Editor’s note: Shanghai Stock Daily editor Shi Hanbing posted this article on the People’s Daily blog on July 2, 2007. Translation by Three Gorges Probe.

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Why so many flaws in the Three Gorges project audit?
By Shi HanbingIn its recent audit of the Three Gorges dam project, the National Audit Office (NAO) discovered seven problems. Among these were:

• improper contract management that increased project costs by US$61
  million;
• illegal acquisition of land by the Three Gorges Corporation to
  generate additional revenue; around US$5 million spent on
  equipment and materials that have not been used;
• almost half the project’s 1,448 construction supervisors were
  either unlicensed or unqualified for the job; and
• poor management of water and soil erosion in the dam site
  area.

These troubles, exposed by the auditors, are of concern to the public. Yet the report somehow concluded that “the quality of the dam project sounds generally good as a whole.” Common sense tells us that an audit should focus on the financial aspects of the dam project, not the quality of the dam project. Obviously, the quality issue should be the business of another professional agency, not the NAO’s. For the NAO to review the project’s quality seems a little ridiculous. Why then did Li Jinhua, the NAO’s auditor general, with a good reputation for his auditing work in China, include comments on the project’s good quality when the problems identified in this report may lead to terrible disaster for the project.

Let’s have a closer look at the problems revealed:

NAO: Among 48 construction contracts related to the construction of power houses on both banks and underground power stations, 21 were awarded by the Three Gorges Corporation without public bidding. The 21 contracts were worth 313 million yuan RMB (US$39 million), about half the total for 48 construction contracts. In addition, 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.

Obviously, this will concern people because without public bidding the contract rates were likely too high. Without public bidding, the Three Gorges Corporation is “operating in a dark box.” Even worse, its subcontracting could result in hidden problems with the quality and safety of the dam project.

NAO: Almost half the project’s 1,448 construction supervisors were either unlicensed or unqualified for the job and a number of supervision units failed to check the quality of work on the shiplock and power plants on the right bank.

As everybody knows, supervision is essential in the construction of any engineering project, and for big dam projects in particular. It’s imperative for supervisors to properly manage and supervise projects in accordance with the current regulations issued by the state. However, in the case of the Three Gorges project, almost half the project’s
construction supervisors were either unlicensed or unqualified for the job! This would be a very high rate even for a much smaller project, let alone the Three Gorges megaproject with a price tag of 180 billion yuan RMB (US$22.5 billion)! Failing to supervise construction of Three Gorges properly is totally beyond our imagination because the consequences of mismanagement are not only an economic issue, they also affect the safety of millions of people living in the valley below the big dam.

NAO: As the auditors discovered, about US$5 million was spent on equipment and materials that had not been used, including 550 containers with a price of 21.61 million yuan RMB (US$2.70 million) and equipment or materials worth 20.74 million yuan RMB (US$2.60 million).

Why did the Three Gorges Corporation purchase equipment and materials and not use them? Of course it’s a waste of $5 millions but what worries us more is that equipment and materials that were needed were not installed.

NAO: 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. Also, no one was punished or penalized for the construction “flaws and incidents.”

We are shocked by the fact that nobody has been held accountable for construction “flaws and incidents.” Knowing this, who can be convinced by the Three Gorges Corporation’s claims that the problems have been fixed? Can anyone believe the Three Gorges Corporation did a good job in the quality control of the big project?

NAO: Improper contract management increased project costs by US$61 million, of which 5.4 million yuan (US$680.000) was wasted because of mistakes in project survey and exploration.

We are puzzled by the extra construction cost! Generally speaking, what the project builders should do to keep the project cost under control is to pay the contractors the lowest price possible. But in the case of the Three Gorges, it appears that the dam builder paid much more than the contracted deal. We really don’t know what happened under the table.

NAO: 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. The corporation holds another 1,650 mu (110 hectares) of land near the dam site which it acquired legally and was supposed to use for dam-related projects but the land has remained unused for years.

In China, everybody can understand what a theme park that charges admission means: the dam builder is making some pocket money by doing some outside business in the name of building a grand dam project for all the people of China.

NAO: The audit reports that an area of 2.1 square kilometres or one-third of the dam site area is eroding without any mitigating action. We are concerned whether the problem with soil erosion [around the dam structure] threatens the safety of the dam
project.
Clearly, the problems identified by the audit office raise many questions about the quality of the Three Gorges project. Based on the information presented, drawing a conclusion that “the quality of the dam project sounds generally good as a whole” appears beyond the NAO’s ability and authority. We wonder then if the auditor general had no choice but to make that conclusion under great pressure. If this is true, we’d like to encourage Li Jinhua, the auditor general, to voice the truth, and all the people of China will be behind you! If this is not true, then we expect the auditor general to instead throw light on the issues that have confused and puzzled us.

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• Shanghai Stock Daily (Shanghai zhengjuan bao) is one of China’s most popular stock watch newspapers, with the online service receiving hundreds of thousands of hits daily.

• Read the Three Gorges Probe article, Auditors expose flaws in Three Gorges project management, July 6/07