Chamber of Construction Industry meets banks to discuss industry issues

• Discussion ensues how banks could accept Treasury bonds, through which govt. is trying to settle dues to contractors
• Govt. urged to negotiate a counter guarantee facility from either ADB or World Bank to local banks to overcome non–acceptance of US dollar bonds and guarantees given by local banks
• Suggestion made to CB that defaulted loans of construction firms to finance State sector projects should not be considered as NPL’s

The Chamber of Construction Industry (CCI) recently initiated a dialogue with banks on mitigating the difficulties faced by the construction industry. The meeting that was held on December 12 was attended by senior officials of nine key commercial banks. 

During the discussion, CCI pointed that during the last 2 years the prices of construction materials escalated between 150-300 percent due to the currency devaluation and import restrictions. This has resulted in the construction costs to increase by 100 percent during the last two years. 

The government imposing an upper limit of 20 percent on the contract sum for the reimbursement of price escalation, has led to much loss to construction companies.

The total amount outstanding to construction companies on work executed to state sector is a staggering Rs.209 billion and some of these payments are overdue for over one year. CCI stated that a large amount of this outstanding amount is funded through banks.  Now the government is suggesting to settle the outstanding amount mostly with Treasury bonds. A discussion ensued how banks could accept these bonds.

To overcome the effects of economic meltdown, two suggestions made were to encourage the FDI’s and the export of construction services. It was reported that many foreign investors are discouraged due to the rampant corruption in granting project approvals. 

 Also, Sri Lankan companies are unable to accept overseas contracts due to the non–acceptance of US dollar bonds and guarantees given by local banks. The international banks operating in Sri Lanka are not issuing US dollar bonds and guarantees anymore. A solution suggested was for the government to negotiate a counter guarantee facility from either ADB or World Bank to local banks.

Further, a suggestion was made to the Central Bank that the defaulted loans taken by construction companies to finance State sector projects should not be considered as NPL’s as the non–performance is due to the failure of the government and not due to any fault by these companies.

Finally, it was pointed out that this monumental impasse was not created by the construction sector, and banks should go slow on foreclosing loans and all should get together to get out themselves from this mess.