Lowari Tunnel project cost overruns by 362 percent

Following a series of infrastructure projects that exceeded their allocated budgets, the Lowari Tunnel project has now joined the list, currently under review after overrunning its planned cost. According to reports, project costs are now projected to be 362 percent higher than initially anticipated.

Project details reveal that development works on the infrastructure project were authorised over 20 years ago. If completed, the tunnel could provide a safe passage to the northern parts of Pakistan that border Afghanistan. 

According to reports, the Central Development Working Party (CDWP) has reviewed a proposal that, if accepted, would allow project costs to reach up to Rs 37 billion. However, authorities have not been able to reach an agreement as project documents reveal government instructions to set a price ceiling at Rs28 billion to avoid cost overruns.

Reports indicate that the Ministry of Communications (MoCom) was granted only Rs4 billion by the Planning Commission to cover immediate liabilities. Initially, MoCom had asked for an additional Rs10 billion to finance the project, but this request was not accepted.

Reports suggest that the meteoric rise in cost could be associated with the federal government’s directives to expand the projects’ scope. The aforementioned expansion orders caused the project price to gradually increase from Rs8 billion in 2004 to its current projection of Rs37 billion.

However, some believe that it may not be a fair comparison to compare costs over more than two decades, as inflation rates have remained persistently high, causing the prices of inputs to soar. According to data from the International Monetary Fund (IMF), the average inflation rate over the project’s lifetime sits at approximately 10.5 percent. However, many believe that it is unlikely that the rate of inflation caused the cost to balloon by a whopping 362 percent. 

Authorities believe that construction work on the tunnel is vital, as it opens up road access to the Chitral district during the winter months. Without the tunnel, the flow of traffic would remain limited because of heavy snowfall.

Reports have highlighted that the Executive Committee of the National Economic Council (ECNEC) ordered the project to be ‘formally closed’; however, the Ministry of Communications did not abide by the ECNEC’s instructions. 

Rising project costs hurt the national exchequer, and with international creditors pressuring Pakistan to consolidate its fiscal position and implement austerity measures, many believe that overlooking cost overruns may hurt Pakistan’s macroeconomic indicators.