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French Version

Contractors vow to walk away from projects amid skyrocketing costs

Cement producers say threat is just a tactic to secure higher compensation

Contractors have threatened to stop work on public and private projects in one month, in a bid to force the government to compensate losses stemming from the skyrocketing costs of building materials.

The builders will make their demands Thursday morning at a meeting with Finance Minister Jihad Azour, Economy Minister Sami Haddad, Minister of State for Parliamentary Affairs Michel Pharaon - who has been presiding over the Industry Ministry since November - and cement-factory owners.

If the situation does not improve in a month, a number of contractors will halt work on their projects - for example, the firm Mouawad Edde is ready

to cease construction of the $48-million Chabrouh Dam in Kesrouan, managing partner George Mouawad told The Daily Star on Tuesday.

"All of the contractors are losing money because the government is not responding," Mouawad said. "The government is not doing anything."

Contractors are suffering losses of 20-25 percent on projects, he said, due to leaps in the costs of steel and diesel oil, the appreciation of the euro, and continued cement smuggling to Syria.

For example, when Mouawad Edde made its bid for the Chabrouh Dam five years ago, steel cost about $255 per ton, while today a ton goes for about $850. The price for 20 liters of diesel oil has jumped from LL6,000 to LL18,000. Mouawad Edde says it has 147 pieces of equipment running on diesel oil in Chabrouh.

To make up for the price spikes, contractors will ask the government to approve "escalator clauses" in public-bid contracts, said Fouad al-Khazen, who called for the Thursday meeting as head of the Contractors Syndicate.

"If there is an unforeseen change in prices, we have to find a way to compensate," Khazen said. "This is normal procedure in countries where the economy is unstable."

"The government is taking this seriously. They're going to help us, I'm sure," he added

If the government does not address the issue, Khazen threatened a work stoppage. He could not estimate how many projects would be abandoned by contractors, but said they included works in both the private and public spheres.

Khazen will also ask on Thursday for cement makers to ensure that contractors can purchase cement at factory prices of $65 per ton. With the per-ton price in Syria topping $120 and the smuggling trade on the rise, middlemen here are charging local contractors similarly inflated prices as those found across the border.

But cement producers say invoking cement smuggling is just a smokescreen to give added justification to the contractors' push for compensation. Even though contractors have endured significant losses due to steel and diesel oil prices, large-scale builders already buy cement in bulk at factory prices.

"All the pressure they are putting is just to push the government to give them a hike in the prices - and they are right," said Nicholas Nahhas, general manager of the Sibline cement factory. "Otherwise, there is no rationale for what they are doing. I pity the government."

Some smaller contractors have to take the middlemen's price, because these merchants let builders pay up to two months after taking delivery, whereas the factories all demand full payment on delivery.

To bring retail prices of cement back in line, the producers again will urge the government to crack down on the rampant smuggling, which absorbs 40 percent of domestic production.

To ease contractors' burdens and to speed reconstruction after the 2006 summer war with Israel, Lebanon's three major cement makers accepted the government's request in September to cut the per-ton price of cement from $75 to $65 for a year, in exchange for the maintenance of the state's ban on imported cement. Despite the tempting legal export market in Syria, the producers said contractors will continue to have cement available at $65 per ton until September.

Beirut 25-04-2007
The Daily Star

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