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Expressway building prices defy all construction cost logic
Acting RDA Chairman R.W.R. Pemasiri’s second response calls my figures erroneous and conclusions baseless. With regard to the Extension of the Southern Expressway (ESEP), he admits that the cost of the section between Pinnaduwa (Galle) and Godagama (Matara) should be ‘adjusted’ to US$ 8.5 million per km rather than US$ 4 million. While this statement flags the accuracy of actual costs of expressways given to the public, it also then becomes a project that should get included as being over-priced as the reported cost of US$ 152 million for this 35 km section should be actually ‘adjusted’ to US$ 293 million.
The flip side is that the actual cost of the ADB financed section up to Pinnaduwa should then come down from US$ 9.6 million per km to US$ 4.6 million which then confirms that four-lane expressways in the South can be built for that price. Then not only is the cost of US$ 26 million per km for the Matara to Beliatta section five to six times over-priced, the Galle-Matara section also becomes overpriced. Both were awarded on non-competitive bidding using Chinese loans.
It is the usual practice in engineering estimates to include 10% each for contingencies and price escalation. When comparing with completed projects this should not be excluded, as the RDA has done in its reply, as the eventual prices often exceed the estimate. If Mr. Pemasiri examines all the expressway projects completed by the RDA, he will find that most have required supplementary funds. Hence, not only is the cost of the Matara-Beliatta section at US$ 26 million per km excessive, it is likely to be exceeded at completion.
It is also usual in engineering practice that, as a country gathers expertise in new technology, the cost reduces as improved designs and construction processes are used. This is how professional engineers cut costs. However, Sri Lanka has seen the Southern Highway itself become more and more expensive as it moves from the densely populated wet zone to the sparsely populated dry zone defying all construction cost logic. It is also a fact that the higher traffic levels are towards Colombo and not towards Beliatta. Design standards should correspond with traffic levels. It would have been most appreciated if the RDA could explain why the design standards were improved beyond Matara when the traffic level even beyond Galle is only a fraction.
Mr. Pemasiri’s response states that the highway cost from Kadawatha to Kerawalapitiya is only Rs. 66.6 billion and not Rs. 86.6 billion as reported by me. I refer him to Table 35 of the RDA’s Performance Report for the 1st half of 2014 given below. Therefore, is the publicly released figure of Rs. 66.6 billion the actual cost?
Table 35: Progress of OCH – Phase III (see table below)
While it is known that viaducts increase construction cost, the reply misleads the public from the facts that are disputed in my article. For example, Mr. Pemasiri states that the JICA-funded Kaduwela-Kadawatha section which has 4.9 km of viaduct out of a total length of 8.9 km (i.e. 55% of its length) costs 43 million US$ per km. If we accept this, the section to Kerawalapitiya which has 5.9 km of a total 9.3 km which is only 63%, is still way overpriced at 72 million US$ per km. Moreover, even the Southern Highway which cost only 7 million US$ per km has viaducts over the Kalu and Bentara rivers.
PRP Phase II is also a project with stand-alone funding from China and non-competitive bidding. The average cost of Rs. 139 million per km is for B Class and non RDA roads in the Southern Province. Subsequent to this, the RDA awarded a number of similar projects to local contractors using financing from local banks. Analysing the cost of 320 km of two-lane B class roads in that package, it is found that the average cost is only Rs. 92 million per km proving yet again that there is at least 55% over pricing. This is the reason that local contractors often complained of having to take only sub-contracts. Thus, the reply of the RDA which states that its calculation finds the costs to be ‘nearly equal’–a phrase that is used four times in the reply–is to me still not ‘near enough’.
Mr. Pemasiri defends the need to award contracts without competitive bidding and for ‘stand alone’ funding arrangements due to the Government’s accelerated road development program. Countries that reach middle income status usually seek partial private funding for projects such as expressways and space out such projects to keep pace with traffic build-up (so that users rather than non-users will pay for such development). In my vocabulary, this additional cost due to unwarranted urgency is still a ‘loss’ to the country. In fact, even if a road is not over-priced, there will be still a ‘loss’, unless it can produce benefits greater than the investment cost. Thus, if the current lack of adequate benefits of many of these accelerated programmes is also added, my estimated loss of Rs. 200 billion is most likely to be still an under-estimate.