Japan-backed megaprojects will become more expensive

The Japan International Cooperation Agency (Jica) has asked Bangladesh to raise contract prices and extend deadlines for three infrastructure development projects in Dhaka that aim to ease traffic congestion and ease mobility in the capital .

Citing the slowdown in Covid-led projects, reduced labor productivity, rising spending on health safety, more expensive building materials and soaring transportation costs, the Japanese Embassy in Dhaka recently sent a letter to the Economic Relations Division (ERD) in this regard.

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

Alarmed by the demand for increased costs and delays for the Dhaka projects, the ERD contacted 15 secretaries from different ministries and 43 project managers from 33 Jica-funded projects across Bangladesh, and asked them to Estimate the potential increase in costs and delays if Jica’s request for the revision is respected.

But economists and development experts called for a case-by-case assessment instead of allowing demand as a whole, and suggested the government strengthen its negotiating capacity.

The already slow implementation now faces an extension of time

Two of the three Jica-funded projects in Dhaka – Airport-Natunbazar-Kamalapur Metro and Hemayetpur-Bhatara Metro – are in the initial stages, while the Uttara-Motijheel Metro project is nearing completion.

The Airport-Kamalapur Metro Line (MRT-1) and Hemayetpur-Vatara Metro Line (MRT-5) were approved by Ecnec in 2019. Authorities said the Covid-19 outbreak had delayed plans for about two years at the very beginning. .

Jica had previously hinted that MRT-5 (northern route) would face an 11% cost increase, while MRT-1 will also prepare if construction takes too long to start.

Meanwhile, the state-owned Dhaka Mass Transit Company Limited (DMTCL), which implements the Uttara-Motijheel Metro (MRT-6), has proposed a cost increase.

The three projects have cost the government more than Tk 1.17 crore, and Jica is providing 73% – about Tk 85,162 crore – in flexible, low-cost loans.

Japanese consultants, contractors and suppliers dominate the projects because Jica is the main funder.

Jica launched a 21 km metro, including a 5 km metro, in Jakarta when Bangladesh launched the Uttara-Motijheel project in 2013.

Jakarta Metro was built quite quickly and was inaugurated in 2020, while it is not yet known when the whole construction of Uttara-Motijheel Metro will be completed.

According to data from the Planning Commission, the government is implementing 33 development projects with funding from Jica. The total cost of these projects has been estimated at around Tk 272,185 crore, and Jica will provide more than 74% or Tk 20,1796 crore of the cost.

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

Doubling the cost of the Matarbari factory road is already on the table

According to ERD sources, Jica is providing a maximum of Tk 43,921 crore for the ultra-super critical Matarbari coal-fired power project of Tk 51,855 crore. The agency lends another Tk505 crore for the factory link road and Tk949 crore for the power distribution network.

The main power station and the distribution network have made significant progress, while the construction of the link road was expected to be completed by 2020. But the Road Transport and Highways Division recently proposed to extend the project deadline. until 2025.

It was also proposed to double the cost of building the road.

Jica is also providing Tk 12,893 crore for the ongoing Tk 17,777 crore deep sea port at Matarbari. Of this amount, the agency will provide Tk 6,743 crore for the construction of the main port and Tk 6,150 crore for the construction of the road connecting the port. Although a limited number of foreign ships have started to arrive at the port, the progress of the road construction is hovering around 1%.

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

Implementation was at a snail’s pace even before Covid

With funding from Jica, the implementation of the Tk 2,676 crore Chattogram City Outer Perimeter Road project linking Patenga from the port city to Sagarika started in 2011. The Chattogram Development Authority (CDA) implemented the works which have so far received Tk 2,263 crore.

The progress of the project is 85% because the last deadline ended last December.

The progress of the Chattogram Wasa Karnaphuli Water Supply Project (Phase 2) which started in 2013 is now at 56%. Jica is providing Tk 2,801 crore for the Tk 4,489 crore project. The final deadline for the project will end next year.

The progress of the national electricity transmission grid development project, which started in 2013 at a cost of Tk 2,500 crore, is hovering around 50%.

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

Go case by case

Shamsul Haque, a professor of civil engineering at Bangladesh University of Engineering and Technology, told The Business Standard that Japan not only funds Bangladesh but also other countries including India. The island nation has not offered such a cost review request elsewhere.

He feared that if the government agreed to Jica’s request, other foreign financiers would also come with similar calls.

Former World Bank chief economist Zahid Hussain told TBS that any decision to increase the cost and timeframe of the project overall due to the fallout from the pandemic would not make sense.

“Rather, each project should be analyzed on a case-by-case basis to see to what extent project implementation has been hampered by Covid and to what extent,” he noted.

Zahid Hussain said the government should strengthen its ability to negotiate with the funder.