Daily Independent (Lagos)
Christopher Adedeji
24 June 2009
Abuja — The Federation of Construction Industry (Foci), on Tuesday lamented that the costs of foreign exchange incurred by contractors in Nigeria on outstanding claims and ongoing projects will result in short payments.
The President of Foci, Mobolaji Williams who lamented before the Minister of Works, Housing and Urban Development, Hassan Lawal during a courtesy visit to the minister premised the implication of that to drop in the value of the naira between the dates of tender, time of execution of projects and payment.
While also lamenting the unpalatable movement of the naira against the Dollars in the event of the current global melt down, Williams stressed that Foci is worried over looming losses that will arise with respect to the foreign exchange component unless adjustments are made to outstanding payments and ongoing projects by federal government.
Mobolaji pleaded with the federal government to approve a formula for adjusting claims with respect to the foreign exchange component of contract price in compliance with the movement of the Naira against the Dollar.
His words, "We wish to respectfully submit that foreign exchange costs incurred by contractors on outstanding claims and ongoing projects will result in short payment because of the drop in the value of the Naira between the date of tender, time of execution and payment.
"Our plea is therefore that government approves a formula for adjusting claims with respect to the foreign exchange component of contract price in compliance with the movement of the Naira against the Dollar."
According to him, Foci has always felt that the arrangement for compensating contractors for variation of price due to varying material, labour, personnel and plant costs has not been adequate.
He explained that it is common knowledge that plant, equipment and spare parts costs are largely foreign exchange intensive and are therefore directly affected by the international value of the naira.
Noting that the value of the Naira has fallen by 25 per cent in the last six months, he gave the movement of the Naira against the Dollar using the CBN rates, as in November 2008, the value of the Naira against was N117, while in December same year it was N118.
In 2009, the movement in the rates in January, he said was N131.25, February, N145.30, March N146.02, April N145.78 and May 25th N146.70.
He recalled that at the council of minister meeting in January 1988, government accepted 30 per cent as the foreign exchange component of construction costs as conclusion No. CM(88)4.
At the meeting, a formula for applying the percentage to adjust claim was also approved in the exercise which took care of agreement of the naira value against foreign currencies.
He said by adopting the 30 per cent foreign exchange component approved by government in 1988, the loss in value of outstanding payments will amount to just 7.5 per cent, a rate he decried will be too burdensome on contractors' cash flow as it also threatens the stability of the construction industry.
He said, "Our plea therefore is that, in recognition of the seriousness of the situation and to avoid a collapse of the industry, at least 30 per cent be recognized for foreign exchange component and applied in the adjustments of payments on outstanding certificates and ongoing projects. We consider it equitable if applicable to all projects in future as well."
The minister however made the Federation understand that the Naira has experienced some level of fluctuation over the dollars as a result of factors such as the downward movement of the crude oil price at the international market, inflation, among others.
He added, "We should also understand that there is a difference between inflation and devaluation, even as we know that all currencies are bound to experience inflation, the US $ is not an exemption. It fluctuates almost everyday, but the level differs. The truth is that the Naira has not been devalued; it has the potential for growth. Nigeria has the largest economy in the whole of Africa and most resilient economically. We are politically stable and economically viable."
He allayed them of their fear of negative trend in the movement of the Naira against the Dollars, saying there is no cause for alarm as the naira has the potentials to grow now that economy is stable politically and economically viable.
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