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Dollar crisis causing delays in Kandy Expressway Section I construction

3 years ago

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Govt. seeks Rs. 31.7 b in dollars RDA to meet Central Bank officials

The construction of the Chinese-funded Central Expressway Project (CEP), also known as the Kandy Expressway, Section I has been hit with a new delay as the Government’s foreign currency reserves are running out as a result of the impact of the coronavirus pandemic, The Sunday Morning learnt. This weak reserve position is blocking the commencement of construction of the CEP Section I as the Government needs to make an initial payment amounting to Rs. 31.7 billion in US dollars to activate the Rs. 158 billion loan agreement with the Export-Import (EXIM) Bank of China. As per the agreement, $ 169.4 million (Rs. 31.7 billion) has to be paid in dollars, which was earlier set to be provided by state banks. However, due to the lack of adequate foreign reserves in the country, the Road Development Authority (RDA) is yet to receive the necessary amount in dollars to activate the loan to begin construction, a senior official attached to the RDA told The Sunday Morning. The 37 km Section I of the CEP from Kadawatha to Mirigama was scheduled to be constructed by a Chinese contractor at an estimated cost of around Rs. 158 billion. However, it has been moving at a snail’s pace due to the delay in dispersing the funds pertaining to the already signed agreement covering 85% of the contract price, as a result of the delay on part of the Government to meet the agreed 15% of the total loan amount. RDA officials are to meet officials of the Central Bank of Sri Lanka (CBSL) to explore the possibilities of obtaining $ 169.4 million. However, the initial amount the Government had to pay last year, soon after the agreements were signed, was Rs. 23.7 billion and due to the delay, the total cost has now escalated, and the Government has to pay an addition Rs. 8 billion, the RDA official explained. As the official pointed out, by delaying further, the project cost would be further escalated and in the meantime, the project would also be stalled. With the view of preserving the foreign currency reserve position of the country, minimising the existing pressure on the exchange rate, and considering the possible negative impact to the Sri Lankan economy due to the Covid-19 outbreak, the Finance Ministry, with the recommendation of the Monetary Board of the CBSL and the approval of the Cabinet of Ministers, has issued an order imposing several measures on outward remittances of capital transactions for a period of three months. However, when contacted by The Sunday Morning, CBSL Governor Prof. W.D. Lakshman refused to comment on the CBSL's view of this dollar requirement for the expressway or the overall foreign reserve position of the country until an official decision is made.