News
Cement shortage: Building industry collapses, Govt. compelled to pay 20 percent more for projects
The escalation in the prices of construction materials, including cement and steel, in recent months has compelled the government to pay 20 percent extra to contractors who have undertaken its mega projects.
Projects awarded by the government during the three months before December 6, 2021 will qualify for a 20% increase or the compensation due to price variations of materials.
In terms of the procurement guidelines under the Construction Industry Development Act, the Finance Ministry has sent out a letter to ministries, instruction them to grant the compensation due to price adjustments
However, industry sources expressed dissatisfaction over the concession, saying that the relief had come too little too late.
They said that the industry was overburdened with price volatility of materials, especially cement. The steep hike in cement prices and the scarcity of cement and other material has made the concession meaningless.
The National Construction Association of Sri Lanka said the billion rupees industry was facing an imminent collapse and the government had to take immediate steps to provide the dollars necessary for imports.
The industry has been crippled by the non-availability of cement in the market and the curbs on imports due to the deepening foreign exchange crisis.
The Association’s President, Susantha Liyanarchchi, said that although the government had added 17 more importers to its list of importers as a mitigatory measure to address the problem, the shortage of cement continues.
With less than 50 percent of the country’s requirement available in the market the price of a 50 kg bag of cement, which was about Rs. 1000 in October last year is now sold at Rs. 1375. In the black market, the bag of cement is sold at prices varying from Rs. 1750 to Rs. 2000.
The problem has been compounded by the removal of price controls on cement. This resulting in many mega and medium scale projects being stalled.
“Last week, 22 metric tonnes of cement — about 435,000 bags — was imported. But the stocks were snatched up within hours after they were cleared,” Mr. Liyanarchchi said. The country needs around 7 million metric tonnes of cement a year. About 70 percent of the demand is met by imports. The shortage has slowed down the construction industry, leading to job losses. Also hit hard are hardware stores.
An estimated 8000 hardware shops depend on the construction industry and without cement, no other building material sells, an industry source said. The Government’s 20 percent compensation offer due to price variation in construction materials will not apply to private projects undertaken by small contractors.
The Condominium Association of Sri Lanka said the shortage of cement and other building materials had frozen the industry. Its president, Brahamanage Premalal, said several major private sector projects had come to a standstill. While a few clients understood the situation and had given time to complete the work, many clients were insisting that their houses should be completed on time as per the agreements, he said, adding that some clients had stopped payments.
If the situation continued, industry sources predicted a sharp increase in the prices of private apartments and villas in the near future.
“We have asked for an appointment with the subject minister to discuss our issues,” Mr. Premalal said.
The Construction Industry Development Authority (CIDA), the industry regulator, said the solution was in the Government’s hands.
CIDA Director Savindra Amarasekera said if the Government could ensure the availability of cement, it could lead to a price drop.
In October last year, the Government lifted the price control on cement. But buyers said the price was being decided by a trade mafia which is manipulating the demand-and-supply chain.
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