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Nepal’s construction sector is grappling with a fresh crisis as nearly Rs 20 billion in government payments for around 500 completed infrastructure projects remain unpaid due to contract extension issues, while a severe shortage and sharp rise in the price of bitumen have further disrupted road construction across the country.

Construction contractors say the twin challenges have pushed the sector into one of its most difficult phases in recent years despite the government having allocated budgets for completed works.

According to Shiv Hari Ghimire, General Secretary of the Federation of Contractors’ Associations of Nepal (FCAN), payment for approximately 500 projects worth Rs 20 billion has been withheld primarily because contracts have not received formal deadline extensions.

“The government has budget allocations, but contractors are still unable to receive payments,” Ghimire said.

He explained that although construction work has already been completed, payments cannot be processed because expired contracts have not been renewed in the government’s Line Ministry Budget Information System (LMBIS).

“Construction has been completed and many running contracts have not received deadline extensions, creating problems in the LMBIS system,” Ghimire said. “Without contract extensions, the system does not approve payments, putting billions of rupees at risk of remaining frozen.”

He urged the government to immediately facilitate deadline extensions for delayed and distressed projects so contractors can receive payments without further delay.

The payment bottleneck comes at a time when construction companies are already facing severe financial strain from high borrowing costs, delayed government spending and sluggish capital expenditure.

Bitumen shortage stalls road construction

Compounding the sector’s problems is an acute shortage of bitumen, the petroleum product essential for asphalt road construction.

Contractors say suppliers have sharply increased prices citing the ongoing conflict in the Middle East and developments in the international market, even though global and domestic petroleum fuel prices have softened in recent months.

According to Ghimire, the market price of bitumen has jumped from around Rs 155 per litre to between Rs 170 and Rs 180 per litre within a short period.

“The problem is not only the price increase. The material itself is unavailable,” he said.

“If we contact 20 suppliers, we can barely secure four truckloads of bitumen.”

He alleged that the shortage has also led to black marketing in some areas, making procurement even more difficult for contractors working on road projects.

As a result, many road construction projects are operating at only 15 to 25 percent of their intended pace during what is traditionally the peak construction season.

Contractors have called on the government to revise contract prices through a formal price adjustment mechanism to reflect rising construction costs.

Without such adjustments, they warn that a growing number of infrastructure projects could become financially unviable.

Ghimire also expressed confidence that the planned amendments to the Public Procurement Act and the proposed average bid system would help resolve many of the structural problems that have long affected Nepal’s construction sector.

Industry says import costs continue to rise

The Nepal Bitumen and Barrel Industry also confirmed that bitumen prices have continued to rise despite reductions in fuel prices.

According to the industry, bitumen imported from India became more expensive again from Asar 17, with Indian suppliers increasing prices by around Rs 800 per barrel.

The industry said that while prices of petrol and diesel have declined, no corresponding reduction has occurred in bitumen prices because Nepal depends almost entirely on imports from India.

It added that previous inventories have already been exhausted and all newly imported consignments are arriving at the revised higher prices.

As a result, there is little possibility of any immediate decline in market prices.

Contractors say the continued increase in bitumen prices is significantly raising the cost of road construction and blacktopping works, affecting numerous infrastructure projects across the country.

Road Department says major projects resume

Despite the challenges, the Department of Roads says several strategic highway projects that had briefly slowed have resumed construction.

Department of Roads Information Officer Yonjan Dahal said work has restarted on major national priority projects, including the Nagdhunga-Muglin and Suryabinayak-Dhulikhel road expansion projects.

“Although construction had slowed for some time, work on these major projects has now resumed,” Dahal said.

However, he acknowledged that shortages of bitumen and earlier spikes in fuel prices had significantly affected construction progress during the country’s busiest construction season.

According to Dahal, the Department of Roads has achieved only around 50 percent physical progress by the final week of Asar.

“The shortages and rising prices occurred during the period when construction should have been at its peak. As a result, progress has fallen short of expectations,” he said.

He added that although reports indicate fuel prices have declined, bitumen prices remain elevated, and the department is still assessing the reasons behind the continued price disparity.

Dahal also noted that while projects have resumed, contractors have yet to accelerate construction activities to full capacity.

“Construction has restarted, but contractors have not yet been able to mobilize work at full speed,” he said.

Contractors seek Prime Minister’s intervention

The mounting crisis prompted a delegation from the Federation of Contractors’ Associations Nepal to meet Prime Minister Balendra Shah on Thursday.

During the meeting, contractors highlighted multiple challenges facing the construction industry, including delayed payments, contract extensions, procurement management, project implementation, price adjustments, banking constraints and investment-related issues.

Following the discussion, contractors acknowledged that the government’s payment process has become more streamlined than before. However, they stressed that payment delays continue because contracts awaiting extension cannot be processed through the system.

According to the contractors, the principal obstacle remains the government’s failure to extend project deadlines.

Once contract extensions are approved, they believe payment processing can move forward without major obstacles.

They also informed the Prime Minister that while payment issues are relatively limited in federally managed road projects, several projects implemented by provincial governments and local governments continue to face significant delays.

Districts including Pyuthan have experienced such problems, although contractors expressed hope that the government would resolve them soon.

The contractors also raised concerns over Nepal’s weak capital expenditure performance during the current fiscal year, noting that development spending has reached only around 40 percent of the annual allocation.

They urged the government to expedite contract extensions, finalize pending price adjustment mechanisms and accelerate payment processing to improve budget implementation and restore momentum in infrastructure development.

The delegation further emphasized that the construction sector is highly labour-intensive, making timely payments essential to ensure workers receive their wages without interruption.

Contractors warned that unless payment bottlenecks, escalating material costs and procurement issues are addressed quickly, the country’s infrastructure development targets could face further delays despite the availability of budgetary resources.