SME construction companies facing bankruptcy

By Madhusha Thavapalakumar

In the face of mounting financial troubles exacerbated by the aftermath of the Easter Sunday attacks, small and medium-scale construction companies are on the verge of bankruptcy, unless the Government addresses their concerns swiftly, The Sunday Morning Business learnt.

Speaking to The Sunday Morning Business, Chamber of Construction Industry Sri Lanka (CCISL) President Eng. Maj. Ranjith Gunatilleke noted that small and medium-scale construction companies are burdened with multiple issues which could lead to these companies closing down soon.

“Due to the lack of consideration from the Government, the small and medium-scale companies will be forced into bankruptcy. Overall, the construction sector is not doing well,” he noted.

According to Gunatilleke, the lack of a national economic policy, payment delays on Government projects, and the rejection of requests for a construction sector debt moratorium following the Easter Sunday incidents have devastated the financial position of the companies.

“We explained to the Government our concerns and requested for a moratorium, but the Finance Minister replied in the negative, saying there is no budget to give. They have not understood us. I’m not blaming any government, but I blame all those who are responsible for this situation,” he said.

The National Construction Association of Sri Lanka (NCASL) also confirmed to The Sunday Morning Business that small and medium-scale construction companies are facing severe financial burden, mainly due to delayed payments from government contracts.

An NCASL official, who wished to remain anonymous, noted that therefore, these companies are finding it really difficult to pay salaries as well as to settle bank loans.

“In the long run, all small and medium-scale construction companies are going to vanish. The Government is not considering the proposals made by the construction industry. There is no monitoring at all,” he noted.

The Sunday Morning Business spoke to few small and medium-scale construction companies to know the status of their financial performance.

Sam Dam Engineering and Constructions (Pvt.) Ltd., a medium-sized company, Director of Operations Sudam Pravinda Wijayasiri told us that the Government has to settle payments for long-completed projects, as any further delays could push small and medium-scale companies to bankruptcy.

Nuwani Construction (Pvt.) Ltd., another mid-sized construction company, warned that unless the Government addresses issues raised by the industry, not a single small or medium-scale construction company would survive much longer. A company official noted that the construction industry had been affected severely and so far, there had been no assistance whatsoever from the Government to revive it.

A few weeks after the Easter Sunday tragedy, CCISL, the construction industry representative body, requested the Government for a one-year debt moratorium to ensure its sustenance amidst mounting financial troubles.

A month later, Finance Minister Mangala Samaraweera said that he would not consider this request as the construction industry had not been sufficiently affected by the Easter attacks. However, he added that he was open to a discussion on general issues the industry is facing, which were unrelated to the attacks.

In addition to this, delays in payments by the Government created severe cash flow issues for the companies, and according to CCISL President Gunatilleke, the Government must release the retention money it held of various projects.

Speaking further, he highlighted the absence of a clear national economic policy and also emphasised the importance of the introduction and continuous implementation of such a policy, despite changes in government. “We do not have a national economic policy in the country. Even if the government changes, the investor needs the guarantee of a national economic policy.”

He also noted that even prior to the Easter Sunday incidents, inefficient bureaucracy and corruption had been two major issues that hindered investment into the construction sector. However, he added that after Easter Sunday, individual investments into the sector had reduced drastically.

“Our bureaucracy is very lethargic. In other countries, things can be done within a month. The other reason is corruption at all levels. I’m not trying to cover bribery specifically. If anyone is not working as per the rules and regulations, it is called corruption,” he added.

However, Gunatilleke also noted a few encouraging developments for the construction sector including the Millennium Challenge Corporation (MCC) grant and Asia Infrastructure Investment Bank (AIIB) project.

The MCC approved a grant of $ 480 million to Sri Lanka on 25 April on the request of Prime Minister Ranil Wickremesinghe. Following an evaluation, the MCC selected Sri Lanka as a qualified country to receive grant funding under their Compact Investment Programme.

The loan agreements for the first two projects financed by AIIB were signed between the Government of Sri Lanka and AIIB on 25 April 2019 in Beijing.

The total cost of the first project – the Reduction of Landslide Vulnerability by Mitigation Measures Project – is $ 110 million. The second agreement was signed to support the Colombo Urban Regeneration Project. The total cost of this project is estimated at $ 287 million.

The NCASL official renewed calls for foreign labour to be imported to strengthen the construction sector by filling the skills gap in Sri Lanka. The official further stated that the time period provided for the transportation of raw materials is insufficient, which leads to accidents.

“Raw materials like sand have to be loaded and unloaded between 6 p.m. and 6 a.m. the next day. Basically, drivers have only 12 hours to transport it across the island, and this rush leads to accidents,” the official explained.

Sri Lanka’s Gross Domestic Product (GDP) was Rs. 14,449 billion in 2018, in which the construction sector’s contribution was approximately Rs. 1,083 billion, according to CCISL. The total debt from the construction sector to private and state banks stands at 20% of their contribution to GDP, which is over Rs. 216 billion.