The cash-strapped Sri Lankan government's delay in paying billions of rupees of outstanding payments for construction consultants and contractors has created serious problems for the local construction industry, a stalwart of the industry said.
Over Rs 8 billion outstanding payments are due to the contractors in the road sector alone. In addition, there are other outstanding payments due from other state agencies. "The total outstanding payments are estimated at over Rs. 15 billion for projects done by medium and small contractors including those working for provincial councils. The exact period of delay in the payments range from around two years down to six months," said President of the Chamber of Construction Industry (CCI) of Sri Lanka Surath Wikramasinghe in an interview with the Business Times. The major problem faced by the construction industry is insufficient working capital for contractors badly affected by the "government's prolonged delays" in payment and approvals for the construction projects completed by them, he added.
He said that local contractors cannot even bid for mega projects of the state due to cash flow problems. Banks are also reluctant to give loan facilities even for reputed construction companies paving the way for foreign companies especially from China to grab such contracts. Some contractors have been forced to dispose of their company and personal assets purely because of negative cash flows. A senior Treasury official said that a decline in revenue, depreciation of the rupee and increased expenses had created its own cash flow problems. "Most contractors possess good financial status and background and they should be able withstand the present financial crisis," he added. He noted that the major players of the local construction industry contribute 8-10 % to the national economy.
However Mr. Wickremasinghe said that the government should not treat contractors like this and what they should do is to repay outstanding payments, while awarding more construction contracts to them even allowing them to form consortiums to make their bids for mega projects. The Chinese were doing the same, he revealed.
He disclosed that 90 % of raw materials for the construction industry are being imported and the devaluation of rupee has resulted in the increase of the cost of raw material by 10% to 15%. In addition the recent fuel increase has also become an impedimnt, he said.
He said that fixed price contractors were now facing difficulties due to the price increase in raw materials and such contracts cover considerable number of projects in the country. Therefore, some workable solution was needed to protect them from financial bankruptcy, he said. He said that there are several projects including hotels, high rise commercial and residential complexes in the pipeline to be implemented. However, the Building Permit Approvals delays are a huge deterrent, for the developer to commence work. Therefore, the planning process should be fast-tracked,' he said.
Dr. Rohan Karunarathne, President - Ceylon Institute of Builders, in a separate statement said the fuel price hike will reflect with an overall cost increase of 16% to 18% on the local construction industry. He has requested bankers to consider this unexpected change and reschedule their loans. A greater weightage of the price hike would be felt by projects involving commercial buildings such as condominium housing schemes, tower developments and hotel projects, he added.