Times Of Swaziland: NHLANGANO-SICUNUSA ROAD: UKRAINE WAR ESCALATES  COSTS  BY E93M

NHLANGANO-SICUNUSA ROAD: UKRAINE WAR ESCALATES  COSTS  BY E93M
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Ntombi Mhlongo on 10/11/2024 09:17:00


MBABANE – Russia’s invasion of Ukraine inflated prices for oil and other
commodities, resulting in the Eswatini taxpayer footing the bill to cover the
shortfalls.
This is because the taxpayer is now liable to about E93 million for the
construction of the now complete Nhlangano-Sicunusa road. The money is for costs
incurred by the contractor in relation to the purchase of bitumen and oil. This
is contained in the Ministry of Public Works and Transport second quarter
performance report which has been tabled and debated in Parliament. Worth noting
is that the project was undertaken through a public-private partnership (PPP)
worth E647 million.
This, therefore, means that the cost of the completion of the road now sits at
E740 million. Under the title ‘Project T500: Design Review, Supervision and
Construction of Nhlangano – Sicunusa (MR13) Road Project’, the report
mentioned that the project was not allocated a budget in the current financial
year (FY2024/25) under code 99 (Local Funds) of the Book of Estimates, yet the
works contract between the government and contractor has a provision for
adjustments in costs for two specific commodities namely; bitumen and fuel.
Man-made material
In the construction industry, it is said that while asphalt is a man-made
material used to pave roads, bitumen is a byproduct of crude oil used for its
waterproofing and adhesive properties.
As such, it is used to bind asphalt together during road construction and in
roofing applications. It is regarded as an essential component in the
construction of roads and highways, due to its waterproofing and binding
properties. Without bitumen, modern road networks would not be possible. The
road has been constructed and successfully completed by Africa’s Leading
Business Integrated Partner, Inyatsi Construction. The report said the contract
states that should the cost of bitumen and fuel rise above 4 223/tonne and
E14.40/Litre respectively, the contractor shall qualify to claim for
compensation of the difference.
It was mentioned that given that the war between Russia and Ukraine has resulted
in the cost of fuel products increasing exponentially from what they were at the
time the contract was signed to now, the costs of the two commodities have
increased beyond the parameters that were set in the particular conditions of
contract between government and the contractor.
“As such, government now needs to pay the claim of the difference in costs due
to this effect. The total cost of the rise and fall subsequent to determination
by the supervising team amounted to E93 889 931.59,” reads part of the report.
Attracts interests
It was stated that considering that the rise and fall claim by the contractor
attracts interests with each passing day the debt/claim is not settled, the
ministry deemed it more economical to settle the debt at the earliest
opportunity. The ministry, according to the report, made an E80 million budget
available through reallocation with a balance of E13 889 931.59. On 24 February
2022, Russia invaded Ukraine in a major escalation of the war, which started in
2014.  The invasion, the largest and deadliest conflict in Europe since World
War II, has caused hundreds of thousands of military casualties and tens of
thousands of Ukrainian civilian casualties.
The global impact of the Russia–Ukraine war has been mediated through trade,
commodity prices and financial conditions. Russia and Ukraine are major global
suppliers of oil, wheat and fertilisers. The war disrupted exports from the two
countries, induced uncertainties in global supply chains and has been used to
justify export food bans in some countries. These conditions contributed to a
spike in global prices of oil, food and fertilisers, putting upward pressures on
domestic prices.Worth noting is that most African countries, including the
Kingdom of Eswatini, were still recovering from COVID-19, limiting their
economic policy space when the Russia–Ukraine war hit.An expert in the local
construction industry said there was nothing sinister with the claim, especially
since it is what was agreed upon between the two parties.
Price adjustment
“If the contract allowed for price adjustment to rise of fuel and bitumen
beyond certain thresholds, then it is justified. Basically, the contractor has
to be compensated on actual amount paid for the fuel price increase,” the
expert said. With the completion of the road now at E740 million, it means that
the taxpayer will now spend around E1.3 billion. This is because when Inyatsi
rescued the project after it was abandoned by the joint venture of
Kukhanya/Gabriel Couto a couple of years ago, government had already spent E532
701 000 on the incomplete project by March 31, 2019.
Also, government had to fork out a sum of E80 million that was set aside by
government to pay the final account of Kukhanya/Gabriel Couto Joint Venture. It
was in the 2015/2016 financial year, when the project escalated to E465.9
million. It must be said that E33.72 million had been utilised by March 31,
2014.In fact, government financial records indicate that E8.5 million had
already been spent on road design and resettlement project by March 31, 2012. In
January 2021, the Ministry of Public Works and Transport announced that Inyatsi
Construction had been awarded the tender for the completion of the road. Inyatsi
was said to be the only company that tendered for the construction of the road
despite other companies being invited and having conducted a site inspection.
Seven contractors
The tender that the ministry issued was a design, finance and build public
private partnership tender that invited Category C1 registered contractors with
the Construction Industry Council. The aforementioned category had a total of
seven contractors at the time of tender in 2020. During a tender briefing, all
the seven contractors participated, but at tender submission, only Inyatsi
Construction submitted a bid.  Inyatsi’s tender was evaluated and found to be
compliant with the requirements of the tender document, hence award was made.
In May this year, it was announced that Inyatsi Construction had completed the
project and this was followed by an official opening of the road by His Majesty
King Mswati III.
The official opening took place on October 1, 2024 in a ceremony that was
attended by Parliamentarians, dignitaries, stakeholders and community members
around the Sicunusa-Gege-Nhlangano corridor.
In his keynote address, His Majesty said he could imagine how the people living
along this road were frustrated and had lost hope after the first construction
company could not complete the project, as initially planned. “We are well
aware that this project experienced glitches and contractual disputes, causing
major delays and a heavy cost burden during its downtime. We must ensure that
such issues do not arise again. We all have a responsibility and remain
accountable to the people, who have entrusted us with ensuring that we bring
these projects and services to them in the most cost effective way possible,”
the King said. The completed road signifies an important advancement for the
region that will enhance commercial enterprises, national development and the
welfare of emaSwati.
Important connection
The 43.5km-long Nhlangano-Sicunusa Road in the southwest is part of the main
road network of Eswatini and provides an important connection between
agricultural areas and urban centres. Works carried out under the project
include upgrading the gravel the road with a bitumen surface, designed to
accommodate speeds of 100km/hour, installation of culverts, and construction of
bridges over the Mkhondvo and Ndlotane rivers. Both rural and urban populations
will benefit from enhanced local, intra-regional and international exchange of
goods, as well as from improved access to social amenities. Additionally, owing
to the scenic nature of the region, tourism is expected to rise, thus increasing
employment and business opportunities.
It has been planned that both rural and urban populations are to benefit from
enhanced local, intraregional and international exchange of goods, as well as
from improved access to social amenities. Justifying the continuation of the
project, government said the completion of the road will facilitate growth in
the tourism industry. It was listed together with the Bulandzeni-Pigg’s
Peak-Bulembu Road. Government understands that these projects are significant
because they will improve the standard of living in the country.
Razieh Gilani, the Sales Manager of Infinity Galaxy, narrated how the
Russia-Ukraine war disrupted global trade. He said the financial and commodity
markets of the world experienced a turbulent time, filled with unpredictable
fluctuations. Some of the global economists believe that it is probable to face
another wave of inflationary stagnation in the world. Considering the current
week’s economic situation, Gilani says it seems that the economic growth of
Europe and the rate of production will be negatively affected as a result of the
sanctions imposed against Russia.
On the other hand, the probable increase of the rates of energy carriers can
lead to the continuity of inflation in the world. Considering these two factors,
the assumption of ‘Inflationary Stagnation’ gets stronger. In such a
situation, a significant part of the capital will move to safe markets, and the
current safe market can be ‘gold’ and its growth is expected. The
record-breaking of crude oil continued in the last week and it exceeded US$116
when Russia invaded Kherson city in Ukraine. On  March 2, 2022, the price of
fuel surpassed E9 990 (US$557) and Singapore announced its bulk price at E8 820
(US$490) per ton.
Range of competitions
In Iran, the range of competitions on vacuum bottom varied from 16.5 – 34  per
cent during the last week. Besides, finalisation of the nuclear negotiations was
strongly affecting the equity of US dollar against Iran Rial and the FOB price
of packed bitumen will outstrip E9 000 (US$500.) Such a severe and sudden surge
of bitumen price might seem to be attractive at first glance but carries the
risk of stoppage or fall of export due to high finished costs in the road
construction projects. “As it was mentioned in previous articles of Infinity
Galaxy, Indian refineries had no choice but to adjust their rates with global
markets, as a result after the significant increase on February 15 up to E1 080
(US$60), another increase of US$29.5 was recorded on 1 March. Hence, the highest
increase in bitumen prices within one month was experienced in the India market.
However, considering the current global situations and international crises, the
best decision can be instant sales and purchase.