Cobre Panama, a major infrastructure project in Panama, hit a major roadblock after a government ruling deemed the contract awarded to leading contractor First Quantum Minerals to be unconstitutional. The contract, valued at $1.4 billion, was originally awarded in August 2013 in an effort to expand the Panama Canal. First Quantum was dealt a blow, as they have spent $5 billion of their own money on the project since then.
The Panama court ruled that the contract between First Quantum and the government had breached competition laws, as the government was not required to conduct a public tender. This was done to speed up the process, but the court found that it broke Panamanian law that requires all public works to be tendered.
The Panama government has since clarified that it will review the contract and decide whether to award a new tender or re-negotiate with First Quantum. This may be a difficult task, as the latter has already invested significant funds and resources in the project, and it is now unclear if they will recover them in the event of a change in contract.
In response to the decision, First Quantum has stated that it is still committed to seeing the project succeed. However, investor confidence in First Quantum has been somewhat shaken in light of the court ruling, and shares in the company have dropped since the news.
For now, it looks like Cobre Panama is on hold until the government reaches a decision. It will be interesting to see how this contract saga plays out over the coming weeks and months, and if First Quantum is able to secure a revised agreement or have to start from scratch.