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Construction contractors engaged in public projects face cash crunch 

Sri Lanka’s construction industry is facing thousands of job losses and a steep decline in construction projects due to increasing costs of raw materials, paired with a fuel and electricity crisis.

Construction is one of the key sectors that has boosted the country’s overall economic growth in the past. The sector provides employment for nearly 1 million people including 600,000 direct jobs.

Sri Lanka’s construction contractors involved in public infrastructure and building projects are now in a difficult situation with the Finance Ministry’s decision to suspend almost all such projects in bid to curtail capital expenditure, several leading contractors complained, adding that many are still to receive their due payments from the Treasury for completed and ongoing projects running up to billions of rupees.

Unpaid claims of road contractors and contractors of other development projects carried forward stood at over Rs.35.2 billion since 2019 and the final amount of dues up to this year is still to be finalised, a Finance Ministry official said.

The payments for last year were also overdue up to some extent as the Treasury had not settled the payments in accordance with the date of the agreement, he added.

The Ministry has taken a decision to phase-out the contractors’ payment for five years for the work done in development projects including express highways following the pandemic and the current economic crisis, he disclosed.

Majority of the previous outstanding bills, including that of the previous Government, have been approved and settled by the respective ministries. About Rs. 243 billion worth of bills have been settled in 2020 out of the long overdue amount of Rs. 400 billion to the contractors, he revealed.

However there were carried forward dues for contractors which have to be settled after a comprehensive review on the progress of their work in state projects as some of them were suspended midway, he added.

Such affected contractors should apply to the Public Finance Department of the Treasury for a redress, he said, adding that the payments will have to be further delayed under the present crisis situation.

Around 75 per cent of construction work in the country has come to a standstill owing to the increase in the cost of building materials together with the spike in fuel prices, says the National Construction Association of Sri Lanka.

Its Vice President, M.D. Paul stated that the price of a cube of sand has increased by over Rs. 8,000 to almost Rs.22,000, after the fuel price hikes. However, since the fuel price hikes also increase all transport costs, a cube of sand now costs Rs.30,000, he added. Moreover, metals, and all other building material costs have increased by 60 to 70 per cent..

With over 70 percent of depreciation in the rupee currency since March 7, the cement prices have risen to near 3,000 rupees from 850 rupees during the Covid-19 pandemic, industry stake holders say. 

And the price hike along with severe shortage of cement had made it hard for the industry.

Importers stated that they are turning away from traditional vendors like China and India, and turning to Bangladesh for their cheaper, albeit low quality cement.And the job losses are already felt by the industry now.

“Due to several factors causing a debilitating impact, over 100,000 jobs will be lost within the next 3 months, unless immediate remedial action is taken.” Nissanka N. Wijeratne, the Secretary General/CEO Chamber of Construction Industry.

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