Based on an investigation conducted last year, China’s national auditors found the following problems with the Three Gorges Corporation’s handling of construction supervisors and contractors:

• Almost half the project’s 1,448 construction supervisors were either unlicensed or unqualified for the job.

• Several engineering companies subcontracted projects worth US$108 million to other construction units and charged management fees of US$7 million, in violation of project regulations. The auditors cite one example: for constructing the shiplock, the Three Gorges Corporation signed a US$85 million contract with the Yichang Anlian Hydropower Company, which then subcontracted another 18 companies to do the job and charged a management fee of US$5 million.

• A number of supervision units failed to check the quality of work on the shiplock and power plants on the right bank.

• All but one of 347 supervision contracts checked were awarded to the Three Gorges Corporation’s subsidiary, Three Gorges Development Company, without public bidding. About half were carried out without a signed contract.

• The auditors could find no written records for 22 of the 37 construction “flaws and incidents” reported by the State Council’s quality inspection group, which includes cracks in the dam structure and problems with the turbines.

Other problems discovered by the auditors include:

• Improper contract management that increased project costs by US$61 million.

• About US$5 million was spent on equipment and materials that has never been used.

• The Three Gorges Corporation illegally acquired about 20 hectares of land at the dam site and then built a four star hotel and a theme park (that charges admission).

Overall, the auditors concluded that the Three Gorges Corporation has done a “great job” controlling expenditures and project quality even though supervision was a “weak link” in the project. The auditors did not explain how the 37 flaws and incidents identified by the State Council’s quality inspection group were resolved or at what cost.

For example, cracks that were repaired at great expense on the upstream face of the dam reopened in 2003, according to a senior member of the inspection group. In 2002, Qian Zhengying, a former minister of water resources and electric power who heads the State Council’s quality inspection group reported cracks in the giant shiplock structure so severe the group nearly ordered a halt to construction. Ms Qian also predicted cracks and other problems with the project’s 26 giant turbines because they were designed for a much higher reservoir level than the actual operating level.

According to the report, the Three Gorges Corporation will have spent almost US$10 billion on construction by the project’s completion, which is about 35 percent less than the 1994 budget. The auditors attribute this cost savings to lower-than-expected interest rates and the corporation’s effective cost management.

• US$7.8 billion from the state budget

• US$7.77 billion from the Three Gorges Construction Fund (collected from electricity ratepayers)

• US$5.18 billion in bank loans and industrial bonds; and

• US$2.29 billion from electricity sales and the sale of turbines.

Read the national audit office report [PDF].