The Panama Canal Authority and the contractors building a third set of locks for the waterway are very close to an agreement to resolve the dispute that is threatening the project, Panamanian President Ricardo Martinelli said Monday.

"They are very close to arriving at a happy conclusion ... But I prefer for us to give time to the parties, who have set tomorrow as the final day, so that it may be they (who announce results), but I'm sure that they are close to arriving at an agreement," he told reporters.

Tuesday is the deadline established by the canal authorities, or ACP, and the GUPC consortium by which they must agree on a financial plan that allows construction of the third set of locks to resume, a project which is more tan 65 percent complete.

GUPC, which is led by Spanish construction giant Sacyr and Italy's Impregilo, formally notified the ACP on Dec. 30 that it would suspend work Jan. 20 if the authority did not agree to pay the contractors an additional $1.6 billion to cover cost overruns.

The date of the possible shutdown has been postponed twice as the parties continue to negotiate.

"I'm sure that the parties, before tomorrow, can arrive at an agreement that will be satisfactory for (them all). I understand that they are on the verge of getting there," Martinelli said Monday after a meeting with the diplomatic corps.

Before the start of that meeting, Spanish Ambassador Jesus Silva assured journalists that the negotiations between the ACP and the GUPC had "advanced a great deal."

"The fact that they continue negotiating and that they are sitting down together is a good sign that they are working and that their points of view are getting closer," added Silva, after noting that the Spanish government is not participating in the talks.

The contract for the locks, which is the centerpiece of a $5.25 billion canal expansion, was awarded to GUPC in 2009 and calls for the ACP to pay the consortium a total of $3.12 billion.

So far, the ACP has paid GUPC $2.83 billion, including repayable advances, plus an additional $180 million for cost overruns.

The Panama Canal, which was designed in 1904 for ships with a 267-meter (875-foot) length and 28-meter (92-foot) beam, is too small to handle modern ships that are three times as big, making a third set of locks essential. EFE