Project Progress Report
as of December 31, 2013

Post-Panamax Locks
As a result of the claims submitted by the contractor for the third set of locks, the consortium Grupo Unidos por el Canal S.A. (GUPCSA), the Panama Canal Authority (ACP), met in November with the surety, Zurich American Insurance Company. 

Since the beginning of December 2013, the ACP Administrator has been providing the media with information on the situation with GUPCSA.  During these interviews, the Administrator expressed that the consortium’s requests for additional costs must be handled by way of the claims process that is clearly defined in the contract.  He explained that the contractor must assert its claims through three instances – reason why GUPCSA has full contractual freedom to submit whatever it may deem necessary, so that it may be evaluated and decided upon pursuant to the terms agreed by the parties.  The ACP was adamant that it will not negotiate outside the contract.

On a letter received 30 November 2013, GUPCSA indicated its intention of suspending all locks project works on 20 January 2014, alleging that the ACP had not fulfilled contractual obligations nor honored its commitment to discuss the financial challenges facing the project.  The ACP said GUPCSA’s arguments have no legal basis to halt the works and indicated that it will not yield before any pressure to negotiate outside the contract’s terms, pointing out that two of the three mechanisms to settle claims under the contract are based on third-party mediation.  Efforts are being made to find a solution within the contractual framework that is acceptable to both parties.

Similar to previous periods, the locks design oversight team maintains a resident engineer in Italy, supervising the lock gates fabrication, and still provides geotechnical engineering support to field offices, especially for the construction of the Borinquen dams. 

The cumulative combined excavation and dredging volume for the Pacific site reached 20.1 million cubic meters during this period.  On the other hand, the cumulative overburden volume increased to 13.4 million cubic meters, while the approximately 4 million cubic meters of basalt removed did not increase and no changes were observed either in the cumulative dredging volume of 2.7 million cubic meters.

To this date, a cumulative volume of 1,793,304 cubic meters of structural concrete, which represents a 74% progress rate, has been placed on the Pacific site.  Additionally on this site, a cumulative total of 104,152 tons of steel has been received so far.

GUPCSA reported a 60% overall progress for the electromechanical activities on the Pacific sector, which include preparation, manufacture, and start-up works. Continued activities include grounding work and with the installation of first-stage embedments for valves, bulkheads, capstans, bollards, heavy-duty fender bolts, corner-edge protection, culvert-isolation bulkhead rails, end stops (bumpers for the gates on the lock-head walls), seismic hooks (to immobilize the gate and prevent damage in the event that a seism should occur during maintenance) and gate-maintenance supports. Embedments for the first installation stage are cast directly into the concrete, while those for the second stage are welded to the first-stage embedments and held in place with additional concrete.  GUPCSA also continues with installation of second-stage embedments for culvert-isolation bulkheads continue in all three chambers. 

Rains in the area for the dams continued to interfere with the extraction and the progress of the fill works for the 1W dam.  And the activities for the embankments of the 1W and the 2E dams were affected by the shortage of material for the type of filters required to continue with certain activities.  Limited fill work was conducted to the south of the 2W dam.

The cumulative excavation volumes removed on the Atlantic site from the area for the locks footprint added up to 15.97 million cubic meters, representing a 95% progress rate, while the total for the Atlantic entrance was 3.2 million.  The total cumulative volume of structural concrete placed on this site was 1,684,710 cubic meters, with an 81% progress rate.  Also, a cumulative total of 96,157 tons of steel has been received so far on the Atlantic site.

The activity to transport aggregates to the Atlantic site reached a total of 6.3 million tons during this quarter.

First-stage embedments have been installed in 81% of the valves and bulkheads.  And the grounding works for underground electrical equipment and infrastructure on the Atlantic site reports a 70% progress rate.  A significant progress was also achieved during this period with concrete pouring in Atlantic-site buildings.

Fabrication of the last 25 valves (of a total of 158) was completed in December.  All valves (for conduits, culverts and equalization), bulkheads, trash racks, first and second-stage embedments, cylinders and their supporting elements, and the hydraulic power units, have been completed; and almost all have already been received in Panama.  All of this material is being stored for now, up until when the locks are sufficiently complete to start installation and testing activities.

As for the quality aspects of the project, an audit was performed of GUPCSA’s  material testing labs and the field testing processes.  The results indicate that, in general, the lab complies with contract requirements; however, some areas requiring improvement were identified.

During ongoing monitoring by the project administration team of GUPCSA repairs on hydraulic surfaces the team detected the areas where the contractor complies with the objectives established for each section, which were stipulated in this year’s moratorium.  Nevertheless, a reduction in the number of repair crews was also observed during the period.  A recent analysis conducted by the project administration team of the progress achieved to this date and pending concrete repairs concluded that GUPCSA will not be able to complete the remaining repairs prior to the dates set for flooding the chambers, next year.  The issue was reported to GUPCSA’s senior management during the meeting held in December with the Dispute Adjudication Board (DAB).

Some improvement has been apparent in the concrete pouring and finishing works; however, deficiencies continue to be reported, along with excessive problems with basic concrete pouring practices, consolidation, formwork alignment, concrete covering or lack of covering on reinforcement steel, and the repeated lack of protection of concrete during rainfalls.  GUPCSA again promised to improve the work and perform certain difficult concrete pouring only during the day.
NDE Associates Inc. (subcontractor of the administrative services consultant for the Expansion Program CH2M Hill Panamá S. de R.L.) continues its off-shore overseeing duty in Cimolai facilities in Italy, where the lock gates are fabricated.  Supervision of locks valves fabrication in the facilities of Hyundai Samho Heavy Industries Ltd., in South Korea concluded during this reporting period, after all fabrication works were completed.

The second gates shipment did not arrive on schedule in November.  GUPCSA has yet to provide a new arrival date.

A managerial meeting was held in October to follow up on the corrective actions implemented by GUPCSA in order to prevent fatalities such as the one occurred on 16 April 2013 to continue to occur, as certain unsafe conditions (mounting and dismounting formworks in sections) as those that led to said fatality continue to be observed during field visits.

Meetings such as this one have been scheduled to be held every three weeks. Site visits were conducted to reinforce proper use of personal fall stop equipment by the workers and, especially, subcontractors.

In October, the ACP sent the contractor its report on the audit of the Wastes Management Plan, the Standard Operations Procedures, and the Environmental Plan for Specific Sites – based on the audit performed in September.

ACP-contracted companies carried out random checks on residual waters discharges in project facilities and noise measuring in adjacent communities. 

Pacific Access Channel
On the project for the fourth excavation phase for the Pacific access channel (PAC4), the volume removed from main excavation areas in the access channel and the footprint for the Borinquen 1E dam (the northernmost dam on the east side) increased slightly to 20.02 million cubic meters.  In December the contractor injected about 85,600 kilograms of cement below the dam foundation, bringing the adjusted volume accumulated since the project started to 1.89 million.  The contractor also placed filter blankets and rock fill for the outboard dam shell.  And continues building the cut-off wall on the southern end of the dam, which is the only area pending to be finished in this activity.  Other ongoing activities include stockpiling, dewatering, rock crushing, importing filter material from external sources, installing instrumentation, and removing munitions of concern.  Contract progress is at 73 percent.

During this quarter, the ACP contracting officer rejected all items in six claims submitted by the PAC4 contractor, which corresponded to the first instance for conflict resolution.  These claims refer to: 1) mobilization costs for the execution of additional boreholes for dam foundation treatments; 2) delay in beginning to build the dam; 3) execution and injection of grout holes; 4) removal of metallic casings used when drilling the boreholes for dam foundation treatments; 5) the surface and underground dewatering system; 6) a contract interpretation related to the application of fines for liquidated damages – the contractor did not make use of the appeal recourse.

In a second internal instance for dispute resolution the Manager, Purchasing, Warehouses and Inventory Division, of the ACP issued three resolutions denying the appeals submitted by the contractor regarding the decision of the contracting officer on various claims presented in June and September.  These resolutions refer to claims for: 1) excavation works on borrow site C; 2) a mixed claim primarily focused on costs due to the paralyzation of excavation works at the dam core foundation; and 3) mobilization costs for the execution of additional boreholes for dam foundation treatments.

As of this date, there are claims that have exhausted all internal conflict resolution instances and are under the evaluation of the Panama Center for Conciliation and Arbitration.  The arbitration process began in October for the main claim submitted by the consortium ICA-FCC-MECO, where the consortium demands $44,022,856.00 and a time extension for the contractual termination date.  The contractor bases its claim alleging different site conditions, contract modifications, work disruptions, and tardy replies from the ACP. Additionally, by the end of October, the Panama Conciliation and Arbitration Center issued a decision favoring the ACP regarding the claim about the impact of the minimum wage established on Executive Decree No.6 of 27 January 2012 for Expansion Program workers.  And lastly, by the end of December the contractor filed the arbitration suit for the above-mentioned mixed claim.

Navigational channels improvements
The contract to remove rebar from the area formerly occupied by the Mindi Dock in the Atlantic entrance was completed during the first days in October.  The Atlantic-entrance dredging project concluded with these works.

The cumulative dredging volume for the freshwater dredging project for Gatun Lake and the Culebra Cut went up some 22.6 million cubic meters.  Around 14.8 million cubic meters of this volume were removed by the ACP and the other 7.8 million by the contractors.  The contractor responsible for building 25 ranging towers for the Gatun Lake started the concrete pouring activity for the foundations of four towers and continues to prepare the site and excavating to build the remaining 21 towers.  The contractor in charge of fabricating 22 buoys continued to fabricate and assemble them in Colombia; the first delivery of 12 buoys is expected for the end of January or the beginning of February 2014.

Water supply improvements
During the month of December, the contractor for the watertight doors and bulkheads finished working in Pedro Miguel and Gatun Locks.  ACP internal forces continued assembling and installing the yoke seals in both lock complexes.  By the end of the period the contractor for the 42 isolation rubber boots had already delivered 41 of these boots, after repairing 19 of the 20 boots that the ACP originally rejected.  These boots were purchased to seal the cylinders to operate the miter gates.

Work continues in other ACP structures in Gamboa, such as the raw water pump station and the dock used by the Hydrology Unit.  The initial stages of the construction of the ACP tugs and boats dock in ACP, the facilities for the Hydrology Operations Unit in Pedro Miguel, and the El Limon community dock are underway.  Works concluded during this period in the area around Las Cruces landing, the San Antonio community dock structure, as well as the joint efforts by the ACP and the Embera Quera community.

Administration
As previously reported, a managerial meeting was held to follow up on the implementation of corrective measures by GUPCSA to prevent fatalities such as the one occurred on 16 April 2013 to recur, since unsafe conditions that caused said fatality continue to be observed during site visits.  There is still special concern regarding a trend for falls from heights, falling objects, as well as for the systematic deficiencies related to them, which the ACP is trying to solve by way of documentation and meetings with the contractor.  Some other deficiencies were also detected in the PAC4 contractor’s health and safety management system, with regard to field communications and safety staff on-site presence, dust control, equipment maintenance, and personal protection equipment usage.  The ACP has discussed these issues with the contractor and will continue all efforts to have them solved.

In December the Panama West regional office of the National Environmental Authority (ANAM) inspected the locks and PAC4 work sited on the Pacific side.  Though a report has yet to be issued, ANAM representatives expressed that the areas comply with the requirements.  Reports by the independent consultant Environmental Resources Management Panamá S.A. for the multilateral agencies and National Environmental Authority were reviewed and completed.  A visit by ERM to the Expansion Program has been scheduled for February 2014.

Financing
The ACP paid the debt service to the Japan Bank for International Cooperation, the European Investment Bank, the Interamerican Development Bank, and the Latin-American Development Bank.  The ACP also paid commitment fees to the last two Banks, as well as to the International Financial Corporation.  The ACP distributed the Expansion Program Quarterly Report among the multilateral agencies – along with financial, operational, and environmental reports

On 27 December 2013 the ACP received a delegation from the complaints mechanism for the Japan Bank for International Cooperation, the European Investment Bank, and the Interamerican Development Bank.  A fourth annual visit by these agencies has also been scheduled for February.

On 27 December the ACP submitted its twelfth multilateral agencies disbursement request for $300 million to the International Financing Corporation. This disbursement will take the amount disbursed so far under the common terms agreement to $2,050 million.