Features
Present status of construction contractors and construction industry in SL
Need for urgent reforms for improvement
(This article is an excerpt of my book ‘PRESENT STATUS OF CONSTRUCTION CONTRACTORS AND THE CONSTRUCTION
INDUSTRY IN SRI LANKA AND THE NEED FOR URGENT REFORMS FOR IMPROVEMENT’, which was published in Jan. 2021. – Ruwan De Silva)
Construction impacts everyone across the globe. Construction industry accounts for 6% of global GDP and is considered to be a powerful stimulant for economic growth. Various studies conducted worldwide has predicted a steady growth trajectory for the construction industry in the current decade. This presents numerous opportunities for Sri Lankan construction organisations to venture abroad. Sri Lanka too will continue to witness a continuous increase in construction related-activities. Large scale infrastructure projects are already in the pipeline and the country’s mega Port city development project is open for construction activities. The land reclamation and filling work of port City has already been completed and the next phase will see the infrastructure facilities being developed within the Port City, followed by construction of buildings. It is needless to say that we can be certain that there will be a massive increase in construction activities in Sri Lanka in the next few years.
In Sri Lanka, the construction industry contributes 7.1% to the GDP of the country and is considered to be one of the major drivers of economic development in Sri Lanka. Despite the rosy pictures, as mentioned above, the Sri Lankan construction industry itself has been facing severe difficulties and financial losses; and is not able to capitalize on the growth opportunities. Why is that?
My intimate involvement with the construction industry, for the last three decades has given me the opportunity to understand and analyse the numerous problems faced by the construction industry. In my book, I endeavoured to discuss these problems faced by the Sri Lankan construction companies, suggest recommendations for correcting the current problems faced by the industry and the measures that could be taken to make the construction industry on par with international standards. I hope this book will create awareness among the Government policy makers, government officers, construction sector professionals and business leaders of the current problems affecting the industry and the measures that need to be adopted to develop the industry.
The reasons for the current state of affairs in the construction industry can be attributed to many factors. I have identified 42 factors that are vitally important to the construction industry. 33 of these factors are related to the current problems that the industry faces and hence the need to be either rectified or improved through policy intervention and industry involvement. The other nine factors are linked to the emerging global issues and need to be embraced by the country and the construction industry.
The book analyses these factors in detail and provide recommendations for rectifying the short comings and developing the industry to become internationally competitive. The identified 42 factors can be broadly categorised into six categories, as follows:
Government Regulatory landscape
* Business and Labour landscape;
* Economic landscape;
* Education and Technical skills;
* Competitive landscapes;
* Absorption of latest developments by the local construction industry
Government regulatory landscape
Following are some of the problems faced by the construction contractors in their interaction with Government authorities:
* Inconsistencies in system and procedures adopted by the government ministries
* Discrepancies between Works procurement guidelines’ and CIDA ‘Standard bidding documents’
* Conditions of contract that is not suitable to the Sri Lankan conditions
* Bureaucratic delay
* Unrealistic total cost estimates
* Price fixing committees
* Pricing preambles
* Retention money and performance bond in the conditions of contract
* Delay in payments
* Unfair liquidated damages
* Ease of doing business
* Political stability and uncertainties
Business and Labour landscape
* Labour shortage and productivity
* Shortage of skilled labour
* Labour laws
* Holidays
* High employee turnover among co
* Micro, small and medium scale contractors
* Survival and development of large scale contractors
* Industry productivity
* Safety and Health in construction
* Image and Industry
* Entrepreneurship in construction industry
Economic landscape
* Cost of finance
* Inflation, Exchange rate and Cost of Raw materials
* Tax Structure
* Construction Guarantee Fund
* Financing the construction industry via development banking
* Economic Slowdown
* Economic Freedom
Education and Technical skills
* Education and training
* Capacity building
* Language proficiency in construction
Competitive landscape
* Threat from international contractors
* Unfair competition from state agencies
* Industry competitiveness
Absorption of latest developments by the local construction
industry
* Technical infrastructure and Knowhow
* Research and Development
* Innovation in construction industry
* Design – Build
* Sustainable Development Goals
* Global Warming and Construction
In addition to the above issues COVID-19 Pandemic that has been ravaging the world during the past one year and a half has brought about long lasting changes to the way we live and work. Existing business models are giving way to entirely new business models and remote working has become a necessity. This will continue at a rapid pace and we need to adjust to this new reality. The outbreak of the pandemic and the subsequent lockdowns have resulted in massive losses and cash flow problems to majority of the business sectors, including the construction sector, worldwide. This had a devastating effect on the Sri Lankan construction industry which was already undergoing a crisis.
The much desired new normalcy and various health guidelines have now led to change in the manner in which general and specific construction operations are carried out. These serious changes to the long established working practices have largely contributed to overall and individual changes of the unit rates, preliminaries and other overhead components like head office overheads. The changes for the standard resource norms have caused productivity related issues (for which the contractors are not responsible), work practice constraints and continuous disruptions due to volatile and dynamic operational environment caused exclusively by COVID-19 related issues. In this regard, we note at this stage that general work rates noted in the standard Building Schedule of Rates (BSR) will no longer renders applicable warranting immediate attention from the authorities for change. Additionally, we see certain constraints and hurdles in recovering such costs under contractual claims under force majeure (exceptional events), changes in legislation or other appropriate claim headings.
While Covid-19 has affected all the economies of the world, the extent of damage to our economy is likely to be much more serious. We are an island nation with a population of 21 million and our economy was in a precarious situation even before the pandemic hit. Therefore, while we are still battling the Covid-19 pandemic, we should prepare ourselves to face the challenges and opportunities emerging in the post pandemic period. There needs to be a policy & strategic planning initiative to address the issues and problems faced by the construction industry, as given in the book.
The Way Forward
Given the right environment, the local construction companies have the potential to compete successfully with international contractors and win projects not only in Sri Lanka but also internationally. The Government should view the construction services as a potential export income earner for the country. Through addressing the above issues and finding proper long term solutions for these ailments, we can build a world class construction industry that will enable our construction companies to become internationally competitive and bring the much needed foreign income to our country.
At this point, it is worth remembering the revival of the construction industry under the leadership of the ex- President R. Premadasa during 1989 – 1990. The late President initiated many schemes, with World Bank assistance, to revive and reform the construction industry and provided grants for construction companies to upgrade their skills and technical capabilities. Many Cabinet directives were issued to create an enabling environment for contractors. The Cabinet paper no. 116 of Dec. 1988 is a good example. This paved the way for locally grown, professionally run, large and medium scale local construction firms in the country.
During this period, Authorities such as ICTAD (presently CIDA) and CHPB were formed to assist the construction industry. The National Construction Association of Sri Lanka, which was formed in 1990 with the assistance and guidance from the World Bank, provided the construction companies with a forum to collectively address the challenges faced by the industry, voice their grievances and have a constant dialogue with the Government. It is important that we need a similar focus by the Government at this crucial period when the construction industry is facing enormous difficulties and challenges.
During the Presidency of Mahinda Rajapakse (2005 – 2014), the Government made huge contributions in uplifting the construction contractors. Many massive infrastructure projects were launched and the contractors had the opportunity to participate in these large projects. Some construction companies even acquired the necessary financial and other resources to compete internationally. The contractors had to undergo many hardships during the period from 2015 – 2019. A large amount of sums owed to the contractors, were either not paid or paid after a lapse of many months. The decision making was painfully slow due to frequent shuffles of Ministries. The fact the Government could not present a proper Budget and had to rely on supplementary budgets instead. The increases in Tax rates had debilitating effect on the businesses. This was further exacerbated by the dastardly Easter day bombings which shook the economy of the country to the core.
CONTINUED TOMORROW
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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