The approved construction cost for the planned Metro Rail (MRT Line 1) between the airport and Kamalapur, and between Notun Bazar and Purbachal, is BDT 525.61 billion. But officials at Dhaka Mass Transit Company Limited (DMTCL) said the lowest bids submitted by contractors suggest the cost could rise to nearly BDT 970 billion. Because the bids came in far higher than expected, DMTCL formally asked the Japan International Cooperation Agency (JICA) to allow a second round of tenders for several packages. JICA declined. The loan agreement with JICA also bars DMTCL from negotiating with contractors to lower their bids. With those restrictions in place, DMTCL has virtually no remaining options to reduce the project’s cost.
A similar situation has emerged with the Hemayetpur-Bhatara line, MRT Line 5 (North route). That project’s approved construction cost is BDT 412.38 billion, divided into 10 separate packages. According to DMTCL officials, one of the packages for the construction of the main structure had been estimated at BDT 59 billion. The lowest bid came in at nearly BDT 160 billion. DMTCL has opened bids for three packages so far, and officials expect the total cost of the project to double or possibly rise even higher.
Infrastructure experts say both metro projects in Dhaka have been drawn into a cycle of escalating costs because of weaknesses in the loan agreements signed with the lender. They noted that similar patterns have appeared in all government-to-government projects implemented with JICA financing. The loan agreements for the projects now underway, or awaiting launch, were all finalized under the ousted Awami League government.
“The authorities in Bangladesh couldn’t negotiate these loan agreements properly with JICA, and those weaknesses are now contributing to the rising costs,” said Dr. Shamsul Haque, an infrastructure expert and professor at Bangladesh University of Engineering and Technology (BUET). Speaking to Bonik Barta, he added, “We keep hearing that they (JICA) are providing with ‘soft loan,’ but the conditions turn out to be tough. When signing the agreements, we tend to focus on the interest rate and repayment period. But we fail to examine issues such as bans on issuing a second tender or prohibitions on negotiating contractor bids.” He said the government, and especially the Economic Relations Division (ERD), should take a far more professional approach when negotiating future loan agreements to avoid similar problems.
Dr. Haque further said the pattern was not limited to the metro projects. He noted that every government-to-government project undertaken with Japan has shown similar tendencies. “Japanese and JICA consultants conducted the feasibility studies for Dhaka’s metro rail projects. They also prepared the cost estimates. JICA must explain why the lowest contractor bids are coming in at two and a half times their own estimates,” he said.
He added that issuing a second tender when bids come in too high is an established international practice. But JICA is not following that standard in Bangladesh. “They are a compliance society. They cannot impose something like this on a developing country such as Bangladesh. This is not logical for a responsible development partner,” he said.
Concerns regarding inflated construction costs have been circulating since the bid evaluation process began. DMTCL officials have also tried to bring down the cost and have attempted to negotiate with contractors. However, the loan agreement explicitly states that price negotiation is not allowed, leaving DMTCL without leverage. On November 2 and 3, DMTCL sent two separate letters to JICA requesting cancellation and reissuance of tenders for two packages under MRT Line 1. JICA rejected the request. In a reply, Yoshida Hiroshi, JICA’s senior representative in Bangladesh, called the request “disappointing” and said JICA did not agree. He also described the ongoing tender process as competitive and acceptable.
While JICA considers the bids acceptable, DMTCL Managing Director Faruque Ahmed said the costs are far too high. Responding to a question from Bonik Barta, he said the estimates for both metro projects were prepared around 2019 or 2020. Even after accounting for price escalation or adjustment, he said, costs should increase by no more than 30 to 35 percent. “But we are seeing prices jump as much as 250 percent in many cases,” he said.
He added, “If we start at double the price right now, it’s impossible to predict where it will end. We need mass transit. There is no alternative to the metro. But there are alternatives to its financial model. We can secure smarter financing and reduce costs by increasing the use of local construction materials wherever possible.”
Despite JICA’s refusal to allow a second round of tenders, the possibility of reducing the overall cost of Dhaka’s two metro projects is not entirely closed, according to Muhammad Fouzul Kabir Khan, the adviser overseeing the Ministry of Road Transport and Bridges. He said, “Even after this (the rejection of retendering), discussions remain. We want to pursue the matter (reducing costs) until the end. I met with JICA’s representative on November 10. We are working on it.”