‘Government development projects may also be affected if cost of construction materials continues to rise’

The rising cost of construction materials, as a result of the hike in the retail price of diesel on Monday, is set to affect government development projects, if there is no solution on the horizon.

Malay Contractors Association Malaysia president Datuk Mohd Rosdi Ab Aziz said Putrajaya must view the matter seriously, as the prices of construction materials are already rising, with no signs of slowing down.

“We cannot stop the government’s aspirations, and the increase in the retail price of diesel is now a fact of life. But the government must also be ready to face the consequences of its actions,” said Mohd Rosdi.

This includes higher prices for basic necessities, everyday items, and essential goods and services, including construction materials.

The government had previously said that the RM4 billion in savings from the diesel rationalisation exercise would be used to fund public transport programmes and give out cash assistance.

“The government cannot say that it wants to improve the country’s economic and financial situation (through the fuel rationalisation exercise). While it may improve the country’s financial position, the government’s image will be affected if growth in the other sectors, including construction, is stymied.”

On Tuesday, reports of concrete companies issuing notices of price increases to their customers, surfaced. The companies cited the implementation of the rationalisation of diesel subsidies as the reason for the increase.

The Domestic Trade and Cost of Living Ministry later said that the construction industry was never eligible for subsidised diesel, even before the commodity was rationalised on June 10, and that it would investigate companies which cited their inability to purchase subsidised diesel for increasing their rates.

Mohd Rosdi however, said that the increase in the price of diesel affected the entire construction supply chain.

“It is not just about buying diesel to carry out work on site. We’re also talking about the cost of transporting goods to the site, and powering heavy machinery,” he said. In the construction industry, 98 per cent of all energy used comes from diesel. Diesel-powered vehicles deliver supplies, materials, and workers. Bulldozers, backhoes, cranes, and excavators are also powered by diesel. Mohd Rosdi added that he also foresees the prices of cement and steel, and other materials, increasing next.

“Don’t forget that factories use diesel as fuel to produce and manufacture their products,” said Mohd Rosdi.

Mohd Rosdi said while a spike in the cost of construction materials was only natural as a consequence of the hike in diesel prices, such an increase would have a serious effect on ongoing government projects, as the cost of the projects agreed to by the government was before the hike in diesel prices.

“There is a possibility of projects being stalled in the next two to three months. The government must be prepared to face this reality,” he said.

“I feel that any increase in diesel prices should have been more gradual, for instance, an increase of 50 sen per litre... but this was not the case.”

The retail price of diesel in Peninsular Malaysia was raised to RM3.35 per litre, effective June 10, under the rationalisation scheme. It was previously RM2.15 per litre.

Mohd Rosdi, whose association comprises 70,000 registered members (27,000 of them active), suggested that the government reintroduce the Variation of Price (VOP) policy as an interim measure to solve possible setbacks due to the rising cost of materials.

“For government projects, this would mean that when the prices of goods and materials increase, the government will add a fee to the contract. If the prices of the goods and materials drop, the government will reduce the price of the contract.

“This was a fair scheme. But alas, it was scrapped,” he said.

He also said that it was difficult for contractors to come up with measures to cushion the impact of the rising costs.

“We can only reduce labour costs but we cannot bring down the cost of materials,” he said.

“If the rise in prices was due to profiteering, we have the option to source materials from other suppliers. But in this case, the price hikes are due to the hike in diesel prices. This affects the entire ecosystem – from steel manufacturers, to cement factories, and even hardware shops,” he said.

“One must remember that there are close to 1,000 components in the construction of a building – from nails, screws, pipes... there are a lot of things involved. The prices of all these items will increase, not just one or two components,” he added.

He said the government should have considered how the new policy would affect the construction industry and come up with a roadmap to ensure that the construction sector functioned like normal.

He said, similarly, for private development projects, the rising cost of materials would inevitably be passed on to the consumers.

“The question now is, what is the government going to do to ensure that contractors are not burdened, and also, for projects not to be adversely affected?”

“The government must take heed of what we are saying. Our association is willing and ready to discuss things with the government. There must be a quick fix, otherwise, we are going to see the repercussions of this diesel rationalisation scheme on ongoing projects in the next few months,” he added.

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