ISLAMABAD   -   The lack of enthusiasm shown by the incumbent government towards ongoing highways and motorways projects would not only affect their pace of work but it would also cost billions of rupees to the national exchequer in terms of ‘extra escalation cost’. Due to less allocation made by the federal government against on-going projects of the National Highway Authority (NHA) in Public Sector Development Program (PSDP), there will be an escalation cost amounting to Rs.41.93bn approximately while considering the projected inflation at 13 percent per annum for the financial year 2019-20.

The exact calculation of the escalation cost prior to its occurrence is a difficult task, however The Nation has done the aforementioned estimation with the help of some financial minds in this field, who wished not to be named.

NHA had demanded Rs.283bn for its 47 ongoing schemes for PSDP 2019-20, however the federal government made an allocation of only Rs.119bn. It is however important to note that the throw forward of ongoing projects at the end of current financial year is expected to be around Rs.478 billion which means that at least 3 to 4 more years would be required to complete these projects provided annual allocations are kept at current year’s level.

In order to calculate the escalation, the inflation rate of 13 percent per annum for 2019-20 has been taken. As per prevailing practice, the total escalation includes the average amount of escalation on the current year’s allocations and full escalation on the throw forward appearing at the end of financial year. According to the guide lines of Pakistan Engineering Council (PEC), the escalation is allowed on certain specified items which include labour, steel, cement, bitchumen and fuel having a total weightage of around sixty percent of the total cost of the project. 

If we apply the aforementioned procedure here for calculating total escalation for financial year 2019-20 with current allocation of Rs.119bn, it comes to Rs.41.93bn, which includes average escalation of Rs.4.64bn on allocated budget and full year’s escalation of Rs.37.28bn on closing throw forward. 

For the purpose of comparison, the escalation on NHA’s actual demand of Rs.283bn would work out to be Rs.35.53bn, which includes average escalation on allocation is Rs.11.04bn and full escalation of Rs.24.49bn on the throw forward.

However, the analysis of both the workings i.e. escalation on current allocation and escalation on the demanded allocation is necessary to estimate the overall impact of government’s less allocation to NHA for ongoing project. Accordingly, the total net additional escalation cost works out to be Rs.6.4 billion which is the actual loss to the public exchequer.