CHAPTER – 10

COST ESTIMATES

10.1 EXISTING CROSS SECTION

The Project section is from Km 42.000 (Chandausi) to Km 209.500

(Farukhabad). The existing road is 7.00m with earthen shoulder throughout.
10.2 UNIT RATES
 The rates as per UPSHA (Uttar Pradesh), Basic Schedule of rates for year
2013-14 and same has been escalated to arriave the current rate, for items
not available in BSR market rates based on analysis and experience has
been adopted. Also the rates of Bituminous material and steel is adopted from
the web sites and latest on Jan-2014
10.3 QUANTITIES
Indicative quantities of pavement layers are calculated based on TCS &
pavement design for different homogeneous section. Maintenance cost during
construction, Toll plaza cost including medical aid post, traffic aid post & Highway
Lighting has been also included in total civil cost.
10.4 BUS BAYS
Provisions are made for bus bays of 30 Nos. in this Package.
Truck lay byes:
Provisions are made for Truck lay bye of 2 No in this Package
Toll Plazas:
Provisions are made for toll plaza of 3 No In this Package
10.5 PROJECT COST
Besides the civil cost, Provision for contingencies, IC & pre operative expenses,
financing cost, escalation during construction period & interest during
construction has been made as 25%. The Project Cost is 807.15 Cr. An abstract
of the cost estimate for the project is given in Table 10.1.
 Table 10.1

Badaun
Stretches (Km) Main Section Total
Bypass
Length 156.630 10.300 166.930
Part "A" - Road Works
Site Clearance & Dismantling 54.06 Lacs 9.37 Lacs 63.43 Lacs
Earthwork 1233.42 Lacs 303.97 Lacs 1537.39 Lacs
Granular Sub Base 7158.72 Lacs 722.01 Lacs 7880.73 Lacs
Base Course 6799.69 Lacs 707.26 Lacs 7506.94 Lacs
Bituminous Course 26405.45 Lacs 1239.05 Lacs 27644.49 Lacs
Total (Part "A" - Road Works) 41651.33 Lacs 2981.66 Lacs 44632.99 Lacs
Part "B" - Structure 6789.91 Lacs 1131.50 Lacs 7921.40 Lacs
Part "C" - Road Furniture 965.02 Lacs 50.66 Lacs 1015.68 Lacs
Part "D" - Junction Improvement 3650.35 Lacs 63.82 Lacs 3714.17 Lacs
Part "E" - Toll Plaza (3 No's) 1800.00 Lacs 0.00 Lacs 1800.00 Lacs
Part "F" - Truck Laybye (2 Nos) 62.07 Lacs 62.07 Lacs 124.14 Lacs
Part "G" - Bus Bays (30 Nos) 1064.24 Lacs 36.70 Lacs 1100.94 Lacs
Part "H" - Drain 3424.09 Lacs 113.34 Lacs 3537.42 Lacs
Part "I" - Service Road 431.36 Lacs 120.76 Lacs 552.12 Lacs
Part "J" - Arboriculture 162.19 Lacs 10.67 Lacs 172.86 Lacs
Total 60000.56 Lacs 4571.16 Lacs 64571.72 Lacs
25% for Contingencies Charges 15000.14 Lacs 1142.79 Lacs 16142.93 Lacs
G. Total 75000.70 Lacs 5713.94 Lacs 80714.65 Lacs
Per Km 478.84 Lacs 554.75 Lacs 483.52 Lacs

As per traffic capacity analysis, the section from Ch. 65/061 to Ch. 98/700 is
getting exsausted in year 2024-25 hence the capacity augmentation is done for
this section. The cost of capacity augmentation for this section is Rs. 60.48 Crs in
year 2013-14 which is to be occurred in year 2023-24 so the escalated cost of
 this cost with the escalation rate 5% per anuam in Rs. 98.51 Crs (in year 2023-
24)
CHAPTER – 11

ECONOMICAL AND FINANCIAL ANALYSIS

11.1 Introduction

11.1.1 Background

As per the Terms of Reference (TOR), this report has been prepared
documenting the financial evaluation for up gradation strengthening of highway
corridor between Moradbad to Farukhabad Road section of SH –43.

11.1.2 Objective

The objective of project evaluation is to assess the project feasibility of proposed

up-gradation from existing 2 lanes to 2-lane with paved shoulder and 4 lane
configurations in financial terms. The financial feasibility is to be evaluated in
terms of Financial Internal Rate of Return (FIRR). In addition, necessities of
Government subsidy (Funding Options) and optimal concession period have also
to be identified.

11.1.3 Scope

The Scope of evaluation includes:

 Estimation of EIRR and NPV

 Estimation of FIRR

 Assessment of Governmental subsidy

 Optimal concession period

11.2 General

The Construction of roads brings about a variety of benefits that are enjoyed
practically by all sectors of the economy. Scarcity of resources and competing
demands from various sectors are the important features of a developing
economy. It therefore, becomes extremely necessary to allocate the scarce
resources in the most beneficial manner. In view of the above, it is necessary to
ensure that the projects selected for investment are thoroughly evaluated to
determine the financial benefits offered by the project and the ease with which
the project can be implemented. Highway financial analysis is a technique
whereby the cost and benefit from a scheme are quantified over a selected time
horizon and evaluated by a common yardstick.

The economic analysis involves comparison of project costs and benefits under
the "with" and “without" project conditions and determining the Economic Internal
Rate of Return (EIRR) of the project using discounted cash flow technique. This
shows the return, which the society could expect from the proposed investment
during the project life, i.e. analysis period.

The project is further subjected to sensitivity analysis by assessing the effects of

adverse changes in the key variables on the base EIRR. In this, project costs are
increased by 15 percent and benefits are reduced by 15 percent. In addition, the
combined effect of these changes is also assessed. This helps to gauge the
economic strength of the project to withstand future risks and uncertainties.

11.3 Basic Approach and Methodology

The main motto to carry out economic feasibility is maximizing the returns on
investment by determining improvement proposals that lead to minimum total
transport costs. Economic evaluation is carried out based on incremental costs
and benefits comparing the total net benefits in “Do Minimum” situation with “With
Project” situation. The term “Do Minimum” is defined as the base strategy for
economic analysis i.e. without project situation. The term “With Project” is defined
as widening of carriageway by constructing 2-lane road, thus increase in width of
carriageway from existing single/intermediate lane. Economic analysis has been
carried out for Do Minimum to case with widening to 2 lane in whole stretch. “Do
minimum” essentially includes the geometric improvements to match the
standards as IRC norms, throughout the road without any exception or
compromise with safety of road users.

The financial feasibility is carried out to maximize the returns on investment by

determining improvement proposals that lead to minimum total transport costs
and Financial Internal Rate of Return, also to asses the requirement of the
government subsidy required and to calculate the optimal concession period to
gain the profit.

11.3.1 Model Used

Economic analysis has been done by using HDM-IV model. HDM-IV model is a
highway design and maintenance program for analyzing the total transport costs
of alternative road improvement and maintenance strategies.

11.3.2 Inputs to the Model

The values of input data used for the above model for the present project are as
follows

General

Analysis period 24 years

Discount rate 12%
Construction Period 24 Months
Improved Road to be opened to traffic in 2017
Standard Conversion Factor 0.9
Salvage Value 0%

Road Characteristics

Moradabad- Farukhabad Road

Description
KM Remarks
2-lane with Paved Sh,
Road length (Km) 166.930
Four Lane
 Road Deterioration Factors

Road deterioration factors used for analysis as inputs to HDM model are given as
under:

Crack initiation 1.5

Crack Progression 1.5
Raveling initiation 1.0
Pothole progression 1.5
Rut depth progression 1.5
Roughness Progression 1.5
Environment roughness 1.0

11.3.3 Base Year Traffic by Composition and Growth Rates

Classified Traffic volume counts were carried at three locations on project

corridor for 7 days, 24 hours. The average AADT of the volume count has been
taken as the base line traffic.

Homogeneous Sections: Based on Average annual daily Traffic (AADT) the

project road has been divided into homogeneous sections. Further for the
purpose of Tolling the project road has been dived in to three Toll Sections with
one Toll Plaza in each section. Economic evaluation has been carried out for
three sections treated as one section. The year of bidding is 2011.The base year
traffic by vehicle composition for this section is given below in Table 10.1

Table 11.1: Average Annual Daily Traffic in (nos.)

At three Toll Plaza in Year 2010

ADT(Numbers) in Both Directions

Description
Km 50.600 Km 112.000 Km 193.400
Car 1810 684 2212
LCV 1158 307 570
Mini Bus 31 56 110
Full Bus 231 175 384
2 Axle TRUCK 752 132 1465
3-Axle TRUCK 498 142 874
Multi-Axle 132 36 347
 The traffic growth rates have been calculated and the details are given in
Chapter-7. The adopted traffic growth rates for the purpose of FIRR calculation is
given in Table 10.2.

Table 11.2: Recommended Growth Rates

Vehicle Type
Year Period Two
Car LCV BUS Truck
Wheeler
2010-2040 5% 5% 5% 5% 5%

11.3.4 Project Cost and Scheduling

The project cost consists of following components:

 Capital Cost

The capital cost of the project consists of cost incurred during the construction
period, from 2015-2016 & 2016-2017. The total expenditure incurred during the
construction period for Moradabad - Farukhabad Road is as shown in the table
10.3. The proposed project road would be opened to traffic in 2017.

Table 11.3 Financial Construction Cost

Package- I
Description
Cost (Road Portion) Rs. in Crores
Proposed Project Road Option 2 Lane with Paved Shoulder & 4 Lane
Financial Cost of the project Rs. 645.72
Standard Conversion Factor 0.90
Economic Cost of the Project Rs. 581.15

 Maintenance Costs

Routine maintenance cost has been estimated for both highway and for the
highway in the “Do Nothing” case. The estimated maintenance cost is given
below in Table 10.4.
 Table 11.4: Maintenance Costs

S. No. Item Cost (Rs)

1 Routine Maintenance Two Lane 0. 30 Lacs/km/Year

2 Routine Maintenance Four Lane 0.50 lacs/km/Year

3 Periodic Maintenance Two lane 30.00 Lacs/km every 7th Year

4 Periodic Maintenance Four Lane 50.00 Lacs/km every 7th Year

Periodic maintenance for new highways would be met with in accordance with
the analysis of the life cycle costing model carried out for the project corridor.

 Basic Assumptions

Project Parameters:

1) Evaluation year of Cost Estimates : 2013-14

2) Construction Period : 24 months
3) Debt / Equity : 70% / 30%
4) Annual Escalation in Toll Rates : 5% per annum

O & M Cost and Other Assumptions:

2- Lane : 0.30 Lacs/Km/Annum
Routine Maintenance Cost
4- Lane : 0.50 Lacs/Km/Annum
2- Lane : 21.0 Lacs/Km
Periodic Maintenance Cost
4- Lane : 35.0 Lacs/Km
(Once in 7 Years)
Office Exp ,Toll Collection Exp., Elec. & Per Annum Per
: 20 Lacs
Patrolling Exp. Toll Plaza
Estimated Escalation in Cost (%) : 5% Per Annum
Loan Repayment (during operation) : 10 Years
Moratorium : 2 Years
Interest Rate : 11.75%
* SLM: Straight Line Method
** WDV: Written Down Value
11.4 Vehicle Characteristics

The data as given in the Table 10.5 below have been obtained from manufacture
literature and IRC SP-30.

Table 11.5: Base Vehicle Characteristics

S. Two
Description Car LCV BUS Truck
No. Wheeler

1 Gross Vehicle weight 0.2t 1.47t 7t 9.2t 16.2t

2 ESAL Factor 0 0 0.24 0.47 3.51
3 Number of Axles 2 2 2 2 2
4 Number of Tyres 2 4 6 6 6
Number of
5 1 4 0 40 0
Passengers
 Vehicle Utilization Data

These data have been worked out on the basis of Road User Cost Study. Table
10.6 provides the vehicle utilization data.

Table 11.6: Vehicle Utilization Data

S. No Description 2-W Car LCV BUS Truck

1 Service life - Year 10.0 10.0 10.0 10.0 10.0

2 Hours Driven per year 1950 1950 2000 2100 2100

3 Km driven per Year 32000 32000 66000 85000 85000

4 Annual interest rate 12 12 12 12 12

 Economic Unit Cost

The data given in Table in 10.7 have been collected from respective dealers, net
of taxes and duties.
 Table 11.7: Economic Unit Costs

S
Description 2-W Car LCV BUS Truck
No
1 New vehicle Price 45226 587288 883386 1223899 1491045
2 New Tire Price 1377 1614 2932 6140 6600
3 Maintenance Labor per hour 15 30 30 30 30
4 Passenger Time Per hour 19 34 0 24 0
5 Cargo Time Per hour 0 0 6 0 17
6 Crew Cost Per hour 0 0 27 105 45

 Fuel Costs

The fuel costs adopted for this study are given below in Table 10.8.

Table 11.8: Economic Unit Costs

S. No. Description Cost per liter (Rs.)

1 Petrol 76.00
2 Diesel 57.00
3 Lubricants 220.00

11.5 Economic Internal Rate of Return (EIRR)

Using the data input to the model HDM-IV, the annual stream of cost savings
(VOC +Time cost saving) derived from analysis “without” project (base year) and
“with project” developed

Table 11.9 Economical Internal Rate of Return

Internal Rate of Returns (EIRR)

Moradabad- Farukhabad Road 18.39%

11.6 Recommendations

Financial Viability

The main objective of undertaking this study is to assess whether the project is
financially viable or not. It is important to note that the proposal should be an
 attractive proposition for private sector participation under Build, Operate and
Transfer (BOT) system. The basic methodology followed for estimating the
financial viability of a project is to calculate the FIRR (Financial Internal Rate of
Return) on the investment for the project.

FIRR on the investment of the Entrepreneur has been estimated on the basis of
cash flow analysis. For this, the annual fund flow statement has been prepared
on the basis of funds requirements both for capital, operating and maintenance
cost and the estimated revenue from tolls. In this analysis, the debt has been
assumed to be 70%. In the analysis, the interest rate on debt is considered as @
11.75%. The analysis reveals various FIRR values corresponding to each year of
toll operation. FIRR of the 30 years with their debt equity ratios are given below
in Table 11.10.

Table 11.10 Financial Internal Rate of Returns

FIRR
S. Debt.
Description
No. Equity
Post Tax Equity

20% Grant & Equity support and

1 70 : 30 13.70% 15.30%
4% O&M Grant
11.7 Results and Analysis

Based on the project structure, traffic study, toll analysis and financial feasibility
we find that the Project is viable at a grant of 24.00% (20% Equity Support and
4% O&M Support) and the concession period is 24 years.