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Viewing cable 08PANAMA851, ROUGH WATER FOR CANAL EXPANSION

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Reference ID Created Released Classification Origin
08PANAMA851 2008-11-06 23:11 2010-12-18 12:12 CONFIDENTIAL Embassy Panama
VZCZCXYZ0003
OO RUEHWEB

DE RUEHZP #0851/01 3112328
ZNY CCCCC ZZH
O 062328Z NOV 08
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2637
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L PANAMA 000851

SIPDIS

DEPT OF COMMERCE - MATTHEW GAISFORD
DEPT OF TREASURY - SARA SENICH

E.O. 12958: DECL: 11/05/2018
TAGS: ECON EINV ETRD MARR PM EWWT
SUBJECT: ROUGH WATER FOR CANAL EXPANSION

REF: 2008 PANAMA 0820

Classified By: Ambassador Stephenson for reasons 1.4 (b) and (d).

-------
Summary
-------

1. (C) After multiple extensions to the bid deadline (now at
March 3, 2009) and soon-to-be 19 amendments fo the contract
for the third set of locks of the Panama Canal expansion,
Bechtel and ACS, a Spanish led consortium, have expressed
concern about the Panama Canal Authority's (ACP) ability to
complete the bidding process in a fully successful manner.
According to these two consortia, the extensions, along with
the ACP's continuing failure to conclusively address risk
allocation issues, have diminished confidence in a successful
outcome to the bidding process. Additionally, while the
Panama Canal expansion remains a high prestige project,
members of the consortia and potential suppliers may begin to
turn to more lucrative projects.

----------------------------------------
Diminished Confidence in Bidding Process
----------------------------------------

2. (C) Due to repeated extensions in the bid deadline and the
ACP's unwillingness or inability to seriously address risk
issues, Bechtel and ACS, the two most capable prequalified
bidding consortia, have diminished confidence in a successful
outcome of the ACP bidding process for the contract for the
third set of locks, centerpiece of the overall $5.25 billion
Panama Canal expansion, according to Bechtel Vice-President
of Finance Paul Gibbs, on October 31. See reftel for
information on the delays, issues of risk, and consortia.
ACS senior representatives did not attend the latest
ACP-Consortia meeting; a meeting ACP Director of Engineering
Quijano described as important to signaling the intentions of
the consortia. Bechtel signaled its reluctance to pour more
resources into the project by closing its Panama Office and
reassigning personnel to other countries. While Bechtel
remains intent on bidding on the locks contract it will not
continue to prepare detailed modifications to its bid
specifications in reaction to changing ACP requirements.
Amendment 18 alone had 30 attachments and great uncertainty
exists concerning the content of upcoming (and "final"
according to the ACP) 19th Amendment.

3. (C) While Gibbs recognizes that the extension provides the
opportunity for the ACP to iron out risk problems, that task
has not been fully completed. Bechtel is not fully certain
of the outcome of the hydraulic risk as well as the selection
of a cement price index.

4. (C) Based upon conversations with representatives of
Bechtel, ACS, and Project Management Advisor CH2MHill, these
organizations believe that only Bechtel and ACS are credible
bidders, because the Spanish consortium led by Sacyr is
reportedly close to bankruptcy and half of the members of the
French consortium led by Bouygues are not actively working
towards submitting a bid. Gibbs stated that the deadline
extension and uncertainty regarding risk favor Sacyr and
Bouygues, because these "weaker consortia" are more willing
to submit a lowball bid and accept greater risk on the
assumption they will be able to renegotiate key issues after
the contract is awarded.


------------------------------------------
Potential Equipment Shortage due to Delays
------------------------------------------

5. (C) According to a Caterpillar's Regional Manager for
Latin America E. Hopkinson on October 31, the repeated
extensions in the bid deadline already caused suppliers to
evaluate maintaining equipment production slots for equipment
for the winning consortium. Caterpillar, who is pursuing
equipment sales to the winning consortia, already reserved
production slots for equipment to be used in the expansion.
However, due to "lost patience" with the extensions,
Caterpillar may instead use those production slots for large
mining companies which are long term customers that also use
service contracts. The prestige and resulting increased
business of working on the Panama Canal may not outweigh
greater business opportunities elsewhere. According to
Hopkinson, some large excavation equipment is not currently
available due to a worldwide shortage of equipment and parts
caused by a mining industry that remains healthy despite
global financial crisis.

-------------------------------
Control Over Project Management
-------------------------------

6. (C) The attempt by CH2MHill, the project management
advisor for the entire Canal expansion, to take greater
control over the bidding process is still in flux - see
reftel. CH2MHill's Construction Manager, Joe Cazares, is now
the acting senior engineer-in-charge for the design and
construction of the locks for the ACP. CH2MHill and the
consortia positively view this change; the preference is for
CH2MHill to take control over the bidding process and to
produce a biddable document of interest to credible bidders.

-------
Comment
-------

7. (C) The turbulence in the Panama Canal expansion bidding
is only discussed in tight circles and is not present in the
public domain. The messaging and press discipline of the
Panamanians on the biggest economic story in Panama is
stunning.
STEPHENSON