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### Viewing cable 09PANAMA519, PRIMARY PANAMA CANAL CONTRACT TO BE AWARDED

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09PANAMA519 | 2009-06-30 17:05 | 2010-12-18 12:12 | CONFIDENTIAL | Embassy Panama

`

    VZCZCXYZ0025
    OO RUEHWEB

    DE RUEHZP #0519/01 1811705
    ZNY CCCCC ZZH
    O 301705Z JUN 09
    FM AMEMBASSY PANAMA
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 3538
    INFO RUEHMD/AMEMBASSY MADRID IMMEDIATE 0334
    RUEHMIL/AMCONSUL MILAN IMMEDIATE 0019
    RHMFISS/CDR USSOUTHCOM MIAMI FL IMMEDIATE
    RUEAIIA/CIA WASHDC IMMEDIATE
    RUCPDOC/DEPT OF COMMERCE WASHDC IMMEDIATE
    RULSDMK/DEPT OF TRANSPORTATION WASHDC IMMEDIATE
    RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
    RUMIAAA/HQ USSOUTHCOM MIAMI FL IMMEDIATE

` `

    C O N F I D E N T I A L PANAMA 000519

    SIPDIS

    DEPT OF COMMERCE - MATTHEW GAISFORD
    DEPT OF TREASURY - SARA SENICH

    E.O. 12958: DECL: 06/29/2019
    TAGS: ECON EINV ETRD MARR PM EWWT
    SUBJECT: PRIMARY PANAMA CANAL CONTRACT TO BE AWARDED

    REF: 2009 PANAMA 195

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

    -------
    SUMMARY
    -------

    1) (C) The public ceremony to announce a winner for the
    Panama Canal's $3.35 billion third set of locks contract is
    expected to be July 9. Three competing consortia submitted
    bids and are led by the following firms: 1) Bechtel
    (American), 2) ACS (Spanish), and 3) Sacyr (Spanish).
    Reportedly, both Bechtel and ACS submitted technically
    compliant bids priced over $4 billion; however, there are
    doubts about Sacyr's technical and financial compliance.
    Unfortunately, there is no clear standard for minimal
    technical compliance and how a technically non-compliant bid
    would be disqualified. Sacyr's price reportedly is lower
    than $4 billion and price weighs heavily in the determination
    of the winner. Additionally, Sacyr's bid is reportedly
    supported by government export credit agencies reinsuring
    their bonding syndicate, which is against the spirit of the
    Panama Canal Authority's (ACP) public efforts to not involve
    sovereign guarantees (the inclusion of which masks a
    consortium's financial well-being and provides a financial
    bidding advantage). Post will continue to monitor the
    process, to advocate for Bechtel, and to promote U.S. based
    content.

    ------------------------------
    A WINNER WILL SOON BE DECLARED
    (IF THE BID IS RIGHT)
    ---------------------

    ¶2. (SBU) The public ceremony to announce a winner for the
    Panama Canal's third set of locks contract is expected to be
    held between July 2 and July 14, according to private
    statements made by representatives of the ACP and Canal
    Expansion Project Advisor CH2MHill to Embassy and consortia
    staff. July 9 is the most commonly reported date. As
    explained in reftel, the financial portion of the bids will
    be opened and scored during a ceremony. The financial score
    (45% of the total points) will then be combined with the
    technical score (55% of the total points), which is currently
    being calculated by a team of experts. The winner will then
    be instantaneously and publicly announced. However, if the
    winner's financial bid is higher than the ACP's price cap
    (which will be revealed moments before the consortia's
    financial bids are opened), the winner will be asked to lower
    their price to within the price cap. If the winner does not
    accept the price cap price, then the ACP will allow all
    consortia, who submitted technically and financially
    compliant bids, to resubmit price proposals. These new price
    proposals would then be combined with already determined
    technical proposals and a new winner would be declared. If
    the price is still too high, the ACP can raise its price
    ceiling (which would need approval by the National Assembly)
    or void the entire bidding process.

    --------------------------
    COMPETITORS AND THEIR BIDS
    --------------------------

    ¶3. (C) Three consortia submitted bids and are led by the
    following firms: 1) Bechtel (American), 2) ACS (Spanish), and
    3) Sacyr (Spanish). According to a representative from the
    Canal Expansion Project Advisor (American firm CH2MHill),
    each consortium submitted differing bids. Bechtel reportedly
    produced the "Rolls Royce" set of locks, which exceeded ACP
    requirements, including for throughput. (As laid out in the
    public bid documents, a consortium does not receive extra
    points for exceeding requirements.) ACS reportedly more
    closely followed the ACP's requirements. Sacyr, according to
    CH2MHill, submitted a technical proposal, which may not be
    minimally acceptable. Due to the publicly available criteria
    for scoring the technical proposals and assuming initial
    reports are accurate, it is anticipated that Bechtel and ACS
    will receive roughly the same technical score. Sacyr, if
    they are found technically compliant/viable, would score only
    slightly lower. Thus, if the technical scores are close,
    price will be the determining factor in the formula to
    determine the winner.

    ¶4. (C) Reports of the prices attached to the bids roughly
    track the quality. According to consortia members, both
    Bechtel and ACS have bids that "start with a 4" - meaning
    over $4 billion. Sacyr, via consortium member Impregilo,
    leaked to the press the price of $3.7 billion on April 21 and
    stated that they have the lowest price. Depending on the
    accuracy of the leaked price data, Sacyr's financial score
    could be significantly better than Bechtel's and ACS's.
    (Leaking the bid price is a breach of the bidding rules.
    Impregilo recently broke the bidding rules again by declaring
    that the Sacyr-led consortium has the highest technical
    score. Absent a breach in ACP security, this information was
    unknowable at the time of the statements. ACS and Bechtel
    have both written strong protest letters to the ACP.) Post's
    Senior Commercial Officer reports that during an unrelated
    meeting, a senior ACP official accidentally stated the ACP
    price ceiling is $3.62 billion.

    -------------------------
    SACYR - POTENTIAL SPOILER
    -------------------------

    ¶5. (C) When combined the financial and technical components
    of the bid are combined in 45% and 55% proportions
    respectively, the Sacyr bid could win this "best value"
    competition. A Sacyr win could be disconcerting. Sacyr is
    considered bankrupt and is being propped up by the Spanish
    government. Therefore, besides possibly having a design that
    is not workable, a Sacyr wins adds financial risk to the
    locks construction. The bid process has protections against
    non-compliant bids, if the ACP chooses to activate the
    protections. If a bid is technically non-compliant (and the
    ACP has not detailed the exact parameters of a technically
    non-compliant bid), the ACP has the option to not even open
    the price envelope. Bechtel representatives told the
    Ambassador on June 24 that they prefer this path. If a bid
    is financially non-compliant, the ACP possibly can reject the
    offer. A bid would be financially non-compliant if a
    consortium failed a financial health audit, which will be
    conducted on the winner. All consortia were determined by
    the ACP to be financially healthy as of November 15, 2007
    during the pre-qualification phase. Based upon previous
    decisions to keep all consortia in the process, the ACP is
    not expected to disqualify any consortium.

    --------------------------------
    SACYR - RECEIVING STATE SUPPORT?
    --------------------------------

    ¶6. (C) Based upon reports from representatives from competing
    consortia, Sacyr's $50 million performance bond is backed by
    the government export credit agencies of Spain
    (CESCE-Secretaria de Estado de Comercio), France
    (COFACE-Compagnie Francaise D'Assurance Pour le Commerce
    Extereur), and Italy (SACE-Servize Assicurativi del Commercio
    Estero). Sacyr gained a competitive advantage by securing
    the near equivalent of a sovereign guarantee apparently at no
    additional cost and no additional scrutiny of their books
    (vice Bechtel and ACS who had to purchase the bond on the
    open market and subjected their firms to some level of
    financial evaluation). This arrangement goes against ACP
    Administrator Aleman's publicly expressed desire not to have
    sovereign guarantees, because the performance bond ideally
    should serve as a surrogate for a consortium's financial
    health. If a consortium could not provide the $50 million
    performance bond, then the consortium was probably not
    financially healthy. If Sacyr wins, litigation from Bechtel
    or ACS is likely. For ACS, there is the added dimension of
    why the Spanish government is helping one Spanish consortium
    and not the other. It should be noted, however, that the ACP
    has not prohibited use of export credit agencies in the
    bidding process.

    -------
    COMMENT
    -------

    ¶7. (SBU) In essence, the ACP created a transparent process
    and now - due to rigid adherence to that process - may choose
    a consortium that provides the "best value," on paper, but
    may not be capable of completing the project. It appears
    that the ACP wished to retain flexibility by not clearly
    demarcating the floor of technical non-compliance and not
    deviating from its rules to ask Sacyr for a comprehensive
    audit before the bids are open. (We understand that Sacyr may
    have provided year-to-date 2009 financial data that, due to
    the limited time window of that data, could continue to mask
    Sacyr's true financial condition.) Post will continue to
    monitor the bidding process closely to ensure fairness. Post
    maintains frequent communication with Bechtel representatives
    in order to coordinate actions to assure Bechtel is not
    unfairly disadvantaged.
    STEPHENSON

`