Govt. to settle Rs. 175 b outstanding to construction sector

Chamber of Construction (CCI) Secretary General CEO Eng. Nissanka N. Wijeratne 

• Chamber of Construction Industry says move will help companies to mitigate turmoil in construction industry

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 Chamber of Construction (CCI) Secretary General CEO Eng. Nissanka N Wijeratne told the BuildSL exhibition launching ceremony held in Colombo recently. 

“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.

“The other factor that has affected the industry is the indefinite suspension of contracts and projects.  We made several representations that any suspension of contracts to be done in a very planned manner not abruptly, but unfortunately the Government has 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 are 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 Wijeratne.

The other factor that affects the sector is the material price increase. We analysed 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 this we made some representations to the Government and a Cabinet decision was taken to allow price escalations even if the contracts didn’t have specific provisions but subject to a limit of 20% total limit on the contract sum.” But the actual fluctuation is much more than 20%.

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 export of 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 bonds 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 our banks by the 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 this 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. 

“In the third quarter of 2022 the Sri Lanka economy shrank by 11.8% but the construction industry shrank by 33.2%.  Normally when the economy shrinks, the construction industry will shrink at a much faster rate.  With the data of the third quarter of 2022 the construction industry contracted continuously for five quarters commencing from the 3rd quarter of 2021,” Nissanka N. Wijeratne said.

He said this shows that the construction industry has hit the rock-bottom of a deep pit. “Now in this situation we have to do whatever is possible to encourage those who are engaged in this industry and boost the morale of those stakeholders. That is why in spite of the many obstacles we decided to have this construction expo in 2023 and we had tremendous support from our sponsors and we have no doubt that the 2023 housing and construction exhibition will be a grand success,” he opined.  

The construction industry used to contribute 8-10% to the national GDP but during the last year it came down to 6.1% because of the hard economic times.  This industry used to provide employment, direct 650,000 and another 600,000 indirect and in total it would exceed 1.2 million.  When considering the households this will count to nearly 20% of Sri Lanka’s population.  That shows the importance of the construction industry, he added.

BuildSL 2023 exhibition in May

The 18th BuildSL 2023 exhibition will be held from 26 to 28 May at the BMICH.  Fentons, Dialog Axiata PLC, Guangdone Kin Long, SoftLogic Retail, Ajax Engineering, Lex Duco, Alumex Group, Rhino Roofing Products , Advantis Engineering and Insee City Cement (Lanka) will sponsor the event.