Commentaries | Nov 19,2022
Dec 4 , 2022
By BERSABEH GEBRE ( FORTUNE STAFF WRITER )
Enat Bank has to pay hundreds of millions of Birr to the Ethiopian Roads Administration (ERA) to make the latter recover losses from road projects it awarded to contractors but failed to realise.
The Bank lost a court case with the Roads Administration for the second time last month. It was liable for issuing an unconditional retention money guarantee of six million Birr for SATCON Construction Plc in December 2018.
ERA should be compensated with 117.8 million Br to reclaim from a road contract it awarded to Tekeleberhan Ambaye Construction Plc (TACON), Federal High Court judges ruled on October 14. Enat Bank had issued a 30pc unconditional advance guarantee bond on behalf of the construction company, contracted to construct a four-kilometre road from Hawassa to Bishan Guracha (Tikur Wuha) with an estimated cost of 390 million Br.
TACON undertook the project in 2017 but completed 2.29pc of the construction, covering only 0.28Km of the road three years later. Officials of the Roads Administration, who were unhappy with the dawdling progress, terminated the contract. Lawyers representing the Administration filed a civil suit before the High Court in February last year, claiming the Bank's liability to pay the guarantee bond amount, with interest and punitive damages as of February 2021.
The defendant argued against making repayments according to the contract, withstanding terms that were not in the contractual agreement. The plaintiff contended that TACON's failure to mobilise construction equipment was in breach of the contract. Despite the contractual agreement to mobilise 40 Machineries, a witness told the Court TACON only mobilised two.
The defendant's lawyer pleaded for the construction company to intervene with its legal representatives during litigation, an appeal dismissed by the Presiding Judge, Gezahegn Terefe. However, representatives of the construction firm testified that the Hawassa City Administration failed to clear demarcation issues with residents along the road in time. They told the Judge it would be unfair to claim reimbursement before fulfilling the requirements.
Dawit Weldi, a building construction executive at TACON Plc, said they were given two years deadline to deliver on the road project but were unable due to pending disputes over demarcation.
ERA extended the project period by three months, according to Neway Mitiku, the project engineer. However, only half the design work was completed after the deadline, the witness told the Court that there was a three-month delay on the part of ERA in submitting a temporary operational plot for excavating the road.
Judge Gezahegn ended the two-year court battle last month, ruling that Enat Bank should pay what the plaintiff claimed, an amount equal to 40pc of its gross profit from its operations in 2020/2021.
The rebates have not been issued following the court ruling, disclosed Eskedar Wodajio, ERA's contract and claims team leader.
"We appealed to the Federal Supreme Court," said Feyesa Tarekege, head of the legal department for Enat Bank.
Banks can issue unconditional advance guarantee bonds for an equal amount of advance payments made to construction companies, while insurance companies provide conditional bonds. Due to many incurred claim rates in insurance institutions, in June 2022, AfricaRe reinsurer set mandatory rules for bondholders to present half of the total value as collateral. Defaults by contractors and subsequent litigation have been increasing lately.
Last year, a Federal High Court ordered Berhan Bank to pay 86 million Br to the ERA for the default of TACON to deliver the Robe-Seru road project in July 2018. The Administration also sued Abay Bank for allegedly failing to settle two bonds issued to TACON for two road projects in Oromia Regional State. Nine financial institutions, including Berhan and Abay banks, were barred two years ago from issuing bonds to ERA.
PUBLISHED ON Dec 04,2022 [ VOL 23 , NO 1179]
Commentaries | Nov 19,2022
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