Chinese- funded road projects maximise profits through local subcontracts
Sri Lanka’s ongoing road development projects with an excessively estimated high contract price are being carried out by Chinese firms awarding subcontracts to local contractors at a low cost, construction industry sources revealed.
The Central Engineering Consultancy Bureau (CECB) is monitoring, supervising and handling these public works being carried out by local sub-contractors.
The construction agreements with international contractors specially Chinese are quite complex as they come in with foreign funding with strings attached to it, they said adding that it leads to corruption, excess spending and commission-taking from the start of awarding the contract until the completion of the project.
The CECB is in charge of consultancy work in most of these projects in the North and portions of the road construction were given to local construction companies by negotiating with Chinese firms, a senior official of the CECB said.
In some road projects in the North 2/3rd of the work is being carried out by local firms and the balance by a Chinese company. Sub-contractors are being paid on the basis of 40 per cent of the estimated cost per kilometre, he revealed.
The actual cost of these projects is very much less than the estimated cost and no one knows what is happening to billions of rupees saved by awarding sub contracts to local contractors of Northern road projects such as International Construction Consortium (Pvt) Ltd, Maga Engineering, Sanken (Pvt) Ltd and Access Engineering PLC, he said.Some of the ongoing road projects in the North are Jaffna A-9 road, Paranthan-Mullaithivu road, Priyankulam-Mullaithivu, Kokilai- Pulmodai, Jaffna – Mannar, Puttalam- Nachchikuda, etc.
China Exim Bank and China Development Bank (CDB), the funding bank for Chinese contracts, have imposed several unfavourable conditions in Sri Lanka when lending money for road development projects.
These banks are levying a management fee, and annual agreement fee in addition to interest for their road development loans given to Sri Lanka.
Citing an example, a senior government official said that the total estimated cost for the 9.32 kilometre stretch of road from Kadawatha to Kerawalapitiya, phase two of the Colombo outer circular road, was Rs.66.68 billion and the contract was given to Metallurgical Co-operation of China.
The agreement was signed with the Chinese company before the cabinet approval, he disclosed. According to the cabinet paper ER/RD/L/6, the government is borrowing Rs. 63.35 billion (95 per cent of the estimated cost.) from the China Exim Bank.
The bank’s management cost is Rs.158.4 million which is 0.29 per cent of the estimated cost and it has to be directly paid to bank by the government. The annual agreement fee of 0.25 per cent amounts to Rs.158.3 million while the Sri Lankan government should bear the balance 5 per cent cost of Rs. 3.3 billion.
These hidden costs have become a great burden for the Treasury as the Finance Ministry has taken over the responsibility of handling express highway and related road development activities in the island.
Treasury officials have to handle additional work of the Ministry of Highways under this set up whose Minister is the President, informed sources said.