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Dulhasti Power Plant Case Study

A river and a turbine

ZUBAIR A. DAR

WATER is one of the key disputes between India and Pakistan which is played out in many theatres across the Indus basin. In Jammu and Kashmir, this natural resource is regarded as the underlying interest behind the stated positions on the Kashmir land dispute. In this conflict theatre, the discord over water has turned into a protracted legal battle, driving the two countries into invoking the highest mechanisms of dispute resolution laid down by the Indus Waters Treaty. Interestingly, the treaty is the only major example of cooperation between India and Pakistan. But the upsurge in disputes – over power projects on western rivers, Siachen glacier, Wular conservation and water discharge outside the Indus basin from the eastern rivers – casts a strong doubt over the prolonged success of such cooperation.

The attempts by J&K to secure its right over the waters of the western rivers that flow through its territory have added a new dimension to the battle. This triangular tussle not only changes the nature of the dispute, it also brings into question the principles of water management and distribution followed by the Indus Waters Treaty.

The history of disputes over power projects goes back to the 1970s, when India started building major power projects in J&K. Pakistan has since objected to at least four projects: Salal HP, Baglihar HP, Kishenganga HP and Nimo Bazgo HP. The objections are based on violations of the treaty, and strategic challenges that Pakistan feels would emerge from the execution of these projects. Salal became the first test case for both India-Pakistan cooperation over water, as well as the strength of the IWTs dispute resolution mechanism.

The Salal Hydroelectric Project (on river Chenab near Reasi in the Udhampur district of J&K) was conceived in the year 1920 but never built. The J&K government started investigations on Salal HP in the year 1961, and construction of the project started in 1970. Its design laid out a two-stage powerhouse with a total installed capacity of 690 mw (345 mw each). The site of the powerhouse is about 72 km upstream of Marala headworks of the Triple Canal Project, which irrigates vast areas of land in Pakistan and is fed by the Chenab and Jhelum rivers.

Pakistan’s technical objections were to the design (outlets at the bottom of the dam and 40 foot high gates), and to the capacity of the water storage. It feared that Salal HP created a reservoir that could store enough water to flood parts of Punjab in Pakistan or stop water from reaching the Punjab plains, thus allowing India an option to use water as a strategic tool during warfare. After two rounds of talks, in 1978 India agreed to reduce the height of the dam by two metres. It simultaneously pointed out that it would be impossible to cause flooding in Pakistan without causing damage to the territory within India’s control.

 

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fter the agreement, construction of the project was entrusted to the National Hydroelectric Power Corporation (NHPC). By the time that the final commissioning of the project took place in 1996, India had already stopped the Wular project following Pakistan’s objections to the water storage in the lake as constituting a violation of the provisions in the Indus Waters Treaty. The Wular project involved construction of a 440-foot long lock on the Jhelum river with the objective of increasing the level of water in the lake during the lean season. Work on this project started in 1984 and was stopped in late 1987 after Pakistan objected.

The project was aimed at facilitating proper navigation over a 20 kilometre river stretch between Sopore and Baramulla and stabilizing the water level in the Jhelum. It would also help Uri I, Uri II and Lower Jhelum power projects to generate more electricity in their lean seasons by providing the required supply of water. A minimum of 4000 cusecs and 4 ft. depth is required for navigation. Pakistan’s objection is that the Wullar project violates Article I of the treaty, which prohibits both parties from undertaking any ‘manmade obstruction’ that may cause ‘change in the volume... of the daily flow of waters’ unless it is of an insignificant amount. Further, Article III specifically bars India, from ‘store[ing] any water of, or construct any storage works on, the western rivers.’

 

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s talks proceeded, India is reported to have offered (in October 1991) to offset the storage question by considering it as a 300,000 acre-feet part of the storage provision permitted on the Jhelum by the Indus Waters Treaty. The IWT, however, limits the maximum permissible amount of a single storage at 10,000 acre-feet.

India also offered to keep 6.2 metres of the barrage un-gated with a crest level at EL 1574.90 m (5167 ft). The design change was probably aimed to satisfy Pakistan’s security concerns. In 1991, Pakistan agreed to the principle of maintaining operational levels in the Wullar Lake. In implementation, it means maintaining a water level of 5177.90 feet in the Wullar. Since 1987, India and Pakistan have held eleven rounds of talks about the project. While they have in the past been reported close to signing an agreement, the dispute became more entrenched because of the Kishenganga Hydroelectric Project.

Meanwhile, even as talks on the Wullar project failed to reach a conclusion, the Baglihar project emerged as a major dispute that could not be resolved through talks at the bilateral level. Instead, it went to a neutral expert for determination on technical ‘questions’ raised to the World Bank by Pakistan.

The project was conceived in 1982 and India’s Central Water Commission prepared a project report in 1984. In 1987, the J&K government transferred it to NHPC and construction work started in 1999. Pakistan, however, raised concerns on 4 April 2002 when it sent its ‘questions’ to India. By 2004, India and Pakistan had held several rounds of talks on the design of the project without any breakthrough. On 18 January 2005, Pakistan sent its six objections to the World Bank, a broker and signatory to the Indus Water Treaty. Despite invoking the services of a neutral expert, Pakistan referred to the Baglihar disagreement as a ‘difference’ and not a dispute. But the dispute had been removed from strict bilateral diplomacy, yet kept under the provisions of IWT.

Professor Raymond Lafitte, a Swiss civil engineer appointed as a neutral expert by the World Bank to adjudicate the ‘difference’, gave his final verdict on 12 February 2007 in which he partly upheld three of the objections raised by Pakistan. The verdict read: ‘In view of all the uncertainties of flood analysis, the NE has decided to retain the value proposed by India of 16,500 m3/s as opposed to 14,900 m3/s proposed by Pakistan, for the peak discharge of the design flood.’ The neutral expert understood that climate change, with the possible associated increase in floods, also encourages a prudent approach.

 

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hether spillway on the dam should be gated or un-gated was determined by the neutral expert ‘in conformity with the state of the art, the conditions at the site of the Baglihar plant, including hydrology, sediment yield, topography, geology and seismicity, require a gated spillway.’ He pointed out that the treaty is ‘not well developed with respect to its provisions on sediment transport’ and ‘reflects the status of technology on reservoir sedimentation in the 1950s.’ Pakistan’s objection to the artificial raising of the water level was upheld by the neutral expert who said that the dam crest elevation fixed in the design submitted by India at el. 844.5 m above sea level, resulting from a freeboard above the full pondage level of 4.5 m, is not at the lowest elevation.

The Baglihar case also brought to light how the two sides viewed the dispute. But the most important aspect of the invocation of this mechanism was the insight of the neutral expert about the provisions of the treaty and problems in its implementation. The verdict raises questions that call for a fresh analysis of the treaty in a changed set of conditions – environmental and technological – that did not exist when the treaty was negotiated.

Pakistan’s approach to the Baglihar dispute was both political and legal – it called for an adherence to provisions of the Indus Waters Treaty, and also sought to satisfy its concerns about use of water as a strategic weapon during war. India, on the other hand, viewed the dispute as a difference of view on the engineering of hydroelectric plants. The neutral expert took the opportunity to interpret the rights and obligations of India and Pakistan ‘in the light of new technical norms and new standards.’ He was of the opinion that an interpretation of the treaty must be guided by the ‘principle of integration and the principle of effectiveness’ so as to allow for the fulfilling of the object(s) and purpose(s) of the treaty as laid out in its preamble.

 

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his reinterpretation of the treaty is most likely to influence any future implementation of its provisions. A glimpse of this was seen when the Wullar project came under renegotiation after the Baglihar verdict. Negotiators on the Indian side, pushed by the Government of J&K, saw it as a positive step in the direction of an agreement on the Wullar project. However, the negotiations did not make a breakthrough as the Wullar project got entangled with other disputed projects in the region. Though both Pakistan and India accepted the neutral expert’s decision, Pakistan expressed reservations about the expert’s consideration of latest technologies and practices.

The determinations, however, are binding on both the countries. Therefore, the Baglihar dam constructions went ahead according to the determinations. But the filling of the dam further reinforced Pakistan’s apprehensions that the dam gave India the capacity to ‘manipulate’ water flows. The filling of the dam started on 19 August 2008. India claimed that it continued till 28 August 2008. Pakistan maintains that water stoppage extended up to September and consequently, the water flow from the Chenab dropped below 55,000 cusecs in the months of September and October with ‘India seizing 200,000 cusecs of water at a time of the ripening of the paddy crop.’ India later accepted the mistake and gave ‘an assurance that it will be careful in future,’ which Pakistan ‘accepted in a spirit of cooperation and goodwill.’ Pakistan’s demand of compensation was, however, rejected.

 

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aglihar also brought into mainstream discourse the contention in Jammu and Kashmir about power projects built, operated and managed by the National Hydroelectric Power Corporation. This discourse ran parallel to the discourse on India-Pakistan water relations. As more disputes emerged and entangled, an intellectual movement in Jammu and Kashmir started digging deeper into questions about its share of water and energy that both countries had chosen to ignore while conducting diplomacy and dialogue. The most recent disputed project – Kishenganga – has further reinvigorated this rights movement in Kashmir with civil society as well as the J&K government challenging NHPC operations.

Kishenganga, a power project planned on the Neelam tributary of the Jhelum has taken the water discord between India and Pakistan to the highest echelons of dispute resolution. The 330 mw power project plans to build a barrage on the Neelam in Gurez and divert water through a mountain in a 22 kilometre long tunnel to a power station on the other side and finally discharge that water into the Wular lake. For diversion of water, the project involves construction of a 37m high concrete faced rock fill dam. As the water is discharged in the Wular (effectively Jhelum river), it involves an inter-tributary transfer of water. This diversion means that part of Neelam’s water will reach Domail, where Jhelum meets Neelam in Pakistan Administered Kashmir. It is the site of Pakistan’s Neelum-Jhelum Hydel Project.

 

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ndia officially communicated to Pakistan regarding the Kishenganga in June 1994. Initially Pakistan raised three objections to the project regarding inter-tributary diversions, protection of existing uses and design features. It argued that the Kishenganga project would deprive it of 27 per cent of the river’s natural flow, thereby doing damage to its existing 133,000 ha of irrigation in the Neelam Valley and a 900 mw Neelam-Jhelum hydropower project initiated downstream by Pakistan. In June 2006, following protests by Pakistan and environmental groups in J&K, India modified the design of the project, reducing the dam height from 73 metres to 37 metres in the new design, without altering energy output, and limiting displacement of people to two villages. The design changes, however, did not satisfy Pakistan when the issue came under discussion in the Indus Water Commission. Pakistan reiterated its position that the modified design did not address its concerns. India rejected the claims. In April 2008, Indian Minister of State for Power, Jairam Ramesh, described Kishenganga HP as a project ‘of strategic importance as it is located on the border and Islamabad has begun work on their side of the river and that too with Chinese help.’

 

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s talks at the commission level did not reach a conclusion and construction on Kishenganga HP continued, the dispute was referred to the Governments of India and Pakistan, who further referred it to the Court of Arbitration. Pakistan views the dispute through the provisions of Article III and IV of the Indus Waters Treaty. Para 2 of Article III provides that India is obliged to ‘let flow all the waters of the western rivers and not permit any interference with those waters.’ Para 6 of Article IV lays down that ‘each party will use its best endeavours to maintain the natural channels of rivers, as on the effective date, in such condition as will avoid, as far as practicable, any obstruction to the flow in these channels likely to cause material damage to the other party.’

The Indian justification for the construction of Kishenganga HP relies on the provisions of the treaty that provide inter-tributary diversions. Annexure D, paragraph 15 (iii) of IWT states: ‘Where a plant is located on a tributary of the Jhelum on which Pakistan has an agricultural use or hydroelectric use, the water released below the plant may be delivered, if necessary, into another tributary but only to the extent that the then existing agricultural use or hydroelectric use by Pakistan on the former tributary would not be adversely affected.’

The decision of the ICA regarding Kishenganga was long awaited. In its partial decision on 18 January 2013, the ICA in Hague allowed India to divert only ‘minimum flow of water’ from Kishenganga. On the second question by Pakistan – whether under the treaty, India may deplete or bring the reservoir level of a run-of-river plant below the dead storage level in any circumstances except in the case of an unforeseen emergency – the court determined that the treaty did not permit reduction below the dead storage level in the reservoirs of run-of-river plants and that sediment accumulation in the reservoir did not constitute an unforeseen emergency. India will have to find an alternative to the drawdown flushing of sediment.

 

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s both countries claim success in the case, the final verdict in December will be a crucial commentary on India-Pakistan water relations. Objections to other power projects have, meanwhile, swarmed. Dul Hasti, Uri II, Chutak, Nimoo Bazgo, Dumkhar, Ratle and Sawalkote are all mired in a discord whose end is not yet in sight. The points of difference on Dul Hasti are technical, besides the concern that the dam built for operation of the project on Chenab can store water and threaten Pakistan’s water security. On the 240 mw Uri II hydel power project, Pakistan’s main concerns are about the height of the dam. India made some adjustments to the design after Pakistan threatened to take the issue to the World Bank. Chutak, Nimoo Bazgo and Dumkhar hydro projects on the Indus face opposition from Pakistan because of their location in an environmentally fragile area, strategic location and violation of IWT provisions.

Most of these projects are located on the Chenab river. Pakistan feels threatened that these dams will provide India control over water flows in the Chenab. Bursar, for example, is regarded as the biggest dam in J&K. NHPC, which is building these projects, states that Bursar storage project can regulate water flow not only for its powerhouse but also for all downstream projects, i.e. Pakal Dul, Dul Hasti, Raltle, Baglihar, Sawalkot and Salal. It is the cumulative impact of live storage that Pakistan fears. John Briscoe, Professor of the Practice of Environmental Health at Harvard observes, ‘The cumulative live storage will be large, giving India an unquestioned capacity to have major impact on the timing of flows into Pakistan. Using Baglihar as a reference, simple back of the envelope calculations suggest that once it has constructed all of the planned hydro-power plants on the Chenab, India will have an ability to effect major damage on Pakistan.’

 

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s the challenges from Pakistan persist, the Jammu and Kashmir government is contemplating securing the possession of these power projects by paying the NHPC at present costs. At the same time, the Jammu and Kashmir government is charging the NHPC for use of water in the state through the Water Resources (Management and Regulation) Act passed by the state legislature in 2010. The government as well as civil society groups in Kashmir are also stressing upon the Government of India to implement the recommendations of the Rangarajan Committee set up to look into the financial relations between New Delhi and different states of India. On 13 March 2012, J&K Chief Minister, Omar Abdullah informed the lower house of the state legislature that his government was vigorously pursuing the return of the power projects with the central government. ‘State government will secure its interest and law department is also examining on how to proceed in respect of our claims for Rs 2350.85 crore from NHPC on account of losses suffered in the absence of any agreement to this effect,’ he said.

Incorporated in 1975, the National Hydroelectric Power Corporation got Salal HP as its first project. Initially, it acted as an agent of the Union Ministry of Power to handle the project. Subsequently, the assets were transferred to the corporation. The corporation today runs 15 power houses across India and is constructing 10 more while 19 others are under development.

Four out of NHPC’s fifteen operational power stations are in Kashmir; their cumulative installed capacity of 1680 mw, nearly half of NHPC’s total electricity generation. Of the five other projects (1719 mw) shifted to the corporation for implementation in July 2000, three (369 mw) are at an advanced stage of implementation. Work on 330 mw Kishenganga goes on amid the dispute between India and Pakistan. Besides, NHPC and J&K have a 49 per cent stake each in three other projects with a cumulative capacity of 2120 mw that are being implemented under the Joint Venture Chenab Valley Power Projects Ltd. India’s Power Trading Corporation (PTC) holds the balance two per cent equity in the joint venture.

 

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he joint venture was actually a result of a persistent rights movement in J&K whose economy has been struggling to get out of a debt trap mainly because of spending on electric energy, despite major power projects like Salal, Baglihar and Uri. NHPC is seen as being responsible for the exploitation of Kashmir’s only major resource. A proactive civil society in Kashmir – comprising of trade groups, academicians, activists and media personnel – kept digging deeper into the issue and brought to light the unequal distribution of energy by NHPC Ltd between J&K and other Indian states.

In 2010-11, NHPC reported a net sale of Rs 4046 crore (US$ 797.516 million) and a profit of Rs 2166.67 crore (US$ 426.945 million). In this period, power projects operational in J&K have contributed around half of the sales to NHPC. However, the investments into these power projects have not come from J&K alone. In fact, the share of Jammu and Kashmir was spelled out in the Memoranda of Understanding signed between the corporation and Government of J&K from time to time. These memoranda had to be followed by agreements between NHPC and J&K government. But NHPC never signed the agreements. Under pressure from civil society in Kashmir, J&K government started looking for the records of MOUs/agreements with NHPC in 2011 and found that many of the records were missing. Amidst allegations that MoUs were being violated by NHPC, the corporation also reported records as missing when approached by the J&K government.

 

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cabinet sub-committee (CSC) constituted to look into case has recently come up with its report. According to the report, cabinet order No 328 of 21 June 1975 is fundamental to the relationship between J&K and NHPC Ltd. The order contains terms and conditions offered by J&K for a relationship on electricity sharing with the central government. CSC has reported the file ‘missing’. It had been reported missing earlier as well – on 13 December 1984 – when the state government sent a draft to the cabinet indicating that the particular file was missing. In 1995, when the government was processing a proposal for NHPC’s exemption from paying the stamp duty, the department informed the law ministry that ‘the agreement was missing’.

The CSC report, however, says that it has been able to trace a document (a memo to cabinet dated 28 October 1980) pertaining to the Dul Hasti power project. It mentions that after the cabinet took a decision, the terms and conditions were conveyed to the central government on 21 July 1975 in a letter (PD-IV/234/72). The letter suggested that responsibility of the execution and management of the project was of J&K government during construction. Once in operation, half of the total generation from the project would go to J&K at generation cost and that the arrangement will be reviewed every five years. The J&K government was at liberty to sell part of its share, as the overall profits of the project were to be shared equally (50:50) by the state and the central government (later NHPC, as the project was transferred to the corporation). Salal, according to the contents of the letter, was to be funded by the Government of India, but it was supposed to be transferred to J&K at depreciated cost.

 

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ther documents, like a letter written by Sheikh Abdullah (DO no PDD/IV/243/72) to the then Union energy minister, A.B.A. Ghani Khan Choudhury, on 16 October 1981, indicate how NHPC kept ignoring letters by the J&K government for signing the requisite agreement. The documents also show the Centre’s reluctance to provide J&K its share from the Salal project. The records traced further show that Delhi had agreed in 1969 that J&K would be provided 70 mw from Salal with an installed capacity of 230 mw. When the generation capacity of Salal turned out to be 345 mw, the state government demanded a pro-rata increase to 120 mw. But the energy was never provided. J&K has been getting 12.5 per cent of energy generated by the project, one of the cheapest energy generation units in South Asia with an input cost of 0.60 rupees per unit.

After these discussions, the J&K power department submitted a detailed memo to the cabinet that highlighted the lack of an agreement between NHPC and the state government. ‘Lands required for the project have been acquired by the state government at the cost of the Government of India’, the CSC quotes the memo.

As the agreement was never signed, NHPC has not supplied the energy to the tune it was supposed to. The project, according to the CSC, has generated 67411 million units of energy between 1987 and November 2011. J&K state was supposed to get 12 per cent (free power as royalty/compensation) plus 35 per cent (billed at bus bar rates) that makes around 31686 million units. However, it has got only 22883 million units, including free power. The quantum of energy that did not accrue to the state, according to CSC, cost Rs 589.26 crore (US$ 116 million), and the state had to procure the same at much higher rates that cost it Rs 2350 crore (US$ 462 million), a clear loss of more than Rs 1600 crore (US$ 315 million).

 

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here are similar issues with other power projects that NHPC runs in J&K. While the J&K state maintains that the ownership of other power projects – Dul Hasti, Uri I and II, Nimoo Bazgo, and Chutuk – remains with them, NHPC differs. The J&K government has openly stated its willingness to buy these projects back by paying the construction costs, but NHPC has insisted in different communications that the company owns the projects. J&K’s legal position, where no outsider – individual or company – can buy land, comes as a safeguard of its interests. But NHPC has been operating more or less autonomously. Little surprise that the J&K government views its operations as ‘exploitative’ and one of its ministers even referred to the company as the ‘East India Company of New Delhi.’

This entrenched conflict between India, Pakistan and J&K makes imperative revisiting the principles of water sharing in the Indus basin. After Partition, the rivers happened to cross the international border from East Punjab to West Punjab. Most of the water rich headworks of the 19th century had gone to India in this Partition. The Indus Waters Treaty thus primarily dealt with rescuing the immediate impasse in water sharing. But the treaty derived no inference from internationally accepted water sharing principles. The IWT has been commended for managing a compromise between territorial sovereignty and economic development needs, suggesting that the treaty recognizes India’s territorial sovereignty as also Pakistan’s right to fulfil its economic development needs. However, this claim needs closer examination.

 

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he IWT provides exclusive usage rights of its eastern rivers to India. India can discharge water downstream if excess quantities need disposal, but that is not a necessary action. Instead of giving Pakistan any rights on eastern rivers, Pakistan has been given near exclusive rights on western rivers, while the people of Jammu and Kashmir are expected to adhere to the principle of economic development needs. The use of water in Jammu and Kashmir is thus limited to the extent of minimal use and water is discharged downstream in the maximum possible quantity. The justification for the upper riparian’s territorial control over eastern rivers and reciprocation of the lower riparian’s economic development rights through waters of western rivers amounts to a heterogeneous application of principles.

The water conflict, like many other conflicts around resources, is inherent to human societies. Its management should be based on equitable distribution of resources and mechanisms of cooperation. But the basic principle followed in the treaty is that of division – eastern rivers and western rivers, which go to different countries in entirety. Cooperation is difficult on this division, even if the governments of the two countries try. In effect, the governments are cooperating on keeping the division alive.

 

* The author researched water and power politics in Kashmir as a fellow at the Reuters Institute for the Study of Journalism at the University of Oxford.

References

International Relations and Security Network (ISN), ETH Zurich, http://www.isn.ethz.ch/isn/Current-Affairs/Security-Watch-Archive/Detail/?lng=en&id=93519

Undala Z. Alam, ‘Questioning the Water Wars Rationale: A Case Study of the Indus Waters Treaty’, The Geographical Journal 168(4), Water Wars? Geographical Perspectives.

Indus Waters Treaty.

National Hydroelectric Power Corporation Ltd. http://www.nhpcindia.com/Projects/English/Scripts/Prj_Introduction.aspx?vid=62

Shaheen Akhter, Emerging Challenges to Indus Waters Treaty: Issues of Compliance and Transboundary Impacts of Indian Hydroprojects on the Western Rivers.

‘Wullar Barrage: An Unresolved "Question",’ Kashmir Life 2(18).

‘Illegal’ Filling of Baglihar Dam Led to Water Scarcity in Pakistan, The Dawn, Pakistan, 2008. http://www.dawn.com/2011/07/02/2008-‘illegal’-filling-of-baglihar-dam-led-to-water-scarcity-in-pakistan.html

Baglihgar Hydroelectric Plant, Expert Determination on Points of Difference Referred by the Government of Pakistan Under the Provisions of the Indus Waters Treaty.

‘Water Dispute Takes Serious Turn’, The Dawn, 8 December 2008. http://archives. dawn.com/archives/24983

‘Baglihar Project Commissioned’, The Hindu. http://www.hindu.com/2008/10/11/stories/2008101154971200.htm

‘Baglihar Dam Filling Violated Pact: Pakistan’, Daily Times, 22 October 2008.

NHPC, Introduction to Kishenganga Hydroelectric Project, http://www.nhpcindia.com/Projects/English/Scripts/Prj_Introduction. aspx?vid=19

‘Pakistan Asks India to Review Modified Design Again’, The News, 6 September 2006.

‘Disputed Dam Sparks Indo-Pak Race’, The Telegraph, 16 April 2008. http://www. telegraphindia.com/1080416/jsp/nation/story_9144828.jsp

Instrument of Accession executed by Maharajah Hari Singh on 26 October 1947.

Therefore, allotting additional funds for addressing the security concerns of the hydroelectric project was necessary. In addition, the selected region was very poor in terms of infrastructure development. More precisely, the region did not have an adequately developed logistic network including roads and rail lines. As a result, almost all construction supplies such as raw materials and labor had to be brought with air transportation. Another issue is that the construction site was far away from larger cities and urban areas. Therefore, the construction firms had to spend more on food and accommodation for its workers. In addition, the non-proximity to larger cities significantly increased the transportation costs of the French consortium. Since the company had to wait for a relatively long period to obtain the supply of raw materials, this situation led to delay in the completion of the project. Evidently, time delay involved in the project completion would end up in cost escalations. Probably, the adverse climatic conditions in this mountainous terrain might have also contributed to the project cost escalation. Management professionals point out that even highly experienced construction firms cannot accurately perform cost estimation when working under harsh geographical condition due to unforeseen contingencies. ...
Sometimes, issues like landslide or icy roads may disrupt transportation, and hence the construction firms may be compelled to stop their work temporarily. Undoubtedly, such incidents would cause construction firms to incur unanticipated fund needs. In order to manage contingency costs, construction firms are forced to increase the level of contingency funding, particularly when they work under fixed price contracts. If a normal construction project needs to reserve 10% for contingency funding, it is uncertain that how much has to be reserved for contingency funding while working on a construction project under harsh geographical conditions. Generally, it is safer for construction firms to rely on conservative cost estimates than making too many risky assumptions while dealing with those development projects. 2. The original bidding process favored the lowest project construction bids using a “fixed price” contract. What are the advantages and disadvantages to the Indian government from using this type of bidding process? How did it contribute to gross underbids and successive cost escalations? According to Ayers, fixed price contract reflects the idea that “for a specific sum of money, the bidder will agree to do a specific amount of work” (p.148). The fixed price contract offers a set of potential advantages to the Indian government, particularly while developing projects in harsh geographical conditions. Predictability is a major advantage to the Indian government while using this type of bidding process. More clearly, the fixed price contract assists the government not to be concerned regarding future price increases or other market abnormalities. Most notably, this type of bidding ...Show more