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RHMFISS/COMDT COGARD WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAUSA/DEPT OF HHS WASHDC
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RUENAAA/SECNAV WASHDC
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C O N F I D E N T I A L PANAMA 001719 
 
SIPDIS 
 
SIPDIS 
 
FOR STATE WHA/CEN - TELLO 
 
E.O. 12958: DECL: 10/01/2009 
TAGS: ECON ETRD PM PREL
SUBJECT: U.S. FIRM EXPECTS LABOR AND HOUSING CONSTRAINTS ON 
PANAMA CANAL EXPANSION 
 
REF: A. PANAMA 2374 
     ¶B. PANAMA 807 
     ¶C. PANAMA 1107 
     ¶D. PANAMA 1236 
 
Classified By: Economic Section Chief Timothy P.Lattimer - Reasons 1.5( 
d&e) 
 
¶1. (C) SUMMARY. On October 16, 2007, EconOff met with 
Bechtel's Peter Pappas, Principal Vice President, and Paul 
Gibbs, Business Development Manager, to discuss Bechtel's 
design/build contract bid on the $5.25 billion Panama Canal 
expansion project.  The contract winner is scheduled to be 
announced during the fourth quarter of 2008.  Pappas said 
Bechtel will have to train virtually all of the Panamanian 
workers it would hire.  Pappas and Gibbs said that they feel 
that the Panama Canal Authority (ACP) may have underestimated 
the amount of work required to manage the design/bid contract 
bidding process.  They said Panama's current infrastructure 
is inadequate to handle the movement and housing of the 
necessary workers and equipment for the project.  Pappas said 
the lack of adequate roads and the need for temporary worker 
housing would likely hamper the project. Regardless of which 
consortium wins the design/build contract, Pappas and Gibbs 
said there will very few opportunities for U.S. suppliers. 
Pappas said that if Bechtel wins the contract, the majority 
of the material, equipment and workers would come from 
non-U.S. suppliers.  END SUMMARY. 
 
------------------------------------ 
ACP May Have Underestimated the Task 
------------------------------------ 
 
¶2. (U) On October 16, 2007, EconOff met with Pappas and Gibbs 
to discuss Bechtel's design/build contract bid on the $5.25 
billion Panama Canal expansion project. The design/build 
contract is estimated at $3 billion.  (See reftel A.) 
Initial bids for the pre-qualification round are due by 
November 15, 2007.  It is anticipated the list of 
pre-qualified bidders will be announced during the first 
quarter of 2008.  The contract winner is scheduled to be 
announced during the fourth quarter of 2008. 
 
¶3. (C) Pappas and Gibbs said that the ACP may have 
underestimated the amount of work required to manage the 
design/bid contract bidding process.  Pappas said that the 
process was about 3-4 months behind schedule.  He noted that 
the deadline for bid submissions had already been moved from 
October 31 to November 15, and it could be pushed to an even 
later date.  Pappas said that while the canal expansion is a 
desirable project for Bechtel, it would be a medium sized 
project for them.  Pappas said that Bechtel currently has six 
projects around the world that exceed $5 billion in value. 
The Bechtel executives would not speculate on the potential 
for any cost overuns for the expansion project. 
 
---------------------------------------- 
Contractor to Face Lack of Skilled Labor 
---------------------------------------- 
 
¶4. (C).  Pappas said that of the approximately 6,000 workers 
needed, Bechtel would be lucky to find 1,000 skilled 
Panamanian workers.  Pappas said Bechtel will have to train 
virtually all of the Panamanian workers it would hire. Pappas 
said Bechtel would have to bring in hundreds of its own 
trainers and would have to import a number of foreign skilled 
workers.  Pappas and Gibbs said Bechtel realizes it will have 
to compete for workers with Occidental Petroleum's proposed 
$7-$8 billion refinery project in Panama's Puerto Armuelles 
area.  (See reftels B and C.) 
 
--------------------------------------------- -------------- 
Road and Housing Constraints Could Impact Expansion Project 
--------------------------------------------- -------------- 
 
¶5. (C) Pappas and Gibbs said that Panama's current 
infrastructure is inadequate to handle the movement and 
housing of the necessary workers and equipment for the 
project.  Pappas said Bechtel would have to build the 
necessary (and currently nonexistent) access roads and 
housing for thousands of workers on each of the Pacific and 
Atlantic entrances to the canal. The alternative, Gibbs said, 
 
was to have hundreds of buses transporting workers daily. 
Each described this as completely unworkable given the 
current state of already saturated roadways.  The much-touted 
Panama City-Colon road, which is scheduled to open January 
2009, is seriously behind schedule according to Gibbs.  He 
believes the road will not be built before the third quarter 
of 2009 at the earliest.  Pappas and Gibbs said the road is 
crucial to the movement of personnel and equipment for the 
project. 
 
¶6. (C) Pappas said that the current environmental impact 
study does not contemplate the construction of temporary 
worker homes.  In his opinion, the environmental impact study 
is worthless without acknowledging the need for worker 
housing near the work sites.  He also said that the Torrijos 
administration's position that the GOP would not build, or 
allow, temporary worker housing sites is unrealistic if the 
ACP is to complete the project within the stated budget and 
timeframe. 
 
--------------------------------------------- --------------- 
Most Materials and Equipment to Come From Non-U.S. Companies 
--------------------------------------------- --------------- 
 
¶7. (C) Regardless of which consortium wins the design/build 
contract, Pappas and Gibbs said there will very few 
opportunities for U.S. suppliers.  Pappas said that if 
Bechtel wins the contract, the majority of the material, 
equipment and workers would come from non-U.S. suppliers. 
Pappas said the U.S. does not have the raw materials needed 
(such as cement and rebar), there are few U.S. companies 
which have any expertise in the expansion project, and much 
of the heavy machinery they would contract for would come 
from Asian and European suppliers.  Gibbs said U.S. companies 
are uncompetitive in this field and noted that the sole U.S. 
bidder on the first of the five excavation contracts had a 
bid  twice as high as the winning bidder.  (See reftel D.) 
Of the 60 companies that attended the design/build contract 
pre-qualification meeting on September 17, 2007, the only 
U.S. construction companies present were Bechtel and MWH of 
Colorado.  The Bechtel bid is being handled from their London 
offices. 
 
---------------------------- 
Comment - Reality Setting In 
---------------------------- 
 
¶8. (SBU) Bechtel's comments reaffirmed Post's view that the 
canal expansion project will encounter some serious 
obstacles.  The lack of skilled workers continues to concern 
every major company seeking to do business in Panama.  Now 
that the expansion project is in the hands of knowledgeable 
professionals, they have begun to ask inconvenient questions 
about how the GOP and the ACP will provide needed ancillary 
services (roads, housing, energy, healthcare, and training). 
Bechtel appears convinced that the GOP is not up to the task 
and that it will fall to the contractors to provide the 
necessary infrastructure, training, and housing.  Despite the 
GOP's efforts $88 million effort to train Panamanians to work 
on the canal expansion project, it is becoming increasingly 
clear that there will not be enough qualified Panamanian 
workers.  Given Panamanian laws requiring that 90% of the 
workforce be Panamanian, contractors will be required to 
expend significant time, effort and money to train the 
requisite number of Panamanians.  While the ACP claims it has 
built in adequate reserves for delays and budget overruns in 
the $5.25 budget, the lack of skilled labor has the potential 
to result in significant delays and possible cost overruns. 
 
¶9. (U) Given Bechtel's comments in paragraph 7 and the few 
remaining canal expansion contracts up for bid, it appears 
that U.S. companies will have limited opportunities for 
further participation.  Currently it is anticipated that only 
two U.S. companies will bid in the design/build contract as a 
significant participant.  As Bechtel states, much of the 
material and equipment will come from non-U.S. companies. 
Further, the remaining four excavation contracts will almost 
assuredly go to non-U.S. companies; especially given that 
only one U.S. company bid for the first excavation contract 
and bid double the amount of the winning bid.  To date, U.S. 
participation in the canal expansion process has been limited 
to winning the services contracts (environmental impact, 
 
legal, and project manager).  This reflects the nature of 
U.S. foreign direct investment in Panama, where the bulk of 
the investment is in financial instruments, banks, holding 
companies and some wholesale businesses.  Aside from 
Occidental Petroleum's proposed oil refinery, U.S. companies 
are not participating in any of the other large scale 
infrastructure projects in Panama. Most of the other large 
scale infrastructure projects in Panama are being handled by 
Colombian, Brazilian and Spanish companies.    End Comment. 
EATON