Govt needs 20-40pc additional resources for ongoing projects

LAHORE: The government needs 20 to 40 percent additional resources to complete the ongoing public sector projects, as both domestic and international inflation have pushed the prices of construction materials much higher.

According to the contractors of government projects, the cost of various projects increased from 30 to 70 percent after recent hike in global inflation alongside supply chain issues.

According to the Constructors Association of Pakistan (CAP) Chairman, Engr Kamal Nasir Khan the cost of construction materials increased 43 percent from March 2020 to October 2021. Steel prices have increased 76 percent during March 2020 to October 2021, cement 52 percent, Bitumen 101 percent, cable 43 percent, aggregates 68 percent, sand 59 percent, aluminium 74 percent, PVC pipe 52 percent, and ceramic tiles increased 24 percent during the same period.

US dollar had also registered increase of 14.56 percent in the same period, while its flight is continuing to push prices of construction material further up.

Although government officials closely monitor the situation and during the phase of planning, keep an inbuilt project escalation cost within the range of 10-12 percent, depending upon the project size and project completion period, the current rise was unprecedented.

An official, who served both provincial and federal governments in the planning department, said the current rise was unprecedented for which the government needed extra amount for the completion of the ongoing projects. Further, the estimated cost of the projects in planning phase would be reassessed before the projects were awarded, the official added.

“With overall 43 percent increase in prices, current construction contracts have become unviable, pushed housing beyond reach of common man and unemployed skilled/unskilled labour and other technicians,” CAP chairman said.

This has resulted in “go slow” on the public sector projects, as the constructors anticipate defaults in case they continue the work on the projects with existing awarded contract rates.

“If the government wants timely completion of the ongoing development projects than it has to allow inflation effect on ongoing contracts, which will be around Rs200 to Rs400 billion extra,” Khan said, adding that allowing inflation impact on the ongoing projects was not new. In the past, the federal government had allowed such an inflation impact in 2004 through SRO No 26/(183)Plan Cord-II/PC/2004 dated June 11, 2004.

Currently, Public Sector Development Programme (PSDP) projects worth more than Rs600 billion were ongoing, along with projects worth Rs1,200-1,400 billion underway for FWO and NLC. Similarly, projects worth Rs1,200 billion were in process under the provincial annual development.

The government would need almost Rs200-400 billion to absorb the inflation impact. “The actual estimates will come once the governments make working groups to estimate the impact,” CAP chairman said.

The construction sector is the second largest sector, after agriculture, in creating employment. More than 40 allied manufacturing industries are directly involved with construction. However, like other sectors, the Covid-19 pandemic has also impacted the growth of this sector because of phenomenal increase in prices of raw materials.