Higher cost of Havelian-Thakot road under CPEC raises questions

ISLAMABAD: In order to execute much-hyped China Pakistan Economic Corridor (CPEC), certain eyebrows have been raised over higher estimated cost of Rs1.135 billion per kilometre for construction of Havalian-Thakot road by awarding contract to selected Chinese firm, The News has learnt.

According to background interviews with officials concerned who raised serious questions as they told this scribe that there was a need to hold third party validation from independent experts to avoid multi-billion rupees losses to national exchequer.

However, NHA high-ups when contacted for official comments, denied any alleged wrongdoing and claimed that everything was done in accordance with the rules and regulation purely on merit.

Federal Minister for Planning and Development Ahsan Iqbal told ‘The News’ that keeping in view high seismic risk area, the cost of the project increased so that state-of-the-art road could be constructed under CPEC initiative.

However, the sources said that in case of subject project, only selected Chinese companies were called for negotiations based on the engineering estimates.

The EPC (Engineering, Procurement, and Construction) based project of Havalian-Thakot has been awarded on Rs1.135 billion/Km with structure is not justified.

The items rate of excavations is said to have 400 percent more than the normal rates. Rates of Piling is 200-300 percent more than the market rates where as depth of piling is double than the requirement other than abnormal size of 8ft diameter.

The general item of Rs1.5 billion just for survey team is also unjustified. The recommendation at this stage should be that a third party should be hired to review and evaluate the expensive design and rates. 

The problem is of EPC (Engineering, Procurement, Construction) as we are not smart enough to evaluate costs of BOQ (Bill of Quantities) as per over design by contractors.

The item rates are double than the market prices like concrete, steel etc. The design of the most of the item is over and above compared with international standards. The pile dia of 8ft with adepth of 200 ft is not normal. It's almost 100 percent higher wherever rate of certain piles is four times higher than the market. If local rate is Rs8,000/meter than Chinese rate is Rs45,000/meter. The general items of Rs1.5 billion are not justified also.

The steel price in local market is Rs80,000/ton but they are charging Rs175, 000/ton maximum. The cost with labour and freight should be not more than Rs105,000/ton.

This scribe sent written questions to NHA authorities for seeking their replies. When asked how many companies were invited for this project and why only Chinese were made part of this project, the NHA’s spokesman replied that the governments of China and Pakistan entered into a framework agreement on 20th April 2015 during the visit of the President of China. The agreement inter-alia envisaged construction of the following early harvest projects by National Highway Authority:

KKH Phase-II (Thakot to Havelian Section) b. Karachi-Lahore Motorway (Sukkur to Multan Section). As per Article 2 of the framework agreement, Chinese companies shall be responsible for engineering design, procurement and construction (EPC) and supervision of these projects. Identification of Chinese companies for each project culminating in selection of one company or a consortium after due negotiations on all technical and financial considerations with the Pakistani institution is responsible for the project. Chinese Embassy communicated the nomination of following Chinese companies as per framework agreement:

a. M/s China Communications Construction Company Ltd b. M/s China State Construction Engineering Company c. M/s China Civil Engineering Construction Corporation. All the above mentioned three firms were informed about their nominations and were invited for the bidding.

When asked about getting exemption from PPRA rules, the spokesman said that the procurement of the project is processed as per framework agreement and in line with PPRA Rule-5. Approval of ECC was obtained to implement Rule-5 of PPRA vide Case No ECC-112/14/ 2015 dated 12th August 2015.

Rule-5 of the PPRA Rules becomes relevant which is as follows: “International and Inter-governmental commitments of the federal government-whenever these rules are in conflict with an obligation or commitment of the federal government arising out of an international treaty or an agreement with a state or states, or any international financial institution the provisions of such international treaty or agreement shall prevail to the extent of such conflict”.

Why higher rates of around Rs1.5 billion per kilometre were awarded to Chinese company, the NHA replied that the cost per Km was Rs1.135 billion and not Rs1.5 billion (EPC Cost Rs133.980 billion/118Km length). 

The cost appears to be on higher side but the scope of work includes construction of 4-lane expressway with wider shoulders (3.65m) from Havelian to Manshera (39Km) and 2-lane highway from Manshera to Thakot (79Km). The complete project involves construction on virgin alignment in hilly area. Since this road is meant for the freight traffic, the smooth curves and gentle slopes were essential. In addition, the scope of the project includes:- 101 bridges with total length 12.769Km, two 4-lanes tunnels with total length 2.103km, four 2-lane tunnels with total length 6.491km, 29 underpasses/cattle creep, 440 culverts of varying sizes, 3 service areas, 9 weigh stations, 7 toll plazas etc, special treatment for slope stabilisation to ensure the safety of the road users.

This cost includes, design and supervision cost, cost and quantity variations, market fluctuation/escalation etc.

When asked if he thought that its cost was justified, the spokesman stated that the lowest bid received was Rs192,428.63 million (Rs192 billion) submitted by M/s China Communications Construction Company Ltd. 

However with the concerted efforts of technical team of National Highway Authority, the cost was optimised to Rs133,980 million (Rs133.9 billion) thus saving Rs58,448.63 million from the national exchequer duly acknowledged at all levels.

The cost seems high but becomes understandable when the complete scope of work and following factors are taken into consideration. The Chinese successful bidder has worked out his rates based on the international experience and following Chinese technical standards with expatriate skilled labours (2,336) and challenging time lines for the project completion.

The proposed motorway follows a virgin alignment which is characterised by inaccessible difficult terrain coupled with complex geological strata with highly mountainous terrain.

The proposed virgin alignment traverses through weak geological strata which require extensive soil support to make it stable. Special techniques are employed in this regard.

The project area lies in severe seismic zone of Pakistan earthquake map. This requires seismic resilient bridges and other structures so that this highway can perform even in case of severe natural calamity for rescue works.

The technical expertise of Chinese firm will provide high quality communications network in very difficult area.

Defect liability period/maintenance period in this contract is three years as compared to one year in normal contracts.

This is an Engineering Procurement and Construction Contract generally termed as EPC Contract based on fixed cost and time. The regular construction contracts are measurement contracts, which mean that they will be paid as per measurement of material quantities consumed during construction. Generally there is a big increase in cost until completion. Furthermore, the increase in cost due to market fluctuation/escalation adds at least 6.5 percent yearly to the project cost. In contrast, EPC contract covers the risk of increase in quantities and cost during the execution period and transfers all risks to the contractor’s shoulder. This provides relief to the government of Pakistan regarding any uncertainty in final project cost.

At present, there are no approach roads to access the alignment for mobilisation of the machinery and equipment to the project site as this is a new alignment in mountainous terrain. Construction of all such roads will be the responsibility of the contractor with no additional cost.

Based on finalised EPC cost, the PC-1 has been approved by Ecnec.

When asked about higher excavation cost, piling cost and others, he said the project lay in mountainous terrain where excavation was very difficult and costly due to rocky strata. Huge excavation was required in view of the cross-section of the road which required immense physical and monetary efforts. Any damage to works due to slides would be redone at the contractor’s cost.

Being mountainous area, the height of bridges is much more as compared to the surroundings and being seismic prone, therefore, the increased number, length and diameter of the piles has been catered for certainly adding to the cost.

Whenever a new road is constructed in mountainous areas, most of the locations are liable to initiate land sliding for which huge quantity of slope stabilisation and protection works have been catered for.

The risk of increase in actual quantities of material used also exists. All these risks are catered for in the contract cost.

When asked why third party validation should not be allowed to assess cost of this project, he replied that during clarification meetings, NHA hired the services of consultants who remained with NHA technical team during the entire process. Random site validations were also carried out beside review of the outline design. This had resulted in optimisation of the cost with saving of Rs58,448.63 million (Rs58.4 billion) which was endorsed by the consultants as well, the spokesman concluded.