The Central Expressway Project (CEP) has long been promoted as a game-changing infrastructure project that would connect Colombo with the central provinces and ease crippling road congestion.
Yet nearly a decade after its launch, the project remains mired in delays, cost overruns, and uncertainty.
Now, the incumbent Government is seeking Cabinet approval to borrow the equivalent of $ 500 million in renminbi (RMB) from the Export-Import (Exim) Bank of China while also pledging $ 438 million of Government funds to restart construction of Section I from Kadawatha to Mirigama.
What raises eyebrows is that the ‘Government share,’ originally meant to be financed domestically as 15% of the project’s cost, is now also expected to be covered through new borrowing, highlighting once again Sri Lanka’s dependence on debt to fund even its own contribution to infrastructure projects.
The financing arrangement has become more complicated following Sri Lanka’s debt restructuring talks with China Exim Bank. The original credit facility signed in 2019 was for $ 989 million, of which only $ 51.5 million was disbursed. With the country’s sovereign default in 2022, disbursements were suspended, halting construction when just 36.38% of the physical work had been completed.
After protracted negotiations, China Exim Bank had agreed to resume funding, but on new terms: instead of the remaining $ 938 million, Sri Lanka will now receive only $ 500 million, and that too in RMB rather than in US Dollars.
This forces the Government to fill a $ 438 million shortfall, which it now proposes to finance through another loan rather than through budgetary resources. The currency clause itself has become a sticking point. With Sri Lanka earning virtually no income in RMB, the Central Bank would have to use its limited US Dollar reserves to purchase yuan for repayment.
While the agreed interest rate band of 2.5–3.5% appears concessional, the mandatory conversion could add hidden costs and expose the country to exchange rate risks.
The Sunday Morning reliably learns that this sets a dangerous precedent where Sri Lanka’s borrowing is increasingly tied to non-traditional currencies, further complicating already fragile debt management.
On one hand, adding fresh loans undermines the strict fiscal discipline Sri Lanka has committed to under the International Monetary Fund (IMF) programme. The country is already battling a high debt-to-GDP ratio and borrowing to pay what was meant to be the Government’s share adds to the burden.
It is also learnt that in addition, the project has suffered repeated cost escalations, with the estimate for Section I rising from Rs. 158 billion to Rs. 194 billion by 2020, in part due to delays in finalising loan conditions.
In limbo
In such a backdrop, local construction companies have argued that the Government should cancel the contract with Metallurgical Corporation of China Ltd. (MCC) and call for open tenders, claiming this would reduce costs and speed up completion, but that proposal has been ignored.
On the other hand, a senior official attached to the Road Development Authority (RDA) insisted that it could not afford to let Section I remain abandoned. Billions have already been spent, and leaving the project half-finished would waste investments, lock up land, and cripple the entire expressway’s connectivity.
The Kadawatha–Mirigama stretch is critical, with interchanges in Gampaha, Mirigama, and Veyangoda that would serve as gateways to the central provinces.
Politically and diplomatically too, Colombo is keen to maintain its relationship with Beijing, one of its largest lenders and infrastructure partners. In the absence of new investors — given that the IMF has discouraged large-scale spending on new infrastructure — the China Exim Bank loan may be the only way to push the project forward.
As reliably learnt, for now, the Central Expressway remains in limbo as the Cabinet deliberates on the proposal. Even if approval is granted, the Government must still settle nearly $ 200 million in contractor claims and interest before actual construction can resume.
It is also learnt that Sections III and IV of the expressway are also stalled due to lack of funds, while other major highway projects such as the Ruwanpura Expressway and the Elevated Highway are indefinitely suspended. Authorities admit there is no timeline for their revival, with the RDA confirming that progress depends heavily on IMF approval for new borrowings.
NAO revelations
Against such a backdrop, the National Audit Office (NAO), in its latest report, has raised serious concerns over the awarding and management of contracts under Section I of the CEP.
According to the audit, the construction contract for Package 1 was awarded at Rs. 12,586 million, exceeding the engineer’s estimate of Rs. 9,834 million by 28%. Similarly, the contract for Package 2 was awarded at Rs. 145,799 million against an engineer’s estimate of Rs. 118,977 million, reflecting a 23% increase.
Despite these significant deviations, no analysis of the rate variances was carried out in line with Section 7.9.2 of the Government Procurement Guidelines. Furthermore, both contracts were awarded as unsolicited proposals, bypassing the competitive bidding process required under Section 3.1 of the guidelines, a decision that has directly contributed to the project’s escalating costs.
The audit has also highlighted major delays in payments. Under Sub-Clause 14.7(c) of the General Conditions of the Contract, certified amounts in the final payment certificate must be settled within 56 days of receipt. Sub-Clause 14.8 stipulates that contractors are entitled to financial charges, compounded monthly, if payments are delayed.
Yet, as of 31 December 2023, unpaid interim payment certificates stood at Rs. 40,347.78 million and $ 189.5 million for the two packages, respectively. Such delays not only expose the Government to potential financial penalties but also risk straining relations with the contractors.
The NAO has further observed that the project’s cost estimate, initially set at Rs. 158.39 billion, is now expected to balloon to Rs. 450.35 billion by September 2026 due to currency depreciation and rising prices. Despite this dramatic escalation, Cabinet approval for the revised estimate had not been obtained by 31 March 2024.
Moreover, while cost revisions were prepared, no corresponding revised work programme was submitted, raising concerns about the project’s planning and long-term quality standards.
In 2023, the Government had made an unusual Rs. 500 million special advance to the contractor using State funds, following instructions from a National Operations Room meeting held on 2 October 2023. This was intended to mitigate the risk of contract termination. However, auditors have warned that such advances could create future financial liabilities for the Government.
The audit has also revealed that although China Exim Bank had originally agreed to finance $ 989.44 million (equivalent to Rs. 134,628 million), only $ 51.57 million (around 5%) had been disbursed by the end of 2023 — four years after the project began. No disbursements were made during the year under review.
As a result, the Government was forced to pay $ 3.1 million (Rs. 622.95 million) in commitment charges on the undisbursed balance up to 31 December 2022, although no fees were paid in 2023. The RDA, in its response, clarified that these fees had been borne by the Treasury under a separate budget line, not directly by the project.
The issue of mobilisation advances was also flagged. For Package 1, a local advance of Rs. 755 million and a foreign advance of $ 7 million had been released, yet no recovery had been made by the end of 2023. For Package 2, a mobilisation advance of $ 161 million had been paid, but only $ 10 million had been recovered, reflecting the slow physical progress of the contractor.
RDA Chairman T. Paskaran, responding to concerns over the soaring project costs and whether the Government might cancel it, said: “Anyone without responsibility can say anything, but the RDA is currently evaluating all possible options.”
Efforts to reach Highways Minister Bimal Rathnayake for comment were unsuccessful.