Tk10,689cr Karnaphuli Tunnel struggling to close revenue gap amid thin traffic: IMED

Highlight

• Tunnel traffic only 14% of projected 2025 daily vehicle target.
• Low traffic causes average daily revenue loss of Tk10 lakh.
• Higher tolls alone cannot close revenue gap, IMED finds.
• Operating costs exceed toll income, creating persistent annual financial deficits.
• Project cost increased 26.56% from original revised estimate.
• IMED recommends industrial growth and integrated transport to boost tunnel usage.

The under-river Karnaphuli Tunnel faces growing financial pressure as traffic volumes remain far below initial projections, making it impossible to close the revenue gap through toll increases alone, according to an impact assessment report by the Implementation Monitoring and Evaluation Division (IMED).

The government watchdog's assessment, published on Tuesday (30 June), found that the level of demand needed to significantly increase tunnel use is unrealistic based on an analysis of the "price elasticity of demand".

According to the project's feasibility study, an average of around 28,350 vehicles were expected to use the tunnel every day in 2025.

However, current traffic is only around 4,000 to 4,500 vehicles daily – about 14% of the forecasted level.

This leaves the tunnel facing an 86% demand shortfall, resulting in an average daily revenue loss of around Tk10 lakh, the report said.

The IMED noted that raising toll rates would not be an effective way to address the gap.

The report found that if the toll is doubled from Tk100 to Tk200, demand elasticity would stand at negative 2.82, which it described as highly unusual.

Even with a 50% increase in tolls to Tk150, the elasticity would become negative 4.83 – a level considered impractical.

According to global standards, demand elasticity for private cars generally ranges between -0.3 and -0.6, while for trucks it ranges between -0.1 and -0.4.

The report said the elasticity needed to make the Karnaphuli Tunnel financially viable is around 10 to 20 times higher than normal levels, which is practically impossible to achieve.

It further noted that demand for the tunnel remains highly inelastic, particularly among truck operators who continue to avoid it due to alternative routes.

The report recommended an integrated transport plan, better management of alternative routes and measures to encourage freight vehicles to use the tunnel. It said ensuring financial sustainability would require increasing traffic demand rather than depending solely on toll adjustments.

Cost rises 26%, revenue below projections

The IMED assessment also highlighted that the estimated cost of the tunnel increased from Tk8,446.63 crore to Tk10,689 crore after the second revision, marking a 26.56% rise in expenditure. The project financing includes a Chinese government loan of Tk6,077.58 crore and Bangladesh government funding of Tk4,612.12 crore.

The feasibility study projected profitable toll revenue based on daily traffic of 17,375 vehicles. However, actual traffic remains far below that level.

Daily toll collection is now around Tk12 lakh, while operation and maintenance costs are about Tk22 lakh, creating an average daily deficit of nearly Tk10 lakh, or around Tk36.5 crore annually.

The analysis found that annual net cash flow remains negative, meaning the investment cost cannot be recovered within the expected timeframe.

However, the report said the financial assessment was based on only three years of operation, which is insufficient for a large infrastructure project. Such projects usually require long-term evaluations over 20 to 30 years, considering future traffic growth, toll adjustments and wider economic benefits.

It said that if traffic and revenue increase in the future, the project's Economic Internal Rate of Return (EIRR) could become positive by 2043 or 2053.

But, under the current situation, toll revenue can cover only 54% to 55% of operating expenses, putting the tunnel's financial sustainability at risk.

High maintenance costs, electricity and electromechanical operations, loan interest payments and a lack of supporting infrastructure have contributed to the losses.

Although the government continues to provide subsidies due to the tunnel's strategic importance, the report warned that this could create long-term pressure on the national budget.

The report also noted that the tunnel is generating important non-financial benefits. More than 4,000 vehicles use the tunnel daily, saving between 1.5 and two hours of travel time. The financial value of this time saving is estimated at Tk18 lakh to Tk25 lakh per day.

It added that urban expansion has accelerated in the Anwara area, while rising tourist visits to Patenga and Parki beaches have boosted the local economy.

Integrated approach needed

The IMED report recommended coordinated planning, faster industrial development and improvements in the transport system to unlock the tunnel's potential.

It said the government needs to accelerate port-based industrial development on the Anwara side and improve coordination among agencies involved in developing industrial zones, including Karnaphuli Dry Dock, China EPZ and Korean EPZ.

The report stressed the importance of implementing the "one city, two towns" concept effectively. It said integrated land-use planning, modern urban development and the creation of commercial and logistics hubs on both sides of the tunnel could increase usage.

It also recommended expanding cargo handling activities at the Anwara side of Chattogram Port and improving road connectivity with the Matarbari deep-sea port.

Although the tunnel is facing financial challenges due to lower-than-expected traffic and an imbalance between income and expenditure, the report said the situation could improve through policy measures, industrial expansion and coordinated infrastructure development