The Ethiopian Roads Authority (ERA) has lifted a ban on Tsehay Insurance S.C. preventing it from issuing advance payment and performance guarantee bonds for contractors ERA hires.

The move comes after the insurance firm paid a settlement of 4.7 million Br to the Authority for an advance payment guarantee bond it had issued to Akir Construction more than seven years ago. The construction company was incorporated in 2004 with Awetahegn Kiros as a major shareholder. A significant player in the construction industry for two decades, Akir was awarded a contract to construct a 59Km road from Sembo to Shola Gebeya in the Amhara Regional State in 2014. The project was initially projected to cost 663 million Br, scheduled to be completed in three years.

Tsehay issued an advance payment guarantee bond for the contractor. These bonds cover from 10pc to 20pc of the project cost in value and are designed to protect project owners from default risks by the contractor.

The start of construction awarded to Akir Construction was delayed by two years. Its managers had blamed disputes over the right of way by residents, forcing the Authority to extend the deadline to 2019. As the project progressed, the value of the advance payment guarantee issued in favour of Akir Construction dropped.

“We've been renewing the guarantee based on the contractor’s performance,” said Kassa Lisanework, CEO of Tsehay Insurance, which netted profits of 32.8 million Br last year.

However, Akir Construction stopped the work in January 2019 while the project was 94pc complete. The Authority demanded Tsehay to pay out the bond, an issue of contention between the insurer and the ERA ever since. Tsehay Insurance, along with four other insurance companies, was debarred by the Authority in March this year. Tsehay's managment had asked leaders of the Association of Ethiopian Insurers to negotiate with the ERA on its behalf, two months after the decision of the ban was made.

The ban was lifted after Tsehay paid ERA earlier this month, Ashchalew Asfaw, legal director at the Authority, disclosed to Fortune.

The Akir Construction saga is not the only one involving Tsehay Insurance and the Authority, the latter operating with a capital budget of 66.6 billion Br in the current fiscal year.

The performance guarantee Tsehay Insurance provided to Kif Construction, which was hired to complete part of the road between Mazorai and Durki but has failed to do so on schedule, is an outstanding issue with the Authority. However, discussions are ongoing, according to Kassa.

"There are issued we need to sort out," Kassa told Fortune.

Disputes over guarantee bonds have become regular, leading the Authority to debar five insurance firms and seven commercial banks from issuing bonds earlier this year. Bunna, Lion, Abay, Berhan and Tsehay were insurers on the receiving end. The banks included the Cooperative Bank of Oromia and the state-owned Commercial Bank of Ethiopia (CBE), though these have since been reinstated.

Insurance companies can only issue conditional guarantee bonds, payable upon proof of breach of the contract terms. It was a practice instituted in 2004 after the insurance industry was exposed to high risks with unconditional guarantees, which are payable on demand. Regulators at the central bank brought the unconditional bonds to an end, seeing an alarming increase in claims.