Lowering foreign currency payment ratio could avoid fiascos like Melamchi

Published On: January 30, 2019 09:56 AM NPT By: Rudra Pangeni  | @rudrapang

KATHMANDU, Jan 30: It turns out that the cash flow problem, which the Italian contractor Cooperativa Muratori e Cementisti (CMC) di Ravenna claimed to be the prime reason behind the delay in tunnel works and head works of Melamchi Water Supply project, was its own creation. 

The company took home the money it received, including advance payment, to start works. But instead of bringing back the needful amount to pay bills, it kept on bargaining with the government citing cash flow problem. At the end, it abruptly left the country last month without paying over Rs 1 billion to suppliers and vendors. 

The contractor received 72 percent of each payment in euro and 28 percent in Nepali rupee as per the contract. It deposited the euro portion in its bank account in Italy, and used only the Nepali currency to pay for bills in the country.

The contractor has so far received Rs 8.03 billion, including claims, variation, and advance payment, both in euro and Nepali currencies. 

Since 2013, it kept on complaining about the problem of cash flow. Government officials said they put the latest payable amount of Rs 360 million on hold for few weeks fearing that none of the money could be brought back to Nepal. 

Speaking at the parliament’s Development and Technology Committee meeting on Monday, Surya Kandel, project director of the Melamchi project, said the contractor always complained of cash flow problem. To address it, the government released additional payments time and again, including Rs 800 million to purchase heavy equipment. Not all the advance payments were deducted from its regular bills, but the company’s cash flow problem persisted. 

“The key reason behind the shortage of cash was that the contractor did not bring back money from Italy which was deposited though Asian Development Bank directly into its bank account,” Kandel told Republica. 

Talking on the same issue, lawmaker Jip Chhiring Lama said the fault lied in allowing the company to take money home while it had no cash to pay its bills here. 

“Government should make a clear policy so that an international contractor cannot take money home without paying bills,” added Lama, who is also the owner of Lama Construction, an A-class construction company. 

Many government officials believe that the contractor did not have cash flow problem because all the bills were paid duly. “The contractor had the only intention of bargaining with the government and pressing it to provide further money,” said a project official who is not allowed to talk to media. 

“The project managers should be made responsible for not deducting advance payment though the projects works had already exceeded 80 percent progress, which is the threshold for clearing advance payment deduction,” said lawmaker Bahadur Sing Lama in the meeting.

Lama claimed that the project management has yet to deduct Rs 500 million from the advance payments that were illegal. 

The project officials assume that the contractor did not even utilize the advance money it received before starting the works in 2013. 

To prevent such problems, the government officials say international contractors should not be allowed to take money home, except the designated profit percent or nominal amount, until they complete the project. 

“We have discussed it with Asian Development Bank. The bank has also agreed to discuss the matter, and only permit a company to take a limited amount home until the project is complete,” said Rajendra Panta, spokesperson of the Melamchi project. The Asian Development Bank did not respond to Republica’s query on the matter. 

Meanwhile, in a recent contract agreement with the same contractor CMC for Tanahu Hydropower Project’s headwork, Tanahu Hydropower Limited has agreed to pay 60 percent in euro and 40 percent in Nepali currency. But CMC has not yet received advance payment and has disagreed to receive work commencement letter for the project. 

“We know that providing payments in different currencies is a serious issue in contract management, but we cannot decide on the matter because the contractor itself demands the currency requirements in tender bidding. We can only pick the lowest bidder,” said Pradip Kumar Thike, managing director of the company. 

Thike, however, argued that he can tab the advance amount paid to the contractor, which has to furnish all its bills utilizing the advance payment.

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