Government settles Rs. 9.6 bn of contractors and suppliers’ outstanding bills

Three hundred and three government contractors and suppliers kept waiting for a long period to get their payments for outstanding bills for the Rs. 9.6 billion worth of work done in state development projects will be getting liquidity facilities from banks soon.

But commercial banks expressed concern on liquidity issues when getting refinancing facility from the Central Bank by pledging liquid government securities as collateral to provide loans for cash- strapped contractors.

The Finance Ministry has issued these “Letters of Acceptance of

Payments of Outstanding Bills due to Contractors” (LAPC) enabling them to obtain 4 per cent concessionary loans from licensed commercial banks, a senior Treasury official said.

Most of the letters numbering 116 have been issued against bills in arrears on projects related to the Ministry of Education.

Letters have also been issued to the 109 contractors and suppliers for the bills in arrears of projects related to the Ministry of Highways.

In addition, confirmation letters for the settlement of the bills in arrears for projects related to the Department of Sports Development, Ministry of Fisheries and Aquatic Resources, Ministry of Sports, Ministry of Health,

Ministry of Agriculture, Sri Lanka Police, Ministry of Industry and Supply Management and the Ministry of Skills Development have been issued.

These letters have been issued only to commercial banks nominated by the relevant contractors and a special account must be opened under the name of the contractor of the same commercial bank to pay the relevant arrears.

The Treasury has already released the arrears in installment wise to the respective Ministry / Department and the funds will be used by the relevant Ministry / Department to settle the relevant bills only through the Special Bank Account under the name of the same contractors.

This facility is in operation as per the decision taken by the Cabinet on June 6 under the theme of “Providing Facilities for Economic Revival’, the Finance Ministry announced.

The facility would allow construction firms backed by a LAPC due to Contractors and Suppliers’ issued by the Treasury to borrow from commercial banks. Provision of liquid government securities as collateral will affect liquidity ratios of banks, several CEOs of banks complained.

One risk is that the government may not make the payments on or before 31.12.2020 and may extend the validity period of the Letters of Acceptance, they added.