Roads PS pleads with lenders to spare contractors

Contractors will continue waiting for their pending bills to be paid after the government sent yet another delay signal even as verification of the bills goes on.

The Principal Secretary, State Department for Roads in the Ministry of Roads and Transport, Eng Joseph Mbugua has sent an appeal to banks and all financial institutions that may have lent these contractors to spare them the agony that may result from auctioning their collateral.

Contractors are now staring at a possible loss of their property, some of which they may have used as collateral to secure funding to finance projects. This has been occasioned by the fact that government agencies are yet to pay for the work delivered.

The PS assured the financial institutions that the pending bills will be settled albeit in a staggered manner.
The State’s pending bills hit Sh567.5 billion in June 2023, the latest Treasury data shows, amid high loan defaults by suppliers struggling with cash flow. These comprise of Sh443.6 billion (78.2 per cent) owed by ministries and State departments while other government entities and state corporations owe Sh123.9 billion. The State corporations’ pending bills include payments to contractors, projects and suppliers.
Verification committee

Last year the Cabinet approved the formation of the Pending Bills Verification Committee chaired by the Former Auditor-General Edward Ouko. The committee was tasked to audit liabilities between 2005 and 2022.

Mbugua opines that once the government honours the payment of contractors, they will settle the outstanding loans.

The PS acknowledged the financial lenders to consider the broader implications of stringent financial measures on the country’s development agenda.

He called on the financial institutions to go slow on these contractors and adopt a cautious approach when dealing with them due to the significant backlog of pending bills in the country.

“Contractors are essential contributors to the infrastructure development of the country, they play a critical role in executing infrastructure projects, particularly in the Ministry of Roads and Transport ranging from roads to bridges,” Mbugua said when he appeared before the Public Accounts Committee (PAC) of the National Assembly.

He disclosed that the delayed disbursement of funds has created a challenging environment for contractors, hindering their ability to meet financial obligations, pay their workforce, and invest in new projects. “Indeed, numerous contractors, who play a pivotal role in developing essential projects, are facing financial strain as payments for completed works remain overdue. This pressing issue of delayed payments to contractors has a potential impact on both the country’s infrastructure projects and the financial stability of these contractors,” he told the John Mbadi-led committee.

The PS encouraged banks to work closely with contractors to find sustainable temporary solutions that could include negotiating payment schedules or facilitating discussions between contractors and stakeholders to ease the immediate financial burden on contractors while maintaining the momentum of ongoing infrastructure projects.

“As you may all be aware, the government has pending bills that are overdue. Some to these contractors on works that have already been delivered but dues not settled,” said the PS. The Ministry of Roads and Transport has pending bills to the tune of Sh60 billion, according to Mbugua.

According to the latest data by the Central Bank of Kenya (CBK), non-performing loans rose by 14.7 per cent from Sh3.42 trillion in 2022 to Sh3.924 trillion in 2023.

During the launch of the Pending Bills Verification committee, President William Ruto said genuine public sector pending bills will be the first items to be charged in the budget. The President noted he move will stimulate economic revival by pumping back the much-needed capital in production. Mbugua told MPs that in the recent past, the country has witnessed significant damage on roads due to the El Nino rains which also required a substantial amount of money to reinstate.

“This will mean that if the government is to set aside this money including that of settling pending bills, his ministry then will need nearly Sh200 billion,” he disclosed.

The PS noted the backlog of pending bills has the potential to impede progress on ongoing infrastructure projects, leading to delays, cost overruns, and a slowdown in the overall development of the country. He said that as the State grapples with the challenge of pending bills and their potential repercussions on the state of the country, there is a need for a balanced and collaborative approach to be able to address the financial concerns of these contractors.

“I assure you that the government is committed to settling these debts and ensuring the continued progress of vital infrastructure projects to uphold its commitment to sustainable development,” said Mbugua.

The highest percentage of pending bills belong to contractors and suppliers, with ministries and state departments bills constituting mainly of historical bills for the last two years. This has seen suppliers struggle with cash flow amid high loan defaults by individuals and companies doing business with the government, leading to some being auctioned.