The New Panama Canal Is Leaking Water—And Money
As early as August, grim videos emerged showing water streaming through cracked concrete at the Pacific end of the ongoing Panama Canal expansion project. The Panama Canal Authority (ACP) has since acknowledged that leaks developed during stress testing of the new locks.
ACP tentatively stated that the leak won’t cause further delays, but samples taken from the massive concrete structure have shown apparently serious problems, and ACP is still waiting on a full assessment from the project’s contractor, Grupo Unidos por el Canal (GUPC).
If the leaks do cause delays, they would be added to the long list for a project has also faced massive cost overruns and bitter contract disputes. The initial target opening date for a bigger canal was October 2014, to coincide with the 100th anniversary of the original canal. But that was first pushed back to April 2015, and then to the current target of April 2016. The ACP has previously downplayed the likelihood of delays, only to reverse itself.
The relationship between ACP and GUPC has shown plenty of cracks too. As Fortune previously reported, those familiar with the project have long believed that the initial winning bid from GUPC—a consortium of Spanish, Belgian, Italian, and Panamanian firms—was unrealistically low at $3.2 billion (of an overall $5.3 billion initial tab). This was much lower than competing bids, and even below initial government cost estimates.
The circumstances of the bidding process were questionable. The contract was awarded under previous Canal administrator Alberto Alemán Zubieta, who was also former CEO of Constructora Urbana, S.A. (CUSA), the Panamanian wing of the winning GUPC consortium. Zubieta’s cousin Rogelio E. Alemán is now CUSA’s vice president (link in Spanish). In 2010, Spain’s El Pais discovered leaked documents (link in Spanish) that quoted Juan Carlos Varela, then vice president and now president of Panama, saying, “When one of the bidders bids $1 billion less than the next, there is something very wrong.”
Since then, delays have been caused by labor disputes, issues with materials, and GUPC’s attempts to, in essence, renegotiate its initial low bid. This peaked with a January 2014 demand by GUPC that $1.6 billion in cost overruns be covered by APC. GUPC threatened to stop work if its demands weren’t met, a crisis barely averted through a partial settlement.
Every delay of the canal expansion also delays global trade growth. The new, widened channel will allow for the passage of much larger ships, which is widely anticipated to increase trade volumes, in particular, between Asia and the U.S. East Coast. This anticipated growth has triggered harbor deepening and infrastructure investment at ports along the U.S. East Coast, which could face extended underutilization if the canal expansion is delayed further.
The necessity of the canal expansion has been highlighted over the past week, as a growing backlog of ships waited as long as five days to pass through the current canal. In mid-October, the Panama Canal Authority announced that the canal moved a record 340.8 million tons, a historical high and a 4.3 percent increase over 2014.
APC has said that it expects a full assessment of the leaking locks from GUPC within three weeks.
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