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. -------------- ACP Administrator Linked to Winning Bid -------------- ¶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. -------------- Background on the First Construction Project -------------- ¶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. -------------- ACP Credibility Sliding -------------- ¶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. -------------- Comment -------------- ¶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