TRACECA Appraisal Manual Guidelines for Pre-Feasibility of Transport Projects with Exercises and Case Studies A project implemented by TRT Trasporti e Territorio in association with: Alfen Consult, Dornier Consulting, PTV Project Title : Transport dialogue and interoperability between the EU and its neighbouring countries and Central Asian countries Short Name : IDEA (Transport Interoperability and Dialogue between the EU, Caucasus and Asian) Project Number : EuropeAid 2008 / 155-683 Countries : Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan and Ukraine. Bulgaria, Romania and Turkey associated to the project as TRACECA member Contractor Name : TRT Trasporti e Territorio SRL Address : Via Rutilia, 10/8 20141 Milano, Italy Tel. Number : +39-02-57410380 Fax number : +39-02-55212845 E-mail : [email protected] Contact person : Dr. Silvia Maffii / Team Leader Autors of Report : S. Maffii, R. Parolin, M. Brambilla, R. Scatamacchia This Appraisal Manual is prepared by the TRACECA IDEA (February 2012). The IDEA project is implemented by TRT Trasporti e Territorio in association with: Alfen Consult, Dornier Consult, PTV. Table of contents Table of contents Table of contents ................................................................................................. I List of figures ................................................................................................... IV List of tables ....................................................................................................... V List of abbreviations ........................................................................................ VII 1 Introduction ................................................................................................. 1 1.1 Premise .............................................................................................................2 1.2 Project appraisal .................................................................................................2 1.3 The guidelines ....................................................................................................3 2 Project identification .................................................................................... 7 2.1 Overview ...........................................................................................................8 2.2 Project objectives and definition of project solution .................................................. 8 2.3 Definition of the reference or “do minimum” solution .............................................. 10 2.4 Analysis of the demand ...................................................................................... 10 2.4.1 Generalised costs ...................................................................................................... 11 2.4.2 Demand forecast ...................................................................................................... 13 2.4.3 Check list for demand analysis ................................................................................... 14 2.5 Problems ......................................................................................................... 15 3 Financial analysis ....................................................................................... 17 3.1 Overview ......................................................................................................... 18 3.2 Rationale of the financial analysis ........................................................................ 18 3.3 Investment costs, operating costs and revenues .................................................... 19 3.4 Financial discount rate ....................................................................................... 21 3.5 Performance indicators: Financial Return on Investment and Internal Rate of Return .. 22 3.6 Profitability analysis ........................................................................................... 22 4 Economic analysis ...................................................................................... 25 4.1 Overview ......................................................................................................... 26 4.2 Change in transport user benefits ........................................................................ 27 4.2.1 Components of the generalised cost ............................................................................ 28 4.2.2 Consumer surplus and Willingness to Pay (WTP) ........................................................... 28 4.2.3 Transport user benefits: Consumer surplus and the Rule of Half ..................................... 30 4.2.4 Diverted and induced demand .................................................................................... 33 4.2.5 Introduction of completely new modes ........................................................................ 33 4.2.6 Special treatment of unperceived costs ........................................................................ 34 4.3 Change in system operating costs and revenues .................................................... 35 4.3.1 Producer surplus ....................................................................................................... 35 4.3.2 Taxation and Government revenue effects ................................................................... 36 4.4 Change in external costs .................................................................................... 37 4.4.1 Environmental costs .................................................................................................. 38 4.4.2 Air pollution ............................................................................................................. 40 I Table of contents 4.4.3 Noise ....................................................................................................................... 43 4.4.4 Global warming ........................................................................................................ 43 4.4.5 Safety ..................................................................................................................... 44 4.5 Value transfer ................................................................................................... 45 4.6 Project investment costs .................................................................................... 46 4.6.1 From financial to economic costs ................................................................................ 48 4.7 The project appraisal period. ............................................................................... 49 4.8 Constant prices, common currency and base year .................................................. 50 4.9 Treatment of values over time ............................................................................ 50 4.10 The problem of evaluation in cross-border projects ................................................ 51 4.11 Flows of benefits and costs ................................................................................. 52 4.12 Social discount rate ........................................................................................... 53 4.13 Decision criteria ................................................................................................ 54 4.14 Social analysis of costs and benefits ..................................................................... 56 4.15 Problems ......................................................................................................... 58 5 Risk assessment ......................................................................................... 69 5.1 Overview ......................................................................................................... 70 5.2 Sensitivity analysis ............................................................................................ 71 5.3 Probability distribution of critical variables ............................................................ 72 5.4 Calculation of the distribution of the performance indicators and evaluation of acceptable levels of risk ..................................................................................................... 73 5.5 Risk mitigation .................................................................................................. 75 5.6 Problems ......................................................................................................... 75 6 Case studies ............................................................................................... 77 6.1 Foreword ......................................................................................................... 78 6.2 Construction of additional berths ......................................................................... 79 6.2.1 Introduction ............................................................................................................. 79 6.2.2 Traffic and terminal servicing time .............................................................................. 79 6.2.3 Project benefit .......................................................................................................... 80 6.2.4 Optimum timing of the project (with three berths) ........................................................ 84 6.2.5 Conclusion ............................................................................................................... 85 6.2.6 Further remarks ....................................................................................................... 86 6.3 Electrification of a railway line ............................................................................. 87 6.3.1 Introduction ............................................................................................................. 87 6.3.2 Traffic ..................................................................................................................... 87 6.3.3 Costs of diesel fleet renovation (reference solution) ...................................................... 87 6.3.4 Costs of electrification ............................................................................................... 88 6.3.5 Results .................................................................................................................... 88 6.4 Paving gravel road ............................................................................................ 92 6.4.1 Introduction ............................................................................................................. 92 6.4.2 Investment and maintenance costs ............................................................................. 92 6.4.3 Traffic ..................................................................................................................... 92 II Table of contents 6.4.4 Benefits from reduced generalised costs ...................................................................... 93 6.4.5 Other benefits .......................................................................................................... 95 6.4.6 Project performance .................................................................................................. 96 6.5 Investment in a railway line and modal shift ......................................................... 97 6.5.1 Introduction ............................................................................................................. 97 6.5.2 Traffic analysis ......................................................................................................... 98 6.5.3 Investment costs ...................................................................................................... 98 6.5.4 Project benefits ........................................................................................................ 99 6.6 Social analysis ................................................................................................ 105 6.6.1 Introduction ........................................................................................................... 105 6.6.2 Solution ................................................................................................................. 105 Appendix 1: Glossary ...................................................................................... 107 Appendix 2: Value of Time (through SP) ........................................................ 111 Appendix 3: Suggested solutions to problems ................................................ 117 References ..................................................................................................... 142 III List of figures List of figures Figure 1 - 1: Components of the Guidelines ............................................................. 5 Figure 2 - 1: Structure of the technical solutions analysis ........................................... 8 Figure 3 - 1: Structure of the financial analysis ....................................................... 19 Figure 4 - 1: Structure of the economic analysis ..................................................... 27 Figure 4 - 2: Transport demand curve ................................................................... 29 Figure 4 - 3: Consumer surplus without the project ................................................. 30 Figure 4 - 4: Consumer surplus with the project ..................................................... 31 Figure 4 - 5: Change in consumer surplus .............................................................. 32 Figure 4 - 6: Possible demand curves of a new mode............................................... 34 Figure 4 - 7: Variation in producer surplus ............................................................. 36 Figure 4 - 8: The additional tax revenues ............................................................... 37 Figure 5 - 1: Example of triangular distribution ....................................................... 73 Figure 5 - 2: Example of probability distribution for NPV .......................................... 74 Figure 5 - 3: Example of cumulative probability distribution for NPV .......................... 74 Figure 6 - 1: Port layout in reference solution (left) and project scenario (right) .......... 79 Figure 6 - 2: Estimated traffic [ships/year] ............................................................ 80 Figure 6 - 3: Extent of time benefits with three berths at year 11 .............................. 82 Figure 6 - 4: Graphical depiction of project’s IRR .................................................... 91 Figure 6 - 5: Road alignment and cross-section in reference solution (above) and project scenario (below) ................................................................................................ 92 Figure 6 - 6: Surplus change for trucks ................................................................. 95 Figure 6 - 7: Project plan in reference solution (above), Option 1 (middle) and Option 2 (below). The road corridor is black and the rail line is red (each line depicts a track). ... 97 Figure 6 - 8: Rail line typical cross-section in reference solution (left) and project scenario (right) .................................................................................................. 98 Figure 6 - 9: Change in user surplus for rail travellers (Option 1 with respect to reference solution) ......................................................................................................... 100 Figure 6 - 10: Economic performance of investment options ................................... 102 IV List of tables List of tables Table 1 - 1: Stages of the decision making process ................................................... 4 Table 2 - 1: Costs and benefits with separable projects ............................................ 10 Table 2 - 2: Values of time (Euro, 2010) ................................................................ 12 Table 3 - 1: Outflows and inflows for the profitability analysis ................................... 23 Table 3 - 2: Evaluation of financial return on investment in a motorway project (Million of Euro) ................................................................................................................ 23 Table 4 - 1: Consumer surplus variation for modal shifters ....................................... 33 Table 4 - 2: Values per tonne of CO equivalent emitted (Euro, 2009) ........................ 43 2 Table 4 - 3: Estimated cost per fatality (USD, 2009) ............................................... 44 Table 4 - 4: Example of scheduled investment costs with and without the project ........ 48 Table 4 - 5: Reference evaluation period for the transport sector .............................. 50 Table 4 - 6: Example of costs and benefits over years for a rail project (Meuro) .......... 53 Table 4 - 7: Social discount rate for some countries ................................................ 54 Table 4 - 8: Matrix for the analysis of the distribution of project impacts .................... 56 Table 5 - 1: Significant factors for risk analysis in transport projects .......................... 71 Table 5 - 2: Switching values for the Economic Net Present Value of a motorway project ....................................................................................................................... 72 Table 5 - 3: Example of scenario analysis .............................................................. 72 Table 6 - 1: Investment cost per berth and related timing [Meuro/year]. .................... 79 Table 6 - 2: Annual ship traffic, berth occupancy, ship waiting times and cost of annual waiting time ...................................................................................................... 81 Table 6 - 3: Flow of costs and benefits with three berths [Meuro] .............................. 83 Table 6 - 4: Flow of costs and benefits with four berths [Meuro] ............................... 84 Table 6 - 5: Economic performance with a postponement of one year ........................ 85 Table 6 - 6: Consequence of postponement on the discounted flow of costs and benefits [Meuro] ............................................................................................................ 85 Table 6 - 7: Scheduled costs in reference solution [Meuro/year] ............................... 87 Table 6 - 8: Scheduled costs in project scenario [Meuro/year] .................................. 88 Table 6 - 9: Economic analysis: electrification vs dieselisation [Meuro/year] ............... 89 Table 6 - 10: Traffic growth rates per year [%] ...................................................... 93 V Table of tables Table 6 - 11: Traffic in reference solution and project scenario [vehicles/day] ............. 93 Table 6 - 12: Generalised cost per type of road and net of taxes [Euro/vehicle·km] ..... 94 Table 6 - 13: Benefits yielded per type of vehicle [Meuro/year] ................................. 95 Table 6 - 14: Net benefits and NPV [Meuro] ........................................................... 96 Table 6 - 15: Passenger travel demand [Mpassengers/year] and freight flows [Mtons/year] ..................................................................................................... 98 Table 6 - 16: Economic investment costs [Meuro] ................................................... 99 Table 6 - 17: Economic maintenance costs [Meuro/year] ......................................... 99 Table 6 - 18: Generalised cost [Euro/travel] ........................................................... 99 Table 6 - 19: Change in user surplus [Meuro/year] ............................................... 100 Table 6 - 20 Producer surplus and Government fuel tax revenues [Meuro/year] ........ 101 Table 6 - 21: Estimated external costs benefits [Meuro/year] ................................. 101 Table 6 - 22: Economic analysis of Option 1 [Meuro/year] ...................................... 103 Table 6 - 23: Economic analysis of Option 2 [Meuro/year] ...................................... 104 Table 6 - 24: Costs and benefits yielded by the project [Meuro] .............................. 105 Table 6 - 25: Matrix for the analysis of the distribution of project’s impact ................ 106 VI
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