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The price of expensive development
In 2014, when many international organisations including the World Bank were busy praising Sri Lanka for “sustaining development,” a non-profit organisation named the Sri Lanka Campaign for Peace and Justice published a report titled “Roads paved with gold,” which raised questions about the economic viability of expensive construction projects undertaken by the country, with loans taken mostly from China, Japan and the Asian Development Bank (ADB). The report mentioned that Sri Lanka’s roads cost three and a half times the global average, and in some cases cost 11 times the cost of an Indian motorway, which was the result of “corruption at every level of the system, and that many people from the top of the process to the very bottom have taken a cut.”
Sri Lanka’s ruling elites did not pay heed to these questions. They continued to build grandiose and unaffordable public projects that served to distract both their people and the international community from the serious flaws in the island nation’s economy. Initially, this huge expense in construction activities contributed to high GDP growth, but when it became evident that the country could no longer continue to borrow for newer construction projects, and the newly built highways, ports or airports failed to generate additional foreign currency earnings to pay back the loans, the economic growth started to slow down. These expensive, foreign-debt-dependent projects, combined with other factors such as huge commercial loans from international markets, low tax-GDP ratio, budget deficit, decline of tourism and remittance earnings, and corruption, caused the serious economic crisis for which ordinary Sri Lankans are still suffering.
Although the fundamentals of Bangladesh’s economy are different from that of Sri Lanka’s in many respects, there are some eerie similarities – especially in the aspects of the public-sector-construction-led development model. Bangladesh too, has undertaken many construction activities that have been termed some of the most expensive construction projects in the world. The cost of road construction per kilometre is much higher in Bangladesh than in neighbouring India and China, and even in Europe. Construction of a four-lane road costs $1.1-1.3 million per kilometre in India, $1.3-1.6 million in China, and $2.5-3.5 million in Europe. But in Bangladesh, according to the World Bank, the estimated cost of construction is $6.6 million per kilometre for the Rangpur-Hatikumrul highway, $7 million per kilometre for Dhaka-Sylhet highway, $11.9 million per kilometre for Dhaka-Mawa highway, and $2.5 million per kilometre for Dhaka-Chattogram and Dhaka-Mymensingh highways. That means the construction cost of any road in Bangladesh is two to nine times of that in India and China and is as much as double the cost in Europe, although the cost of labour in Bangladesh is quite low compared to these countries.
The Bus Rapid Transit (BRT) project in Dhaka has also been named as the most expensive in the world. Usually a BRT takes less time and cost to build as it is built on the existing roads. The average cost of BRT construction in the world is $ 6 million per kilometre, but in Bangladesh the cost is $26 million per kilometre for the Airport-Gazipur BRT line. It’s a classic case of delay and cost overruns during project implementation. When the 20.5km BRT project was taken up in 2012, the cost was estimated at Tk 2,040 crore, which doubled to Tk 4,264 crore by 2018.
The construction cost of the first Mass Rapid Transit (metro rail) project in Dhaka is also more than double the cost of that built in other countries in recent times. The construction of Phase I of the North-South line of the Jakarta MRT project in Indonesia began in 2013 and was completed in 2019. The construction of this 15.2km MRT line, built on the loan from the Japan International Cooperation Agency (Jica), cost $1.05 billion – $69 million per kilometre. The construction of the Orange metro rail in Lahore, Pakistan started in 2015 and ended in 2020. The cost of construction of this 27.12km line, built on China’s loan, was nearly $1.63 million – $60 million per kilometre.
In Dhaka, the cost of constructing the 21.26km MRT line between Uttara and Kamalapur is Tk 33,472 crore or nearly $3.35 billion (considering $1=Tk 100), i.e. the cost per kilometre is $157 million – more than double the cost of the Jakarta and Lahore MRT lines.
The construction cost of power plants in Bangladesh is also much higher than the global average. According to a study published in the journal Frontiers in Energy Research , the global mean cost of a gas-based power plant, ultra-super-critical coal power plant, and nuclear power plant are $551, $1,600 and $4,474 per kilowatt, respectively, but in Bangladesh the costs are $1,177, $3,343 and $5,625 per kilowatt, respectively.
The cost of power plant construction here is also higher than that in India by $500-4,000 per kilowatt. The Rooppur Nuclear Power Plant (RNPP) and India’s Kudankulam Nuclear Plant are both being built by Russian company Rosatom, but according to a study published in the journal Environmental Science and Pollution Research , the construction cost in Bangladesh is $5,271 per kilowatt, which is about 69 percent higher than India’s cost of $3,125 per kilowatt. As a result, the cost per unit of power generation in Bangladesh’s nuclear power plants (9.36 cents/kWh) will be 75 percent higher than that in India (5.36 cents/kWh).
This unusually high construction costs of various megaprojects in Bangladesh are fuelled by irregularities, corruption, and problems with project planning. Due to improper and inadequate project planning, design errors are found several times after a project is initiated, and modifications have to be incorporated at later stages, which invariably delays the project and raises the cost. In almost all megaprojects, these issues arise with no one held accountable or punished, and the taxpayers end up paying the price.
The high construction costs and consequently high fare rates of the first metro rail in Dhaka is an example of how people have to pay if the construction cost of a project increases abnormally. In 2021, the fare determination committee of metro rail calculated that the daily expense for MRT-6 would be Tk 2.33 crore. Of that, nearly Tk 1.54 crore will be needed for foreign debt repayment and Tk 49.91 lakh to meet government expenses. After that, due to the increase in the construction cost, the estimated daily expense of metro rail increased to over Tk 3.36 crore. To meet this higher expense, the metro rail fare has been increased from the initially (in 2021) proposed Tk 2.40 to Tk 5 per kilometre.
As a result of this cost escalation of megaprojects, people have to spend extra money in terms of tolls, fares and utility prices, and the burden of direct and indirect taxes on the people increases as well. Due to the increase in the amount of foreign debt repayment, pressure on our foreign exchange reserves also increases, which ultimately stands in the way of sustainable economic development.
Kallol Mustafa
is an engineer and writer who focuses on power, energy, environment and development economics.