The construction sector has witnessed a negative growth for the past two fiscal years, according to the National Statistics Office. Even by mid-January of the current fiscal year 2024/25, the sector has shown no signs of recovery. This stagnation is attributed to consistently low capital expenditure by the government.
As a result, construction entrepreneurs do not have adequate work, while those who have undertaken projects complain of delayed payments. Industries producing construction materials such as cement and steel are also operating below capacity due to the low market demand.
Faced with declining revenues, cement producers suddenly raised prices significantly, a move deemed unaffordable by construction entrepreneurs. On December 24, the Federation of Contractors' Associations of Nepal (FCAN) issued a circular urging its members to communicate with relevant authorities and demand payment adjustments proportional to the increased cost of construction materials for their ongoing projects.
FCAN has also called on its members to warn associated projects that they may be compelled to halt all construction activities if price hike persists. The federation has accused cement and steel manufacturers of colluding to raise prices without valid reasons.
Although a mutual agreement was reached on December 11 between cement producers and contractors to lower prices, the producers failed to honour the agreement. Additionally, the government has delayed payments for completed works, prompting contractors to prepare for protests.
At a press conference on Thursday, FCAN announced a "national conclave – 2081" scheduled for January 11 in the capital. This conclave, representing contractors from across the country, will determine the steps for the phase of protests.
“The current situation has arisen due to the non-payment for dues for works completed in the previous fiscal year and the rise in construction material prices such as cement and steel,” said FCAN President Ravi Singh. “Partial payments made to contractors this fiscal year were allocated only from the budget for the current fiscal year, indicating that additional payments for ongoing works may face further complexities.”
According to the federation, the government still owes contractors Rs 40 billion. This amount pertains to projects that submitted their bills in the previous fiscal year. Of the Rs 60 billion that was to be paid last fiscal year, only Rs 20 billion has been cleared so far.
Ramesh Sharma, chairperson of Sharma and Company, urged the government to resolve the payment issue by issuing development bonds. “We have repeatedly requested the government to issue at least Rs 50 billion in development bonds,” said Sharma. “These bonds could have a tenure of 10-15 years, allowing old dues to be cleared and the remaining Rs 20 billion to be allocated for development projects. This would not only settle payments but also provide a basis for floating new tenders.”
Despite being a cement-exporting nation, local entrepreneurs have complained about not receiving cement at subsidised rates. The price increase of Rs 250 per bag, as compared to the rate in the districts, for the current fiscal year has further burdened the contractors.
Even though December typically marks the beginning of public construction activities, the contractors' protests threaten to further disrupt ongoing works. This situation is likely to adversely impact the growth rate of the construction sector in the current fiscal year as well.
By mid-December, only 13.95% of the allocated capital budget had been spent, according to the Financial Comptroller General Office. The majority of the capital budget is directed towards the construction sector.
In the fiscal years 2022/23 and 2023/24, the construction sector's growth rates were 1.10% and 2.07%, respectively. Contractors warn that the ongoing stagnation in construction activities will continue to affect growth this year. “The government’s apathy towards the development of the construction industry has led to severe issues across the economy,” said FCAN President Ravi Singh.
