conflict arose in November, said canal Administrator Jorge Quijano.

The canal authority rejected an offer by the European Union to mediate its dispute with the mostly European construction consortium, United for the Canal.

The contract for completing the third set of locks already includes mechanisms to resolve disputes, and none involve third parties, the authority wrote in an email responding to questions from The Associated Press.

The canal-building group said in a brief statement Sunday that a stoppage "is not a scenario being considered at this moment."

The Panama Canal Authority has said the contract allows the consortium to stop work only if the agreed monthly payments by the authority are not disbursed, which has not happened.

The project, now three-fourths complete, would double the capacity of the 50-mile (80-kilometer) canal, which carries 5 to 6 percent of world commerce.

Quijano said previously that work on the expansion had declined by 70 percent since November and that hundreds of workers were let go because of the slow pace of the megaproject.

The consortium blames the cost overruns largely on problems with the studies carried out by the Panamanian authority before work began. It says geological obstacles encountered while excavating have prevented it from getting the basalt needed to make the massive amounts of concrete required for the expansion.

Many experts say the root of the conflict lies in the consortium's underestimation of the project's costs when it won the canal expansion contract in 2009 by submitting by far the lowest bid: $3.1 billion for its portion of the job, $1 billion less than a bid led by the U.S. construction giant Bechtel.

U.S. ports have invested billions in dredging, raising bridges and renovating docking infrastructure to accommodate the new generation of larger ships that could pass through the expanded canal.

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Associated Press writer Raf Casert contributed to this report from Brussels.