PANAMA CITY -- Work on the ambitious Panama Canal expansion project was halted Wednesday after talks broke down about how to settle a dispute over $1.6 billion in cost overruns.
The canal expansion project was originally expected to cost about $5.25 billion but cost overruns have pushed the cost to nearly $7 billion.
Panama Canal Authority administrator Jorge Quijano told a news conference that the stoppage will give authorities time to analyze how to proceed on the project to widen the canal.
"I don't even want to suggest that the next steps will be easy or risk-free," a visibly angered Mr. Quijano told reporters in Panama. "What I do want to make clear is that we will not yield to blackmail."
The Panama Canal Authority and the Spanish-led construction consortium leading the expansion blame each other for the overruns. They were negotiating how to pay for the unplanned extra costs when talks collapsed.
An agreement "is now no longer possible," Mr. Quijano said, adding that the consortium had ordered its employees to stop work.
The project, already running nine months late, would double the capacity of the 50-mile canal, which carries 5 to 6 percent of world commerce. In the United States, ports have invested billions of dollars in dredging, raising bridges and renovating docking infrastructure to accommodate the new generation of larger ships, including liquefied natural gas tankers, that could pass through an expanded Panama Canal.
Other foreign contractors and project managers have expressed an interest in completing the 30 percent of work that remains on the third canal lock, according to canal officials, but Mr. Quijano declined to provide details about its Plan B, except to say that under no circumstances would a 2015 deadline to complete construction be pushed back. "They are leaving, and we are staying," he said. "The project is going to be finished. It must go ahead, with or without them."
The consortium, which is led by Spain's Sacyr SA and includes firms from Italy and Belgium, says 10,000 jobs are immediately at risk. In a strongly worded statement Wednesday, it said Panama's failure to resolve the impasse threatens to overshadow a summit of 34 hemispheric leaders, including U.S. President Barack Obama, that the Central American nation will host next year. "Instead of celebrating Panama's vital role in global commerce, leaders will be regretting that the ACP and Panama have abandoned negotiations," the statement said, referring to the canal authority by its Spanish initials.
Panama's President Ricardo Martinelli had indicated in a statement Tuesday that the parties were close to agreement.
Mr. Martinelli called on Panamanians to close ranks behind the canal authority, whose autonomy is guaranteed by the constitution, accusing the consortium of acting irresponsibly.
The consortium blames the extra costs largely on problems with studies the Panamanian authority conducted before work began. It says geological obstacles encountered while excavating have prevented it from getting basalt needed to make the vast amounts of concrete required.
Many experts say the dispute's roots lie in the consortium's underestimation of project costs when it won the contract in 2009 by submitting by far the lowest bid: $3.1 billion for its portion of the job, $1 billion less than a bid by U.S. construction giant Bechtel.