INFRASTRUCTURE projects are facing cost increases and delays due to the impending shortage of construction materials brought by the war in Eastern Europe, according to local economists.
University of Asia and the Pacific (UA&P) economist Cid L. Terosa even thinks some projects in the pipeline may not be pursued if the conflict between Russia and Ukraine drags on.
“The war in Eastern Europe will cause supply shortages and price increases in the following construction materials: aluminum, petrochemical and plastics, steel, nickel, copper, coal, and tin,” Terosa told BusinessMirror over the weekend. “It will raise costs of ongoing projects, but it could put on hold projects in the pipeline.”
A Bloomberg report stated metal producers in India have already cut production due to a coal shortage brought about by the Russia-Ukraine war.
Former dean of the University of the Philippines School of Economics Ramon L. Clarete told this newspaper that this would likely affect the country’s infrastructure projects.
While the Philippines can source its construction materials elsewhere, the government needs to prepare to pay more for these materials. Clarete explained that other sources may not be the most competitive suppliers.
He added that the shortage of certain construction materials will also drive up prices and the search for new suppliers would also increase their costs.
“India is anticipating a slump in world demand for metals due to slowing down of economic growth due to the war in Eastern Europe and the possibility that it spreads to become a third world war not to mention nuclear,” Clarete told BusinessMirror.
For former Socioeconomic Planning Secretary Romulo L. Neri, another reason for an increase in infrastructure costs is the more expensive oil needed for heavy equipment.
Neri said based on his experience at the National Economic and Development Authority (Neda), the government has mechanisms to adjust costs. One of them is to declare cost overruns, the request of which would prompt agencies to seek the approval of the Investment Coordination Committee (ICC).
Neda is the secretariat of the interagency ICC. The committee is one of seven Cabinet level interagency committees of the Neda Board, the highest policy making body of the Neda which is chaired by the President.
The ICC evaluates the fiscal, monetary, and balance of payments; implications of major national projects; and recommends to the President the timetable of their implementation on a regular basis.
It also advises the President on matters related to the domestic and foreign borrowings program and submits a status of the fiscal, monetary and balance of payments implications of major national projects.
Neri said such requests could greet the next administration early in its term. “Neda is used to getting requests for project cost increases. In fact, there are too many of them.”
Chua: Food, energy prices
For his part, Socioeconomic Planning Secretary Karl Kendrick T. Chua said the main channel by which the Russia-Ukraine war would impact the country is through food and energy prices. This, he said, means there may be limited impact on infrastructure projects.
“Since inflation is estimated around 4 percent by BSP, I do not expect cost increases since usually infra cost factors already moderate inflation,” Chua said. “It (the impact) depends on how slow or fast the war resolves.”
The Philippine Statistics Authority (PSA) said the latest Construction Materials Wholesale Price Index (CMWPI) in the National Capital Region (NCR) showed a rising trend in the index which began as early as August 2021.
The PSA data showed the CMWPI increased 5.3 percent in January 2022, weeks before the war in Eastern Europe began. The CMWPI grew 5.2 percent in December 2021 and 1.2 percent in January 2021.
The CMWPI, which was only at 2.3 percent in July 2021, climbed to 4.3 percent in August; 4.6 percent in September; 4.7 percent in October; and 5.4 percent in November.
Construction Materials Retail Price Index (CMRPI) in NCR also showed a similar increasing trend at 3 percent in January. In December 2021, the CMRPI was at 2.7 percent while it was 1.2 percent in January 2021.
In terms of materials, wholesale prices of commodities that posted double-digit growth were Fuels and Lubricants at 26.6 percent in January 2022; Glass and Glass Products, 14.4 percent; and galvanized iron sheets at 13 percent.
For retail, groups of commodities that posted growth higher than the average were those under Miscellaneous Construction Materials posted a growth of 4.4 percent in January 2022; Tinsmithry Materials, 4.2 percent; and Plumbing Materials, 3.8 percent.