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Panama rejects builders' proposal to co-finance $1.6B cost overruns on canal expansion

In this Jan. 14, 2014 photo, a man fishes as a cargo ship sails past en route to the Pacific Ocean in Panama City. The Panama Canal is being expanded to accommodate a new generation of larger ships, known as post-Panamax, which have more than twice the carrying capacity of those able to pass through the canal today. (AP Photo/Arnulfo Franco)

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In this Jan. 14, 2014 photo, a man fishes as a cargo ship sails past en route to the Pacific Ocean in Panama City. The Panama Canal is being expanded to accommodate a new generation of larger ships, known as post-Panamax, which have more than twice the carrying capacity of those able to pass through the canal today. (AP Photo/Arnulfo Franco)

PANAMA CITY - The Spanish-led consortium working on expanding the Panama Canal said Monday it has proposed that the canal authority help co-finance $1.6 billion in cost overruns on the huge project. The Panama Canal Authority rejected the idea.

The United for the Canal construction group led by Spain's Sacyr Vallehermoso has threatened to halt the biggest part of expansion project if the financial dispute isn't resolved, although it said Sunday that a stoppage was "not a scenario being considered at this moment."

In a statement Monday, the consortium said co-financing of the unforeseen costs with the authority would allow it "to continue the work, which directly employs nearly 10,000 people, and it would achieve the completion of the project by 2015."

The consortium also said it welcomed an offer by the European Union to mediate the dispute.

But the canal authority also turned down the EU's proposal. The contract for completing the third set of locks already includes mechanisms to resolve disputes and none involve third parties, the authority said in an email responding to questions from The Associated Press.

The canal authority has said the contract allows the consortium to stop work only if the agreed monthly payments by the authority are not disbursed, which has not happened.

The project, now three-fourths complete, would double the capacity of the 50-mile (80-kilometre) canal, which carries 5 per cent to 6 per cent of world commerce.

Officials have said that work on the expansion has declined 70 per cent since November and that hundreds of workers were let go because of the slow pace of the megaproject.

The consortium blames the cost overruns largely on problems with the studies carried out by the Panamanian authority before work began. It says geological obstacles encountered while excavating have prevented it from getting the basalt needed to make the massive amounts of concrete required for the expansion.

Many experts say the root of the conflict lies in the consortium's underestimation of the project's costs when it won the canal expansion 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 led by the U.S. construction giant Bechtel.

U.S. ports have invested billions in dredging, raising bridges and renovating docking infrastructure to accommodate the new generation of larger ships that could pass through the expanded canal.

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Associated Press writer Raf Casert in Brussels contributed to this report.

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