Foreign contractor ban unlikely to help local giants

 ADB, World Bank projects may remain with foreign contractors

By Madhusha Thavapalakumar

The Government’s plan to ban foreign contractors from competing for state projects is unlikely to provide any significant benefit to A-grade construction companies, senior industry figures opined.
According to Access Engineering Chairman Sumal Perera, most state projects are funded either by the World Bank (WB) or Asian Development Bank (ADB), in which case it is unlikely they would agree to work with a local construction company.
“This ban lacks clarity, especially in terms of internationally funded projects. I really don’t think ADB or WB would agree to go for a local construction company,” Perera told The Sunday Morning Business.
He added that state-funded projects are mostly medium or small scale projects, such as hospitals and police stations and these projects are generally awarded to B-grade contractors.
Early last week, the Government said it would ban foreign contractors from competing for state projects thereby increasing projects for domestic contractors.
When contacted, Sanken Managing Director Eng. Maj. Ranjith Gunatilleke too echoed these sentiments about foreign-funded projects.
“I appreciate this move but this should be gazetted first. The Government should also consider limiting these foreign-funded projects,” Gunatilleke told The Sunday Morning Business.
Gunatilleke is also the President of the Chamber of Construction Industries, the premier chamber representing the local construction industry.
According to him, ADB or WB-funded projects are tightly funded and come with a set of regulations which cannot be circumvented. Even though such projects have a domestic preference of 7.5-10%, tenders are called internationally and the process is competitive.
However, Gunatillake emphasised that foreign-funded projects cannot or should not be eliminated as they are counted as foreign direct investments (FDI), but the Government could still choose to enter a joint venture for construction as is being done in India and the Maldives.
However, if the Government is obtaining an external loan for a state project, that loan should come without such tender regulations.
“If it is a loan that will be serviced by the Sri Lankan Government, then the Government should not go for loans that come with the requirement for an international tender or one that is subject to any similar conditions.
“Then, the Government would be able to hand it to a local construction company,” he added.
International Chamber of Commerce Sri Lanka Chairman Dinesh Weerakkody, who is also the Chairman of the National Human Resource Development Council of Sri Lanka (NHRDSL), speaking to The Sunday Morning Business, appreciated the move by the Government.
When asked whether Sri Lanka possesses sufficient local expertise for large-scale state projects, he added local construction companies are up to an acceptable standard and even if they lack expertise, they could still bring down experts from overseas to train local workers.
The ADB, WB, and the Japan International Co-operation Agency (JICA) are the major sources of project financing in Sri Lanka.
In addition, bilateral donors such as India, Japan, and Germany fund major government projects by providing long-term concessional loans. China is also a significant lender for large-scale government projects. The Government also seeks foreign commercial borrowing for project finance.
The promised ban on foreign contractors is one among several concessions that have been announced to support the financially burdened construction sector.
Earlier this month, President Gotabaya Rajapaksa slashed income tax for construction firms from 28% to 14%. It was also said that the time-consuming process of obtaining building permits would be cut down to three weeks.
Sumal Perera commended this move as lethargic bureaucratic processes had severely affected the industry, particularly in terms of FDIs.
In addition to this, on 4 December, the Cabinet of Ministers approved a proposal to do away with the requirement of obtaining permits for the transportation of sand, clay, and gravel, with immediate effect. The decision has been taken due to the difficulties that have risen when securing the necessary raw materials for the construction industry as a result of various malpractices that occur when the permit is issued.

The Chamber of Construction Industry of Sri Lanka, the apex representative body of all construction industry stakeholders in the country, commended the removal of the permit requirement for sand, clay, and gravel transport as it would put an end to the delays that have plagued the industry for the past few years.