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The attempted great highway robbery
Sri Lanka’s voters at the January 8 presidential election were not mistaken. They voted “no” to spending billions of rupees on grandiose and economically unproductive highway development, so expensive and so poorly planned that it would have throttled the country’s hope of escaping the middle income trap.
The 197 km Northern Expressway Project (NEP) was to be the “crown jewel” in this highway robbery. The extension of the Southern Highway up to Hambantota and the Outer Circular Phase III North of Kadawatha were others.
This article examines how to restore national highway development without corruption. It looks at what steps the country and the Road Development Authority (RDA) should take to clear the stables of the many players that aided and abetted this attempted national plunder so that the restored highway programmes can be protected and made productive.
It was Prof. Willie Mendis, former Moratuwa University Vice Chancellor and a chartered town planner, who in the mid-1980s first mooted the Colombo-Trincomalee development axis as the country’s most important economic corridor. The trace was done up to Ambepussa in the late 1990s as an alternative to the Colombo-Kandy Highway. However, the war did not permit it.
The finalised trace for this road was to start at the Outer Circular Highway in Kadawatha through Nittambuwa, Mirigama and Ambepussa and approaching Kandy from the Katugastota side. In a study led by this writer in 2012 (aimed at improving road connections to the North) it was proposed that, based on much higher traffic growth arising from civilians returning to conflict areas, a North-Eastern Expressway was feasible.
The cost of the 42 km section of the four-lane proposed expressway from Mirigama to Mudalpolla—six km from Kurunegala on the Puttalam A10 road, together with five interchanges and inclusive of all structures across Maha Oya and Deduru Oya river basins —was estimated at Rs. 35.7 billion. This is around Rs. 850 million a km. Admiral Wasantha Karannagoda, then Secretary to the Ministry of Highways, quickly saw the importance of proceeding with the North Eastern Expressway.
However, after he was sent off as High Commissioner to Japan in 2011, the plunder began to shift into high gear. What followed was the careful preparation of the biggest attempted public pillage in Sri Lanka to date. The first actions were to obtain the services by ‘negotiation’ of international highway engineering consultants who were already in Sri Lanka. These studies were carried out without widespread discussions. Their feasibility reports are yet to be made public.
The NEP feasibility report estimates the total capital cost of the four-stage, 197 km project to be USD 3,877 million or around Rs. 500 billion. It estimates the Stage II cost to be Rs 98.4 billion. Just one year earlier, the University of Moratuwa had placed it at Rs. 35.7 billion and this had been evaluated and accepted by the RDA’s Planning Division.
Even after adjusting for toll gates, ICT technology and inflation for that year, it is evident that the new total cost was around 130% higher. It is surprising that the consultants in these different feasibility studies had not applied international norms to examine the justification for these high costs. Neither is there a comparison with the earlier studies.
However, a more serious ‘mistake’ appears in computation of benefits. One of the studies shows 55% of the highway’s benefits to accrue from “savings from freight vehicle user time costs”. Usually, it is passenger time savings and vehicle operating costs that constitute the major portion of benefits. Such freight time savings is unprecedented even in highly industrialised countries which have heavy trucking operations. This casts serious doubts about the accuracy of the calculations.
Consequently, the benefits appear to be overestimated by about 150%. This is why the project still shows on paper to be economically feasible. In reality, the actual performance of the project at the inflated price would have resulted in a negative rate of return that would have made the country poorer, not richer.
It then makes sense why these feasibility studies were not made public and not submitted to the relevant divisions within the RDA for evaluation. It would be useful to determine who evaluated this particular report and approved payment which cost the RDA around Rs. 1,000 million. It would also be useful to see whether the Treasury evaluated them before authorising payment.
Timely action by an intelligent population thus prevented the country from spending Rs. 504 billion for what should have cost only Rs. 217 billion on the NEP alone. Other projects such as the extension of the Southern Highway and Outer Circular Phase III had similar unexplained cost margins which would have made the total plunder of public funds well over Rs. 400 billion. We could have built all our highways for the price of one!
Happily, this has now been averted. The losses can be minimised. However, the country awaits answers to some questions to determine who was responsible for this attempted robbery and what punitive action awaits them. For instance, did the Highways and Ports Secretary at that time bypass the internal processes and systems of the RDA by appointing “handpicked units” for the formulation of the country’s most expensive infrastructure project? Was he, as the chief accounting officer, responsible for seeking Cabinet approval for projects at highly inflated cost? Was he responsible for the secrecy, for keeping details of the project from senior RDA officers and highway experts who could have expressed professional views on the costs and benefits?
How about those “select” RDA officers who knowingly worked outside of the organisation’s normal functions, using authority granted by political masters to manipulate work sub-contracted by international consultants to their own companies and to those of known associates? Did they seek approvals from the relevant functional heads for design and planning?
Will international and local consultant companies which undertook feasibility studies, and were paid record fees, be investigated to determine if they had failed to conduct proper, professional, due diligence in cost and benefit computations which could easily have been verified internationally?
Similarly, will the names be made public of the local “experts” who worked with the international consultants; who, even while being people of repute, chose to remain silent when it was known that their work was intended for abuse?
What about the identity of the local mega contractors attracted by greed for quick profits and chose to knowingly play the game stating they had no choice — always a convenient tactic often used by the politically powerful to get corporations to agree to partner them in questionable deals?
And does one prevent this happening in the future?
It will be interesting if any of the above would be found culpable in this attempted highway robbery. If not, it is also possible that the doors would continue to remain open for a repeat attempt possibly by the same players or others when these projects are recommenced. It is recommended that the Government:
Passes legislation that, in future, no secretary of a ministry can function as the head of an institution in the same ministry. The systems of checks and balances should necessitate different hands.
* Makes necessary changes to legislation so that the majority of board members of Government institutions are not appointed by one minister. More ex-officio positions, including from civil society, should be encouraged as appropriate.
n Ensures that Government agencies conduct, in addition to annual financial audits, management audits as well as technical audits pertaining to the satisfactory delivery of their respective functions in terms of their acts.
It is clear that the mega highway projects should not be built at the stated costs. The recent announcement that the contractors for the Northern Expressway Project were willing to build it at Rs. 60 billion or 25% less is good news but is it good enough?
Based on previous estimates it appears that this 120 km section of new four-lane highway from Veyangoda to Galewela, priced earlier at Rs. 245 billion, should not cost in excess of Rs 110 billion. Hence, we should wait till we can plan, design and construct at less than half price.
It seems the current cost inflation of these projects has been induced by not investigating alternative road traces to ensure a trace with the most optimal cost is selected; over-design of the facility with respect to the actual technical requirements; increasing quantities of material required for the given design; and allowing the contractor rates for the material and work items well above market prices.
The country can enjoy the benefits of these highways only if the construction contracts are procured at reasonable cost. If not they will be a burden for the future. Ensuring what is spent on these highways is reasonable requires corrective action for which time should be allowed. Specific good governance interventions are essential.
Where planning is concerned, it must be examined whether the most suitable road trace has been selected. The Government should review all the available feasibility studies. Good planning reduces costs and increases benefits.
However, good planning also requires time. Some road sections where traffic levels are low will require only a two-lane highway initially, perhaps with intermittent passing lanes. Interchanges are needed only when traffic levels get built up. At-grade intersections can reduce cost without increasing travel times appreciably. Many developed countries have 80-100 km/hr two-lane highways.
The design should also be reviewed and approved by the relevant divisions of the RDA to reduce unnecessary cost elements. The length of viaducts, height of embankment, depth of cut, etc, on these projects should be reviewed if final costs are unjustifiably high.
The quantities and unit rates used for calculating the negotiated costs must be audited. It must be examined whether the most advantageous financing option has been chosen and that high interest rates and short payback periods have been avoided.
When the very Government agencies that are set up to handle such projects on behalf of the public are not diligent in exercising their professional judgment to safeguard expenditure, it cannot be termed as anything less than plunder. It is now the responsibility of the RDA and its engineers to re-plan, redesign and re-estimate the cost to win the confidence of the public in building these roads at a justifiable price.
The review should also ensure that, while minimising costs, the benefits are maximised. The following recommendations are made to maximise the benefit of these projects to the country:
Plan the highway as an integrated development project where the new mobility can be effectively used by new industries that can use such comparative advantage from the time and transport costs. The longer planning and development period would enable the physical preparation of locations for such investment so that the financial potential of land development can also be included as revenues in the road project.
Except in urban areas, the highest economic benefit of any new highway is when there is no toll. The revenue from tolls is a financial transfer only. High tolls keep users, particularly those from the lower income strata, from using the highway and benefiting from it thus making it an inequitable infrastructure. Thus, high tolls will only reduce the number of people will eventually use such a facility even if there is spare capacity. This has already happened in the Southern Highway. Tolls should not be used merely as financial instruments but as sensitive economic instruments.
Design the highway in urban areas for greater public transport use, such as Bus Rapid Transit or BRTs.
Private partnerships for road projects that are based only on toll collection revenues may be counter-productive to these policy objectives. However, private investment should be stimulated to initiate investment in land development, setting up of industries, tourism initiatives, knowledge hubs, IT villages, logistics hubs etc for which land adjacent to the proposed highway should be made available under suitable PPP arrangements. The Northern Highway has a high development potential and should thus be carefully planned to ensure that as many industries that can profit from the higher mobility are strategically drawn to its vicinity.
It would be the collective responsibility not only of the Government, but of civil society, professional bodies and even international financial institutions that have stepped forward to finance these highways, to ensure that good governance is applied to these highway projects by ensuring that costs are minimised and benefits maximised by restoring and adhering to time tested technical, administrative and procurement procedures that have been willfully dismantled in recent years. Failure to do that would only ensure a return to highway robbery at some point in the future.
(Amal S. Kumarage (PhD) is a Chartered Civil Engineer and Senior Professor in the Department of Transport & Logistics Management at the University of Moratuwa.)