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Building contractors say Govt formula for price escalation inadequate

Steel prices have seen 70 per cent hike over the last one year; from Rs 28,300 a tonne in January 2007 to Rs 48,000 a tonne this April.

Our Bureau

Mumbai, April 13

The Government's formula for price escalation in public construction contracts fails to cover the full impact of recent escalation in the cost of construction steel, say contractors executing civil public works.

This is also likely to hamper execution of government and quasi-government rate contracts for construction work. In particular, it may also prove a dampener for the preparations for the 2010 Commonwealth Games, sources here caution.

At the heart of the problem is the 70 per cent hike in such steel over the last one year, which has seen prices go up from Rs 28,300 a tonne in January 2007 to Rs 48,000 a tonne this April, they point out.

The rate contracts are linked to the wholesale price index and in terms of the formula for escalation contractors can only expect a mere four to five per cent raise in contract value for the hike in steel prices, though steel had gone up by about 50 per cent since December last, said Mr Anand J. Gupta, General Secretary of the Builders Association of India.

Mr Gupta also said government and quasi-government contracts at the all-India level were worth about Rs 3.70 lakh crore and the steel component in them was about 35 per cent.

Factoring in a 70 per cent rise in this alone works to Rs 90,000 crore.

In many States, Government contractors (including those who work with the Public Works Department, municipal and other civic bodies) are a separate lot, well-conversant with the workings of the official machinery, where payments of consideration for securing contracts are an unwritten part of the contractual obligations.

Qualitative and quantitative omissions and commissions in execution are camouflaged more by consent than by default. However, the skyrocketing rise in steel prices had overshot the inbuilt elasticity in the `accommodation level', said one source who did not wish to be identified.

No takers

Mr Mahesh Mudda, Chairman, Mumbai chapter of Builders Association of India, said, "The northbound steel prices have put in jeopardy the Government's grandiose plans for the 2010 Commonwealth Games. The Central Public Works Department, one of the executing authorities for construction work for the games, has not received bids for two tenders floated in the last 10 days."

The Mumbai chapter of the association had represented to the Maharashtra Government that it would be difficult for the contractors to execute awarded projects at the rates agreed upon. The State had formed a committee under the leadership of a chief engineer (joint secretary rank) to get back on the issue in a month.

Mr Mudda said it had been pointed out to the Central Government that steel companies were arbitrarily jacking up prices. Five major integrated steel plants control 65 per cent of the total steel production in the country and they had formed an association called `Indian Steel Alliance'. Periodical price increases by them were almost identical, it alleged. Of the five steel majors, only three produce steel bars, rods and structural steel called `long products'.

On steel companies blaming rising input costs, the association said the operating profits of the steel majors over the years contradicted their contention.

For export ban

To rein in prices, the association said the Government should allow duty free imports on items such as cement and ban export of steel and reimbursement of the increased steel price based on SAIL rates for ongoing and upcoming projects. It also sought an enquiry into the causes of unprecedented steel price rise from 2004 to March 2008, and more specifically, after the Union Budget 2008.

The construction industry consumes 33 per cent of steel produced in the country in terms of TMT bars, rods and structural steel.

Related Stories:
Builders protest hike in steel prices; seek Govt intervention
PM’s intervention sought on cement, steel prices issue

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