Fuel prices hike drives construction costs higher

Transportation fees have increased from Nu 18,000 per jumbo trip to Nu 22,000 to Nu 25,000 now from Phuentsholing to Thimphu

Apart from the already augmenting prices of construction materials, the all-time high cost of fuel now has started driving construction costs higher, according to those in the construction business.

The prices of fuel, in the last two months, have gone up twice drastically, with diesel now costing Nu 111.83 per liter and petrol costing Nu 97 per liter. Diesel at one time was priced at Nu 41.51 per liter, the price then reached Nu 70.32 per liter in December 2021, but now it costs Nu 111.83 per liter.

According to those in the construction business, the prices of construction materials, which have been rising every year, will see prices being pushed up even higher because of the hike in fuel prices.

The Executive Director of the Construction Association of Bhutan (CAB), Tshering Yonten said he has seen those impacts first hand.

“Suppliers are constantly re-pricing and owners haven’t embraced the change of pace yet, so it puts a strain on the relationship with the general contractors,” he said, adding that those price increases can now be felt all the way from the basements of skyscrapers to the top levels.

According to Tshering Yonten, fuel fees are now widespread and delivery prices are usually listed separately and changed according to the price changes.

“A 10% increase in fuel per liter per week might result in a 2% increase in delivery expenses,” he said.

That means that a truckload (12 ton) of steel bars is priced at Nu 854,400 and when the 2% transportation is added, they have to pay around Nu 20,000 as transportation charge.

According to the Executive Director, construction firms and their workers are significantly more vulnerable to fuel prices surge than those in most other industries.

An official from the Bhutan Hardware Association, Thinley Dorji said that the transportation fees have increased from Nu 18,000 per jumbo trip to Nu 22,000 to Nu 25,000 now from the Mini Dry Port (MDP) in Phuentsholing to Thimphu.

“We pay Nu 4 per kilo as transportation cost for the nails, and we bring around 6MT of nails at once paying Nu 25,000 as transportation fee,” he said.

Apart from the prices of the fuel, other factors driving construction costs higher include the price of cement, lumber and plywood, copper and brass mill shapes, and plastic construction products, which have all seen prices jump by significant amounts during the same period.

The Chief Executive Officer of the Construction Development Corporation Limited (CDCL), Karma Gaylay said, “There has been a substantial rise in the prices of construction materials, especially cement, steel, bitumen, plumbing and also the electric items along with the prices of the fuel,” he said, adding that there is almost a 100% increase in the wages of workers and transportation cost.

He said that another significant issue currently is about insufficient estimates made by the clients.

“The estimates of clients do not include many cost components, such as ever fluctuating price rise of the materials, transportation cost, work insurance, financing charges, taxes including income tax, establishment, safety and environment, and labor cost. The estimates are much lesser than the actual market rate, overhead and profit margin allowed is much lesser etc.,” Karma Gaylay said, adding that unless these cost components are included in the estimates, it would be difficult to improve the quality of the construction.

Tshering Pelden from Thimphu