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Overvalued project costs more than double standard price: minister

Many state infrastructure development projects were found to be hugely overvalued with some priced at more than double the standard unit price, a minister has said.
The government could save more than 3.5 trillion kip (almost US$419 million) from these following inspections into the projects, Minister of Public Works and Transport, Dr Bounchanh Sinthavong told local media on Monday.

The excess costs were discovered during the inspection of 18 projects in 2017 and 12 projects inspected during the first 10 months of 2018. 
The inspections found that some projects were originally priced at US$1.8 million per one kilometre for a seven-metre-wide and two-layer asphalt road, which exceeded the standard unit price which is somewhere between US$600,000 and US$750,000 per kilometre.
However, the Lao standard unit price for projects funded by state budget is higher than the common rate charged on projects funded by financial support from the World Bank, the Asian Development Bank, and Neighbouring Countries Economic Development Cooperation Agency (NEDA).
The unit price for a project funded by financial support is about US$500,000 a kilometre at the maximum.
The minister explained the lower cost for projects funded by financial support was due to project construction enjoying tax and tariff exemptions including exemptions for materials imported coupled with on-time payment upon construction completion.
But projects funded by state budget normally saw slow payment following the completion due to budget constraints thus contractors charged interest on the money they invested.
Including tax, tariffs and interest charges, the standard price for a state-funded project would be somewhere between US$600,000 and US$750,000 per kilometre, the minister said.
“But our inspection found that some projects amounted to US$1.8 million per kilometre. Some cost US$1.5 million a kilometre,” he told local media.
“It is unreasonably high. Therefore we renegotiated [with contractors]. Finally, we could sign new contracts with lower investment cost.”
The minister spoke to local media ahead of the annual meeting of the public works and transport sector scheduled to take place on March 28-29 in Vientiane.
Asked if those responsible for approving such overvalued projects were identified and disciplined, the minister admitted that no disciplinary action had been taken.
He stated that there were mistakes in the approval process, which had caused the issue.
The minister told the National Assembly in December last year that the overpriced projects were found to have been implemented since 2007. Most of them were unapproved by the parliament and the government.
There were several reasons for the overpriced issues.
A number of these projects were initially invested in by businesses under an agreement where the state departments involved would repay the money at a later date. These projects did not go through a bidding process and the investors themselves carried out the surveys, design plans and actual construction.
Even consulting companies, who were hired to oversee quality control during construction, were chosen by the contractors in most projects. Some consulting companies were insufficiently qualified, Dr Bounchanh told the parliament.
Another reason for the high investment costs was that most projects were approved before the completion of detailed surveys and designs, which meant that plans were still being drawn up during the construction process. Designs, investment cost calculations and assessments of projects were not officially passed and approved by the relevant department.
Dr Bounchanh assured the parliament that no such projects had occurred since 2017 after the government and the National Assembly took strong action to address the issue.

By Souksakhone Vaenkeo
(Latest Update March 27, 2019)


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