Cost escalation of projects due to delays

Delay in project implementation has become the feature of every large infrastructure project and this can be treated as an obstacle to the development of the country as a whole. A number of infrastructure projects like the Dhaka Elevated Expressway, Padma bridge, metro-rail and the Dhaka-Chittgong 4-lane highway, have already seen substantial cost escalation due to the prolonged delays. Although the ruling alliance formed the government in the later part of 2008, it has not been able to materialize these projects into reality and some of these projects are not even in the stage of physical construction. Therefore, the reassurances from the government in the present context give the people little comfort and people even assume that the situation might go from bad to worse. The failure to implement infrastructure projects on time has already increased some project costs up to 100 per cent. The proposed 6.15 kilometre steel-truss Padma bridge project estimated to cost about US$ 1.4 billion was approved in an ECNEC meeting during the tenure of the caretaker government in 2007 and the project estimate has been revised at $2.9 billion in January 2011. Within a span of four years, the project cost has been doubled. This is not a unique case. The case of Dhaka expressway is nothing different. Initially it was a build-operate-transfer (BOT) project and the project proponent was a foreign company called Ital-Thai which proposed to build the 32 km elevated expressway at an approximate cost of $900 million back in 2006. Later in 2008, the cost was revised at $1.1 billion and in 2011, the estimated project cost now stands at $1.2 billion for only 21 km. The subway project has a long history. The government invited tender to establish a subway system in Dhaka metropolis through private sector participation back in November 2002 and only two companies participated in that bidding where a local firm became the lowest bidder. It proposed to build a single-line network of 45 km at an approximate cost of $280 million. However, the government declared that firm non-responsive due to the absence of financial disclosure but there was no guideline for private infrastructure projects in 2003, although the tender was floated as a BOT project. In 2004, Bangladesh Private Sector Infrastructure Guideline was published. Following that, a modified proposal was asked to be submitted to the Ministry of Communications in 2006 and subsequently the lowest bidder submitted a 52 km double-line network consisting six routes at a cost of $900 million. Later, in 2008, the project was approved after a comparative analysis among the available alternatives. Now in 2011, the project cost stands at $1.7 billion for a single-line network. The projects under Annual Development Programme (ADP) are similar. Big portions of ADP allocations are left unutilized at the end of every fiscal year, due to the delays and the ADP budget is revised downward. Moreover, most of the projects fail to meet deadlines and as a result cost is increased. There is a widespread feeling among people that improper project implementation, inadequate manpower, lack of coordination, faulty project designs, frequent policy changes, delay in pre-qualification and delay in the decision-making process increases the public sector project costs significantly. The increased cost of the Dhaka Elevated Expressway would put extra burden on the people as they have to pay tolls which would entirely depend on the actual cost. Similarly, the more the cost of metro rail, the higher would be the fare. Delays and cost spiral have significant implications from the economic point of view. Due to delays in project implementation, the people and the economy have to wait for the services longer than is necessary. Thus, delays limit the growth potential of the economy. Similarly, cost spirals reduce competitiveness of the economy. Services provided by infrastructure projects serve as input for other sectors of the economy. Simply put, delays and cost spirals reduce the efficiency of available economic resources and limit the growth potential of the entire economy. The perception is that the public sector is incapable of delivering public goods in time and on cost. Exact figures on the degree of cost escalations are not available but according to media reports, the cost of a number of projects has been revised several times even though many of those are yet to come to the physical construction stage. To be frank, mega-projects are always risky and there is always a chance of delay and cost over-run but the way the cost of our mega-projects are increasing at the preliminary stage is really a matter to ponder because after the completion of the project, we have to pay the toll and fare. This is why, this cost spiral of projects due to delay should be addressed on an urgent basis. The writer can be reached at e-mail: shafiqul0032@yahoo.com