PANAMANIAN FIRM WINS FIRST CANAL EXPANSION CONTRACT

UNCLAS PANAMA 001236

SIPDIS

SIPDIS

FOR STATE WHA/CEN - TELLO

E.O. 12958: N/A
TAGS: ECON ETRD EWWT FCSC PM
SUBJECT: PANAMANIAN FIRM WINS FIRST CANAL EXPANSION CONTRACT


1. (U) SUMMARY. On July 6, 2007, the Panamanian company,
Constructora Urbana S.A. (CUSA),presented the lowest bid on
the Panama Canal expansion project's first construction
contract, and was awarded the contract on July 16. CUSA is
Panama's largest highway/heavy construction contractor. The
company is a private, family-run business operated by Panama
Canal Authority (ACP) Administrator Alberto Aleman Zubieta's
cousin, Rogelio Aleman. ACP and GOP officials, as well as
certain business leaders, assert the contract bidding process
was transparent. Post is unaware of any improprieties in the
bidding process for this first contract. CUSA is a
well-regarded company which has previously rendered services
to the ACP. The project is the first of five separate
contracts to perform dry excavation work to link the Pacific
entrance of the new locks with the Gaillard Cut (the
narrowest stretch of the Panama Canal). END SUMMARY.

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ACP Administrator Linked to Winning Bid
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2. (U) On July 6, 2007, CUSA presented the lowest bid on the
Panama Canal expansion project's first construction contract.
On July 16, the ACP awarded the contract to CUSA after
concluding CUSA met all ACP contracting requirements. CUSA
is Panama's largest highway/heavy construction contractor.
The contract is to begin the dry excavation work for the new
third set of locks on the Pacific coast. Of the ten bidders,
CUSA's almost $41.1 million bid was $2.4 million less than
the second lowest bid from the Mexican-Panamanian consortium
MS Internacional-Meco Santa Fe (MS). The sole U.S. bidder,
Jay Cashman, Inc. (Cashman),was the highest bidder at $89.9
million.


3. (U) The bidders and their respective bids, other than
CUSA, were MS ($43.5 million),the Mexican-Panamanian
consortium controlled by Mexican billionaire Carlos Slim,
Cilsa Panama-Minera Maria ($44.4 million); the Panamanian
company, International Underground Corp. ($47.6 million); the
Colombian-Panamanian consortium, Coresa ($48.2 million); the
Colombian-Brazilian consortium, Epsa Masering Murica ($55.2
million); the Italian company, Astaldi-Ghella Spa ($61.9
million); the Mexican-Panamanian consortium, Grupica ($73.1
million),the Colombian-Panamanian consortium, Condor
Proimpetrol Panama ($79.9 million); and Cashman ($89.9
million)


4. (U) CUSA was founded in 1955 and is staffed primarily
with former Texas A&M engineering graduates. It is a
private, family-run business operated by Aleman Zubieta's
cousin, Rogelio Aleman. Zubieta joined CUSA in 1973 after
graduating from Texas A&M. He eventually became CUSA's
president and CEO before joining the ACP in 1996. Zubieta
had a 15% equity stake in CUSA which he claims to have sold
in June 2005.


5. (U) CUSA has won prior ACP contract solicitations. CUSA
won the 2005 contract solicitation to perform excavation work
as part of the ACP modernization plans.


6. (U) In response to inevitable criticism, on July 10,
Minister for Canal Affairs, Dani Kuzniecky, defended the
bidding process, saying that none of the other nine bidders
had complained. In a June 8, 2007 press release, business
and labor representatives on the ACP Ad Hoc Committee,
created by law to oversee the canal expansion project,
asserted that the bidding for this first contract was
transparent.


7. (U) On July 13, 2007, U.S. port operator, Manzanillo
International Terminal's (MIT) General Manager, Carlos
Urriola, and Managing Director, David Michou, told EconOff
that they felt the best company won and that the bidding
process was transparent. They said MIT has hired CUSA on
various occasions and believe CUSA to be the best earthmoving
company in Panama. They believe Zubieta has no business
relationship with CUSA and that he would not have interceded
on CUSA's behalf. They said any claims of favoritism are
untrue and unfair.

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Background on the First Construction Project
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8. (U) The project is the first of five separate contracts
to perform dry excavation work to link the Pacific entrance
of the new locks with the Gaillard Cut (the narrowest stretch
of the Panama Canal). The project calls for the excavation
of a 6.7 kilometer by 218 meter canal on the Pacific Coast.
It would involve excavating approximately 7.4 million square
meters of material, approximately 16% of the total excavation
for the new Pacific Locks access channels.


9. (U) CUSA must present a 30% performance bond by July 26
before the ACP can order the excavation to begin. Once the
ACP gives such order, CUSA has 945 days to complete the
project. The ACP expects this first project would be
completed in March 2010. On July 3, 2007, the Panamanian
National Environmental Authority approved the environmental
impact study for this portion of the canal expansion project.

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ACP Credibility Sliding
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10. (U) According to a poll conducted in May 2007 by the
Panamanian firm Dichter & Neira, 48.1% of Panamanians
believed the ACP was a transparent institution as of May
2007, down from 53.9%. An informal, non-scientific Internet
poll conducted by local newspaper La Prensa over the July 7-8
weekend following the announcement of CUSA's winning bid
found that 63.6% of those responding said they do not have
confidence that the funds to be spent on the canal expansion
will be handled transparently.

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Comment
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11. (SBU) Post is unaware of any improprieties in the
bidding process for this first contract. The ACP follows
U.S. federal contract bidding procedures. The award to CUSA
is permissible under the ACP internal regulations, which
includes provisions to avoid conflict of interests. CUSA is
an established, well-regarded company with experience
providing excavation services to the ACP. As such, CUSA has
an informational advantage which allows it to more precisely
estimates its costs than other firms. Nonetheless, awarding
the first construction contract to a company operated by
Zubieta's family members damages the ACP's image as a
transparent institution. Any damage to the ACP's image now
will only serve to magnify any future criticism of the
expansion project.


12. (SBU) To date, the key determinant in winning a canal
expansion contract has been price. To date, the lowest
bidder has won each public solicitation. The ACP is very
concerned with keeping costs low. As such, firms that have a
high cost structure will find it difficult to compete with
low cost structure firms. Firms who believe their expertise
and experience will compensate for their higher bids will
most likely be disappointed. For European firms this is of
particular concern since they will be paid in U.S. dollars
but many of their expenses will be in Euros. The lack of U.S
and European interest in this contract solicitation (only one
firm from U.S. and Europe each) may foreshadow lack of
interest by such companies in the remaining excavation
contracts.

Eaton