Typical_methodology_for_Cost_Benefit_Analysis_Road projects

8/7/2019 Typical_methodology_for_Cost_Benefit_Analysis_Road projects

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Typical methodology for Cost Benefit Analysis - Road projects

Introduction

The objective of the economic evaluation is to provide a methodology for prioritisingroad projects in terms of economics, in line with the recommendations made in the

previous chapters.

A simplified economic evaluation model has been set up using EXCEL spreadsheet.This evaluation is however based on a number of assumptions that need to be refinedand verified for each individual case.

The GTMP is producing a national traffic model of Romania as well as nationalmatrices of transport demand. Such traffic model enables to assess, in a relativelybroad way, the following effects:

• evaluation of the effects of increasing traffic and consequent reduction intravel speeds as the capacity of a particular road is approached

• prediction of the diversion of traffic to alternative routes because of congestion

• evaluation in detail of the amount of traffic likely to switch from existingroads to new motorways, bypasses and other roads

• impact of implementing possible road tolls

The detailed analysis by major project, thus the traffic study/assessment in theframework of the feasibility study, shall take into account and make use of thedatabases and infrastructure networks developed in the GTMP project, and furtherdetail on the specific route/corridor of the project to be analysed, in order to ensurecompatibility between the detailed assessment of various projects.

Methodology

A schematic representation of the approach is shown in Figure 1.1.

For a road project, three main categories of benefits are considered:- Time savings,- Savings in Vehicle Operating Costs and- Savings in accident costs.

The effects related to climate change and air pollution should be considered whenthese are likely to be sizeable, that is, for example, in the following cases:

- when diversions from other modes are being considered,- when substantial generated traffic is being estimated,- when traffic is diverted from congested routes to new/rehabilitated roads,- when traffic is being diverted out of a urban environment.

In this last case, typically represented by the construction of bypasses, different airpollution values should be taken into account against the environment of emissions(urban, semi-urban, rural). Whether or not the construction of bypasses have an actualeffect in decongestion of urban centres remains however to be assessed.



1. Reference framework

The first aspect is to clearly define the scenarios being assessed as well as the area of influence of the project.

In the proposed spreadsheet, the reference scenario is defined by an existing roadsection, maintained in such a way that it keeps its original parameters over the studyperiod. The with project scenario is defined by:

- the rehabilitation of that road section,- the construction of a parallel motorway, or- the construction of a bypass.

The study period is 25 years of operation.

As part of the GTMP, macro-economic scenarios have been developed. Thesescenarios include evolution of the GDP, but also of the population and of the mainsectors of the economy.

2. Traffic growth

The evolution of traffic on a particular section is a result of the traffic model made forstudy of that section. The GTMP national model provides the general framework, butshould be refined when studying particular sections since it is focusing on theinterzonal traffic for 192 zones in Romania.

As a simplified basis, the spreadsheet considers a traffic growth for all categories of vehicles with an elasticity of one against the GDP growth, taken for the mediumscenario.Similarly, the amount of traffic switching from the existing road section to the projectsection is assumed to be the following:

- 100% for a road rehabilitation, in an obvious way,- 80% for a new motorway, in the absence of tolling,- 50% for a bypass.

3. Time savings for passengers

Typically, a traffic model would normally provide, for each category of vehicle, thenumber of vehicle-hours in both the “with” and “without” project situations, bycategories of vehicles, at regular time horizons.These values should then be transformed into monetary values, depending on three

factors:- average number of passengers by categories of vehicles,- trip purposes,- value of time by trip purposes.

Using the proposed standard GTMP values, the results are the following:Occupancy

rateTrip purpose value of time 2007 (Euro) value per

vehicle hour(euro)



work/business non work work/business non work passenger car 2.1 51.50% 48.50% 4.16 1.25 5.77minibus 9.1 41.70% 58.30% 1.95 0.59 10.53bus 27.4 41.70% 58.30% 1.95 0.59 31.71

Furthermore, it is recommended to increase the value of time over time with anelasticity of one against the GDP growth.

In case vehicle-hours are not estimated as a result of a traffic model, they shall becalculated on the basis of the traffic by type of roads on the study network, taking intoconsideration speed-flow relationships.

Based on the “Norms for assessing traffic capacity of public roads” (code PD 189-2000) published by the National Administration of Roads in December 2000, theConsultant has identified the following simplified framework for calculation of passenger car units:

passenger car units equivalent type of relief flat hilly mountain

bicycles, motorcycles 0.5 0.5 0.5cars, minibuses, vans 1 1 1trucks with 2 axles 2.5 5 12trucks with 3 or 4 axles 2.5 5 12articulated trucks 3.5 5 12buses 2.5 3.9 6.5tractors 2 5 12trailers for trucks or tractors 1.5 1.5 1.5

and the following speed flow relationships, by pcus and categories of roads:



For urban traffic, speed is considered as being the same for all categories of vehicles,as follows. The traffic (expressed in pcu) shown here is only related to the transittraffic. For major cities however, transit traffic is likely to represent a small part onlyof the actual urban traffic and the speed could be therefore considered as independentfrom the level of transit traffic.



4. Time savings for freight

While the value of time of bus and truck drivers is included as part of the VehicleOperation Costs, the value of the time of the freight can be calculated. The Consultanthas developed detailed values by type of freight, based on the value of the capitalinvested in the freight. Furthermore, an average value has been calculated.

On the basis of vehicles-hour provided by the traffic model or by the above describedprocedure, the results are the following:

tons of freight

value of ton(euro)

value of freight pervehicle (euro)

light truck 1 0.015 0.015medium truck 5 0.015 0.075heavy truck 13.4 0.015 0.201articulated truck 13.6 0.015 0.204

By opposition to the value of time for passengers, it is considered that the time valueof freight is fixed over the study period.

5. Vehicles Operating Costs

The VOCs are calculated for each category of vehicles, based on the quality of theroad condition. VOCs are a function of the vehicles – km and of the condition of theroad, year by year.

The preferred method to assess VOCs is the use of HDM, that enables modelling of the evolution of the condition of the studied road network. As part of the GTMP,VOC input values have been defined for each category of vehicles (see Annex).



The results, expressed in Euro / veh-km and depending on the road condition, can besummarised as follows:

Annual Average Vehicle Operating Cost (Euros) per veh-km

DescriptionCar Minibus Heavy

Bus

Light

Truck

Medium

Truck

Heavy

Truck

Articula-ted

TruckPlain Terrain - VeryGood Condition 0.21 0.27 0.62 0.30 0.39 0.77 0.96Plain Terrain -Good Condition 0.21 0.27 0.65 0.31 0.40 0.81 1.01Plain Terrain -Medium Condition 0.21 0.28 0.69 0.32 0.42 0.85 1.04Plain Terrain - BadCondition 0.21 0.30 0.77 0.35 0.44 0.91 1.10Hilly Terrain - VeryGood Condition 0.20 0.27 0.64 0.30 0.39 0.79 0.96Hilly Terrain -Good Condition 0.20 0.28 0.67 0.31 0.40 0.84 1.01Hilly Terrain -Medium Condition 0.20 0.29 0.71 0.32 0.42 0.88 1.06Hilly Terrain - BadCondition 0.21 0.31 0.80 0.36 0.46 0.95 1.16MountainousTerrain - VeryGood Condition 0.20 0.28 0.71 0.31 0.41 0.86 1.07MountainousTerrain - GoodCondition 0.20 0.29 0.74 0.32 0.42 0.91 1.12

MountainousTerrain - MediumCondition 0.21 0.30 0.77 0.34 0.44 0.95 1.17MountainousTerrain - BadCondition 0.22 0.33 0.86 0.37 0.48 1.02 1.26

Within the simplified approach of the spreadsheet, the road condition is supposed tobe fixed over the operation period. The underlying assumption is that maintenance ismade, both on the reference section and on the project section, to a level such thatthose sections do not deteriorate.

Unit VOCs are considered as fixed over the study period.

6. Accidents costs

Accident costs are calculated out of two main factors:- the risk of accidents incidence, by type of accident and type of road

infrastructure, typically reported to the traffic level by 100 million vehicle –km,



- the cost by type of accident.

The GTMP has assessed the incidence of accidents based on Road Police records, fortwo types of network: national roads and A1 motorway (the only Romanian motorwaysection for which accident and traffic records were available for several years). Whileit is recommended to perform a detailed assessment on the study network, the

proposed values can be taken as references.

Furthermore, the GTMP has assessed costs of accidents. These values are consideredas having an elasticity of one against the GDP growth.

7. Investment cost

The investment cost is composed of:- construction cost, but also- preparation costs (design and land acquisition), and- supervision costs.

Those two categories are estimated as percentages of the construction itself. It isassumed that preparation costs are incurred within the two years preceding the start of construction. Construction and supervision costs are supposed to be equally split overthe construction period.

A factor of 1.15 is used for conversion of financial prices into economic costs. Thisrate appears to be around the average of the conversion factors used in the EU. Itreflects the relatively low fiscal pressure and low unemployment rate of Romania,compensated however by a relatively limited and still perfectible market.

The residual value is also calculated depending based on a 25 years lifetime of projectin case of rehabilitation and 30 years in case of new construction, with a lineardepreciation.

8. Maintenance costs

The costs of maintenance shall be carefully evaluated. In the spreadsheet, it iscomposed of two elements:

- routine maintenance, for each year of operation, and- periodic maintenance, every 10 years.

The related costs are:Routine maintenancecosts of project road(Euro / km)

Periodic maintenance costsof project road (Euro / km)every 10 years

national road (2x1) 15,000 150,000national road (2x2) 30,000 300,000motorway (2x2) 40,000 375,000



It shall be noted that further work should be undertaken for a better approach towardsmaintenance:

- maintenance cost is included in the spreadsheet only in case of newconstruction. It is considered that maintenance costs in case of rehabilitationwould be the same in the with and without project situations,

- maintenance cost is defined as a sum per km, regardless of actual traffic

levels,- in particular, the impact on maintenance of the EU related commitment of

Romania to open its entire road network to trucks of up to 11.5 tons/axle bythe end of 2013, regardless of the actual status of reinforcement of the roads,should be integrated.

9. Analysis

The cash flow sheet provides a table of all costs and benefits by year, during both theconstruction phase of the project and during the specific (by default 25 years)evaluation period following the year of opening of a particular project. Summarystatistics are produced in the form of total and proportionate costs and benefits fromdifferent sources (construction costs, maintenance costs, VOCs, VOTs and accidents).

Furthermore, the total costs are subtracted from the total benefits for each year duringthe period of evaluation, to produce the net benefits. These are then discounted back to the base year (by default 2008), using a discount rate of 5.5 percent, to produce theNPV. The EIRR and PV/C are also calculated on this sheet.

The final analysis sheet calculates the results of a series of sensitivity tests. Thesefollow the same format as the calculation made on the stream of benefits sheet.Sensitivity tests are carried out to assess the impact of various elements of the analysison the results. These include:

• increasing and decreasing time benefits• increasing and decreasing VOC savings• increasing and decreasing construction costs• increasing and decreasing maintenance costs• increasing accident savings.

In case the value of time has been grossly overestimated or underestimated, sensitivitytests were run that varied the value of time savings by +/- 50 percent.

VOC savings were tested +/- 50 percent.

Possible errors in the calculation of the project costs (including land acquisition) havebeen incorporated in the sensitivity analysis +/- 20 percent.

Maintenance costs have only a marginal effect on the economics but havenevertheless been included in the sensitivity analysis +/- 30 percent.

A sensitivity test on accidents savings was introduced that sets the benefits of increased safety twice higher.

Typical_methodology_for_Cost_Benefit_Analysis_Road projects

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