At least 226 ongoing Federal Government road projects across the country are likely to suffer a major setback as the huge contract sum of N2tn required for their completion has lessened in value due to the current forex crisis.
The President, Federation of Construction Industry, an umbrella body for construction firms in Nigeria, Mr. Solomon Ogunbusola, said that the instability of the naira against the United States dollar had negatively affected the sector.
Ogunbusola told one of our correspondents that the value of naira attached to most of the contracts had reduced contract as a result of the forex crisis.
He, therefore, noted that the money quoted for some of the projects might not be enough to complete them due to the increment in the prices of materials caused by the forex problem.
In April, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, had during a town hall meeting in Lagos, said that the Federal Government required about N2tn to complete no fewer than 226 ongoing road projects across the country.
“Ongoing road projects alone awarded by the government before we came, about 266 roads awarded in the various states, the liability to complete them is about N2tn,” Fashola had said.
The minister, however, added that the total amount allocated to all the sectors under his ministry in the 2016 budget was about 400bn.
This, according to experts, also signifies that low budgetary allocation is another problem that may militate against the completion of many of the ongoing road projects.
Speaking on behalf of construction firms in the country, Ogunbusola noted that the forex crisis is “affecting contractors because the contracts some of us got when the dollar was between N170 and N180 have not been completed and right now, a dollar goes for over N300. Basically, the contract sum has reduced in value by half, which is an issue.
“However, the major issues being considered are if there are foreign and local components of the contract. For the local components, which are things that you can get locally, the prices may not be much different despite the forex crisis. But for foreign components like equipment such as spare parts and maybe payments made in foreign currency, they are the ones majorly affected by the forex issue.”
The FCI boss said it was up to contractors to demand contract reviews from the government based on the extent to which the forex crisis had affected the cost of their projects.
He said the renegotiation of contracts would “be on individual basis of contract because the contract for every contractor differs.”
“So it is going to be more effective for government to deal with each individual contractor as they come,” he said, adding, “The fact remains that the forex situation is affecting every facet of the economy and the construction sector is not an exemption.”
Also according to some contractors who spoke with our correspondents, the fluctuation in Nigeria’s foreign exchange market in the past months has largely affected the foreign components of construction companies’ operations, hence the need for contracts to be reviewed by the federal and state governments.
In a bid to address the country’s unstable forex situation, the Monetary Policy Committee of the Central Bank of Nigeria on May 24, 2016, directed the management of the apex bank to adopt a flexible exchange rate policy in the inter-bank forex management structure.
The flexible exchange rate system, which kicked off in June, is a monetary system that allows the exchange rate to be determined by supply and demand.
An economist, Prof. Sheriffdeen Tella, admitted that contract sums would have been affected due to the lingering forex crisis and naira devaluation and that the contractors’ association should renegotiate with the Federal Government for the continuity of the projects.
He, however, played down FCI’s claim that the contract sums had been devalued by half, saying the devaluation would be less than that since the exchange rate had not been devalued by 100 per cent.
Tella urged the Federal Government to work on developing the local manufacturing sector.
He said if the government had worked on the existing refineries, the country could have been producing its own bitumen rather than importing it for the construction of roads.
He said, “There is the need for the Federal Government to renegotiate with the contractors for the continuity of the projects. We also need to start working on our refineries right away, especially the one in Kaduna which has the capacity to produce bitumen for us if it is well developed.”
Another economist, Rewane Bismarck, also urged the Federal Government to renegotiate with the contractors.
He said, “There would have been additional costs incurred in the importation of items like rods and bitumen, which would have led to the devaluation, but I don’t think it could have been devalued by half. The Federal Government’s delay in paying them could have also led to this.”
Meanwhile, the Surgical and Medical Laboratory Allied and Scientific Equipment Dealers and Manufacturers Association of Nigeria has called on the Senior Special Assistant to the President on Millennium Development Goals (now known as Sustainable Development Goals), Adejoke Orelope Adefulire, to come to the aid of its members who are being owed by MDGs’ office since 2015.
The association made this call through its National President, Nwokeafor Worthyman, during SMASEDMAN’s Annual General Meeting held in Abuja, recently.
He said it was a disincentive to contractors who after executing their contracts would not be paid due to delay in bureaucracy by government officials.
Worthyman lamented that most of the association’s members now had their properties confiscated by banks where they had borrowed money to execute MDG contracts awarded to them.
He stated that some of the contractors were in a bad state of health due to emotional stress attributed to non-payment of their money by the MDGs Office.
Currently, many Federal Government and state government projects running into trillions of naira have already been abandoned due to paucity of funds.
Two key projects that are supposed to be ongoing in Akwa Ibom State are the Coconut Plantation/Refinery between Mkpat Enin and Eastern Obolo local government areas and the Automobile Manufacturing Plant in Itu Local Government Area.
But the projects appear to have been abandoned as their sites have been overgrown by weeds. Other abandoned projects in the state include Etebi-Enwang Bridge and Road in Mbo Local Government Area and Science Park in Uyo.
A government source told one of our correspondents that the major contractor in the state, Julius Berger, had shut down some offices and put out some machinery for sale as the state government owes the company billions of naira.
For instance, many road contracts being handled by Julius Berger have been experiencing skeletal activities while the Third Ring Road, which was designed as a 10-lane thoroughfare, has been abandoned at Nung Oku Junction.
The Commissioner for Information and Communications, Mr. Aniekan Umana, said the cash crunch was affecting liquidity in the system, adding that the development was negatively affecting the state.
All attempts to speak with Public Relations Manager of Julius Berger in the state, Ndifreke Okotie, proved abortive as calls to her telephone indicated that the device was switched off.
Calls to the Public Relations Manager of China Civil Engineering and Construction Company, Mr. Solomon Matthew, also indicated that the phone had been switched off.
Work on some capital projects has also been stopped in Ondo State. For example, capital projects such as Oba-Ile Akure and Ondo town roads dualisation project, Igbokoda road project among others have been stopped due to the same reason of funds scarcity.
A manager in one of the construction companies handling one of the projects told our correspondent on condition of anonymity that the forex crisis in the country had affected the company in such a way that the remaining money for the completion of the projects might not be sufficient as prices of materials had gone up.
He said, “We have almost completed the project but the way things are now, I don’t think the remaining money the government will give us can be enough to complete the project again due to the increment in the prices of materials caused by forex problem. Most of the materials we used were imported and you know the price of dollars to naira now. It is a big challenge.
“I think my principal will meet with the government over the issue,” the source said.
The state Commissioner for Information, Mr. Kayode Akinmade, said, “The forex crisis has affected our projects truly but budget is about projection and our projection was that we would get some money from the federation account but the money coming is not even enough to pay salaries, let alone fund capital projects.”
On whether the government has plans to renegotiate with the contractors, Akinmade said since most of the capital projects being undertaken by the government were at advanced stages, the government would manage to complete them.
The Kwara State Government also said there had been a lull in execution of its infrastructural projects in the state for about a year.
Senior Special Assistant to the Kwara State Governor, Alhaji Abdulfatah Ahmed, on Media and Communication, Dr. Muyideen Akorede, also said that the state government had been unable to pay its contractors because of dwindling revenue from the federation account to the state.
