SAWKRA-LAKBI SAWKRA-LAKBI ROAD: OMANROAD: OMANConstantinos Tsoucalas, Jad Constantinos Tsoucalas, Jad Karam, Lyle Paladin-TrippKaram, Lyle Paladin-Tripp

WHERE IS OMAN?WHERE IS OMAN?

BACKGROUNDBACKGROUND Oil was discovered in the 70’s in OmanOil was discovered in the 70’s in Oman The economic development underwent a The economic development underwent a

period of rapid expansionperiod of rapid expansion Oil export considerably raised the Oil export considerably raised the

standard of living in Omanstandard of living in Oman

YEARYEAR 1970 1980 1991 2003

Income Income per Capita per Capita ($)($)

360 3,140 7,000 8,000

MODERNIZATION MODERNIZATION PROGRAMPROGRAM

Sultan Qaboos Bin Saeed implemented a Sultan Qaboos Bin Saeed implemented a modernization programmodernization program

Priority was given to the country’s almost Priority was given to the country’s almost non-existent physical infrastructurenon-existent physical infrastructure

In the form of: roads, a new deepwater In the form of: roads, a new deepwater port, an international airport, electricity-port, an international airport, electricity-generating plants, desalination plants, generating plants, desalination plants, schools, hospitals, and low-cost housingschools, hospitals, and low-cost housing

Oil receipts almost exclusively made this Oil receipts almost exclusively made this possiblepossible

THE PROJECTTHE PROJECT

Our project involves the construction Our project involves the construction of a road that connects the two towns of a road that connects the two towns of Al Lakbi and Sawqra of Al Lakbi and Sawqra

Sawqra is a small town of 2000 people Sawqra is a small town of 2000 people It is surrounded by high mountain It is surrounded by high mountain

ranges on three of its sides, and by the ranges on three of its sides, and by the sea on its fourth side sea on its fourth side

It lacks the services and institutions It lacks the services and institutions that its neighboring town, Al Lakbi, that its neighboring town, Al Lakbi, possesses possesses

PROBLEM STATEMENTPROBLEM STATEMENT

MOUNTAINS

SAWQRA

AL LAKBI

SEA

ALTERNATIVESALTERNATIVESBENEFITSBENEFITS DISBENEFITDISBENEFIT

SS

Displacement Displacement of citizens of of citizens of SawqraSawqra

Eliminates Eliminates need to build need to build new servicesnew services

Tribal/Tribal/Familial Familial issuesissues

Building Building services in services in SawqraSawqra

Eliminates Eliminates need to walk need to walk over mountainover mountain

Very Costly & Very Costly & need road need road anywayanyway

Road around Road around the mountainthe mountain

Access to Access to SawqraSawqra

No contact No contact with seawith sea

16 km long16 km long

Road through Road through mountainmountain

Shortest Shortest path/No path/No contact with contact with seasea

Huge Huge amounts of amounts of excavationexcavation

Coastal roadCoastal road Short Short path/least path/least costlycostly

Contact with Contact with seasea

EVALUATING THE EVALUATING THE PROJECT: TWO PROJECT: TWO PERSPECTIVESPERSPECTIVES

Contractor/BusinesspersonContractor/Businessperson

Omani PeopleOmani People

CONTRACTOR’S CONTRACTOR’S PERSPECTIVEPERSPECTIVE

Contractor receives advance payment Contractor receives advance payment of 10% of contract valueof 10% of contract value

Bill of Quantities: Contractor’s estimate Bill of Quantities: Contractor’s estimate of costsof costs

Contractor’s Income: Monthly payment Contractor’s Income: Monthly payment from the Sultanatefrom the Sultanate

CONTRACT DETAILSCONTRACT DETAILS

Successful bid: 2.5 million Omani Successful bid: 2.5 million Omani Rials (OR)Rials (OR)

Project completion time: 1 yearProject completion time: 1 year Penalty for delay: 2,000 OR per day (1% Penalty for delay: 2,000 OR per day (1%

of contract value)of contract value) Guarantee: 5 % of contract ValueGuarantee: 5 % of contract Value

CASH FLOW: CASH FLOW: CONSTRUCTION COMPANYCONSTRUCTION COMPANY

-300

-200

-100

0

100

200

300

400

500

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Month

Om

anir

ials

(th

ou

san

ds)

Revenues

Costs

BENEFITS TO OMANI BENEFITS TO OMANI PEOPLEPEOPLE

SawqraSawqra Hospital AccessHospital Access School AccessSchool Access CommerceCommerce

Al-LakbiAl-Lakbi Investment OpportunitiesInvestment Opportunities

SultanateSultanate Improved National Improved National

Communication/InteractionCommunication/Interaction

OMANI’S PERSPECTIVEOMANI’S PERSPECTIVE

The Ministry of Transportation pays The Ministry of Transportation pays the contractor monthlythe contractor monthly

Benefits will be seen upon completion Benefits will be seen upon completion of the road until 50 years henceof the road until 50 years hence

All benefits are a result of providing All benefits are a result of providing the villages with better access to each the villages with better access to each otherother

CASH FLOW: OMANI CASH FLOW: OMANI PEOPLEPEOPLE

One-time Cash Flows

-500

-400

-300

-200

-100

0

100

200

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Month

Oman

irials (

thous

ands)

Series1

Recurring (Monthly) Cash Flows

0

100

200

300

400

500

600

Project Lifetime (50 years)

Omani

rials (

thousa

nds) Series1

RISKS AND RISKS AND UNCERTAINTIESUNCERTAINTIES

Prof. Pena-Mora defines two types of Prof. Pena-Mora defines two types of uncertainty, external and internaluncertainty, external and internal

External uncertaintyExternal uncertainty includes: social includes: social impacts, regulations, weather, and impacts, regulations, weather, and unpredictabilityunpredictability

Internal uncertaintyInternal uncertainty includes: includes: unforeseen site conditions and unforeseen site conditions and incomplete scopeincomplete scope

EXTERNAL EXTERNAL UNCERTAINTIESUNCERTAINTIES

Social ImpactSocial Impact

Local population claimed that the Local population claimed that the route route encroached on their private encroached on their private propertyproperty

RegulationsRegulations

After the contractor agreed to After the contractor agreed to build the road, build the road, the government the government stipulated that 30% of the stipulated that 30% of the workers workers must be Omanimust be Omani

EXTERNAL EXTERNAL UNCERTAINTIESUNCERTAINTIES

WeatherWeatherSevere storms during the summer due Severe storms during the summer due

to the to the Monsoon season extended in time Monsoon season extended in time beyond beyond expectationsexpectations

UnpredictabilityUnpredictabilityTombs were discovered on the road siteTombs were discovered on the road site

during constructionduring construction

Fuel costs soared by 40% during the Fuel costs soared by 40% during the construction periodconstruction period

INTERNAL INTERNAL UNCERTAINTIESUNCERTAINTIES

Unforeseen Site ConditionsUnforeseen Site ConditionsRock Armor had lower density than Rock Armor had lower density than

expectedexpected Incomplete ScopeIncomplete Scope

The local desalinization plants could The local desalinization plants could not handle the demand from the not handle the demand from the contractor, which caused long delayscontractor, which caused long delays

BENEFITS EVALUATIONBENEFITS EVALUATION

Factors considered: health, Factors considered: health, education, and commerceeducation, and commerce

Monetary values were assigned to Monetary values were assigned to each of these categories using data each of these categories using data from official Omani recordsfrom official Omani records

Missing data was obtained from Missing data was obtained from neighboring countries’ records, neighboring countries’ records, which include Saudi Arabia, UAE, which include Saudi Arabia, UAE, and Bahrainand Bahrain

HEALTH BENEFITS HEALTH BENEFITS ANALYSISANALYSIS

New road provides quicker access to New road provides quicker access to Lakbi hospitalLakbi hospital

This increases preventable deaths This increases preventable deaths and helps reduce severity of injuriesand helps reduce severity of injuries

EDUCATIONAL/EDUCATIONAL/COMMERCE BENEFITSCOMMERCE BENEFITS

EDUCATIONEDUCATION Road provides access to Lakbi schoolsRoad provides access to Lakbi schools This may increase the number of high-This may increase the number of high-

school graduates and net average incomeschool graduates and net average income

COMMERCECOMMERCE Road provides trade-route between Sawkra Road provides trade-route between Sawkra

and neighboring townsand neighboring towns The majority of Sawkra citizens are The majority of Sawkra citizens are

fishermen and the road allows for the fishermen and the road allows for the extension of their market extension of their market

COMMERCE: TOURISMCOMMERCE: TOURISM

Allows tourist access to Sawkra’s Allows tourist access to Sawkra’s beaches and Sawkra’s traditional beaches and Sawkra’s traditional ways of livingways of living

Potential for population growth as Potential for population growth as the price of land may rise with the the price of land may rise with the establishment of holiday resorts and establishment of holiday resorts and an increase in economic activityan increase in economic activity

SENSITIVITY SENSITIVITY ANALYSIS:BENEFITSANALYSIS:BENEFITSSCENARIOSCENARIO AVG. CHANGE IN AVG. CHANGE IN

NET PRESENT NET PRESENT VALUE (O.R.)VALUE (O.R.)

CommerceCommerce 500,000500,000

HealthHealth 1,200,0001,200,000

EducationEducation 200,000200,000

As evident in the sensitivity analysis, health is the predominant factor

SENSITIVITY ANALYSIS: SENSITIVITY ANALYSIS: COSTSCOSTS

There are many uncertainties in the There are many uncertainties in the cost side of the analysiscost side of the analysis

These uncertainties are discussed in These uncertainties are discussed in great detail in our report but we will great detail in our report but we will highlight the main ones which are: highlight the main ones which are: Preliminary delays, lack of geologic Preliminary delays, lack of geologic knowledge, and increase in fuel knowledge, and increase in fuel priceprice

SENSITIVITY ANALYSIS: SENSITIVITY ANALYSIS: COSTSCOSTS

SCENARIOSCENARIO AVG. CHANGE IN AVG. CHANGE IN NET PRESENT NET PRESENT VALUE (O.R)VALUE (O.R)

DELAYSDELAYS 70,00070,000

INCREASE IN FUEL INCREASE IN FUEL COSTCOST

20,00020,000

GEOLOGY COSTGEOLOGY COST 30,00030,000

As evident from sensitivity analysis, delays in time are the predominant factor affecting costs

ENGINEERING DEDICATED ENGINEERING DEDICATED TO THE LOCAL TO THE LOCAL COMMUNITIESCOMMUNITIES