Chapter-4

Evaluation & Economic

Appraisal of Transport
Projects
Mesay S.
 Evaluation & Economic Appraisal of
Transport Projects
• Appraisal: forecasting the effect a certain project proposal will have on policy
indicators and weighing them up to decide whether the proposal is beneficial.

• Primary criterion: economic efficiency, i.e. cost-benefit analysis

 Case-1

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New facility at Lelystad?
But how do they decide the tariffs?
Evaluation & Economic Appraisal of
Transport Projects
• The most important question regarding appraisal is that of technique.
• Cost-benefit analysis (CBA) is the most popular one.

If a project is
considered economically
efficient and hence
is eligible for implementation.
 Evaluation & Economic Appraisal of
Transport Projects
• Based on which principles do we conduct valuation for CBA?

1. Consumer sovereignty

2. Valuation of goods according to willingness-to-pay

3. Pareto-optimality as the criterion of welfare maximization

4. Neutrality with respect to income distribution

 Evaluation & Economic Appraisal of
Transport Projects
• Is CBA enough? i e s ?
nc
e f i cie
’s d
• Questions: how does one valuate: C BA
fs e t
• Human life o f
c a n
• Saved time w e
• Geographic zone ink
u th
• Profession y o
do
• Social status How
• Travel purposes
• Noise pollution
 Evaluation & Economic Appraisal of
Transport Projects
The concept of Net Present Value (NPV)

• The costs and benefits of transportation projects are often spread across
years of the project life cycle.

E.g. The planning, design, construction, service, maintenance and

decommissioning of a road can happen over some 20 years.
 Evaluation & Economic Appraisal of
Transport Projects
The concept of Net Present Value (NPV)
Design Maintenance Maintenance Maintenance
& Costs Costs Costs
Construction
Costs

Service Service Service Service Service

Revenues Revenues Revenues Revenues Revenues
 Evaluation & Economic Appraisal of
Transport Projects
• We deal with this challenge by converting all revenues and
costs to their present value.

• are revenues and costs of year i respectively

• r is the discount rate for the value of money
• i is a counter variable for the number of years
• t is the lifecycle time of the project
 Evaluation & Economic Appraisal of
Transport Projects
• For a given transport project, assume the following table
presents the full array of costs and revenues involved. Find the
net present value of the project.
Year 1 2 3 4 5
Annual Service Revenue 4,800,000 4,800,000 4,800,000 4,800,000 4,800,000
Design & Consultancy Costs 3,700,000 2,500,000
Construction Costs 38,000,000
Periodic Maintenance Costs 3,500,000 1,500,000 3,5000,000 1,500,000
Thank You