Fund crisis, cost rise stall over 1,000 dev projects

Global and local economic crises arising from the pandemic and the ongoing war in Europe that prompted the government to opt for austerity measures in the development sector have now stalled thousands of projects worth lakhs of crores of taka.

The 196-kilometre Elenga-Hatikumrul-Rangpur four-lane highway project was initially scheduled for completion within three years of the beginning of its physical work in September 2016. After a 40% cost overrun and a three-year time extension in 2021, the Tk12,000 crore project with around 60% overall progress is most likely to miss the extended deadline of December 2024.

"Work slowed down due to the Covid pandemic. After that, prices of various construction materials including rods and cement soared at an abnormal rate, but the project cost was not hiked.

"Also, construction firms are not getting their outstanding bills on time," an official of Abdul Monem Limited – one of the four construction firms assigned to the project under the Roads and Highways Department – told The Business Standard, explaining the reasons for a lack of much-needed impetus to the project work.

Like this project many, if not all, of some 1,016 ongoing development projects involving around Tk4,50,000 crore under seven government agencies are mired in delays reportedly for a number of reasons i.e. non-release of funds by the government, high prices of construction materials, no revision to schedule of rates, non-payment of outstanding bills to contractors, and problems in opening LCs to import construction materials amid the dollar crisis.

According to sources involved in the projects, around 60% of these projects are now almost stalled.

Among the seven project-implementing government agencies, the Education Engineering Department has witnessed the highest 53% overall progress in its 245 ongoing projects, while the Water Development Board has seen the lowest – 23% overall progress – in its 91 ongoing projects.

The other five agencies are the Local Government Engineering Department, the Roads and Highways Department, the Public Works Department, the Bangladesh Bridge Authority, and the Department of Public Health Engineering.

Speaking to TBS, stakeholders said they do not know when the continuing development projects will see completion after overcoming the delay amid the present economic crisis. But they have suggested some possible ways out.

Abdur Razzak, general secretary of the Bangladesh Thikadar Oikya Parishad – an association of contractors, said, "Getting out of the kind of problems that are going on in the country due to the current global situation may take time. But the government authorities concerned should attach priority to the ongoing projects instead of starting any new projects. They also need to make sure that the contractors do not face losses."

He went on to say that when a construction firm starts working on a project, it pays source tax, VAT, and other taxes to the government. Therefore, it is very important to manage the required money for the ongoing projects to keep them running and to revise the schedule of rates in accordance with the current market prices. 

Why are the projects stuck?

All of the ongoing development projects were approved by the Executive Committee of the National Economic Council (Ecnec) in the period between FY2016-17 and FY2020-21, said Engineer Shafiqul Haque Talukder, president of the Bangladesh Association of Construction Industry. He added that the implementation of these projects faced a setback in mid-2020 when Covid-19 caused an economic slowdown and movement restrictions around the world.

Then the outbreak of the Russia-Ukraine war in early 2022 only added to the woes, leading to a 30%-50% hike in the prices of construction materials including rods and cement, he added.

"But even if the essential construction materials became pricier, project costs were not revised. This put contractors in trouble and most of them halted construction work. And since the Russia-Ukraine war dragged on, the country experienced high inflation and a shortage of foreign currency reserves."

Against such a backdrop, the government opted for austerity in allocating funds for development projects, he noted, adding, "As a result, although some funds were released for 'A' category projects in FY20 and FY21, fund disbursement was held up for most of the lesser priority projects. As a result, most of the projects are almost stopped now."

Even though there is a provision for releasing funds for "A" category development projects within one year of fund allocation approval, fund disbursement for these projects has also remained suspended owing to the current global economic situation, according to people concerned.

Shortage of funds

Officials of various project-implementing government agencies told TBS that the government has halted releasing funds for development projects to deal with the economic downturn induced by Covid and the Ukraine war.

An official of the finance ministry said on condition of anonymity that the funds allocated in the national budget for development projects are managed from various sources including the government's revenue income, related organisations own funds, grants from various development partners, and loans from foreign banks.

"Funds for most mega projects are sourced from various foreign banks. As a result, there is less money crunch for mega projects."

But getting funding for medium or small projects has become a bit difficult as there is a shortage of funds with the government and organisations concerned.

How many projects in which category?

Officials said that government development projects are approved in "A", "B" and "C" categories.

Funds for "A" category projects are generally fully disbursed within one year of allocation. "B" category projects are supposed to get 50% of allocated funds disbursed within the fiscal year and "C" category ones are supposed to get 5% to 10% funds disbursed in one year.

According to LGED sources, out of 114 ongoing projects under this agency, 54 are in the "A" category, 22 are in "B" and the rest are in the "C" category.

The number of "A", "B", and "C" category projects among 174 running roads and highways projects are 92, 54, and 28, respectively.

About 50% of the development projects currently being implemented by other government agencies are "A" category ones, according to the Bangladesh Association of Construction Industry.

Non-payment of outstanding bills

In September 2019, the Water Development Board took up a project involving a cost of around Tk1,100 crore to prevent erosion of the River Padma in Nariya and Zajira upazilas of Shariatpur.

An official of the construction firm Bengal Construction told TBS that there was pressure to complete the project quickly ahead of the inauguration of the Padma Bridge in June last year. Although the contractor has received about Tk800 crore for the project, the remaining Tk300 crore is still outstanding, which the construction firm has borrowed from two banks.

The project work was completed in March last year.

Similarly, the contractors of 70% of the 91 projects running for the last four years under the Water Development Board have outstanding bills with the board for the work they have done.

Asked about this, Md. Mahbur Rahman, director general of the Bangladesh Water Development Board, told TBS, "There are certain procedures to release money for a project. And contractors receive bills from time to time on competition of a certain portion of work.

"Besides, everyone is aware of the current problem. Many outstanding bills have been paid. The remaining ones will also be paid off soon."

No progress on new schedule of rates

After the start of the Russia-Ukraine war in February last year, prices of various construction materials increased due to transportation problems on various routes, including the Black Sea, and an increase in freight rates for transporting goods.

Prices of rods have gradually increased to stand at Tk92,000 per tonne at present, which was Tk72,000 in 2020. At present, the prices of each 50-kg bag of cement are ranging from Tk500-550, up from around Tk400 in 2020.

In the meantime, bitumen prices have surged to Tk9,700-9,800 per drum from Tk6,500. Prices of bricks also have gone up by almost 50% over the past two years.

But the schedule of rates for contractors was last updated in 2019 where the prices of construction materials were determined according to the then market prices.

Abdul Monem Limited Managing Director Mainuddin Monem told TBS that the prices of materials have gone up much higher than what the contractors agreed on as per the existing schedule of rates, which is holding up construction work.

Contractors will not spend money from their own pockets, he said, urging the government to take prompt action to revise the schedule of rates.

Construction firms are not interested in participating in any tender as per the old schedule of rates, said people concerned.

Asked, an official of the Planning Division told TBS that the government is in the process of preparing a unified schedule of rates for all ministries and divisions. If formulated, it will eliminate the opportunity for different firms to charge different prices for similar work, the official added.

The increase in the prices of goods and materials will be taken into consideration while formulating the new schedule of rates. We can say how much the cost of the projects will increase only after the schedule is made.

But the initiative is still being discussed, he said, adding that it will take some time to make a final decision in this regard.

Kazi Wasi Uddin, secretary of the Public Works Department said, "A crisis is going on all over the world and Bangladesh is also influenced by this."

He acknowledged that various development projects are facing problems, and said they are trying to keep their projects running by coordinating with the contractors.

LC problems

Manwar Hossain, president of the Bangladesh Auto Re-Rolling and Steel Mills Association, told TBS that businesses are facing problems in importing raw materials of cement and rods owing to difficulties in opening LCs amid the dollar crisis. As a result, it is not possible to reduce the market prices of these construction materials, he said.

If the Russia-Ukraine war drags on longer, the problem will intensify, he maintained.

Economist Dr Ahsan Ai Mansur said the government can initiate currency swaps with the countries from which various construction materials, especially raw materials of rods and cement, are imported.