Mega Dams Make for Bad Investments: Oxford Study

Tuesday, March 18th, 2014
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A new study from Oxford University has found that the vast majority of mega dams around the globe are unprofitable undertakings as a result of exorbitant cost overruns.

The study led by Bent Flyvbjerg, professor of major program management from Oxford University’s Said Business School, found that three quarters of mega dam projects in their survey suffered from cost overruns.

The budget blowouts for mega dam projects were also exorbitant, with actual costs exceeding original estimates by around 96 per cent on average in real terms.

 Bent Flyvberg

Bent Flyvberg

The study points out that these budget blowouts are significant higher than those for other large-scale engineering projects, with thermal power plants generally experiencing cost overruns of 6 per cent, roads 20 per cent, fixed links such as bridges and tunnels 34 per cent, and railways 45 per cent.

One project category – that of nuclear power plants – did exceed large scale dams with respect to cost overruns, with a figure of 207 per cent.

According to the study the huge expenses that the construction of mega dams incurs means that very few of them turn out to be profitable undertakings.

“We find that even before accounting for negative impacts on human society and environment, the actual construction costs of large dams are too high to yield a positive return,” the study said.

According to study co-author Atif Ansar, while site-specific factors such as challenging geology, volatile prices for the commodities used to build dams, as well as unfavourable movements in exchange rates can all contribute cost overruns, the two chief root causes of the problem are “optimism bias” and “strategic misrepresentation” – both of which are closely related.

Optimism bias occurs more frequently in democracies, and arises when politicians make far fetched estimates of the time in which projects can be completed. Strategic misrepresentation occurs in relation to project promoters, who wilfully underestimate costs in order to increase the likelihood of approval.

The purview of the report was highly comprehensive, analysing a total of 245 dam projects in 65 countries. According to its authors the study covered all large dams built during the seven decade period from 1934 to 2007 for which sufficient documentation is available.

Bent Flyvbjerg said that the study should not be construed as opposed to hydropower, but instead “against the flaws in the building of very large dams.”

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