Questions Raised Over Metro Rail Project Costs
The metro rail is undoubtedly a landmark development in addressing traffic congestion in the capital and building a modern public transport system. A huge amount of working hours is lost every day due to traffic congestion, resulting in significant economic losses. From this perspective, the timely implementation of the planned metro rail network, including all MRT lines in Dhaka and its surrounding areas, has long been a major public demand.
However, the success of a development project cannot be measured simply by its completion. Its actual success depends on several factors, including project costs, transparency, sources of financing and long-term economic impact.
Recently, the revised budgets for two major metro rail projects—MRT Line-1 and MRT Line-5—were approved at a meeting of the Executive Committee of the National Economic Council (ECNEC). The decision has triggered widespread discussion and debate across the country. As concerned citizens and economic analysts, we need to examine the issue objectively, based on facts, figures and broader economic considerations rather than viewing it solely through a political lens.
It is not unusual for political parties to take somewhat different positions on policies when they are in power and when they are in opposition. During the previous government’s tenure, when the initial budgets for these mega projects were prepared, the current ruling party strongly questioned the justification for their costs while in opposition.
One of the main arguments behind its position was that excessive costs had been included in mega projects, leading to the misuse of public funds. Even before coming to power, current Prime Minister Tarique Rahman had expressed serious concerns about the priorities and transparency of these projects.
People expected that after taking office, the new government would thoroughly review every aspect of the unfinished mega projects and complete them at reasonable costs in line with international standards. However, the recent approval of revised budgets, which have more than doubled instead of decreasing, has naturally raised questions among ordinary citizens.
A closer look at the figures reveals a striking picture. In December 2019, the initial cost of MRT Line-1 (Airport-Purbachal-Kamalapur), covering 31.24 kilometres, was estimated at Tk 52,561 crore. The project was scheduled for completion by 2026. Under the revised budget approved by the current government, the cost has increased to Tk 1,14,394 crore, while the completion deadline has been extended to 2033.
Similarly, the initial cost of MRT Line-5 (Aminbazar-Gabtoli-Bhatara), covering 20 kilometres, was estimated at Tk 41,238 crore in 2019. The revised budget has raised the cost to Tk 89,848 crore, with the completion deadline extended to 2034.
Together, the two projects were initially allocated Tk 93,799 crore during the previous government’s tenure. Their combined revised cost now stands at Tk 2,04,242 crore. This represents an increase of Tk 1,10,443 crore.
As a result, the cost of constructing metro rail lines in Bangladesh is now approaching Tk 4,000 crore per kilometre. Compared with neighbouring countries and several other Asian nations, where construction costs per kilometre are relatively lower, this enormous expenditure is enough to raise serious concerns among economists.
Government’s Explanation for the Cost Increase
The government and project officials have identified several structural and economic factors behind the sharp increase in costs. Their arguments cannot simply be dismissed.
First, they have cited the depreciation of the taka against the US dollar. According to government statistics, the exchange rate was Tk 84.50 per dollar in 2019, compared with Tk 122 at present. The depreciation of the taka is an undeniable reality, driven by the global economic slowdown and domestic foreign currency reserve crisis.Second, they have pointed to global inflation and the rising prices of construction materials.
Third, changes to the detailed project designs have been cited as another reason.
Finally, and perhaps most importantly, the Planning Ministry has referred to the increase in interest rates on loans from the Japan International Cooperation Agency (JICA).
The interest rate on these loans was initially only 0.7 per cent. It has gradually increased to 3.06 per cent and is expected to rise further in the near future. The government argues that signing the agreements in accordance with the existing terms before interest rates increase further was a reasonable decision.
Do the Explanations Justify the Additional Costs?
As analysts, we need to examine these government explanations objectively. The increase in the dollar exchange rate and the depreciation of the taka undoubtedly raise the costs of import-dependent and foreign-funded projects. Between 2019 and the present, the taka has depreciated by approximately 42 to 45 per cent.
However, the total project cost has increased by nearly 117 per cent.
According to basic economic principles, not all project expenditure is paid in dollars. Costs related to land acquisition, local workers’ wages and domestically sourced construction materials are paid in local currency. Therefore, the mathematical gap between a 42 per cent increase in the dollar exchange rate and a 117 per cent rise in total project costs requires a much more detailed explanation from experts.
Changes in project designs and global inflation may explain part of the increase. However, whether these factors can fully justify the additional expenditure of Tk 1,10,000 crore is a matter that should have been assessed by an independent panel of experts.
The Risks of Tied Loans
Another major structural weakness that deserves serious attention is the risk associated with foreign loans, particularly the system of tied loans. JICA has long been one of Bangladesh’s most reliable development partners. However, loans from JICA and other bilateral development agencies often come with conditions requiring the main contractors, consulting firms and, in many cases, major construction materials and technology to be sourced from the lending country—in this case, Japan.
Such arrangements are known as tied loans. These conditions significantly limit opportunities for open and competitive international tenders. Contractors from Europe, China and other countries, who may offer advanced technology at lower costs, often cannot participate.
As a result, contracts remain largely confined to a limited number of companies selected from the lending country. This naturally reduces opportunities for competitive bargaining and can substantially increase overall project costs.
The practice of tied loans continued throughout the previous government’s tenure. Both the previous interim government and the current elected government have also had to operate within the same structural limitations.
The question is whether Bangladesh could have explored alternative financing from multilateral institutions such as the World Bank, the Asian Development Bank (ADB) or the Asian Infrastructure Investment Bank (AIIB), instead of relying on conditional bilateral loans.
Multilateral financing generally allows open international bidding, creating greater competition and helping reduce project costs. There is considerable room for debate over whether committing to such a massive tied loan in haste, simply to avoid a possible 0.5 percentage point increase in interest rates, is economically sustainable in the long run.
Economic Viability and the Burden of Subsidies
The economic viability and financial returns of metro rail projects are also highly sensitive issues. MRT Line-6, which currently operates between Uttara and Motijheel, is undoubtedly playing a significant role in passenger transportation. However, its monthly operating revenue is not sufficient to cover all expenses, including loan instalments, staff salaries, electricity and maintenance costs.
The government has to provide a certain amount of subsidy to cover the shortfall. Governments in developed countries also subsidise public transport because its indirect economic benefits, including savings in travel time and fuel consumption, are substantial.
However, as a developing country, Bangladesh has limited capacity to provide subsidies. If the government already needs to subsidise fares for a project that initially cost Tk 93,000 crore, what will happen when repayment of loans for projects worth Tk 2,04,000 crore begins?
How high will metro rail fares have to rise?
If fares increase excessively, they will become unaffordable for ordinary people, undermining the primary purpose of the projects. On the other hand, if fares are kept unchanged, the burden on the national treasury and taxpayers will become enormous.
There have also been instances of technical defects in work carried out by Japanese companies. Incidents involving displaced bearing pads and cracks in pillars on MRT Line-6 serve as reminders that foreign contractors are not necessarily free from errors. Therefore, strict supervision by Bangladeshi engineers and experts must be ensured to maintain construction quality and accountability.
Recommendations for Greater Transparency and Cost Control
Under the current circumstances, several constructive steps are necessary. First, metro rail projects should not be suspended or unnecessarily delayed in the national interest and for the sake of broader urban development. Work must continue, but the government must ensure the highest levels of transparency and accountability.
The government should clearly explain the actual reasons behind the unusual increase in project costs.
If necessary, an independent cost review committee could be formed with experts from the Bangladesh University of Engineering and Technology (BUET), independent economists and representatives of civil society. The committee should examine every project package in detail to determine whether the cost increases are justified and identify areas where expenditure can be reduced.
Second, the government should try to avoid tied loans and conditional bilateral financing in future mega projects. Creating an environment of open competition through international tenders could reduce project costs by at least 20 to 30 per cent. If necessary, the government could also arrange financing through a consortium of multiple development partners.
Third, alongside infrastructure development, the government must focus on developing domestic human resources.
A significant portion of project budgets is spent on foreign consultants and engineers. These metro rail projects should also be used to train Bangladeshi engineers and technical experts so that the country’s dependence on foreign professionals can be reduced in future infrastructure projects.
The writer is a journalist and columnist.
rintuanowar.com
