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RDA defends position that no loss involved in expressway building costs
View(s):The Road Development Authority (RDA) has again defended itself against criticism that highway projects are too costly in Sri Lanka. In a fresh rebuttal to transport and logistics expert Prof. Amal S Kumarage’s analysis, RDA Acting Chairman R.W.R. Pemasiri reiterates there is no loss from expressway construction or road rehabilitation.
Excerpts from the reply:
Part of the work on the Pinnaduwa-Godagama section of the Southern Expressway (SE) was carried out under the original contract for the Kurundugahahetekma-Godagama section of the SE. Therefore, the construction cost of the contract for the Pinnaduwa-Godagama section has to be adjusted to reflect the correct position.
The contract award price of the section from Godagama-Beliatta in the Extension of the Southern Expressway Project (ESEP) is as stated by Amal S Kumarage (ASK) US$ 26 million per km. However, this price includes a provision of 10% for physical contingencies and a further 10% for future price escalation which has to be deducted when comparing prices at the 2014 level. Therefore, the construction cost of the Godagama-Beliatta section is US$ 21.6 million per km.
The SE was the first expressway and has only basic features. The estimates prepared for the ESEP in 2013 were more comprehensive and included many additional items designed to add value. In particular, the Godagama-Beliatta section has viaducts totalling 6.3 km.
Due to the wide disparity in the scope of work and to corroborate our above position, a comparison was done. We applied rates of the major items of work that contribute to the predominant portion of the contract price in the Pinnaduwa-Godagama section of the SE (escalated to 2014 prices based on inflation rates given by the Central Bank) and the Godagama-Beliatta section of the ESEP to the respective quantities of the items in the Godagama-Beliatta section.
Major items selected for this comparison contributed approximately 70–80% to the total construction cost. This comparison yielded a cost of Rs. 65,090 million based on the rates of the Pinnaduwa-Godagama section (SE) and Rs. 65,200 million based on the rates of the Godagama-Beliatta section (ESEP), a difference that could be attributed to the harsher terrain.
A further calculation made with the rate of the contract for the Kurundugahahetekma-Pinnaduwa section awarded on competitive bidding gave a similar result. Therefore, it will be seen that the costs of construction match reasonably well when compared on this common basis and that no loss has resulted.It must be mentioned that availability of funds through conventional lending agencies is limited and involves a long process. Sri Lanka, as a middle income country, is no longer eligible for concessionary loans. The total period for the procurement process – which includes approval for the initial feasibility studies, the loan processing period and the invitation, evaluation of contract awards and approval of award – requires the concurrence of the donor and may take up three to four years.
Coupled with the need to accelerate the Government’s development program, which requires funds expeditiously, bilateral lending arrangements through export credit agencies of emerging economies (where each lender has its own procurement systems and where lending governments or agencies nominate their contractors) implementing large scale infrastructure projects through stand-alone proposals became a viable alternative. The latter has the advantage of economic gain through the expeditious completion of infrastructure projects which must not be overlooked in this analysis.
Nowhere in our response have we stated that the Outer Circular Highway (OCH) has been constructed in an urban area as contended by ASK. What we said is that the area traversed is suburban.
The contract award price for the Kadawatha-Kerawalapitiya section is Rs. 66,600 million and not Rs. 86,600 million which works out to US $ 57 million per km and not US $ 72 million per km as given by ASK. Here the price includes 15% for physical contingencies and price escalation. When corrected for 2014 prices the cost of construction is US $ 49 million per km. A significant feature of the Kadawatha-Kerawalapitiya section of the OCH which increased the cost is that the foundations for all structures, i.e. bridges, culverts and viaducts, were constructed to a six-lane width up to the super-structure level to facilitate future widening.
The lengths of viaducts in the Kottawa-Kaduwela section is 3.3 km (out of a total length of 11 km); in the Kaduwela-Kadawatha section it is 4.9 km (out of a total length of 8.9 km); and in the Kadawatha-Kerawalapitiya section it is 5.9 km (out of a total length of 9.3 km). The construction cost is approximately 6 times the cost of construction of the expressway on an embankment. Accordingly, as a means of comparison, the construction cost of three OCH sections–when calculated on equivalent embankment construction cost per kilometre length basis–are US$ 7.5 million per km, US$ 10 million per km, and US$ 8.5 million per km respectively. The price for the Kadawatha-Kerawalapitiya section has been proportioned for a four-lane width.
Therefore, the construction cost of the OCH’s Kadawatha-Kerawalapitiya section is almost equal to the average construction cost of its other two sections.
We did not say anywhere in our response that US$ 70 million per km is reasonable for this expressway as contended by ASK. Under the difficult suburban terrain encountered and the items included to add value to the project given in detail in our response, the cost of US $ 49 million per km at 2014 prices is reasonable.
The total cost of the contracts in the Provincial Roads Project 3 Phase 2 recently awarded is Rs. 13,078 million as in the article of ASK. All of these roads are located in hilly slopes and rolling terrain of the Southern Province. These contracts also include a provision of 10% for physical contingencies and a provision of a further 10% for future price escalation. This is an average of Rs. 139 million per km.
The cost of road rehabilitation, implemented with donor funding procured under thorough competitive bidding in the Southern, Sabaragamuwa and Central Provinces, representing similar terrain averages to Rs. 137 million per km. This average cost per km represents all national roads where existing road width is fairly high; but Rs.139 million per km for roads in PRP3 represents partly provincial and local roads where extensive widening is required when compared with national roads.
The average costs of the contracts in the PRP 3 Phase 2 are almost equal to the average cost of contracts procured under competitive bidding with due regards for existing road width. It does not show 135% as claimed by ASK.
No contract has yet been awarded for the Enderamulla to Ambepussa section of the Northern Expressway as stated in the aforementioned article. A contract has been signed only for a part of this section from Veyangoda to Mirigama.
The calculation of “loss” by ASK is based on project prices listed above. It is seen that the contract costs in the PRP 3 Phase 2 are almost equal to the cost of contracts under competitive bidding compared on an average basis corrected to 2014 prices. The construction cost of the Pinnaduwa-Godagama section in the SE and the Godagama-Beliatta in the ESEP matches reasonably well, when compared on a common basis. The construction cost of the OCH’s Kadawatha-Kerawalapitiya section is almost equal to the average construction cost of the other two OCH sections.
Therefore, the argument “that the country stands to lose Rs. 200 billion from road contracts awarded (or to be awarded) in 2014” is baseless.ASK’s statement that contracts awarded on non-competitive basis are 135% costlier than when competitive bids are called is alsobaseless.
In addition to the errors in ASK’s information, analysis and interpretations, it is noted that the cost of construction of the Pinnaduwa-Godagama section of the Southern Expressway is not US $ 4 million per km. Part of the work done on this section was through the original contract awarded for the Kurundugahahetekma-Godagama section. The corrected cost at 2014 prices is US $ 8.5 million per km. All adjustments necessary to bring the costs to 2014 prices have not been done in order to compare costs accurately.
Significant features in the OCH in particular – such as viaduct lengths and construction of foundations for all structures i.e. bridges, culverts and viaducts to a six lane width–have not been considered in the analysis. In comparing costs, the worst scenario (the lowest for contracts completed and the highest for contracts awarded) has been adopted to boost the “loss”. The deductions made in his table titled ‘Estimated Loss from award of Road Contracts without Competitive Bidding’ are factually incorrect.
ASK has said, and the RDA agrees, that the comparison of per km cost can be misleading and should be done carefully. Our previous response was based on a qualitative analysis only, due to the complexity of the issues involved when the scope of work is so vastly different in the respective projects. But as ASK has implied that the RDA has not contested his figures, we were compelled to go into the complex calculation given above.
We wish to categorically repeat that the cost of construction of all expressways in Sri Lanka are reasonable for the different conditions and the average cost of road rehabilitation projects under the PRP 3 Phase 2 is almost equal to the average cost of similar contracts procured under competitive bidding.