• Cost overruns on losses amounting to billions 

• Stages III and IV to commence with foreign funds 

  The Central Expressway Project (CEP), which has been facing numerous delays over the past few years, is once again back in the limelight due to its slow progress, this time caused by the changing of initially agreed routes as well as over the losses caused by the delays. Accordingly, the project, which is at present running behind schedule, has already caused billions in losses to the Treasury due to the delay as well as due to the inability of attracting proper foreign investors for Sections III and IV.  The construction work of Section II from Mirigama to Kurunegala (39.7 km) is currently being carried out by local construction companies and saw a long delay due to financial difficulties. It was to be completed by this month following the expediting of the construction work last year. However, the project is yet to be completed.  In the meantime, the construction work of Section I from Kadawatha to Mirigama (37.09 km) began last year with Chinese funds and Section III from Pothuhera to Galagedara (32.5 km) also began construction with Treasury funds until such timea proper contractor is finalised by the Government. There is no news about Section IV from Kurunegala to Dambulla (60.3 km).  Construction of Section I was awarded in 2015, but funding was finalised only in August 2020 and the completion may take another two-and-a-half years. Section II was constructed by local contractors with funds from local banks. While it was due to be completed in November 2020, current indications are that it will be completed in May 2021, but funding remains an issue. The construction of Section III is delayed by almost four years.    A powerful hand behind delays?    However, in a very recent inspection tour made of the construction sites of the CEP, Highways Minister Johnston Fernando alleged that the delay was caused as a result of a company which is owned by a former senior minister of the previous Government.  Earlier, Minister Fernando said Section II of the project would be completed by 31 March.    According to Fernando, the Ministry has advised the company to complete construction of that section as soon as possible. The Minister also warned the company to take a decision by next week.  “There is a very sad situation regarding the Central Expressway. A powerful former minister of the previous Government has won a contract to build a section of this road. The construction work of that section has already been delayed. On several occasions, we have advised the company to complete the construction of that section of road as soon as possible. They were even given the money they needed without delay,” he told The Sunday Morning. He went on to say that during his recent visit, he saw that the development work on that section of the road could not be completed as planned.  “The road from Mirigama to Pothuhera was constructed by several local contractors. The construction company will have to make a decision next Tuesday (9) on whether to continue construction on this section in the future. If they are unable to continue construction, they should leave, giving other contractors, who are currently in the final stages of construction, the opportunity to continue construction, or it could be prejudicial to the contractors who are currently in the final stages of construction,” he stressed. As he explained, the construction work of the other stages is progressing successfully.  “The problems are only in the part belonging to the contract company of the former Minister. We have not taken political revenge. For a year and a half, we gave the company that had delayed construction the opportunity to complete it,” the Minister added.  However, The Sunday Morning learnt that the Government has already incurred a loss of around Rs. 30 billion as a result of cost overruns from Section I alone.  Accordingly, the total cost of Section I of the CEP has now increased from around $ 158 million to $ 194 million. The Road Development Authority (RDA) had to also pay an additional Rs. 8 billion as an advance payment to activate the Chinese loan.  The cost overruns have been calculated based on the price escalations of the construction materials from the date of signing the construction contract agreement to the date when the construction actually started, according to a well-informed source at the Ministry of Highways.    Govt. policies creating more issues?    It is now said that with the policy of avoiding foreign loans, the projects would not be awarded to foreign contractors and this could lead to problems.  Last year, in a letter to the Highways Ministry and Board of Investment (BOI), Secretary to the President Dr. P.B. Jayasundera instructed the Highways Ministry and RDA to call for fresh proposals for the New Kelani Bridge to Athurugiriya and to also accept bids for Sections III and IV of the Central Expressway. It is stated that the Government will not encourage debt-funded projects and annuity payments (a series of payments made at equal intervals) to meet revenue shortfalls or guaranteed traffic, as these options are not affordable.  It is further stated that several parties have submitted letters of intent or interest to the BOI for the two initiatives on a BOT (Build, Operate, Transfer) basis. Most of them were largely of an unsolicited nature.  A well-informed source at the RDA noted that they doubt whether good investors would invest in such a huge project without any contribution from the Government.  “If the Government’s debt capacity is shrinking, there are other ways to implement projects. Especially when it comes to the Expressway, the question is whether the Government provides a sovereign guarantee or not,” he stressed.  With all these questions, the success of the project is still a question, he added.  When queried about the ongoing construction of the CEP Section II, he said the construction work was ongoing with Treasury funds. “The construction work began as the investments got more delayed than expected. We haven’t received loans from state banks as yet and at present, the construction work is continuing only with state funds,” he stressed.  The RDA was to finalise the awarding of the construction contract for the long-delayed Sections III and IV of the CEP, when President’s Secretary Dr. Jayasundera instructed otherwise.  Accordingly, the construction contracts were to be awarded to a Chinese company for the construction of Section III of the CEP, while the construction of Section IV of the CEP would be awarded to a UK-based contractor. In August last year, the RDA was to finalise the documents that would be submitted to Cabinet for approval to proceed. Furthermore, the funding was said to be finalised in a way which would be more favourable to Sri Lanka.    The Cabinet gave approval to consider the technical proposal from British consultancy specialist Roughton for the construction of CEP Section IV. Roughton was said to be the management consultant of the CEP Stage IV and was to be partnered with a local contractor. However, several proposals received from local construction companies since last year are currently being evaluated by the authority to award the construction contract. The projects were a few approvals away from starting construction and as conveyed to The Sunday Morning, the RDA was awaiting cabinet approval to immediately begin construction of Section III and IV.    Mired in controversy    Meanwhile, various irregularities of the long-delayed CEP that have caused the country a loss of over a billion rupees have been uncovered by the Auditor General’s (AG) Department, and a further examination on the matter is to be conducted by the Committee on Public Enterprises (COPE).  As per the audit findings, the Government has incurred a loss of a total of Rs. 1,759 million and Rs. 65 million for the preparation of the feasibility study on two occasions to SMEC, the consultant, on 31 December 2014 and on another occasion. Nevertheless, the report is yet to be completed.  The AG’s Department has stated that the procedure applied for the selection of a consultant and a contractor for Sections I, II, and III of the CEP had been in contravention to Section 1.1 of the Public Procurement Guideline (PPG) 2006, as a competitive pricing system was not followed contrary to Section 1.2.1 of the PPG. It has also been revealed that the procedure followed in selecting the contractor was contrary to Sections 1.4.2 and 1.4.3 of the PPG.  Section III of the CEP has been making headlines consistently, as it was dragged for years due to the inability of the two parties – Sri Lanka and Japan – to come to an agreement with regard to the loan conditions, and it has been mired in controversy, as the Highways Ministry did not follow the competitive bidding process, instead opting for it to be a government-to-government project as per the instructions given by the Cabinet back then.   After the new Government came to power this year, Japan’s involvement in CEP Section III has been curtailed, and the Section is once again going to be executed after a competitive bidding process by calling tenders for the construction. The 34 km Section III from Pothuhera to Galagedara was to be constructed by a Japanese contractor at an estimated cost of around Rs. 135 billion with a loan obtained from Tokyo Mitsubishi Bank (TMB) Japan.  Nevertheless, the losses incurred due to the mismanagement of public money and other resources for the CEP is being investigated. As per the audit report, the irregularities that were highlighted included the failure to obtain the recommendation for calling bids from the institutions named by the Japanese Ambassador and the non-compliance with the procurement guidelines to send letters to the Japanese Ambassador to nominate the bidders, despite the fact that the informal procurement process was being disputed by the Japanese Embassy.   Furthermore, concerns have been raised over the transparency of the bidding process, as the opening dates for the bidding has been postponed on several occasions and the date of opening was not specified.    The process began once again    Meanwhile, the Government opened international bids for the construction of Sections III and IV last month. It is learnt that the bids were specifically opened for international investors, but local investors having partnership with international investors could also submit their bids for the construction of the CEP Sections III and IV.  Once the bid evaluation is completed, to begin the construction, it will take another few months, and if the Government did not receive a BOT project, then again, the project would be delayed by another a year.  Initially, the Government’s plan was to complete the construction of the CEP which consists of four phases at the end of 2019. The construction of the 37.3 km stretch from Kadawatha to Mirigama under Section I was delayed due to financing issues on the part of Sri Lanka to activate an already committed loan by China.  The construction of Section III was delayed by almost four years, as the two parties – Sri Lanka and Japan – could not agree on the conditions. However, soon after the new Government came to power in November, Section III of the CEP was opened for fresh bids by cancelling the discussions between Japan and Sri Lanka. Section IV was to be constructed by China but no agreement has been signed as yet for the construction.  Meanwhile, when contacted by The Sunday Morning, RDA Chairman Chaminda Athaluwage said the bidding process is currently being carried out by the Ministry of Highways and once it is completed, the construction work of Sections III and IV would begin with foreign funds.