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Development costs in KP to escalate

August 03, 2012


Peshawar, Aug 3: Khyber Pakhtunkhwa’s annual development programme for financial year 2012-13 is likely to see cost escalations as the provincial government has undertaken an exercise to revise upward the composite schedule of rates (CSR), according to officials.

Rates of around 1,400 items forming part of the CSR list of the Khyber Pakhtunkhwa government have been identified to revise their scheduled rates, a senior official told Dawn on Friday.

“The provincial government has in principle decided to revise CSR making adjustments to prices of hundreds of items,” said a development planner. The revision, said another official, will negatively impact on the costs of new projects that the provincial government would launch in its annual development programme (ADP) for the current financial year.

Khyber Pakhtunkhwa’s ADP for financial year 2012-13 involves a total of 960 development projects, including 667 ongoing development projects and remaining 273 new projects, will be launched after approval from the competent forums.

The total cost of the locally-funded component of ADP comes to Rs74.2 billion, including an investment of Rs27.8 billion with which new development projects would be carried out in financial year 2012-13.

Official development planners said while the revised CSR would not apply to the projects already under progress, the new CSR would govern the new projects to be launched in future.

“Since procurement rates of many items rise, it will increase the cost of all new development projects, especially the ones that include construction works,” said an official.

The CSR revision will cause cost escalations and the new projects will require far greater investment to complete the new projects than the cost the provincial government had estimated to complete 273 new projects.

A committee involving senior officers of the provincial government, including Secretary of the Communication and Works Department, and representatives of private contractors has undertaken the exercise to review the Khyber Pakhtunkhwa government’s existing CSR, updating it.

An official said during a recently held high-level meeting, the secretary communication and works department informed the additional chief secretary that 1,400 items had so far been identified for revising CSR. The rates, said the official, was needed to be revised because the existing CSR was prepared four years ago and since then prices of many items had risen due to price hike and inflationary trends.

The new CSR, said a development planner, will substantially increase the project completion costs of the construction of schools, colleges, health facilities, power sector schemes, and all those sectors that include construction works and procurement of hardware.

“The provincial ADP,” said a senior development planner “is already experiencing stagnation because in real terms, the size of the current financial year’s ADP is equal to the size of the last financial year’s ADP.” In dollar terms, added the official, the size of the provincial ADP had been static for the last few years, standing around $1 billion.

“If you apply the official rate of inflation, the ADP size in terms of money allocated for development projects has reduced,” said the official.

He said the provincial government had been spending around Rs11 billion annually for the last couple of years on the education sector development activities. The investment, said the official, had diminished in real terms if rate of inflation was applied.“The provincial government’s planning process has structural flaws because at the time of preparing ADP the government departments do not take into account inflationary trends,” said the planner.

Ignoring the rate of inflation causes distortions in the ADP as, according to official sources, project completion costs experience escalation due to increase in prices of raw material and items procured from the open market.

The CSR revision, said an official, will require the line departments to recalculate the cost estimates of their all new projects planned to be launched in the current financial year.

The provincial government, added the official, had already started the process of reviewing plans of new development projects at the competent forums of Provincial Development Working Party and Departmental Development Working Party.

“PDWP and DDWP will grant approvals to the new projects on the basis of existing CSR and if after some months if the new CSR list is notified, this might lead to create complications, requiring prices adjustments and a lot of recalculations,” said the official.