Oxford study validates Indian environmentalist claims

“The systematically poor outcomes of large dams suggest that "fools" and "liars" have been at the helm of these.  Fools are the reckless optimists who see the future with rose-tinted glasses. These forecasting fools ignore hard facts and uncertainty, betting the family silver on gambles with very low probability of success. Liars deliberately mislead the public for private gain, fiscal or political, by painting overly-positive prospects of an investment, just to get it going. Proponents of mega-dams tend to focus on rare stories of success in order to get their pet projects approved.”

These strong words seem to echo the thoughts of activists working on impacts of large dams. In fact, they come from Dr. Bent Flyvbjerg and Dr. Atif Ansar from the Said Business School, University of Oxford, who have recently concluded an extensive study on large dams, the findings of which reinforce what has been empirically observed in India.

Humongous cost and schedule overruns in large dam projects is not new to India. The last year, we witnessed one of the biggest dam scams in independent India in “progressive” Maharashtra, which involved huge cost and schedule overruns for dams under construction by the Water Resources Department. The escalation of costs and delays were enough to skew the benefit-cost ratios and render the projects unfeasible.

Take, for example, GoseKhurd Dam in Vidarbha region, the project is not complete even after 28 years. The work is of very poor quality, and the price escalated from Rs. 372 crores in 1982 to Rs. 7,778 crores in 2008. A year before that, the CAG unearthed a similar scam in Andhra Pradesh involving large dams under the Jalayagnam Project. Both these scams involved direct political links, involvement and patronage.

While social and environmental costs associated with large dam projects continue to be externalised, the issues raised by the economic and financial discourse around these projects add to the concerns. The Maharashtra dam scam brought these issues in the focus of national media and vindicated the stand of activists, groups and researchers who stressed the appropriateness of small-scale solutions, even in economic terms.

Now this stand has been further vindicated by a global study conducted by a team of Oxford scholars, who studied not only irrigation projects, but hydropower and multipurpose dams. This multi-year study assessed 245 large dams built between 1934 and 2007 in 65 different countries in five continents, including 97 hydropower projects, 59 irrigation projects and 89 multipurpose projects with hydropower component, The unequivocal conclusion reached is that “the actual construction costs of large dams are too high to yield a positive return”. 

The authors caution, “developing countries in particular, despite seemingly the most in need of complex facilities such as large dams, ought to stay away from bites bigger than they can chew.”

An article by Atif Ansar, Bent Flyvbjerg, Alexander Budzier and Daniel Lunn, titled “Should we build more large dams? The actual costs of hydropower megaproject development” was published in Energy Policy in March 2014. The authors approached the question of whether one should build more large dams with an ‘outside view’.  This outside view enabled them to objectively analyse outcomes of comparable dams which have already been built.

This is significant as the dam lobby justifies each delay or cost overrun by some case- specific, individual reason, whereas the study asserts that statistically, each dam seems to have one or the other reason!

By analyzing the available literature on decision-making under uncertainty, the study assessed “how decisions [about building dams] among alternative options are actually made and on what basis.” It also sought evidence from the data on actual costs of a large number of dams and hydropower projects built all over the world. The study presents some significant findings, which support the stand of several community groups, researchers, organizations fighting against unjust and unsustainable large dams.

The Bhama Askhed Dam in Maharashtra is incomplete even after nearly two decades of construction. Photo: Parineeta Dandekar/SANDRP

Delusion and Deception

During the study of theoretical and empirical literature on decision-making under uncertainty, the authors found two explanations - ‘psychological delusion’ and ‘political deception’. The theory about psychological deception states that experts and laymen are often too optimistic about time and cost benefits of the decision (or project). This fallacy stems from adopting an ‘inside view’ that is, focusing only on the current project instead of objectively assessing the outcomes of already executed projects.

The projects also suffer from political deception, which is a strategic misrepresentation about project benefits and costs by the project proponent.

While studying the outcomes of comparable, already-concluded large dam projects across the globe the authors principally studied two parameters: The inaccuracies between managers’ forecasts and actual outcomes related to cost overrun and schedule overrun. 

Findings about cost overruns: Highlights

“Every three out of four dams suffer cost overrun. Actual costs were on average 96 per cent higher than estimated costs. Graphing the dams' cost overruns reveals that the actual costs more than double for two out of every 10 large dams and more than triple for one out of every 10 dams. Large dams built in every region of the world suffer systematic cost overruns. Dams built in South Asia suffer significantly greater schedule overruns than the rest of the world taken as a whole”

Typically the benefit-to-cost ratio forecast was observed to be 1.4, that is benefits were expected to exceed the net present costs by about 40 per cent. In reality, however, nearly half the dams suffered a cost overrun ratio of 1.4 or greater which means that the upfront capital cost is so high that it is unlikely to be recovered. Cost overruns were found to increase with increasing size of projects.

Findings about schedule overrun: Highlights

“Eight out of every 10 large dams suffered a schedule overrun. Actual implementation schedule was on average 44 per cent (or 2.3 years) higher than the estimate.”

Authors also indicate that countries in South Asia that are investing more and more in large dam projects show one of the poorest schedule performances. Political processes influence the work to a great extent. Another factor which is influential in building dams is the per capita income of the population. Countries with higher per capita income suffer lesser cost overruns.

The study discusses some specific cases and suggests significant policy propositions. While these deal explicitly with energy (as the paper focused on hydropower dams) the recommendations also hold true for irrigation, food control and multipurpose projects. Two most important propositions among those advanced are that

1. Energy alternatives which rely on fewer site specific characteristics are preferable
2. Those which can be built sooner and with lower risk of schedule overruns are preferable.

Even if we assume that the factor of political deception is absent, the uncertainty and financial risk involved in building dams is of the highest order. The study claims that the economic impact of the dams is so far-reaching that they can affect company balance sheets as well as government budgets. Authors state that large dams invariably perform poorly in terms of economy, social and environmental impact and also lack public support.

The authors conclude: “‘If leaders of emerging economies are truly interested in the welfare of their citizens, they are better off laying grand visions of mega-dams aside. Proponents of mega-dams express concern that renewable water resources could be wasted if mega-dams are not built. Our research shows that as a general rule of thumb, many smaller, more flexible projects that can be built and go online quicker, and are more easily adapted to social and environmental concerns, are preferable to high-risk dinosaur projects like conventional mega-dams”.

Dam scam of Maharashtra

The findings of the study have already been clearly demonstrated in Maharashtra, where political deception blended with delusion of engineers. The uncertainty involved in cost and schedules of large dam projects was used systematically by politicians and the dam lobby as an opportunity for minting money. A quick glance at the figures of cost overrun confirms this.

The CAG heavily criticized irrigation projects in Maharashtra in its March 2012 report. According to the CAG report presented to the state assembly in 2012, a total of Rs 43,270.01 crore has been spent on 426 dam projects in Maharashtra. Out of these, the cost of 242 projects escalated by Rs 26,617.26 crore, reaching a figure of Rs 33, 832.29 crore from the estimated Rs 7,215.03 crore (see table).

Figures from the Agriculture Department show that the irrigated area of the state has increased only by 0.1 per cent.

Projects with cost overrun of above Rs. 800 crore

The pattern of cost escalations was also consistent across all parts of Maharashtra. Inconsistencies in the costs and schedules of dams were highlighted by the civil society and media as well.  Parts of the dam scam came to light only after organizations like IAC (India Against Corruption), Shramik Mukti Sangathan, SANDRP etc, which worked on individual projects, started connecting the dots to understand the scope and scale of the scam.

In August 2012, a writ petition was filed in the Nagpur Bench of the Bombay High Court by a voluntary organization named Jan Manch, demanding an inquiry into the cost overruns. The petition says that in the year 2009, within a period of only seven months, the cost of 38 projects of the Vidarbha Irrigation Development Corporation overshot by Rs 20,050 crores. The original estimated cost which was Rs 6672 crores reached Rs.26722 crores. Thirty out of these 38 schemes were sanctioned in just four days.

 Details of cost escalations for some more dams have been given in the table below.

While activists and affected communities have raised the issue of cost benefit analyses for several years now, it is hoped that following the study at Oxford, large dams will be looked at more objectively. A serving engineer of the Water Resources Department of Maharashtra has said that the benefit-cost ratio of large dams is blatantly distorted by bureaucratic and political pressures and by corruption.

Thus, If we perform an honest cost benefit analysis of large dams in the country, the findings could possibly be even more startling than the ones emerging from this study.

Amruta Pradhan

REFERENCES

1. Maharashtra Irrigation scam & the Rs 150 000 crore question

2. Were the NCP’s links with big dam lobby in Maharashtra ever more obvious?

3. CAG blows the lid off Massive irrigation scam in Andhra Pradesh

4. A review of water issues in Maharashtra in 2013

5. Should we build more large dams? The actual costs of hydropower megaproject development

6. In parched Maharashtra, dams overflow with scams

7. Recipe for a dam scam