Construction sector awaits payments for state projects


The Treasury owes billions of rupees to construction companies for state projects these companies completed during the year 2021,  The Sunday Morning Business reliably learns. 

Speaking to us, Chamber of Construction Industry of Sri Lanka (CCISL) President Eng. Maj. Ranjith Gunatilleke confirmed that there are numerous complaints received by CCISL from contractors within this year as the Treasury is yet to settle their payments.

“I cannot give the accurate figures, but it’s definitely over billions of rupees. The payments for this year are long overdue, meaning the Treasury had not settled the payments as per the date of the agreement. However, the contract specifies that the Treasury will be paying an interest rate for delaying the payment to contractors,” Maj. Gunatilleke highlighted.

When inquired what the reason behind the delay in settling the payments is, he stated that there is more than one reason.

For example, he explained, the Treasury could have exceeded the budget than the allocated amount and new contracts signed on an urgent basis, thereby taking time for them to settle the payment, or that the Treasury has their own methods of balancing such expenses.

“These government-certified bills on contractors don’t get in time. Today, this industry practice has no discipline, which makes it very inconvenient for all levels to do a reasonable project with public funds,” he said.

Explaining further, Maj. Gunatilleke stated that if there is a particular contract signed between the government party and the contractor, it should follow the contract agreement with discipline, where the controlling government party administers the funds allocated accurately without any obstruction.

However, continuous attempts to contact Treasury Secretary S.R. Attygalle and the Deputy Secretaries of the Ministry of Finance were unsuccessful.

Meanwhile, speaking to The Sunday Morning Business in January, Attygalle stated that all pending payments for state projects have been settled to the respective construction companies, excluding a negligible amount of outstanding payments for projects that were completed in late December 2020.

“All 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 last year,” Attygalle noted.

Taking into account the financial struggles endured by the country’s construction companies for the past few years, the Central Bank of Sri Lanka (CBSL) on 26 June 2020 introduced a liquidity facility scheme to support the construction sector through licensed commercial banks (LCBs).

Accordingly, backed by a Letter of Acceptance of Payments of Outstanding Bills due to Contractors (LAPC), LCBs are directed to provide promissory notes secured by pledged Treasury bills and Treasury bonds in their own holding to the CBSL to obtain credit facilities at a concessionary interest rate of 4% to construction companies.

Accordingly, a circular issued on this facility by the CBSL last year stated that LCBs were required to enter into a loan agreement and a pledge agreement with the Monetary Board of CBSL each time the liquidity facility to the construction sector (LFCS) is drawn by the LCB.

Under the LFCS, the CBSL grants loans to LCBs at a concessionary rate of 1% per annum for a period not exceeding 180 days for on-lending to construction sector enterprises upon the receipt of promissory notes from LCBs secured by pledged Treasury bills and Treasury bonds with the CBSL.

Outstanding payments from the government to the construction sector stood at about Rs. 150 billion, which was to be settled before the presidential election in November 2019. Nevertheless, since the payments were not made in 2019, the Government decided to provide this facility for six months, within which period the Treasury is expected to settle pending payments to the respective companies. Therefore, they can settle the loan they obtained under this facility.

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Even though the ongoing pandemic has worsened their struggles, the construction sector’s financial struggles go back to 2018 due to a large number of unpaid bills by the government to contractors. These issues were exacerbated by the October crisis in 2018 and the Easter Sunday attacks in 2019 that drove away foreign direct investment (FDI), according to industry stakeholders.

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