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Govt.’s pending payments to construction sector : Promissory letters worth Rs. 226b issued

17 Oct 2020

[caption id="attachment_101353" align="alignleft" width="141"] Treasury Secretary S.R. Attygalle[/caption] By Madhusha Thavapalakumar Under the “Letter of Acceptance of Payments of Outstanding Bills Due to Contractors (LAPC)” financing facility, the Treasury has issued over Rs. 226 billion worth of letters to contractors for state construction projects until last week.  Treasury Secretary S.R. Attygalle told The Sunday Morning Business that outstanding payments to the sector for state projects carried out for the former Government was originally a total of Rs. 242 billion, meaning that only for Rs. 16 billion more needs to be covered by the letters.  “We have issued letters for those who have done work for highways and education. Those are the main ones. Roughly about Rs. 10 billion worth of letters have been issued to them. The pending Rs. 16 billion is for land projects and road construction. This too will be issued soon,” Attygalle stated. Taking into account the financial struggles faced by the country’s construction companies over the past few years and the outstanding payments to the sector from the Government, the Central Bank on 26 June introduced a liquidity facility scheme to support the construction sector through licensed commercial banks (LCBs) based on a directive from the Treasury. Accordingly, backed by a LAPC from the Treasury, LCBs were directed to provide promissory notes to contractors secured by pledged Treasury bills and Treasury bonds in their own holding, to the Central Bank to obtain credit facilities at a concessionary interest rate of 4% to construction companies. According to Attygalle, the Treasury will make all payments as per the promissory notes before 31 December 2020. Within three weeks since the announcement of the loan, the Treasury received requests worth Rs. 17.29 billion asking for letters to be issued to them, which could then be used to obtain concessionary loans from banks, a Treasury official told The Sunday Morning Business on 16 July. According to him, by then they had already approved a number of requests that came through various ministries. As of 16 July, the Treasury has received requests from four ministries and two departments – the Ministry of Roads and Highways; the Ministry of Urban Development, Water Supply, and Housing Facilities; the Ministry of Health and Indigenous Medical Services; the Ministry of Fisheries and Aquatic Resources Development; the Department of Agriculture; and the Department of Sport Development.  Requests received from the Sri Lanka Air Force (SLAF) had to be sent back to them by the Treasury due to several pieces of missing information, according to the Treasury. Nevertheless, the Treasury official told The Sunday Morning Business that the Treasury had approved 14 requests submitted by the Ministry of Roads and Highways, and the amount of outstanding payments to these 14 contractors/suppliers stands at Rs. 54.7 million. Further, two requests from the Ministry of Fisheries, amounting to Rs. 122 million, were said to be approved by 17 July. The total number of requests received through this ministry at that point was 6,724. Outstanding payments from the Government to the construction sector were supposed to be settled before the presidential election in November last year. Nevertheless, since the payments were not made last year, the Government has 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. Even though the ongoing pandemic has worsened their struggles, the construction sector’s financial struggles date 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 incidents last year that drove away foreign direct investment (FDI), according to industry stakeholders.  

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