Price Escalation And Its Management In Turnkey Projects: The Case Of Ethiopian Railways Corporation
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Date
2017-05
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Addis Ababa University
Abstract
The role of railway development for the economical growth and social welfare of a country is very indispensable. Especially for a developing country like Ethiopia, the expansion of rail network highly supports the strive in building competitive economy. Although it has been over hundred years for a rail to operate in Ethiopia, following its age the old one has been deteriorated and abandoned. It has been about ten years that the new spirit of a railway operation has revived in the country. As the new railway construction sector lacks experience and a well developed & systematic environment, it is highly prone industry to different risks including price escalation. So that the sector should stay awaken towards mitigation of price escalation to accomplish its objectives. Mitigating price escalation strictly requires the identification of the condition of the price escalation, the causes and effects together with the effective ways of mitigating the problem. This study has tried to enlighten the price escalation & its management in the Ethiopian railway construction sector. The analysis was supported by the use of Mean Score (MS), frequency tables and graphs. The study has identified that there is a noticeable disagreement on the understandings of price escalation in the EPC/Turnkey projects among the employer, contractors and consultants. National and global inflation, late project launch & project schedule changes; and fluctuation in money exchange rates beyond the level predicted were among the main factors that cause price escalation in the EPC/Turnkey railway projects of Ethiopia. On the other hand, project financing problem, high project cost and disputes between the employer & the contractors are the major effects of price escalation in the projects. Applying buyer-supplier partnership/relationship, using local instead of imported materials and developing regular monitoring system to assure appropriate market assessment & proper procurement procedure are mitigation mechanisms rated first to third based on their significance to the price escalation management. Recommendations on how to work on the disagreements and the collaborative reactions to be taken towards mitigating price escalation have been proposed based on the analysis of the results that enables to minimize the problems of price escalation on the railway construction projects
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Keywords
price escalation, EPC/Turnkey, railway projects