Sri Lanka: Road Costs Were Inflated by Billions: Minister

07/04/2015

COLOMBO (EconomyNext) – Sri Lanka has inflated infrastructure contracts on deals valued at 151 billion rupees awarded by ‘negotiation’, where some firms flipped deals to subcontractors at a 25 percent instant profit, a minister said.

Highways Minister Kabir Hashim of Sri Lanka’s newly elected administration, said road deals running into billions of rupees contracts were offered to a group of contractors, who were selected on an unknown basis.

“They bring a group of contractors, we do not know how they are chosen,” Hashim said. “They are given several roads. Sometimes the contractors chose the roads.”

The contractor then made an offer to a cabinet appointed committee which then ‘negotiated’ the cost down by 10 percent or some related amount and the road was awarded to that firm.

Hashim said a series of roads were built with Treasury guaranteed loans of 151 billion rupees from domestic banks on that basis.

In the case of a road running between Kalugamuwa and Wilakatupotha the contract was awarded for 2.1 billion rupees, under a project financed by local banks.

The firm had immediately given the deal to a subcontractor for 1.6 billion rupees, getting a 500 million rupees instant profit, without carrying out any work, Hashim said.

The subcontractor was also probably keeping a profit of 300 to 400 million rupees.

Other roads deals were believed to have been inflated by billions of rupees, but details were not easy to find as some officials were covering up tracks, Hashim said.

According to a road building cost index compiled by the Institute of Construction Training and Development (ICTAD) in 2005 the cost of building a two lane road was 47 million rupees a kilometre.

By 2010 the cost index had gone to 75 million rupees a kilometre. But over the last two years bitumen and other raw material prices have come down he said.

“These are not highways, just provincial roads,” Hashim said.

The Kalugamuwa and Wilakatupotha (a ‘B’ class road) cost about 100 million rupees a kilometre he said.

Based on the ICTAD indices the 151 billion rupees ‘priority roads’ project financed by Treasury guaranteed loans from local banks were estimated to be 55 percent above cost, he said.

A by-pass in Kegalle (an ‘A’ class road), cost 722 million rupees a kilometre he said. A road from Punale to Point Pedro in Jaffna cost 318 million rupees a kilometre Hashim said.

In another road running from Veyangoda to Ruwanwella, in a project that came under the Economic Development Ministry a 19 kilometre road was estimated with costs of a 5.5 kilometres of roads which were already built.

In yet another case, a contractors was apparently given 93 percent of the money, but there was no evidence that the road was physically built as a state bank had released money without a certificate of completion.

“We have to do a road audit to find out what was built,” he said.

Hashim said in an extension to the Southern Highway to Beliatta and beyond done by China, consultancy fees alone were 124 million rupees a kilometre. One consultant was appointed to many projects without tender, he said.