Economic Analysis 11.1 Economic Analysis In view of the above, it is necessary to ensure that the projects selected for investment are evaluated thoroughly to determine the economic and social benefits offered by the project. 14.1.1 Evaluation Framework The proposed evaluation framework is based on a cost-benefit analysis, which sets a monetary value where possible on all financial, economic and social costs and benefits over the lifetime of the project. The underiying principles for this analysis are as follows: ‘©The lifetime of a road project for the present analysis is considered as the period for which reliable traffic forecasts can be made. A discount rate is then applied to future economic costs and benefits to arrive at the Net Present Value (NPV) of the project. The Economic intemal Rate of Retum (EIRR) of the project is also computed. = To analyze the cash flow at constant prices, an allowance is made for relative price inflation. ‘©The discount rate is expressed in real terms. ‘The standard methodology used for the economic evaluation for transport projects has been adopted. The concept of economic feasibility is to maximize the retums on investments. This is accomplished by determining the appropriate improvement proposal that leads to minimum total transport cost, which comprises of two basic components shown below. Table 11.1 Total Transport Cost Road Agency Costs Road User Costs Vehicle Operating Costs © Other user costs (like travel time costs) «Accidents Construction * Maintenance ‘The reduced costs are treated as benefits calculated over the project life. The results are ‘expressed in Economic intemal Rate of Retum (EIR) and Net Present Value (NPV). The ‘economic analysis is carried out using World Bank developed “Highway Development and Management Model" (HDM-4). The mode! generates total transport costs (user plus agency cost) in “with" and “without” the project situation. The differences in costs due to road improvement (with the project) are considered as the benefit accruing from road improvement. In HDM-4, economic analysis is carried out using Project Analysis Option, which is concemed mainly with evaluation of investment options. The economic indicators such as the EIRR and NPV at the discount rate of 12 % are calculated. In order to evaluate the pavement altematives selected, analysis has been carried out using “present value” method. This helps to compare the costs related to the development using 2 particular type of pavement on present value terms. For carrying out the same, all costs are estimated at the anticipated years and have been discounted to the present day worth Using a pre-determined discount rate. 11.1.2 Basic Approach and Methodology Economic evaluation has been carried out based on incremental costs & benefits ‘comparing the total net benefits in “Without project” situation with "With Project’ situation. y Ge. yaaa vigways Auto of : Pyoject impleeMtaTOM OT aan seis snus gine etsoan nwt et Neerut ‘aThe term ‘Without project” is defined as the base strategy for economic analysis, i.e. without project situation. The term “With project” is defined as widening and strengthening of existing facility and/or construction of new road. Thereafter, Sensitivity Analysis has been carried out on the Base Analysis for the four cases mentioned below, with both the Altematives. Case -|- Base Costs and Base Benefits Case -I| - Base Costs plus 15% and Base Benefits, Case -Il! - Base Costs and Base Benefits minus 15% Case -1V - Base Costs plus 15% and Base Benefits minus 15% 14.1.3 Inputs to the Model The HDM-4 working methodology requires specifying the traffic, road and environment procedure for the following: Characteristics of the road sections using road network manager Characteristics of the vehicles that use the road sections Traffic growth rates ‘The proposed maintenance and road improvement works with their improvement cost ‘The values of input data that has been used in the HDM-IV Model for the present project are as follows: - General Assumptions: The following assumptions were used for the analysis using the HDM Model. ‘Table 11.2 General Assumptions for the HDM Model ‘Analysis period 30 years Discount rate 12% Construction Period '3 Years (36 months) ‘st year construction cost ‘20% of total project cost 2nd year construction cost 40% of total project cost 3rd year construction cost “40% of total project cost. Improved Road to be opened to traffic in 2018 ‘Standard Conversion factor used for converting 0.85 financial cost to economic cost ‘Salvage Value 25% Road Characteristics: Existing Road ‘Some basic road characteristics that have been used as inputs to the model are: * Road Length, road width, one shoulder width, Altitude, Rainfall in m/month, pavement subgrade, BBD deflection value, roughness of existing pavement etc. Proposed Road: » NH-24 from Ring Road Junction to km 27.500 (near Dasna) Km 27.500 — Km 49.923, NH 24 Traffic Survey Location Table 11.3: Homogeneous Sections SNo | Homogeneous Section | Remarks | Part of existing NH-24 1 | NH-24 from Ring Road Junction to km 27.500 (near Dasna) Bypass (Hapur Bypass) >», a Soom ater nareterontcontine ate mys ft of 12 Tet erin UR2__| Km 27.500 — Km 49.923, NH 24 | Part of existing NH-24 Traffic Detail Table 11.4 (a): Traffic Detail for Delhi-Meerut Expressway (Km 0.00 to Km 27.500) Vehicle Type Delhi-Meerut Expressway (Km 0.00 to Km 27.500) _ Car/Jeep/Van (private) 18503 Car/Jeep/Van (Taxi) 1832 Two Wheeler 0 oo Auto Rickshaw 0 Mini Bus 20 Bus 113 LCV Type ( 4 Tyres) 651 LCV Type ( 6 Tyres) 679 Tata ACE 307 2 Axle Truck 486, 3 Axle Truck _— 590) MAV (4-6 Axles) 368 MAV (>=7 Axles) 0 Heavy Construction Machinery/Earth Moving Equipment 6 Goods Auto z 27 ‘Agri. Tractor Without Trailer 0 Agri. Tractor With Trailer 0 Cycle 0 Cycle Rickshaw 0 Hand Cart 0 ‘Animal/Hand Drawn 0 Toll Car/Jeep/Van 199) Exempted | BUS 3 Vehicles _| Truck 9 Total Vehicle 23794 Total PCUS 28336 Table 11.4 (b): Traffic Detail on NH 24 (Km 0.00 to Km 27.500) [ Vehicle Type NH 24 (Km 0.00 to Km 27.500) Cari/Jeep/Van (private) 7930 Car/Jeep/Van (Taxi) 785, ‘Two Wheeler 19594 ‘Auto Rickshaw. 6468 Mini Bus 177 Bus 4014 LCV Type ( 4 Tyres) 1520 LCV Type ( 6 Tyres) 1585 Tata ACE 717 =7 Axles) 0 Heavy Construction Machinery/Earth Moving Equipment 14. Goods Auto 62 ‘Agri. Tractor Without ~~ Trailer 43 Agri. Tractor With Trailer 578 | Cycle 906 Cycle Rickshaw 118 Hand Cart 5 ‘Animal/Hand Drawn 16 Toll [Car/Jeep/Van 0 Exempted | BUS 0 Vehicles _| Truck 0 Total Vehicle 44905 ___Total PCUs 49046 Table 11.4 (c): Traffic Detail on NH 24 (Km 27.5 to Km 49.923) _ Vehicle Type NH 24 (Km 27.5 to Km 49.923) | Car/Jeep/Van (private) 17787 Car/Jeep/Van (Taxi) 840 ‘Two Wheeler 10302 ‘Auto Rickshaw 2583 Mini Bus 92 Bus 2123 LCV Type (4 Tyres) 1566 LCV Type ( 6 Tyres) 1975 TataACE 784 2. Axle Truck 1450 3 Axle Truck 1663 MAV (4-6 Axles) 945 MAV (>=7 Axles) 26 Heavy Construction Machinery/Earth Moving | Equipment _ 10 Goods Auto 130 ‘Agni. Tractor Without Trailer 58 ‘Agri. Tractor With Trailer 240 y Cycle 539 oe Cycle Rickshaw 90 projact Director Hand Cart 2 ; — eit >Vehicle Type NH 24 (Km 27.5 to Km 49.923) ‘Animal/Hand Drawn 42 Toll Car/Jeep/Van 53 Exempted | BUS _ 15 Vehicles _[ Truck 13 Total Vehicle 43329 Total PCUs 55263 Road Deterioration Factors The results obtained from the analysis of the Roughness survey and the Condition Survey of Pavement has been used as an input to the model. Road deterioration factors that have been used for the analysis as inputs to the HDM model are given as under: * Cracking initiation 1.50 * Cracking Progression 1.50 ‘© Ravelling initiation 1.00 + Pothole progression 1.50 + Rut depth progression 1.50 Traffic Forecast & Growth Rates Traffic forecast analysis has been carried out for 20 horizon years using a combination of the following methods: - - ‘Time series trend in traffic growth ‘Temporal trends in vehicle registrations Socio-economic characteristics Temporal trends in the growth of economy The growth rates used as an input to the model are as tabulated below. Detailed traffic forecast analysis carried out is presented in the Traffic Forecast chapter of the report. Table 11.5 Traffic Growth Rates Vehicle Type 2014-2019 | 2019 to 2024 | 2024 to 2029 | Beyond 2029 ‘Two-wheeler 5.0 5.0 5.0 5.0 Car’ 5.0 5.0 5.0 5.0 Bus! Auto 5.0 5.0) 5.0 5.0) LCVI Trucks 5.0 5.0 5.0) 5.0 MAV 5.0 5.0 5.0) 5.0 Project Costs Capital Cost The construction cost includes cost of strengthening and upgrading existing NH-24 to Expressway Standards. Economic cost has been worked out by converting the financial cost using standard conversion factor of 0.85 as suggested by World Bank for highway projects in India. No adjustment has been made to the land cost. Shadow pricing or assessing opportunity cost of land in any other altemative use will not be made. The construction cost used for economic analysis is shown in Table 11.6 below. Table 11.6: Construction Cost for Economic Analysis - Financial Cost per KM | Economic Cost Cost per KM fu (In crore of Rs) (In crore of Rs.) zo 47.23 40.15 roe ‘National High” » Project one Sp ecto nt re ont fen eg 108 of India a unitPhasing of Construction Costs: ‘The construction period has been taken as 3 years with construction cost outlay of 20: in the first, second and third years. Routine and Periodic Maintenance: The various maintenance costs have been divided into two parts- routine and periodic maintenance. The salient features and construction policy for the both types of are mentioned below. Routine and Periodic maintenance has been taken as given in the table 11.7 below ___ Table 11.7 Routine and Periodic Maintenance __ Maintenance Cost (per Item xm) Improvements are: highway embankment by restoration | 5 og of rain cuts, earthen shoulders, repair of pot holes- teks shallow and deep Functional overlay for 40 mm for 6 lanes @ 6 years 63.89 interval Lakhs ‘Structural overlay of 90mm DBM with 4omm BC 266.70 surfacing course @14 years interval: : Lakhs Vehicle Characteristics Basic Characteristics: ‘The data as given in the table below have been obtained from manufacturer's and literature and value of the average number of passengers for passenger vehicles are intercepted from origin and destination survey. __Table 11.8: Base Vehicle Characteristics Characteristics Car | Bus | LCV | 2A | 3A | MAV | 2wheelers Gross Vehicle Weight () 4.0 | 14.86 | 5.30 | 172 | 260 | 400 = PCSE +0 | 300 | 45 | 3.00 [3.00 | 450 0.50 ESAL factor 0 | 09 | 1.05 | 7.30 | 5.10 | 9.69 Number of axles 2,2 [/2{[2/3{6 = Number of Tyres 4[6f[e|6 | ol 2 Number of Passenger 4s2[ 402 | - | - | - = 1.53 Vehicle Utilisation: ‘These data have been worked out on the basis of RUC and local enquires made in the area are given in Table 11.8 Table 11.8: Vehicle Utilisation Data Description Car_| Bus | Lcv | mcv | HCV | Art. Truck | 2-wheelers: ‘Service Life (Yrs) 15 | to | 10 | 10 | 10 10 10 Hours Driven peryear | 600 | 3000 | 2200 | 2900 | 2800 | 2900 (600 Km. Driven per Year | 32000 | 100000 | 65000 | 85000 | 85000 | 85000 32000 ‘Annual interest rate (%)| 14 | 15 | 15 [| 15 | 15 15 14 Economic Unit Costs ‘The data tabulated below has been collected from respective dealers, net of taxes and duties. For value of passenger time as in Rs per hr and value of commodity in transit as Rs per day, recommended values as per IRC SP-30 is a WPI index and used in model. hud, 5 o ‘Seca cere conanmtayi recap ond oaeattana mmnnc 18Table 11.9: Unit Cost of Vehicles Description | Car | Bus | Lev | mcv | HeV New Vehicle Price (Rs) New Tyre Price (Rs) Maintenance Labour(Rs | 150 | 110 | 11.0 | 240 | 200 | 250 | 100 per hr) ‘Crew Wages (ere oo | 500 | 150 | 240 | 200 | 250 | 00 ‘Annual overheads ~ | 102,800 | 45,000 | 1,05,000] 97,000 | 7,05,000} cost (Rs) Passenger Time (Rs per passenger por| 4738 | 3845 | - - - - 47.38 day) Cargo Time (Rs per veh - : 70 | 180 | 110 | 140 - hr) Artic. 2 Truck _| wheelers 2,50,000 | 780000 | 590000 | 640000 | 870000 | 1330000} 34000 1500 | 17300 | 4900 | 20350 | 20350 | 20350 | 886 11.2. Results of Economic Appraisal Using the data input to the Model HDM the annual stream of cost savings (VOC + journey ‘Time cost saving) derived from analysis “Without’ Project (base case) and “With” project is developed. The relevant EIRR and corresponding NPV are presented below for each option. Table 11.11 Summary of EIRR and NPV Stretch +1 Case EIRR (%) | NPV (in million) (Case | -Base Costs and Base Benefits 15.00 4390 (Case Il -Base Costs and Base Benefits Minus 15% 14.03 1373 (Case Ill -Base Costs Plus 15% and Base Benefits 12.75 1325. (Case IV -Base Costs Plus 15% and Benefits Minus 15% | 11.97 1178 11.3 Conclusion from Economic Analysis ‘The Economic Intemal Rate of Retum (EIRR) for the project is higher than the cut-off rate of 12%. Also the sensitivity analysis shows that for current project proposal, considering the worst case, EIRR remains higher than the cut-off rate. It is therefore concluded that the project is economically viable under the four cases for the sensitivity analysis. e Director atonal Highways Auton of Project implementation Meerut > Stheme oat Scns open mete oe Gamera Bee 1427