The government has taken a policy decision to settle the outstanding payments due to the construction industry from the capital allocations of 2023 which is approximately Rs 350 billion Eng. Nissanka N Wijerathna Secretary General, CEO the Chamber of Construction Industry (CCI) told the BuildSL exhibition launching ceremony held in Colombo on Friday.
The outstanding payment towards the industry stood at Rs 200 billion but with a few payments it has come down to about Rs 175 billion and they have begun to settle the outstanding payments as and when the money becomes available to the ministry. Following an earlier decision the government settled some of the payments with bonds of the tenure of two and a half years and 22.5% interest rate, he said.
“The other factor that has affected the industry is the indefinite suspension of contracts and projects. We made several representations on these that any suspension of contracts to be done in a very planned manner not abruptly, but unfortunately the government have not listened to this and because of that some of the capital expenditure that went into those projects might get wasted. Another factor that has really affected is the increased interest rates and bank’s reluctance to support the construction sector. Some of the banks consider the construction sector as a plague. 22.5% of the exposure of commercial banks is to this sector and unless banks also support this sector and the sector goes down we will carry the banks also down the hill, “cautioned Wijerathna.
The other factor that affects the sector is the material price increase, he said.
“We analyzed during the last two years most of the building construction materials increased from 150% to 300% and the irony is these price increases are not reflected in some contracts. There have been several contracts given in the State sector on fixed price terms violating the government procurement guidelines. Because of that we made some representations to the government and a Cabinet decision was taken to allow price escalations even if the contract didn’t have specific provisions and include an equivalent of 20% total limit on the contract sum.”
He said the options to keep the construction industry in the float will be to attract more FDIs but attracting investments have many obstacles mainly corruption in the system because investors will want a fair playing field to invest. The other avenue is to encourage exporter construction services but the main obstruction is obtaining bonds and guarantees to undertake work abroad.
“You have to get bonds and guarantees in foreign currency and the issue is our commercial banks are not in a position to issue bond and guarantees in foreign currency and even if they do so most of the foreign clients won’t accept it because of the downgrading of most of the foreign rating agencies,”
He said they have proposed to the President and the government to establish a presidential commission or taskforce to look into these problems and make sensible suggestions and even proposed the composition of these commission but to date they have not got the green light for that proposal and were pursuing on that and hope that in the next few weeks that will become a reality.
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