News
Panel says highway costs highly inflated
View(s):An official committee reviewing the former Government’s highway projects has found several of them to be highly inflated in price but has recommended their continuation on a smaller scale. For instance, the cost of the Outer Circular Highway (OCH) Project Phase III is found to be at least 50% higher than the price based on rates for the Colombo-Katunayake Expressway (CKE). “There is no evidence in the documents to justify accepting a higher bid price than that based on CKE rates,” a committee report seen by the Sunday Times states.
The OCH project was awarded to the Metallurgical Corporation of China (MCC) at a cost of Rs. 66.6 billion on an unsolicited proposal. However, the Standing Cabinet Appointed Procurement Committee had been instructed to renegotiate the price based on the rates for the CKE project, which was carried out by the same contractor.
The three-member committee was set up by Highways and Investment Promotion Minister Kabir Hashim. It comprises Faiz Mohideen as chairman and Udaya Seneviratna and M.B.S. Fernando. The projects under review are the OCH Phase III, the extension to the Southern Expressway, the Northern Expressway and the Chinese-funded Priority Roads Project-3 Phases I and II.
The officials were required to review all submissions and documents and verify whether the calculation of rates was correctly prepared with supporting documents. The committee was also instructed to negotiate with contractors for the “least possible contract sum” for each of the initiatives.
The committee cites a technical audit report of the University of Moratuwa as saying that the OCH project was only economically feasible if the cost was halved to about Rs. 35 billion. The Road Development Authority has now agreed to reduce the scope of the project by changing the design to four inner lanes “without provision for future expansion”.
The highway was originally intended to have four outer lanes with provision in the middle for expanding to six lanes. The length of a viaduct is also to be reduced by three kilometres and its height limited to four metres. The committee has flagged further possibilities for cost reduction.
This includes omitting the Mathumagala interchange, which is only 900 metres from Kerawalapitiya. The overall savings are to be used for extension of the expressway from Kadawatha to Gampaha. “The committee recommends that the consent of the Contractor is obtained for the change in scope in order to avoid potential future contract claims for additional cost,” the report adds.
With regards to the Southern Expressway Project (SEP), the Moratuwa University’s technical audit report had strongly recommended the immediate suspension of the initiative. It calculated the economic internal rate of return (EIRR) at current cost — the total accepted contract sum for four sections was Rs. 242 billion — to be negative at -11.1 per cent.
“However, the Government has not decided to abandon the ESEP,” the committee observes. “Therefore, it is expected to be implemented at a reduced scope.”
It is thus recommended that the width of certain sections be decreased; the number of lanes be cut from four to two in some segments, and that certain sections (such as the proposed road from Andarawewa to the Hambantota Port) be abandoned altogether due to existence of other new roads. From all this, the committee expects a total saving of around Rs. 123 billion.
The project includes a supervision contract with a Chinese consultancy company for Rs. 11.9 billion. The committee has proposed that this agreement be cancelled as the loan required for payment has not yet been secured. “If the Government agrees to proceed with the project as proposed, the contractor’s agreement has to be reached for the reduced scope of work in sections 2, 3 and 4,” the committee says. “The section 1 from Matara to Beliatta may be proceeded with immediately if the contractor agrees to a reasonable reduction of cost.”