Time and cost overrun to lead to Rs.1.26 trillion extra spend

Flash Report on Mega Central Sector Projects

Only 67 out of 207 mega central sector projects (each with Rs.1,000 crore and above outlay) on record with the Ministry of Statistics and Programme Implementation, as of May 2013, were on schedule or a little ahead of schedule, whereas as many as 100 faced time overruns.
Worse still, 40 projects did not have fixed dates of commissioning or commissioning schedules finalised subsequently.
Delayed projects formed 48 per cent in number and 57 per cent in outlay of all mega projects.

Projects with time overrun of up to 12 months numbered 23, whereas 18 were assessed to be delayed by over five years, with the maximum time overrun of 201 months expected in the Rs.20,000-crore Udhampur-Srinagar-Baramulla new rail line project of Northern Railways, which would probably be commissioned by the end of 2017. The other 42 projects would suffer deferment of one to four years.

Viewed from another angle, the cost of 85 projects overshot their original outlay of Rs.2.04 trillion by Rs.1.30 trillion (64 per cent) while 49 projects endured both time and cost escalation, which saw their original outlay go overboard by Rs.0.89 trillion (58 per cent).

Viewed from still another angle, time overrun has apparently caused 66 per cent of cost escalation while several other reasons, like inadequate provision for various costs, changes in the scope of projects, lethargy in drawing up feasibility reports and post-sanction cost hikes, led to the balance, but not an insignificant 34 per cent of cost escalation in 207 central sector mega projects.

Nevertheless, 51 delayed projects costing Rs.2.24 trillion, which did not see cost overrun, resulted in postponement of economic benefits from their operations, causing losses, perhaps several times their project outlay.

The cost overrun in central sector mega projects is running at 18-19 per cent since January. Earlier, the extent of cost overrun had dropped from 62 per cent in 1991 to 36 per cent in 2000 and 12 per cent by June 2009, subsequently creeping up to 20 per cent by September 2011.

Obviously, India has not decisively banished the cancer of project cost escalation which vitiates the viability of projects and additionally deprives the country of the fruits of production facilities at affordable costs, even when delays may not lead to cost escalation.

By the way, cost escalation has not crippled all the 207 projects mentioned earlier.

Cost overrun was reported in 85 projects which accounted for just around a third of the total original cost of the 207 projects and time-cost overrun was observed in 49 projects that accounted for 23 per cent of project outlay of all central sector mega projects. Thus, as many as 158 mega projects accounted for three-fourths of total central mega projects that would not see any cost or time overrun (going by MoSPI data).

Fifty-one delayed projects which would not probably see cost escalation as a result of time overrun accounted for 34 per cent share in terms of outlay. Nevertheless, the scars on these time-cost overshooting problem projects are much deeper and policymakers should focus on these projects if the country has to realise the fruits of public sector investment in time and at affordable costs.

Overruns by sectors
Petroleum, power and railways were the three sectors where the cost overrun was concentrated, together accounting for four-fifths of the total central mega project cost overrun.

Railways alone would account for 54 per cent of total mega project cost escalation. Forty-one out of 45 railway projects faced cost overrun that would push up their outlay by 214 per cent! There were 19 railway projects which would see time overrun anywhere from three to 201 months, and 22 projects did not specify schedules for completion, which would effectively mean that only four railway projects were progressing as per schedule. Overall, railway projects would cost two-and-a-half times their originally sanctioned outlay.

Petroleum and power projects were set to see around 33 per cent cost push. In petroleum, 22 out of 36 projects were running behind schedule and in power 30 out of 62 projects were delayed.

In road transport and highways, as many as 13 out of 22 projects were delayed, but curiously only one of these, Panipat-Jalandhar six-lane (km 96 to km 387.1), would cost more.

In coal sector, four of nine projects were running behind schedule and two seeing cost overshoot as a result.

The total cost of the 207 projects when sanctioned was of the order of Rs.6.56 trillion; this was subsequently revised; with an anticipated total outlay placed at Rs.7.82 trillion in May 2013. The expenditure incurred on these projects till May was Rs.3.49 trillion. This would imply that around Rs.4.32 trillion would be spent on these projects in the next few years (provided the projects adhere to their revised schedules).

Power, petroleum, steel, railways and urban development (mainly metro rail) together would be calling for material/service supplies worth around Rs.3.62 trillion in the coming years. Among the states Maharashtra, Chhattisgarh and Delhi would together see capex of over Rs.1.25 trillion on the respective projects. With the details mapped by individual projects, the report is a very useful tool for project vendors.