It owes contractors 10 billion birr unpaid from last year
60 road projects stopped due to security threats
Foreign road contractors are awaiting USD 125 million payment
The Ethiopian Roads Administration (ERA) hit a new low where it is unable to carry out projects due to unpaid project costs, instability, right-of-way issues, and a lack of finance.
The Administration failed to pay 10 billion birr for contractors, a cost that rolled down from last year. As a result, contractors could not resume the projects. The Administration also owes 7.8 billion birr in right-of-way payments.
Out of the 200 federal road projects the Administration is undertaking, 60 are suspended due to security threats. Thirty projects have also been suspended in Tigray and Amhara regional states.
The security risk also remains high in western Ethiopia. The Administration was also forced to close six of its 29 project management offices in regional states due to security issues.
A huge claim is also expected from contractors, who demand substantial money from the government due to delays after they were awarded the projects.
While presenting a quarterly report to the standing committee at the House of Peoples’ Representative (HPR) on November 4, 2022, Habtamu Tegegn (Eng.), director general of ERA, did not hold back his frustration.
“We cannot speak about performance now. We are facing immense problems that are out of our control. We are facing a critical financial flow problem. Why do we have to keep approving projects while there is no finance,” Habtamu asked Members of Parliament.
Though a 60 billion birr budget is allocated by the HPR for the sector this year, Habtamu said very little money is actually available.
The fact that most of the road projects are held by Chinese contractors has also become a big problem, according to the director. Most of the Chinese contractors have suspended operations due to the COVID-19 restrictions in China.
“This is killing the road sector. The pandemic restriction in China has persisted for the past three years,” Habtamu said. “There are no movements of equipment.”
Currently, ERA owes USD 125 million to foreign road contractors. Basically, foreign contractors are paid 15 percent of the project cost in foreign currency, while the rest is paid in birr.
For instance, the final phase of the Modjo-Hawassa expressway is currently stopped because ERA could not pay the Chinese contractor in foreign currency. The Chinese Exim Bank, the financier, also delayed in releasing the financing.
The project, whose total cost stood at 16 billion birr, is taking an additional 4.6 billion birr in compensation.
“Right-of-way costs are taking up to a quarter of the project’s total cost itself. It is becoming a huge corruption scheme, especially in regional states. For instance, 26 million birr is asked per hectare in Kombolcha,” Habtamu said.
Attorneys are intentionally triggering compensation cases and claiming huge money, according to Habtamu. “Once the claim is awarded, they are forcing the Commercial Bank of Ethiopia (CBE) to transfer the money from our bank accounts.”
During the quarter, 925 million birr in compensation claims were awarded, which the director says were illegally awarded.
The other major problem is price escalation due to inflation. Over the past four years, the price of fuel has escalated by 262 percent, cement by 180 percent, and bitumen and rebar by 188 percent, according to Habtamu’s report. The fact that most of the road machinery rental providers in Ethiopia were occupied by businesses affiliated with the former regime and their disappearance after the EPRDF fell is also another factor for the lack of machinery.
“Imagine a project awarded in 2018. Today, the price has increased by many folds. How can the contractors survive with such huge price escalations?” asked the director. “Especially bitumen is completely unavailable, because of a lack of foreign currency. Cement is also not available on the market.”
The Shashemene Hawassa road project is also among the many projects stopped due to the forex shortage. This particular project needs USD 20 million from the central bank.
“We understand the situation the country is facing, regarding foreign currency and financial availability. But we are waiting, hoping the problems will improve. Many projects are stopped, partially or fully,” Habtamu said.
Habtamu believes it is a good opportunity that the war in Ethiopia is ending and the country is returning to stability, but once stability is ensured, there will come huge compensation claims from contractors who were awarded the projects.
The director demanded short- and long-term solutions for the critical problems the road sector is facing.
Members of the standing committee and HPR appreciated the ERA management for surfing wisely across the immense pressure.
“There is no lack of knowledge in the road sector. But there is a lack of cooperation from stakeholders like regional states,” said Eshetu Temesgen (PhD), co-chair of the Urban, Infrastructure, and Transport standing committee at HPR.
Eshetu said that professional associations like those of architects, engineers, surveyors, and others are not contributing to the sector.
One of the major solutions commended for the myriad of problems ERA is facing is revamping the road sector policy.
Currently, a new road policy is underway. A road proclamation, an amended proclamation for ERA establishment, and the corresponding regulations and directives are in the pipeline. A new agency that will oversee road safety, maintenance, and technical works is also underway.
The core point of these laws is to achieve the decentralization of the road sector’s development.
So far, the development of the sector has been mainly upheld by the federal government through ERA. But the new legislation aims at redistributing the role to regional governments. So far, all asphalt roads have been constructed by the federal government.
“The constitution states that the federal government develops roads that link regional states to each other. But ERA has been engaged in building all asphalt roads that link woredas to woredas and kebele to kebele. This has to stop,” said Habtamu.
The new road proclamation categorizes roads into six categories, according to the director general. The federal government will develop only expressways, main highways, and link roads across regional states. The other three categories will be developed by regional states with their own budgets. Once the new legislation is approved, regional states will have their own regional road agencies.
“The House of Federation must develop a new budget formula for regional states. Then the government must start allocating road budgets directly to regional states. The new legal frameworks will completely change the road sector development approach in Ethiopia,” Habtamu explained.
For him, unless these new legal frameworks and new institutional approaches are enacted, we will not see any change in the bottlenecks seriously affecting the road sector.
In general, 557 road projects are under way, including construction, maintenance, and upgrading. The total is also over 22,000 kilometers, which Habtamu says is too huge to be handled by a single institution, ERA. The decentralization aims to make regional states own the road projects and speed up efficiency and cooperation. Especially if the regional states pay the right-of-way costs, they can reduce the escalations during valuation.
The new legislation, which will reduce the burden on ERA, is expected to be tabled before parliament soon, according to Habtamu. Stakeholders’ discussion of the draft legislation is already underway. The legislation is being coordinated by the national steering committee and the Ministry of Urban and Infrastructure.
The road policy, which aligns with the national logistics policy, creates a road map for sustainable road financing, road economics, environmental issues, and road research and development.