Four financial institutions face a ban from issuing any guarantees and securities for construction companies hired for projects under the Ethiopian Roads Authority (ERA). The letter signed by Habtamu Tegegn, the Authority’s director-general, stated that the companies were excluded for failing to discharge their obligations in a timely manner.

The Cooperative Bank of Oromia, Enat Bank, Africa Insurance and Nib Insurance are the companies that were debarred from extending guarantees and bonds for construction companies. The letter dispatched to the project development and construction projects management divisions of the Authority stated that the ERA would not accept any new bonds and insurance policies from the companies until further instruction is given on the matter.

"The companies have been exhibiting limitations to the timely discharge of their obligations as per their promises and directives of the National Bank of Ethiopia (NBE)," reads the letter. "The companies exhibited persistent disobedience and similar previous experiences."

While giving projects to contractors, the Authority requires the companies to hold guarantees from banks and insurance firms as to their performance and any advance payments as well as to replace retention money held as per the contract requirement.

The Authority's contract framework also requires contractors to take out and maintain insurance coverage for the works; plant and equipment; personnel; and vehicles as protection against damages, losses and liabilities during the projects' overall lifespan. Thus, insurance firms sell policies to contractors such as the Contractor's All Risks Policy, Contractor's Plant & Machinery, Workmen Compensation and Professional Indemnity. Contractors also need to be furnished with different bonds as to their performance, advance payments, and other similar issues that require insurance coverage.

Considering the extended reputation of these financial institutions as credible and preferable for providing such guarantees and mainly taking into account their longer relations with ERA, the Authority had been willing to accept any guarantees supplied from them, according to the letter.

"Most of the financial institutions have been discharging their obligations and have fulfilled promises indicated in the contracts and conditions stated under the guarantees," reads the letter. "Nonetheless, some financial institutions have been exhibiting limitations to the timely discharge of their obligations."

Zufan Abebe, CEO of Nib Insurance, says that the Authority did not formally communicate with them about the issue; instead, they heard it from their client, whose guarantee from Nib would not be accepted by the Authority.

Nib is included on the list for a conditional bond for a construction company as an advance payment guarantee, according to Zufan, who adds that the construction company and the Authority are in a court battle, both suing each other. Nib was also involved in the court case.

"However, since the nature of the case [the guarantee Nib gave to a contractor] is a tripartite agreement," she said, "our case went to an arbitral tribunal under the Addis Abeba Chamber of Commerce & Sectoral Associations after the three of us agreed on it. And the case is pending there."