Journalicious Dots from Switzerland

¶B. 2008 PANAMA 320

¶C. 2008 PANAMA 732

¶D. 2008 PANAMA 820

¶E. 2008 PANAMA 851

¶F. 2009 PANAMA 195

¶G. 2009 PANAMA 519

¶H. 2009 STATE 69224

¶I. 2009 PANAMA 539

Classified By: Ambassador Stephenson for reasons 1.4 (b) and (d).

——-SUMMARY——-
¶1. (C) During a morning of high political theater, PresidentMartinelli, Panama’s senior government officials, consortiarepresentatives, diplomatic corps, and the public (throughlive TV and an internet broadcast) witnessed the presentationof the technical scores and the opening of the financial bidson July 8. After brief real-time calculations, the PanamaCanal Authority (ACP) announced that Sacyr’s consortium wonthe bid to build the third set of locks, centerpiece of the$5.25 billion Panama Canal Expansion. Bechtel believes Sacyrbroke EU anti-competiveness laws in obtaining its suretybonds and will protest if they find a smoking gun. The Sacyrwin signals expanding Spanish influence in Panama and apotential loss of American export opportunities for theproject (although much of the sourcing has not yet beendetermined).

———-SACYR WINS———-

¶2. (U) President Martinelli, Panama’s senior government andACP officials, consortia representatives, diplomatic corpsmembers, and the public (through live TV and an internetbroadcast) witnessed the awarding of the locks contract, thecenterpiece of the $5.25 billion Panama Canal Expansion, to aconsortium led by Sacyr Vallehermoso S.A.. The otherconsortia members are Impregilo S.P.A. (Italian), Jan de NulN.V. (Belgian), Constructora Urbana, S.A. (Panamanian and runby the first cousin of the Panama Canal Administrator),Montgomery Watson Harza (American), IV-Groep (Dutch), TetraTech (American), and Heerema Fabrication Group (Dutch).

———————————PROCESS FOR DETERMINING SACYR WON———————————

¶3. (C) The ACP declared Sacyr to have the “best value”proposal. Out of a possible 10,000 points, Sacyr obtained adominating 8089 points; Bechtel – 6770 points; and ACS – 6559points. The total point tally was composed from technicaland financial scores. Sacyr had the highest technical scorewith 4089 points (out of a possible 5500), ACS – 3974 points,and Bechtel – 3790 points. The technical points ranking was”shocking” to a representative of CH2MHill (anAmerican-firm), the Project Advisor for the expansionprogram. Previously, sources rated Bechtel’s and ACS’stechnical plans to be about equal and both superior toSacyr’s. See ref G. The pre-announcement conventionalwisdom on the technical plans was so prevalent that theaudience collectively gasped when the Sacyr high technicalscore was announced. During a post-announcment meeting withthe Ambassador, the subdued Bechtel reps speculated that thetechnical scoring committee was probably not comfortable withBechtel’s “innovative” design, because it did not fit neatlyinto the ACP’s specifications. Bechtel reps dismissedchallenging the technical evaluation process, noting frompast experience that these technical evaluations can behighly subjective.

¶4. (C) After the award ceremony started, ACP and consortiaofficials retrieved the price envelopes from a nearby bankvault. The audience watched via streaming video projected on
to giant screens, the OJ Simpson-esque drive to/from the bankand the “signing out” of the deposit box with the envelopes.The base price proposals were $3.1 billion for Sacyr, $4.2billion for Bechtel, and $6.0 for ACS, which led to financialpoint scores of 4000, 2980, and 2586, respectively. (Theprovisional prices were $103 million, $94 million, and $0,respectively.) The Sacyr base price elicited a cheer fromthe audience; many Panamanians are pleased that the locks maybe built for less money than expected. Sacyr supporterscheered, because their victory was almost assured with thebest technical score and lowest price.

¶5. (C) The spread on the bid prices is surprising. Sacyr wasexpected to be the low ball bid (due to its precariousfinancial situation and apparent financial backstop from theSpanish government), but both Bechtel and ACS reps had hintedto Embassy officials that their bids were just over $4billion. See ref G. However, the base price proposals linedup with the three bidding strategies outlined in ref D -lowball, value, or punt. The fact that ACS’s $6 billion bidwas almost double of Sacyr’s was not expected and isinterpreted by some as a punt. Bechtel reps state aconsortium cannot even “pour the concrete” for $3.1 billionand hinted even their $4.2 billion price was closer to alowball bid than a value bid. It is widely expected thatduring construction, Sacyr will attempt to renegotiate theprice with the ACP.

¶6. (C) After the ACP declared Sacyr the “best value” winner,the ACP opened the sealed envelope with the price ceiling (lapartida asignada) for the contract. Sacyr offered a baseprice below the ACP’s $3.5 billion ceiling; as a result,further negotiation on price between the ACP and Sacyr is notneeded. See ref G.

——————————-NEXT STEPS IN THE AWARD PROCESS——————————-

¶7. (C) The ACP Price Verification Board will now verify thatthe process complies with ACP requirements and the ACPContracting Officer will proceed to verify the contractor’squalifications. Both these steps should be pro forma, andthe ACP expects to officially award the contract in a fewbusiness days. Upon announcement of the award, the ACP willnotify all consortia members and allow the evaluationdocuments to be examined by all consortia. The winningconsortium must renew its surety bonds within twenty-eightdays. The losing consortia have three days to protest, oncethe five day notification period expires. The ACPProcurement Division must then adjudicate a protest withinthirty days. Whether or not the losing consortia agree withthe ACP decision, the ACP will proceed to sign the contractwith Sacyr. Without defining “work,” the ACP requires Sacyrto begin work seven days after the contract signing.

—————-BECHTEL PROTEST?—————-

¶8. (C) Bechtel reps informed the Ambassador that at this timethey only plan to protest the award if they can prove thatSacyr’s $400 million performance and $50 million paymentbonds (that must now by renewed from Zurich) arecounter-guaranteed by a European government and undisclosed.If the bonds are counter-guaranteed, then Bechtel repsbelieve Sacyr and the backing European government(s)(probably Spain) broke European Union anti-competitivenesslaws by not having this state aid declared. If true and ifthe potential remedy is significant, Bechtel might pursue thematter in court. However, counter-guaranteed surety bondsare not against the ACP bid rules. See ref H for backgroundon this issue. However, we can not rule out some other typeof Spanish government guarantee was provided to Sacyr(outside of the specific action of guaranteeing surety bonds)that would enable Sacyr access to the credit necessary tocomplete the project, preserve Spanish jobs, and prevent arumored shock to Spanish banking system that could ensue froma collapse of Sacyr.

¶9. (C) Bechtel reps were not alarmed over past press leaksfrom Impregilo of the Sacyr consortium forecasting Sacyr’shighest technical score and lowest price. They believe theleaks likely did not reflect undue access to insideinformation or skullduggery by the ACP. See ref G. Rather,the Bechtel rep opined, it was far more likely that Impregilowas engaging in puffery on the outcome in order to securevital new credit.

——————-PANAMANIAN REACTION——————-

¶10. (C) Overall, the ACP, President Martinelli, and thePanamanian public are clearly ecstatic about receiving aprima facie bargain basement price and that a Panamaniancompany (CUSA) is part of the Sacyr consortium. However, weunderstand there may be lingering doubts by some ACP BoardMembers and members of the government that the Sacyrconsortium does not have financial ability to complete theproject. Bechtel reported they had been called to a surprisemeeting with VP/FM Juan Carlos Varela, who was clearlyconcerned about the big price spread and suggested thecabinet needed to ask ACP Administrator Aleman to provide anexplanation.

————————CANAL EXPANSION OVERVIEW————————

¶11. (C) The Panamanian people approved the overall PanamaCanal Expansion project on October 22, 2006 in a NationalReferendum and the ACP broke ground on the first relatedexcavation project on September 3, 2007. The expansionconsists of three major components: construction of thelocks, widening and deepening of the navigational channels,and deepening Lake Gatun. Of the various major contracts tocomplete the expansion, there is now only one left – theestimated $400 million PAC 4 excavation that includes thebuilding of a dam. The ACP hopes to complete the expansionin 2014 for the 100th anniversary of the opening of thePanama Canal. Whether the expansion is completed on-time andon-budget may impact the 2014 Panamanian Presidential andNational Assembly elections.

——-COMMENT——-

¶12. (C) U.S. ECONOMIC IMPACT: Bechtel was expected topurchase $1.2 to $1.3 billion dollars worth of goods fromU.S. suppliers. Sacyr has not provided post with theirexpected U.S. purchases; however, due to Sacyr’s closerelationship with European suppliers, the amount of U.S.exports could be substantially affected. American companiesMontgomery Watson Harza (MWH) and Tetra Tech are minorpartners in Sacyr’s consortium; MWH and Tetra Tech have notrequested commercial advocacy.

¶13. (C) LONG TERM: For over a hundred years, the Panama Canalremained at the core of the United States/Panamanianrelationship. Two-thirds of all ships transiting the canalare traveling to/from a U.S. port and we retain a fundamentalinterest in the successful completion of the expansionproject. However, the Sacyr win marks an increased tide ofSpanish influence in Panama and – for now – injects anelement of uncertainty in to the future of the canalexpansion. What is undisputed, is the pride of Panamanianofficials in moving this project forward under theirsovereignty. See ref I.

STEPHENSON

DE RUEHZP #0550/01 1902136
ZNY CCCCC ZZH
O 092136Z JUL 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3575
INFO RUEHMD/AMEMBASSY MADRID PRIORITY 0338
RUEHRO/AMEMBASSY ROME PRIORITY 0237
RUEHMIL/AMCONSUL MILAN PRIORITY 0022
RHMFISS/CDR USSOUTHCOM MIAMI FL PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY
RUEAUSA/PANCANALCO WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY

XTAGS: XTAGECON, XTAGEINV, XTAGETRD, XTAGMARR, XTAGPM, XTAGEWWT, XTAGPREL 09PANAMA550