Melamchi civil works contractor in cash-flow fix

Italian contractor for the tunnel works and headworks at the Melamchi Water Supply Project (MWSP) has demanded 5 million Euros (approximately Rs 565 million) as advance payment to solve its cash flow problem and the demand is under consideration at EPTISA, the project consultant.

But government officials say the contractor’s demand is not practicable, adding that all the bills are cleared immediately. MWSP had awarded the Rs 7.72 billion contract for tunnel works and head works to Cooperativa Muratori e Cementisti di Ravenna (CMC) in January, 2013.
According to a source at MWSP, government officials say there is no point providing the contractor any additional amount in advance until it improves the work at the site, which has been in slow motion since January. The contractor had cited funding for stocking construction materials and equipment and taking mitigation measures after the earthquake, for seeking the additional amount. During a Tripartite Portfolio Review Meeting on July 27, the Asian Development Bank, the major donor, had raised the cash flow problem but said little about the contractor’s dillydallyings.

Reason behind cash-flow problem

The contractor had started its work after taking Rs 1.52 billion, or 20 percent, as a mobilization fund, which is meant for purchasing goods and equipment to kickstart things. After 12 months, the consultant was not satisfied with the use of the funds. But it did not wish to make this an issue as the contractor showed some initiative in the works, sources said.

Talking to Republica, Ghanashyam Bhattarai, executive director of MWSP, said that the contractor may have financial problems but they will only take a decision as per the contract agreement, and they will take a practical approach. He did not wish to divulge details.

The contractor may face serious financial problems in the days ahead if MWSP starts recovering the mobilization fund. The contractor has so far received the payment of an additional Rs 980 million. MWSP was to recover the mobilization fund after 30 percent work progress, which is currently at 33 percent.

Moreover, the contractor is yet to pay approximately Rs 50 million as rent for machinery and equipment, and Rs 9.6 million for the explosives the government had provided. The equipment and explosives were seized from the Chinese contractor.

Contractor owes vendors over Rs 400 million

On top of that, the contractor owes about Rs 400 million to over a dozen vendors, who were supplying goods and services since the start of the project. They were paid on average 10 to 15 percent of outstanding dues in mid-July. A contractor seeking not to be named says they had repeatedly asked for payment.

Sources also say the contractor has changed some vendors as they stopped supplying. “We are not in a position to keep supplying as we have also suffered a cash flow problem as the contractor has not paid up,” said a vendor decliing to be named. Some of them hope things will improve as the contractor has now changed the management.

Shree Ram Neupane, promoter of Mega Tech Hydro and Infrastructure Private Limited, said they are yet to be paid Rs 55 million. Neupane also blamed MWSP for not considering the consultant’s problems and clearing the support works for the excavated tunnels.

ADB’s country director, Kenichi Yokoyama, said, “We note that there are also some completed works that are still to be paid, such as transitional support works of the excavated sections.” But officials of MWSP say the contractor pushed for design change for the support works. The contractor has been provided 65 to 70 percent of the price of construction material at site. Meanwhile, design change is under discussion.

To address the problem, Bhattarai said the contractor should come up with a plan that the consultant finds convincing. The contractor has not revised the schedule to meet the target of competing the project within 156 weeks, of which 93 weeks have already elapsed. It’s certain that it won’t complete the works in the remaining 63 weeks. MWSP has been asking the contractor to present its rescheduled plan since January but it has been dillydallying.

Yokoyama said that the Melamchi tunnel is a highly complex and technically demanding work that requires close collaboration among the concerned parties, including the Melamchi Board, the contractor and the consultant engineer. “During the process, they have to address many unanticipated challenges caused by geological and other uncertainties, with a spirit of mutual trust and professionalism,” Kenechi said.

Livio Mastro Francesco, project manager of the contractor, did not provide any comments despite repeated approaches.

Source: MyRepublica