DEMARCHE REQUEST: ENSURING FAIRNESS BY BIDDERS IN

UNCLAS STATE 069224 SENSITIVE SIPDIS PLEASE PASS TO ECON AND COMMERCIAL COUNSELORS E.O. 12958: N/A TAGS: EWWT BEXP ECON EFIN ETRD PM SP FR IT SUBJECT: DEMARCHE REQUEST: ENSURING FAIRNESS BY BIDDERS IN THE PANAMAL CANAL EXPANSION PROJECT ¶1. 1. (SBU) Summary and action request. Please see para 2 for action request. The Panama Canal Authority (ACP) is expected to announce next week the winner of the nearly $4 billion third set of locks contract. This project is the centerpiece of the Canal,s overall expansion plan. The three consortia bidding on this project are led by Bechtel (U.S.), ACS (Spain) and Sacyr (Spain). We are concerned that the Sacyr group may have used the Spanish, French, and Italian credit agencies to guarantee a 400 million USD performance bond and 50 million USD payment bond that Sacyr would otherwise not qualify for, thereby disadvantaging the other competitors by masking Sacyr,s true financial position, which may impede Sacyr,s ability to complete this vital project. ¶2. (SBU) ACTION REQUEST FOR MADRID, ROME, AND BRUSSELS: Embassy Action officers are requested to immediately approach the appropriate government authority that supervises the named export credit agencies and ask whether those agencies of Spain (Secretaria de Estado de Comercio - CESCE),Belgium (Office National du Ducroire-OND) and Italy (Servize Assicurativi del Estero - SACE) guaranteed, insured, or in any way backed a 400 million USD performance bond and 50 million USD payment bond for the consortium led by troubled Spanish firm Sacyr to construct the nearly $4 billion third set of locks on the Panama Canal. Please report back by July 7 by cable slugged to the Department and to Embassy Panama or by email to Marsha Singer in WHA/CEN and Joel Reifman, Economic Counselor, Panama, and Jim Bangert, Economic Officer Panama. ¶3. (SBU) Background: A consortium led by Spanish firm Sacyr Vallehermoso S.A., in direct competition with consortia led by Bechtel (U.S.) and ACS (Spain) has bid to build the roughly $4 billion third set of locks, centerpiece of the Canal expansion project. Other leaders of the Sacyr group include Impregilo S.p.A. (Italy) and Jan de Nul n.v. (Belgium). As part of the process, the Panama Canal Authority has asked for a $50 million performance bond from all of the three consortia to verify their respective financial soundness. We understand that Sacyr is nearly bankrupt and is being propped up by the Spanish government. We further understand that their condition was so dire that they could not qualify for a $50 million performance bond on the open market, and the three European credit agencies specified above had to provide guarantees for Saycr,s performance bond. However, at this point, we have not confirmed the actions of these three agencies. ¶4. While obtaining a guarantee from these agencies likely does not violate, on its face, the terms of the ACP,s bidding proposal, the fact that theguarantees, if they exist, could mask Sacyr,s true condition is of concern. The USG is supporting U.S. firm Bechtel in its efforts to obtain this enormous contract and bring jobs to the United States. Concurrently, we wish to ensure that an otherwise fair and transparent bidding process is not wrongfully manipulated by the Sacyr consortium. If Sacyr is concealing its true financial condition, with the support of European governments, we wish to bring that fact to the attention of the ACP before it announces the winner of this once-in-a-century project. While experts have rated the engineering difficulty of this project as moderate, the more daunting challenge lies in logistics - management of cash, materials, and labor - all of which depend upon the ready availability of credit. Successful completion of the canal expansion is vital to U.S. interests. Currently, roughly two thirds of all vessels transiting the canal are travelling to/from a U.S. port, and 5 per cent of world commerce passes through the canal. ¶5. The Department thanks you for your prompt assistance. CLINTON