Mega Concerns of Megaprojects

There is no doubt that public infrastructure system that includes transport links, power and energy, telecommunications, digital networks, water and sanitation, and social services, such as health and education, serves as the foundation for economic development of any country. This is more so for countries such as Bangladesh which are at the take off stage of development. Over the recent past years, the government of the day made significant investments in public infrastructure projects (PIPs), embracing various sectors of the economy. As part of this, formidable resources were spent for implementation of a number of largescale projects, popularly known as megaprojects, which were expected to contribute to Bangladesh’s socioeconomic development and improve the delivery of various public services.
However, there are serious questions as regards the quality of governance of implementation of many such PIPs, their justification, viability, costing and financing, returns, and implementation governance. Because of the scale of the resources deployed, the megaprojects have come under particular scrutiny in this backdrop. Based on an in-depth review and scrutiny of a selected set of such projects, this chapter makes an attempt to investigate the attendant concerns and suggest corrective measures to ensure that such investments generate good value for money. The above concerns are also informed by the fact that the entire ADP of Bangladesh, that includes expenditure on megaprojects, is underwritten by borrowed money, either domestic or external or both. Indeed, almost all the megaprojects had significant external finance components. If expected returns are not ensured, not only will the public be deprived of their expected benefits and returns, but also the country could fall into debt trap which is often coterminous with middle income trap.
Thus, the present chapter takes a critical look at the following concerns and issues: quality of feasibility studies of the megaprojects; terms and conditions of loans; sequencing and phasing of project related activities; implementation anomalies including procurement process; time and cost escalation and their implications for estimates of returns on investment. Based on this analysis, the chapter proposes a set of recommendations for actions.
Provides some key information about a number of megaprojects which were completed over the recent past years, or are currently in the process of completion. A number of common features are discernible from the table: (a) almost all projects are underwritten by significant external borrowings; (b) there has been notable cost escalation in case of majority of the projects in the course of their implementation; (c) terms of borrowings of the projects are rather stringent, as distinct from the ones which Bangladesh had traditionally received; (d) repayment periods of a number of megaprojects have either started or are set to start in the near term future. This will entail a significant rise in the country’s debt servicing obligations.
This section flags some serious concerns that are revealed from a close scrutiny of relevant documents, consultation with government officials, FGDs, KIIs and review of relevant literature and media reports.

Some Disquieting General Patterns in Project Implementation
IMED carries out regular evaluation of implementation of projects, on a selective basis, including the megaprojects. Over the years, IMED reports have identified a number of weaknesses that afflict the implementation of PIPs. A review of project documents, and insights from FGD and KIIs substantiate the IMED observations. However, in most cases these observations, comments and suggestions which were made year after year, was not followed up with concrete actions. Accountability was not established, and there was no systematic and transparent mechanism for follow-up actions to address the problems.
The concerns in this backdrop may be grouped under three phases: (a) Project preparation and approval phase; (b) Project implementation phase; and (c) Post implementation phase. These are generic in nature which informed all PIPs including mega-PIPs.

Feasibility Studies Not up to the Mark
A common feature of almost all megaprojects is that these had to be revised multiple times. Poor quality of feasibility studies was a key reason for many of the attendant anomalies. Concerned Ministries often did not have the required expertise to assess feasibility studies and veracity of returns estimates carried out for complex megaprojects. Frequent course corrections in project design led to time escalation as also cost escalation. It was found that subsequent procurement process (as per revised stipulations in the RDPPs) was not carried out as rigorously as in case of the initial ones. An example is the Matarbari 1200 MW Ultra Super Critical Electricity Plant, but this was a common phenomenon.
A study finds that about 86.4% of projects experienced either time or cost escalation or both. The consequent time overrun, and cost overrun undermined the viability of the projects.
Significant time and cost overruns are common features of Bangladesh’s megaproject implementation scenario. The first seven projects mentioned in Table 1 show a staggering cost escalation of BDT 80,569.3 crore or by 70.3% between the first DPP and the last revised DPP. Since, some of the projects are yet to be completed, in all likelihood, the project expenditures are expected to escalate further when final cost figures will be available. No doubt, sometimes, there are valid reasons for, at least part of the cost escalation. One caveat though. If such significant changes in the project design had to be made (oftentimes immediately following initiation of the project), then these should have been anticipated earlier.
To recall, there are many provisions, regulations and standard operating procedures (SoPs) in place in Bangladesh to ensure that good governance is maintained at the various stages of project implementation. However, a review of documents, FGDs, KIIs indicates that the relevant provisions were often not followed in many instances. While some external partners tended to insist on following the stipulated provisions, others were not as scrupulous. In case of a number of projects, these guidelines could not be followed also because of specific terms of the concerned loans (e.g. single country bidding which was the case with Chinese supported loans for Padma Rail Link Project and Karnaphuli Tunnel as also projects under Indian Lines of Credits-LOCs).
Estimates of returns on investment as regards projects in general, and megaprojects in particular, are critically important from the perspective of justification of a project. However, these sometimes tended to be not carried out with the rigour that the task demands. For example, although construction cost of Karnaphuli river tunnel escalated by 26.5% between the DPP (2015) and RDPP (2022), there was no change in the original estimates of financial analysis- the benefit cost ratio (Financial: 1.05:1; Economic: 1.5:1) and IRR (Financial: 6.19%; Economic: 12.45%) as also estimates of the NPV remained unchanged.
The way cost-benefit analysis was carried out for long-term projects is also questionable and merits serious review and reconsideration. Cost estimates were done at constant prices, while benefit estimates were carried out on the basis of nominal prices. Oftentimes, returns were estimated without consideration of the time lag in the generation of benefits.
Construction costs in Bangladesh were higher while quality of construction tended to be lower. For example, per kilometre four-lane urban arterial road in Bangladesh was found to be 4.4 times higher than India, and 2.15 times higher than that of Pakistan. Per kilometre cost of construction of the Rangpur – Hatikumrul four-lane transport link has been estimated to be USD 6.47 million per kilometre; corresponding cost for the Dhaka-Sylhet Highway was estimated at USD 7.06 million per kilometre. Per kilometre cost of Dhaka-Mawa-Bhanga four-lane Highway Project was set at BDT 113.7 crore. Whenever these discrepancies were pointed out in the past, a number of reasons were often cited as contributing factors: high cost of land acquisition in Bangladesh; the need to import a large part of the machineries and equipments; the high import tariffs; the special demands arising from construction in flood plains environment. However, various IMED reports, reporting by investigative journalists, and close scrutiny of project documents including feasibility reports, DPPs and revised DPPs indicate that such large discrepancies cannot be explained and substantiated fully even after considering these factors and factoring in the distinctive features of construction in the Bangladesh context.
The Dhaka-Chattogram Highway Project could serve as yet another case study in view of the above. IMED report as regards the project noted the following: (a) quality of feasibility study of the project was not up to the mark. The highway lacks separate lanes for slow moving vehicles. There was no proper underpass or footbridge for road crossings; (b) the DPP had serious shortcomings that caused subsequent amendments resulting in cost and time escalation; (c) bitumen used for construction was not of right specification; (d) initial design of the project did not anticipate large maintenance work for the first ten years. However, soon after construction, the R&HD proposed a BDT 739.0 crore project for repair and maintenance, which in part was necessitated by wrong forecast about traffic (traffic was estimated to rise by 6% per annum; the initial estimate was 16,485 vehicles /day, it actually rose to 32,000/day in 2018; (e) load estimation was inaccurate; (f) PDs were changed 12 times in the course of construction of the highway which led to delays in construction and cost escalation.
While many such observations were made time after time, often by the IMED itself, for projects after projects, the state of affairs continued to remain more or less the same.

Non-competitive Bidding Process
Analysis of E-Government Procurement (EGP) data carried out by the TIB indicates that, top 5% of companies were awarded 307 contracts with a value of 68% of the total contracted amount. TIB’s analyses of the bidding/tendering records, based on analysis of the EGP data, showed that almost one-fifth of the project contracts (between 2012-2023) were of single-bid nature (amounting to more than BDT 60 thousand crore). Megaproject contracts are not done through EGP-often complexity of contract is mentioned as the key reason (TIB, 2023). There is a need to bring greater transparency in project biddings and procurement. Tenders were often designed in a way that only a few selected companies are able to submit bids, leading to the possibility of collusive behaviour in pre-submission phase, as revealed by KIIs.

Corrupt Practices
A TIB report which reviewed 48 projects found that a staggering amount of more than BDT 50 thousand crore (or 40.0% of the allocations going to the RHD over the past 15 years) was misappropriated through various forms of manipulation. A review of project documents shows that major cost escalation took place because of land acquisition. It appears that once the project plans are known, land prices get pushed up and by the time RDPPs are put into effect, land acquisition costs tend to go up significantly. Insider knowledge allows vested groups to take advantage of this. For example, the land acquisition cost of Dohazari to Cox’s Bazar Rail Track and the Multi-Lane Road under Karnaphuli Tunnel increased by 12 times and 4.7 times respectively, from the initial DPP to the last revised DPP.
Problems of Phasing, Sequencing and Pacing
Oftentimes projects turned out to be less viable than was originally envisaged because of lack of proper sequencing, pacing and phasing. For example, in case of Karnaphuli tunnel, the projected vehicular movement was estimated based on a number of assumptions which included setting up of the Chinese Special Economic Zone in Anowara. The SEZ was expected to generate enough traffic for the Chattogram and Matarbari seaports, using the tunnel. This was expected to make the project viable. When the SEZ was not established, the vehicular projection proved to be unjustified, putting under question the viability of the project itself.
Similarly, the economic viability of Padma bridge and rail link was critically dependent on translating these transport corridors into economic corridors. For this to happen, establishment of the 17 special economic zones in southern Bangladesh and largescale investments in the economies of the southern districts were planned; Sub-regional cooperation with India, Nepal and Bhutan, by taking advantage of BBIN-MVA and other initiatives were expected to play a key role in this. However, while the rail link project has been completed, the other planned activities are yet to be launched. This obviously undermines the returns envisaged under the project, undermining its viability.

Concerns Regarding Suppliers’ Credit
In recent years, a number of megaprojects were (and are being) implemented with suppliers’ credit. However, often this type of credit tended to be pushed by interested parties (companies, countries), although these were not aligned with national priorities as spelt out in plan and strategic documents. Terms and conditions of such loans also tended to be more onerous. For example, construction of Padma rail link and Karnaphuli tunnel projects, financed by Chinese credit, came with a number of conditions which pushed project costs up. Interest rates of some of these loans were on unfavourable LIBOR/SOFR terms.
Lack of Transparency and Accountability
A key reason that fuels corruption in megaproject implementation is the wide-ranging lack of transparency as regards the way feasibility studies are carried out and project plans and documents are prepared. These can be accessed only by a fortunate few. Feasibility studies and DPPs of megaprojects are not made publicly available. Open source would have allowed proper scrutiny by independent experts and interested public in general as regards justification of projects, costing and cost allocation, cost escalation, viability, and estimation of returns.
Going Forward Taking cue from the findings presented in the preceding sections, the following suggestions are made:

Undertake More Rigorous IRR, CBR and NPV Estimations
As was noted, there are several questions as regards the veracity of estimation of returns on investment and CBRs. This needs to be done in a more rigorous manner since the implications could be highly consequential for the economy from the point of view of spending taxpayers’ money and debt repayment obligations. This also had important significance for tariffs to be fixed for the services delivered (e.g. toll rates, energy prices, and prices of utilities), debt servicing and debt carrying capacity of the country. Such practices also undermine the cause of good governance, accountability and transparency in mega-PIP implementation. These concerns need to be addressed with due urgency.
It is critically important to re-estimate the returns when projects are subsequently revised and costs go up, to assess whether the concerned project no longer remained viable. At the feasibility study stage, sensitivity analysis should be carried out to understand the implications of cost escalation for expected benefits in order to assess financial and economic viability of the project. A review of project documents including DPPs and Revised DPPs indicates that in case of majority of megaprojects, this was not done. Going forward, when projects are revised, re-estimation of the initial economic and financial returns and cost-benefit ratios should be made mandatory in order to have a clearer understanding of the viability of particular projects. A good way to go forward could be to compare with cost estimates of neighbouring countries and justify, in a concrete manner, the reasons for deviations and cost escalation.

Strengthen the Procurement System
As was noted, there are number of concerns regarding procurement and bidding processes. A tiered system (depending on the contracted amount), allowing greater flexibility in bid submission, needs to be considered to encourage more competition in the bidding process. A strategy needs to be developed for creating opportunities for a more competitive bidding process through proper division of labour and apportioning of job orders. The E-procurement system needs to be further strengthened towards this, and the provisions should be strictly enforced. There should be measures in place to guard against collusive behaviour among potential bidders.

Carry Out Proper Impact Assessment
There should be a regular system of impact assessment, following a certain period after completion of megaprojects. Actual returns should be compared with those projections in the feasibility studies to draw insights as regards lessons and learnings. Although introduction of Result-based Management (RBM) was mentioned in several budget speeches, this was not appropriately followed up. This should be done now.

Bolster IMED Capacity
IMED faces various constraints in carrying out its mandated responsibilities. The ongoing decentralisation of IMED functions needs to be strengthened further, with adequate human capacity and financial support towards more effective monitoring and evaluation works. Internal monitoring and assessment capacity of major spending Ministries also need to be strengthened. Lab testing capacity and professional development programmes need to be strengthened. Policymakers may think of strengthening IMED’s autonomy and independence. The EPMIS tool for real-time monitoring by the IMED should be operationalised, with adequate human resources and due urgency. Also, a move from manual submission to e-submission through Project Planning System (PPS) needs to be put in place at the earliest.

Carry Out Rigorous Debt Stress Test
One lesson with regard to going forward in view of large-scale projects is to undertake debt stress test, from a macro perspective, to avoid any likelihood of unsustainable debt servicing obligations in future. As has been the case, as regards some projects, because of delayed implementation, repayment had already started even before project completion, resulting in onerous debt servicing burden. Some development partners financing a major part of the costs of implementing various megaprojects tended to not consider the country’s debt-carrying capacity in a proper manner. While this remains a question, Bangladesh’s concerned institutions should do it on their own. Bangladesh’s middle-income graduation and the consequent predominance of nonconcessional loans need also to be taken into cognizance in this connection.

Consider the Impact of BDT Depreciation
All the estimates of financial analysis (NPV, cost-benefit ratio, IRRs) need to be re-assessed in view of the recent significant depreciation of the BDT (since the time these calculations were carried out in the first place). This will give a more accurate picture of returns on investment. National capacity building to carry out project feasibility studies and impact assessment exercises ought to receive priority. For example, while implementing megaprojects in the railway sector, coordination between construction, preparing human resources, acquiring carriages and locomotives etc. was found to be lacking, which delayed operationalisation of the projects. This also reduced the viability of projects.
A large number of ministries and agencies are involved in the implementation of megaprojects. When this is not well-coordinated, viability of the projects is reduced. In view of this, there is a need to give emphasis on better coordination among all involved agents, by ensuring proper accountability.

Make Project Documents Public
All project documents including feasibility studies, DPPs, RDPs and impact assessment studies should be made public and posted on website of relevant organisations and the IMED429. These projects are being implemented with taxpayers’ money, and the present generation and the next generations will have to repay the debts. So, they have a right to know about project details. For large-scale projects, there should be a system of public consultations and opportunities for closer scrutiny by relevant experts (beyond the government-sponsored ones). IMED should carry out independent assessment of project implementation, not selectively, but of all large-scale projects. If required, independent experts should be hired for this. These reports should be subject to public discussion and scrutiny. This would also have allowed for undertaking cross-country comparisons early on

Strengthen Borrowings Negotiating Capacity
In all likelihood, Bangladesh will continue to incur external borrowings to underwrite its various projects under the ADP, including the megaprojects. Negotiating complex borrowings will call for strengthening of institutional and professional capacities of concerned institutions including the ERD. Following Bangladesh’s middle-income graduation, with the attendant greater complexity of debt negotiations, this task has gained in importance. This will be more so if Bangladesh decides to renegotiate repayment of debts incurred on account of some of the megaprojects.
Due caution must be exercised in view of the volatility at LIBOR/SOFR in recent past years. In which currency to negotiate the loans also merits closer attention since exchange rates of some of the currencies tend to be more volatile than others. Currency depreciation and exchange rate hedging will also become important

Ensure Knowledge Transfer
While knowledge-sharing is mentioned in all the megaproject documents, this is not seriously pursued. This results in many projects being managed by foreign implementing agencies following project completion, adding to running costs. Megaprojects should have specific components for this, with time-bound outcomes.

Megaprojects and Debt Management
Megaprojects, underwritten by significant amount of external resources, will need to be completed as per loan conditions. However, in view of the likely repayment pressure, several steps may be taken: (a) Take measures to complete the projects as per schedule since time and cost escalation will raise debt burden. Cost estimates for future works should be carefully reviewed to bring the projected expenditure down; (b) In case of implementing additional components, cost estimates of earlier components should not serve as reference points for project cost estimation; (c) The Interim Government may consider opening consultations with bilateral and multilateral partners (underwriting megaprojects) for deferment of repayments and extension of grace period and repayment period.
Consider OECD Framework for Project Implementation as Reference Point The OECD framework for good governance in project implementation, with its 10 pillars and 47 indicators, could serve as a good reference point to develop a customised framework for Bangladesh to design, track and monitor implementation and ensure good governance in implementation of PIPs, including megaprojects. This will help put in place a cost-effective, accountable and transparent PIP implementation that guarantees good value for money.

Concluding Remarks
Megaprojects, as also other projects, are implemented with taxpayers’ money. While many such projects are necessary for Bangladesh’s current and future development, due diligence must be exercised to ensure good value for money in their implementation. The preceding sections have revealed many anomalies which will call for urgent attention on the part of the Interim Government.