Japan-aided mega projects to get costlier

The Japan International Cooperation Agency (Jica) has sought Bangladesh to raise the contract prices and extend deadlines for three infrastructural development projects in Dhaka that aim at reducing traffic congestion and facilitating mobility in the capital city.

Citing Covid-led project slowdown, reduced labour productivity, spiked spending for health safety, pricier construction materials and soaring freight costs, the Embassy of Japan in Dhaka sent a letter to the Economic Relations Division (ERD) recently in this regard.

In the letter, Japanese Ambassador Ito Noaki emphasised the stake of Japanese consultants and contractors in the projects with around 73% Jica funding.

Alarmed by the cost and time escalation demand for Dhaka projects, the ERD reached out to 15 secretaries of different ministries and 43 project directors of 33 Jica-funded projects across Bangladesh, and asked them to estimate the potential cost and time escalation if Jica's demand for revision is met.

But economists and development experts have called for a case-to-case assessment instead of allowing the demand by and large, and suggested that the government enhance its negotiation capacity.

Already sluggish implementation now faces time extension

Two of the three Jica-funded projects in Dhaka – Airport-Natunbazar-Kamalapur metro rail and Hemayetpur-Bhatara metro rail – are at the initial stage, while Uttara-Motijheel metro rail project is nearing end.

Both the Airport- Kamalapur metro rail line (MRT-1) and Hemayetpur-Vatara metro rail (MRT-5) were approved by Ecnec in 2019. The authorities said the Covid-19 outbreak delayed the projects by around two years at the very beginning.

Jica had already hinted that MRT-5 (northern route) is set to face a 11% cost escalation, while MRT-1 will also brace the same if the construction takes too long to kickstart.

Meanwhile, the state-owned Dhaka Mass Transit Company Limited (DMTCL), which is implementing the Uttara-Motijheel (MRT-6) metro rail, has proposed cost escalation.

The three projects cost the government more than Tk1.17 lakh crore, and Jica is providing 73% – around Tk85,162 crore – as flexible and low-cost loans.

Japanese consultants, contractors and suppliers dominate the projects as Jica is the key financier to those.

Jica started a 21km metro rail, including a 5km subway, work in Jakarta when Bangladesh started the Uttara-Motijheel project in 2013.

Jakarta metro rail was constructed quite quickly and was inaugurated in 2020, while it is not yet certain when the entire construction of the Uttara-Motijheel metro rail will be completed.

According to Planning Commission data, the government is implementing 33 development projects with Jica's funding. The total cost of these projects has been estimated at around Tk272,185 crore, and Jica will provide more than 74%, or Tk20,1796 crore, of the cost.

According to authorities, Jica provides loans at much lower interest rates than the World Bank, the Asian Development Bank, the Asian Infrastructure Development Bank or China. Even with different fees, the interest rate of Japanese loans is below 1%.

Doubling cost for Matarbari plant road already on table

According to ERD sources, Jica is providing a maximum of Tk43,921 crore for the Tk51,855 crore Matarbari Ultra Super Critical Coal-Fired Power project. The agency is lending another Tk505 crore for the plant's link road and Tk949 crore for the power distribution network.

The main power plant and distribution network have logged significant progress, while the link road construction was scheduled to be completed by 2020. But the Road Transport and Highways Division has recently proposed extending the project's deadline to 2025.

The cost for the road construction has also been proposed to double.

Jica is also providing Tk12,893 crore for the ongoing Tk17,777 crore deep-sea port at Matarbari. Of this, the agency will provide Tk6,743 crore for the construction of the main port and Tk6,150 crore for the construction of the road connecting the port. Although a limited number of foreign ships have started arriving at the port, the progress of the road construction hovers around 1%.

Other Jica-funded key projects include expansion of the Hazrat Shahjalal International Airport, construction of the Jamuna Railway Bridge, construction of second bridges at Kanchpur, Meghna and Gumti, strengthening the Dhaka-Chattogram power grid, the Karnaphuli Water Supply Project (Phase 2), and the Chattogram City Outer Ring Road.

Implementation was at a snail's pace even before Covid

With Jica funding, implementation of the Tk2,676 crore Chattogram City Outer Ring Road Project connecting the port city's Patenga to Sagarika started in 2011. The Chattogram Development Authority (CDA) has been implementing the work that has received Tk2,263 crore so far.

The progress of the project is 85% as the latest deadline ended December last year.

The progress of Chattogram Wasa Karnaphuli Water Supply Project (Phase 2) that began in 2013 is now 56%. Jica is providing Tk2,801 crore for the Tk4489 crore project. The latest deadline of the project will end next year.

The progress of the National Power Transmission Network Development Project, which started in 2013 at a cost of Tk2,500 crore, hovers around 50%.

Under the Natural Gas Efficiency Project, the construction of a gas transmission line from Dhanua-Elenga to the western end of Bangabandhu Bridge has been ongoing since 2014. The following year, a prepaid metre installation project was launched for Titas customers. Both the two projects, which are due to expire next year, have been sluggish so far.

Go case-by-case

Shamsul Haque, civil engineering professor at the Bangladesh University of Engineering and Technology, told The Business Standard that Japan not only finances in Bangladesh but also in other countries including India. The island nation has not come up with such cost revision demand elsewhere.

He feared if the government nodded to the demand of Jica, other foreign financiers too would come up with similar calls.

Former World Bank lead economist Zahid Hussain told TBS that any decision to increase the project cost and deadline by and large due to pandemic fallout would not be logical.

"Rather, each project needs to be analysed on a case-by-case basis to see how much project implementation has been hampered by Covid and to what extent," he noted.

Zahid Hussain said the government should enhance its negotiation capacity with the financer.