The federal government is injecting 99 billion birr to complete public university projects and road construction that were delayed due to escalating prices of inputs.
The Federal Construction Authority conducted an eight-month study to determine the impacts of surge in price of construction inputs. The inflationary pressure forced contractors handling 768 public projects to temporarily suspend operations. Thirty-one of the projects are located in Tigray.
The study’s findings were presented to the macroeconomic committee in February 2022. It has revealed a 28 billion birr price adjustment is needed for public universities.
“We intend to complete the projects over the next three years. We have prioritized university projects in the coming fiscal year, bearing their socio economic benefits,” The Federal Construction Authority’s director-general, Mesfin Negeo (Eng.), told The Reporter.
The government will save up to 94 billion birr by completing projects of universities next year, according to Mesfin.
The same study was also carried out on road construction projects. The projects need 71 billion birr to help contractors withstand the soaring prices of construction materials. There are 190 road construction projects that are being carried out by the federal government.
In April 2022, the government changed its price escalation adjustment rule for road projects. Contractors were not allowed to enjoy an increment of over 20 percent of the contract value of their project during price escalation adjustment.
After the Ministry of Finance approved the price escalation adjustment for university projects, the Ministry of Education sent a letter to all public universities two weeks ago, permitting the adjustment. The Ministry directed universities to focus on completing ongoing projects rather than starting new ones in the upcoming fiscal year.
The adjustment will be made using a formula introduced in April 2022 by the Public Procurement and Property Authority. The formula allows for the adjustment to be made by comparing the price of inputs at the time the contract is signed to the cost of inputs now.
The Ethiopia Statistics Service’s price reference for diesel, cement, reinforcement bar, and ceramic tiles, shows the price from July 2017 to March 2022, and is attached to the letter sent to the universities.
The price reference shows a kilo of reinforcement bar, which was 19.31 birr in July 2021, is now 110 birr. Cement prices have also increased by three folds.
“More delays result in more price increases. We plan to complete projects by the end of the next fiscal year,” Mesfin said.
The Ethiopian Contractors Association’s president, Girma Habtemariam, applauded the government’s decision to inject billions of birr. However, he expressed concern about the government’s plan to focus solely on university projects in the coming fiscal year.
“The price of construction materials is increasing almost daily,” Girma said, adding “the government needs to avoid further delays.”