News
Central Expressway: Committee to study Chinese contractor’s US$ 190mn claim
View(s):By Namini Wijedasa
The Highways Ministry will appoint a committee to analyse a claim of US$190 million (Rs 56 billion) from the Metallurgical Corporation of China (MCC), the Central Expressway Part I (CEP1) contractor, even as the project’s physical progress remains stalled at a mere 36.38 per cent since construction started in September 2020.
The project has been held up since China EXIM Bank suspended all loan disbursements in April 2022 following Sri Lanka’s debt default. EXIM was to have conveyed by this week whether it would resume financing of CEP1, official sources said, but neither Sri Lanka nor China has yet announced a decision in this regard.
On May 4 last year, a concrete beam collapsed in the section built thus far
Instead, the Cabinet recently approved the formation of a seven-member committee whose remit is to “analyse the claims to be paid to the contractor and the adverse impact on the Government of Sri Lanka, both resulting from the prolonged suspension of construction work on the project, and to submit its report within a month”.
Separately, a Cabinet-appointed negotiation committee will discuss with the contractor “issues encountered in the project” with a view to submitting suitable recommendations.
The 37km Kadawatha–Mirigama leg was the first section of the CEP to be awarded, but it remains nowhere near completion, nine years later. The loan agreement was signed in March 2019 between the China EXIM Bank and Sri Lanka: US$ 989 million to cover 85 per cent of the contract price.
It was the single largest loan passed by China EXIM for Sri Lanka. But the construction agreements were signed between MCC and the Road Development Authority (RDA) as early as 2015 and 2016.
While the original 2015 Cabinet decision was to obtain a 100 per cent concessional loan from China EXIM, the final deal was that the RDA would meet 15 per cent of the contract value via borrowings from the State-run Bank of Ceylon and People’s Bank. China Exim has so far released just US$51.5 million (Rs 15.2 billion) of the total pledged loan.
The Sri Lankan government has already disbursed US$175 million to MCC as a “mobilisation” or start-up advance (which is paid in local funds under the contract agreement but deducted subsequently from future progress payments). The contractor now owes Rs. 31 billion as advance (resettlement) dues.
On May 4 last year, a concrete beam collapsed in the section built thus far. The Sri Lankan government approved a payment of Rs. 7.59 billion for MCC to erect a diaphragm wall, as it was unsafe for people using the roadway below. Rupees 4 billion of this had been paid by April.
Sri Lanka’s Finance Ministry also approved allocations for CEP1 for 2025, amounting to Rs. 86.3 billion. Whether or not any of this will be disbursed is contingent on the recommendations of the seven-member committee.
Earlier this year, a team from China EXIM visited Sri Lanka and discussed the project. They proposed three options for the Sri Lankan government to consider: to change the debt instrument to a different modality called “loans for overseas contracted projects (Chinese borrower)”; to consider continuing funding from the People’s Bank of China, provided the loan currency is changed from US dollars to renminbi; or to obtain co-finance from other sources such as multilateral development partners and domestic sources to reduce the portion financed by EXIM Bank. At present, the strongest push from China EXIM is to continue funding with a change of currency from USD to renminbi, authoritative sources said, adding that the Sri Lankan government appears to have no immediate plan for CEP1 apart from continuing discussions with China.
Even as this section drags on, the RDA has finally called tenders for the first 500 metres of the Central Expressway, from Kadawatha to the starting point. This stretch was initially meant to be completed under the Outer Circular Road Project, but the loan agreement for that development expired.
Offers have now been invited through the national competitive bidding procedure from local bidders. This roadway will, however, end at the start of CEP1, the work for which is yet to recommence.
The best way to say that you found the home of your dreams is by finding it on Hitad.lk. We have listings for apartments for sale or rent in Sri Lanka, no matter what locale you're looking for! Whether you live in Colombo, Galle, Kandy, Matara, Jaffna and more - we've got them all!