Metro rail costs under scrutiny, as contract terms prompt concerns

Despite a longstanding and friendly partnership between Bangladesh and Japan, recent developments in Dhaka's metro rail projects have aroused concerns over costs and terms of contracts agreed under the previous Awami League regime.
The relationship between Dhaka Mass Transit Company Limited (DMTCL) and its key development partner, the Japan International Cooperation Agency (JICA), has come under strain as questions are being raised on previously signed agreements, particularly regarding consultancy fees and package costs across multiple MRT lines.
Sources say tensions have emerged following a DMTCL-initiated review of three ongoing Mass Rapid Transit (MRT) projects and the consultancy arrangements led by Japanese firms.
The reassessment, now underway under new leadership, compares the financial structure of Bangladesh's MRT projects with similar ventures in other Asian countries-some of which are also supported by JICA.
"Consultancy service costs, signed at various points since 2020, appear exceptionally inflated when compared with equivalent contracts elsewhere-both in terms of value and contract duration," said one official familiar with the findings.
Another senior DMTCL official added that the rising trend in costs across all MRT components could push the total project cost of each line beyond Tk 1.0 trillion. "This stems from flawed cost estimation methodologies used until now," the official claimed.
Since February, the metro rail company has been under new leadership with a Bangladeshi expatriate now serving as the Managing Director. The new management has been reassessing the financials of MRT-1, MRT-5 North, MRT-5 South, and even the operational MRT-6, in line with the interim government's ongoing austerity drive.
It emerged that one Japanese firm has led all joint ventures overseeing construction supervision consultancy for MRT-1, MRT-5 North, and MRT-6. Only MRT-5 South-funded by the Asian Development Bank-features a joint consultancy led by a French firm, though its supervision contract is yet to be finalised.
While most contract packages (CPs) for MRT-1 and MRT-5 North are at the final stage of selection, DMTCL has raised questions about the lack of competition, citing instances where Japanese firms submitted high bids and still emerged as the lowest bidders-stalling further contract approvals by the DMTCL board.
As previously reported by The Financial Express, one package under MRT-5 North was quoted at nearly three times the expected value, with no room for negotiation or retendering.
Project insiders attribute the situation to a lack of technical oversight in earlier phases but stress the importance of revisiting all costs and related documents, noting that DMTCL has since developed the necessary expertise.
The FE has learned that the rift between DMTCL and JICA has reached higher levels, prompting JICA to engage directly with senior officials, including the interim government's adviser on road and rail transport.
One Japanese company, affiliated with the Japan-Bangladesh Chamber of Commerce and Industry (JBCCI), defended the pricing, claiming that initial cost estimates did not properly account for inflation and post-pandemic disruptions.
"Japanese costs surged two to three times due to global factors like COVID-19, the Ukraine-Russia war, and Middle East instability. These weren't accurately factored into the MRT cost revisions," the representative said.
Meanwhile, a source from the construction supervision side alleged that the DMTCL review was biased and intended to reduce Japanese involvement.
He further claimed that Japanese consultants actually charge lower rates than their counterparts from multilateral institutions such as the World Bank and ADB, citing the weaker Yen as a factor.
DMTCL Managing Director Faruque Ahmed confirmed the agency's intention to continue all MRT projects-but under a more competitive and cost-efficient framework.
"We must continue metro development without hesitation. We will adopt a smart financial model that encourages open, competitive bidding from a diverse global pool. This will ensure competitive pricing and attract world-class contractors," he said in a written statement.
The MD also outlined plans for structural reforms in procurement, aimed at lowering capital expenditures (CapEx) and optimising operational expenses (OpEx).
Key priorities include maximising the use of local materials, promoting technology transfer, and ensuring sustainable repayment models.
Transport expert Professor Shamsul Hoque noted that both sides have room for improvement. While acknowledging the necessity of development partners, he emphasised the need for better governance and transparency.
"Perceptions about bilateral loans being inherently soft need to be re-evaluated. JICA's loans, once seen as favourable, are proving to be increasingly expensive," he told the FE.
According to DMTCL data, the contract for construction supervision of MRT-1 is worth $112.68 million for the period from October 2022 to October 2029. The detailed design and tender documentation consultancy for the same project cost about $32.94 million, covering December 2018 to June 2022.
In contrast, a similar contract in India's Bengaluru Metro Rail Project (BMRP) Phase-2 was priced at just $17.13 million. That agreement covered general consultancy for rolling stock, signalling, and platform screen doors across three phases.
Like MRT-1, BMRP also involved joint venture consultants and local government funding. The contract for construction supervision of MRT-5 North stands at $124.47 million for June 2020 to April 2031.
Meanwhile, consultancy services for MRT-5 South, including feasibility studies, engineering design, and procurement, concluded in March 2024 at a cost of $24.99 million.
Comparable projects in other countries financed by JICA include Phase-2 of the Jakarta MRT ($61.82 million), MRT-3 rehabilitation in the Philippines ($20.99 million), and the general consultancy for the Metro Manila Subway Phase-1 ($217.04 million).

smunima@yahoo.com