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Plan to divert road funds to energy sector

ISLAMABAD, Feb 14: Conceding that a vast majority of public sector projects are approved under political pressures, the planning commission has sought diversion of funds allocated for road projects to the energy sector for maximising economic output. In a report on the public sector development programme officially launched on Tuesday, the commission said successive cuts in development programme to contain fiscal deficits under financial constraints had far-reaching consequences not only for GDP growth rate but also for achieving objectives of public investment, including poverty reduction, job creation and optimum utilisation of public facilities. The report highlighted faults with the project conception, execution and monitoring, leading in some cases to over 400 per cent cost overruns, mainly because of bureaucracy`s wish to keep projects under its control to earn additional allowances. For example, it noted that the average cost per scheme has increased from Rs952 million in 2006-07 to Rs1638 million, up by over 72 per cent, partly as a result of inflation. Giving some examples, the commission said the cost of national family planning project increased by 415 per cent between 2003-4 and 2010-11 while that of expanded immunisation programme went up by 392 per cent. During the same period, the cost of Islamabad-Peshawar Motorway rose by 47 per cent, that of Lowari Tunnel by 193pc, Lower Indus Right Bank Irrigation and Drainage by 235pc and Right Bank Outfall Drain by 109pc. Likewise, the cost of Karakoram Highway repair and maintenance and improvement of N-85 increased by 67 and 49pc respectively while thecost of Mangla Dam raising project went up by 62pc. `Projects are being approved at a high rate owing to pressures.` The central development working party received 216 proposals valued at Rs1.085 trillion from mid-October 2010 to mid-April 2011 and sanctioned 192 projects worth more than Rs985 billion, an approval rate of nearly 91pc. It said the `PSDP (public sector development programme) has been the cut of first choice` when fiscal pressures build up without an understanding of the growth implications of the act. The report said when the PSDP was cut, growth was reduced in the short run as well as an effect on the country`s productive capacity in the medium to long run. The short-run impact of cutting the PSDP is estimated to be an elasticity of about .03, i.e., if the PSDP is cut by 10pc then growth falls by 0.3pc in that year, largely because of a withdrawal of fiscal stimulus. Noting that the largest allocations were currently in roads (mostly highways), the analysis showed that the return to investment in roads is not as high as those in energy and water. `A bigger impact on GDP growth could occur if some funds were diverted from roads to energy and water`. DELIBERATION MISSING: The review said that project appraisal and approval, the mainstay of the system were not being approached with the seriousness they deserved. The rush to, as well as the pressure for approval, softens the emphasis on project appraisal. `The ministries and project sponsors also lack the capacity for such detail and analysis intensive activity` and requirements of financial and economic analysiswere not fulfilled. It said the case study analysis revealed several weaknesses in project development, reinforcing some of these issues. For example, sponsors conduct limited examination of alternatives to the proposed project for delivering the same objective. Studies are frequently too optimistic about displacement costs which continue to escalate through the project`s life and also contribute to delays in execution. Also, `very little attempt is made to look at secondary benefits`. Not surprisingly, even when cost benefit analysis is conducted it is poor in quality. Sponsors also prefer building projects rather than collaborate to use existing unutilised capacity. It said the poor governance remained a weak area. The control of project finance, the availability of a project allowance and facilities to project director are creating incentives for part-time and non-professional managers of projects. Hasty and incomplete project preparation often lead to revision of scope, compounding funding problems as well as cause delays. `Cuts in PSDP arising from needs of growing deficits result in rationing of funding, causing not only delays but cost escalations. The report said the project governance could be improved by giving attractive incentives to project managers, consultants and contractors to finish projects early or on time, project management units should not be set up for projects costing below Rs1 billion, a national data base should be maintained of qualified personnel, project scope must be clearly defined and rigorous monitoring of projects during implementation must take place, it concluded.

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