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