Spanish minister in Panama for talks on canal expansion row

Mr Martinelli told Ms Pastor that it was in the whole world's interest to make sure the Panama Canal expansion went ahead

Spanish Public Works Minister Ana Pastor has held an emergency meeting with Panamanian President Ricardo Martinelli as part of efforts to resolve a dispute over expansion work at the Panama Canal.

Ms Pastor travelled to Panama after a building consortium led by a Spanish company announced it would halt work.

The companies say Panama owes them $1.6bn (£1bn) in added costs.

Ms Pastor said that both sides should abide by the existing contract.

The government agency that runs the waterway - the Panama Canal Authority - says work should go ahead, arguing that the cost overruns are due to events that should be "normal" in such a construction project.

The new locks will accommodate ships that can carry 12,000 containers, as opposed to a maximum 5,000 containers at the moment

On 30 December, Spanish builder Sacyr, the leader of the consortium known as the Grupo Unidos por el Canal (GUPC), gave Panama 21 days to make the payment.

"Even though this is a dispute between individual companies, we are here to help them reach an agreement," said Ms Pastor after the meeting in Panama City. She is due to meet all the involved parties.

The GUPC also includes Impregilo of Italy, Belgian firm Jan De Nul and Constructora Urbana, a Panamanian company.

The Panamanian president said the aim was to make sure the work went ahead as planned.

"We are confident that these meetings will resolve these disagreements," said Mr Martinelli.

Construction of a third set of locks to allow the passage of wider ships began in 2009 and is due to be completed in June 2015.

The Panama Canal, which took 10 years to build and opened in 1914, carries 5% of world trade.

Further north, Nicaragua is planning to build its own canal linking the Atlantic and the Pacific Ocean, with capacity for bigger ships.

But on Saturday the Nicaraguan government announced work on the $40bn (£25bn) project would not start until 2015, a year later than planned.

The Chinese company which won the bid says it can finish building the waterway in six years, but critics say it lacks experience.