HIGH inflation and project changes caused the government’s cost overruns to more than triple in 2018, according to the latest data released by the National Economic and Development Authority (Neda).
Based on the Neda’s Official Development Assistance (ODA) Portfolio Review 2018 report, total cost overrun—additional costs over and above the Investment Coordination Committee (ICC)-approved project cost—increased to P24.79 billion in 2018, or a 264.02-percent growth from P6.81 billion in 2017.
It may be noted that inflation in 2018 averaged 5.2 percent with September and October posting the highest inflation rate of 6.7 percent in the year.
“Agency requests for cost-overruns undergo the ICC review process, mainly to determine whether the project continues to be economically viable. In 2018, the ICC received seven [7] requests for increase in cost due to change in scope and domestic inflation,” Neda said.
The report stated the biggest increases were posted by the Davao City Bypass Construction Project; Panguil Bay Bridge Project and Integrated Disaster Risk Reduction (DRR); and Climate Change Adaptation (CCA) Measures in Low Lying Areas of Pampanga.
Neda said the P9.03-billion cost increase (53.73 percent) in the Davao City Bypass Construction Project brought the total project cost to P25.85 billion from the ICC-approved cost of P16.81 billion.
The report said the project was changed into a four-lane road and tunnel. It will also consist of an evacuation tunnel and the widening of two connector roads.
The increase in cost, Neda said, was needed to acquire more land to accommodate the changes in project scope. The project is being undertaken by the Department of Public Works and Highways (DPWH) using an ODA loan from the Japanese government.
Meanwhile, the change to the Panguil Bay Bridge Project and Integrated DRR was brought about by the increase in the length of approaching roads and the width of the main bridge by a meter.
The scope of the project also included an increase in the length of the pile foundation; borehole diameter; inclusion of a seismic design; and additional temporary facilities.
The changes increased the project cost of the Panguil Bay Bridge Project by 51.79 percent, or P2.52 billion to P7.38 billion from the ICC-approved cost of P4.86 billion.
“The revised cost includes actual expenses for RoW [right-of-way] acquisition in Misamis Occidental and Lanao del Norte,” Neda said in the report.
The project is being undertaken by the DPWH and funded by the Korean government. It was recently included in the list of projects to receive funds from a $71-million fund for pre-feasibility projects put up by the Korean and Philippine governments.
The Neda report also said the Integrated DRR and CCA Measures in Low Lying Areas of Pampanga saw its cost increase by 45.93 percent or P1.94 billion.
This increased its total project cost to P6.15 billion from the ICC-approved cost of P4.21 billion. The project is being implemented by the DPWH with the Korean government.
The Neda said the cost increase was largely due to additional scope of work; higher prices; variation orders; and, additional consulting services.
“[There is also an] increase in the project management cost, equivalent to 3.5 percent of civil works and consulting services costs,” Neda said.
Other projects
Other projects which posted cost increases were the New Bohol Airport Construction and Sustainable Environment Protection with a P3.08- billion (39.57-percent) increase to P10.85 billion and the Flood Risk Management Project in Cagayan River, Tagoloan River, and Imus River Project, 34.32 percent or P1.92 billion to P7.5 billion.
The list also includes the Pasig-Marikina River Channel Improvement Project—Phase III which saw its cost increase by 19.66 percent or P1.48 billion to P9.03 billion and the Philippine Rural Development Project (PRDP), which saw a P4.83-billion increase (17.54 percent) in cost to P32.36 billion.
The PRDP may have posted the lowest cost increase in the list but it had the highest price tag among the projects that saw higher costs in 2018.
“[The PRDP cost] increase (was due to an increase) in civil works cost due to adherence to specifications set by DPWH on construction of roads—including FMRs [farm to market roads],” Neda said.
Commitment fees
Various delays and higher financing costs encountered by projects increased the total commitment fees (CFs) paid by the government in 2018.
Neda explained that a commitment fee is the amount levied on the undisbursed loan amount or a portion that is payable every year.
The rate is applied on the undisbursed amount of the entire loan or a portion thereof (base), which approximates, or may be bigger than the amount scheduled to be disbursed due to availment backlogs.
Neda explained that even when there is no implementation delay, a certain amount of commitment fee would still be charged as purely cost of financing. Implementation delay only increases the amount.
In 2018, this amounted to $4.60 million, a 22.34-percent increase from the $3.76-million paid in 2017. Neda said about 42 percent of CFs paid in 2018 was attributed to implementation delays.
Availment backlogs
Neda said that in 2018, there was an availment backlog of $1.42 billion. The top 5 agencies that did not meet their respective scheduled availment as of 2018 for their project loans were the: Department of Transportation (DOTr), DPWH, National Irrigation Administration (NIA), Department of Environment and Natural Resources (DENR) and Department of Social Welfare and Development (DSWD). Neda said these agencies contributed to 91 percent of the total availment backlog.
Data showed the DOTr accounted for an availment backlog of $724.34 million; DPWH, $406.9 million; NIA, $58.22 million; DENR, $52.34 million; and DSWD, $48.8 million.
Alert Mechanism
The report also stated that the Neda-Monitoring and Evaluation Staff (Neda-Mes) identified 11 ODA loan-assisted projects as actual problem projects for priority monitoring and facilitation, based on its Alert Mechanism (AM).
Neda’s internal AM identifies and flags projects which require priority monitoring and facilitation using four leading indicators on financial, physical, cost overrun and stages of project implementation.
Data showed nine of these projects were identified to be in the critical stage or alert level 2, having implementation issues that remained unresolved for at least six months while the remaining two projects were under the early warning stage or Level 1.
Neda said 10 actual problem projects posted an availment backlog of $572.41 million or 40 percent of the total availment backlog of the active ODA loans portfolio as of end 2018.