With the surge in Covid-19 cases in the neighbouring countries, the construction sector is expected to face fresh challenges in terms of project deadlines and cost escalations.
Besides the spike in prices, labour and material shortages have become a major challenge. Contractors say that construction material prices have increased by up to 50 percent since the implementation of Covid-19 safety protocols on import of construction materials.
The government has notified that the deadlines of projects affected by the pandemic can be deferred, but contractors have said that procuring agencies are not considering cost escalations. Project delays coupled with the increase in material prices will lead to escalations of project costs.
The issue is hurting the government’s strategy to offset the impact of the Covid-19 pandemic on the Gross Domestic Product (GDP) by ramping up public spending as evidenced by a low budget utilisation rate.
The capital budget for the fiscal year 2020-21 has been revised to Nu 38.883 billion (B) through re-prioritisation and nationalisation of activities. But the actual expenditure reported in the first half of the ongoing fiscal year was only Nu 6.176B, which is 16 percent of the total capital budget.
This means that many projects and activities are expected to spill over to the next fiscal years.
A major chunk of the material requirements is imported from India, where Covid-19 cases are on the rise. The bordering Indian state, West Bengal, has gone into a 14-day lockdown.
An official from Karma Construction in Pemagatshel said that material costs had increased by up to 60 percent. “But we have to complete the project at the cost that was agreed upon during the signing of the contract,” he said.
In his case, he said the cost of materials that were available at Nu 300 before the pandemic had increased up to Nu 500 while the daily wage for an unskilled worker increased from Nu 450 to Nu 850.
The daily wage of skilled workers today, he said, was Nu 1,200.
Proprietor of IDEA Construction in Thimphu, Sujay Giri, said that he was facing shortages of labour and materials. Transhipment charges in Phuentsholing, he said, were almost as high as the cost of materials.
The profit margin contractors had kept during the signing of the contract was closed by the increase in prices, he said. Some of the contractors had even faced losses due to cost escalations, he added.
He said that a large number of Bhutanese construction workers were farmers and that the shortage of labour was expected to become more severe as the farming season has started.
Bhutanese workers, he said, are equally good if they acquire skills. “Construction workers from the neighbouring Indian states who come to Bhutan as unskilled workers gradually become skilled workers,” he said.
According to a Sarpang-based contractor, the costs of both labour and materials had increased drastically. He said that the daily wage of unskilled workers in his case had increased from Nu 500 to Nu 800 while the costs of goods had increased by more than 50 percent.
“Bhutanese workers do very well in projects like construction of roads. But when it comes to construction of buildings, imported workers are still required,” he said.
The introduction of the transhipment system in Phuentsholing had not only increased material costs but also created inconveniences, according to contractors. Materials including steel products are imported although bricks and boulders are locally available.
Zhabtog Lyonpo (works and human settlement minister) Dorji Tshering said that it was an unprecedented situation due to the pandemic and that the government was aware of the issues contractors were facing.
He said that the rise in Covid-19 cases in the neighbourhood and the lockdown in West Bengal was expected to have further implications on the sector. On the shortage of construction workers, he said that local workers would get skilled gradually.
“Procuring agencies have been notified to reschedule project deadlines based on the genuineness of applications from contractors,” Lyonpo Dorji Tshering said. He added that tender documents contained provisions for unforeseen situations like pandemics.
A contractor said that he had left the construction business due to the pandemic. He said that he was not able to sustain his businesses due to cost escalations and difficulties in importing materials.
The construction sector, which is one of the hardest hit, plays a significant role in the country’s economic growth. In 2017, it constituted 15.87 percent of the GDP, according to statistics.
The sector also complements the government’s efforts to create jobs.