Tuesday, October 29, 2013

All a bunch of hot air to fool the masses and even the rich asses! The Rs 5M earned in the first 24hrs of the Katunayake Expressway does not even come close to paying the daily interest accumulation, let alone the capital!

Figures are in: 19,000 vehicles used the Katunayaka Expressway in the first 24 hours giving gate receipts of Rs5.1M flashed accross all the newspapers this morning, and all of you are completely fooled as always. In pure numbers it is a complete flop!! Why?

Anyone can tell you that this is not sustainable 24/7 365 days a year. If it was, then the Revenue would be, Rs5.1M X 365 = Rs 1.86 Billion per annum. So for my calculation let us assume it is sustainable.

Now the cost of the Expressway was US$300M (only the Chinese part and SL Govt contribution, excluding all previous abortive attempts) I am not sure what the exact rate of interest is or the payment terms, but if after all these years, interest must have accumulated to the capital and the balance outstanding must be far in excess of that. Be that as it may, let us say for our argument that it is only US$300M that has to be paid, principal and interest on it.

If we assume a low interest rate of 7%, then the interest alone will be US$21 Million. After all, we have been informed that China is lending to  us at far higher rates of interest like 8.5% on US$ borrowings, when they lend to the United States at 1% (effective interest rate received on their holdings of trillions of dollars of US Treasuries. We will assume we had concessionary rates for this - fat hopes!  

This amount of interest at Rs133 = US$1 the current exchange rate is Rs 2.79B per annum. This gives a shortfall of Rs 930M per annum, without accounting for the budgeted maintenance of the Expressway of Rs 450M per annum, excluding any road re-surfacing that is required every 5 years, depending on the wear and tear, and if shoddy building materials have been used and pot holes start appearing soon (what’s the bet?) if will be sooner! This gives a MINIMUM LOSS of Rs 1.38B per annum.

What do you expect when the cost per KM has been published at Rs1.8B per KM, one of the most expensive roads in the history of road building in the world.

If you say that this social cost of Rs1.5B per annum is worthwhile as it will give a far greater social and economic benefit to the economy, by infrastructure, then who pays the capital cost? Add that to the social cost I guess!!When will people realize that Sri Lanka is wasting too much of the people’s money on road construction? This Govt. is responsible for making extremely poor decisions on handing out contracts at inflated prices to earn kickbacks for themselves. 

I am NOT implying that this is NOT required in Sri Lanka. They are. However is someone engaged in Highway Robbery of the Nation? Let us all get together to stop it.


Acromantula said...

The benefit is not meassured just in terms of revenue from the vehicals. You also need to consider the economic benefit it brings in terms of saving people's time, lowering the cost of transportation etc.

It is just not possible to calculate the benefits of infrastructure projects just from direct revenue. To do so shows gross misunderstanding on how economic benefits are achieved (which is a common misconception of the uneducated)

Anonymous said...

nicely done. opposition politicians must use this term 'highway robbery' in stump speeches followed by your elaboration plus more elaboration on how exactly this loan will be repaid, and the consequent hardship people will face as a result.

the problem will be that the masses have heard all of the dreadful predictions before that never come to fruition and are immune to those arguments, and all those along the road will see increasing gains in productivity and land values which could counterbalance the governance aspect but nonetheless one must play the cards they are dealt.

add this to your list of well-documented mis-steps and carry on

Anonymous said...

A good way to illustrate how this Government overspends on everything that they can get away with and NOT spend on areas they cannot steal, like education!

So no wonder this is the Construction govt. as that is the easiest way to fleece.

Of course there are social benefits, as we know with the road building program to date, but we know that actually twice as many roads could have easily been built or what has been built done at half the cost saving the country billions.

The trick is how you explain this to the masses as they are not borrowing the money, the Govt. does on their behalf without them even knowing the details of the rates of interest.

Here the shameful corruption is in both the interest rates,AND the construction cost as well.

If this was a private expressway it would have cost US$100M and the charges probably would be the same and they would make a profit.
benefits. We can have more money for so much more like education.

This is the sad tragedy of Sri Lanka where people have let themselves be fooled by what they see, not what they experience, like an education that is worthless at present.

Anonymous said...

a bird in the hand is worth 2 in the bush. the masses hear all kinds of criticism all day every day but the road is something they can see and experience benefits from first hand and that will triumph over critical theory

Anonymous said...

the bird in the hand is just the one sided media hype.

Just a small minority will experience the benefit as most people live out of Colombo and will at most use it to get to Peliyagoda from where the traffic is a snarl where ever one goes!

They just see it on ITN and that is enough to let their imagination soar!! So that is the bird you talk about, not seeing it live or going on it or benefiting from it directly.

Further as no one seems to care about public debt, the Govt. will become profligate in its borrowings as that does not create any political negatives for them!!

Anonymous said...

Profligate government spending (America) only ends badly for the government when it damages the economy (Greece). Until then, the businessmen are popping bottles of champagne as they ride the insider train to riches