ECONOMIC REEVALUATION - SERCHHIP TO BUARPUI (MZ02) IN MIZORAM

1. Project Road Details

The Project road MZ02, in the State of Mizoram, is a Major District Road (MDR) which
connects Serchhip, a district head quarter town in the middle portion of the state, to
Buarpui, a block headquarter town towards west. The project road is in two parts, Part I-
Serchhip to Sialsuk junction on State Highway (Aizawl – Lunglei) which is 15.2 km and
Part II- Thenzawal to Buarpui and the length of this second section is 39.8 km.
The total length of the project road is 55.km and the road provides connectivity to places
between the NH and the state Highway. The entire road section, under study lies in hilly
terrain passing through dense forest area with minor sections through agricultural fields
and plantations and a few road side villages and settlements enroute.
Before up-gradation, the existing road sections are single lane, and the condition of the
pavement is very poor due to cracks, depressions, ruts and pot holes. There are two
major bridge locations across rivers, where new bridges are proposed. Before
construction there are Bailey bridges which are catering to the light traffic. In addition,
there are 5 minor bridges along the Project road which are in good condition and shall
be retained except 1 minor bridge which is proposed to be reconstructed.

2. Improvement Proposal
The project road is proposed to be upgraded to intermediate lane configuration
carriageway by widening the existing single lane road carriageway. Improvements of
horizontal geometry and vertical grades have been done and the low lying stretches are
raised and regarded. The road is proposed to be widened to intermediate lane
comprising of Pavement width of 6.9 m (5.5 m + 0.5 m widening at curves less than
300m radius + 0.9 m paved shoulder on hill side.). The Formation width of the road is
7.8m (6.9m pavement + 0.9m unpaved shoulder on valley side). Flexible Pavement is
constructed, for widening and strengthening and / or reconstruction, as per design
requirement from traffic considerations.

3. Economic Reevaluation
The construction of ugradation of project road Serchhip- Buarpui to intermediate lane
was started in the year 2014 and completed in year 2021. After construction, it is
required to conduct economic analysis which will be based on traffic survey count
conducted after construction i.e. year 2021. The future traffic growth rate will also be
estimated based on present scenario and is used in economic analysis along with the
cost of construction of upgrdation of project road.
The economic reevaluation of the project is carried out on HDM using similar
methodology as that appraisal (before construction) but with present updated data. In
“Without project case”, the earlier state of single lane road is retained and “with project
case”, the constructed upgradaed intermediate lane is considered. As this improvement
allows vehicles to drive at higher speeds with lower operating cost and reduced travel
time, there will be economic benefit which is calculated in this report. Economic benefits
are calculated by comparing the “with project” and “without project” cases. Consequently
 the economic internal rate of return (EIRR) for the project is calculated and its
sensitivities are tested.

4. Traffic Analysis
During Project preparation, traffic survey was carried out in year 2008 during preparation
of detailed project report. After completion of the project road, the traffic survey was
again conducted in year 2021 by the supervision consultant. Traffic counts in 9 vehicles
were collected including car/jeep, mini-bus/bus, 2-wheeler, 2 types of freight trucks and
agricultural tractor. Traffic survey was also conducted in year 2014 at the beginning of
the project by the supervision consultant. In comparing the traffic before and after the
project, it has been observed that AADT in the year 2008 was around 463 vehicles/day
which increases to 672 vehicles/day in year 2014, which is around 6.5% traffic growth
rate. In year 2021, the AADT was 1180 vehicles/day which is around 7.2% traffic growth
rate from year 2014.
Traffic growth rate considered in year 2008 during DPR stage is 8.5% for passenger
vehicles and 10% for freight vehicles. During the traffic survey in 2021 the estimated
growth of traffic comes out to be less than the growth predicted in the Traffic survey
conducted during preparation of the Detailed Project Report. The primary factor behind
this reduction is due to restrictions enforced by the Mizoram Governement on inter
district movement of traffic and people to control the spread of Covid-19 Virus. However,
with the rapid vaccination of people in the state and with the number of Covud-19 cases
reducing sharply the traffic restrictions are expected to relax by the end of year 2021.
Thus considering these situations, Passenger traffic then is expected to grow at the
percentage 7.5%, 8.5% and 9.5% for periods 2022-2025, 2025-2028 and 2028-2031
respectively, Whereas Freight Traffic is expected to increase by 8%, 9% and 10.75% for
periods 2022-2025, 2025-2028 and 2028-2031 respectively. From the year 2031
onwards, constant growth rate of 6% for both passenger and freight vehicles are
considered till the end of analysis period. The traffic count in the year 2021 which is used
for economic analysis is shown in Table
Table 1: Traffic Count (in the year 2021)

S. No Vehicle Vehicles /day

1 Two Wheeler 53
2 Car 347
3 Mini Bus 22
4 Bus 21
5 LCV 395
6 2A Truck 181
7 3A and MA Truck 138
8 Tractor 23
TOTAL (AADT) 1180

5. Economic Cost
The project cost comprises of Capital Cost and maintenance cost. The actual
construction cost during the year from 2014 to 2021 is used in the economic
 reevaluation. Comparing with the cost estimation at appraisal during detailed project
report stage, the actual civil work cost is higher due to prolonged construction period,
price escalation and quality changes in civil works. In the evaluation, only the cost of civil
works and consulting services are used and these costs are shown in Table 2 year wise.
Table 2: Actual Construction Cost
Civil Work Consulting
Year Escalation Cost Total
Cost Services
In Crore In Crore In Crore In Crore
2014 2.13 1.91 0.79 4.836
2015 9.27 1.91 2.92 14.107
2016 17.24 1.91 2.69 21.845
2017 27.52 1.91 2.80 32.235
2018 34.02 1.91 2.70 38.634
2019 59.23 1.91 2.71 63.852
2020 50.23 1.91 1.86 53.999
2021 30.29 1.91 0.75 32.956
229.94 15.32 17.21 262.466
Per Km Cost 4.77

In the evaluation, the financial cost are converted into economic cost using the
conversion factor of 0.85 which is considered at appraisal during detailed project report
stage and this value is also suggested by World Bank for highways in India.
For the maintenance cost, routine maintenance and periodic maintenance is considered
in economic reevaluation. In routine maintenance crack sealing, patching work, shoulder
and drainage maintenance are included and applied each year as per the deterioration
predicted by the software. In Periodic maintenance, functional overlay of 30 mm BC is
considered after every 5 year and structural overlay of 30 mm BC and 50 mm DBM is
considered after 20 years (design life of pavement). The rate of materials considered for
these maintenance items are shown in Table 3.

Table 3: Rate of items of Routine and periodic maintenance

S. No Item Rate (Rs) Unit
Routine Maintenance
1 Crack Sealing 9 Per sqm
2 Pot Hole Repair/ Patching 212 Per sqm
3 Shoulder Maintenance 14000 Per Km per year
4 Drainage Maintenance 12000 Per Km per year
Periodic Maintenance
5 Dense Bituminous Macadam 12688 Per cum
6 Bituminous Concrete 15128 Per cum

6. Economic Benefits
Due to improvement of road from single lane to Intermediate Lane (with paved shoulder
on one side and earthen shoulder on other side), the vehicles now drive at much faster
speeds, from average 20-25 Km/hr before the project to 45-50 Km/hr after the project
which has led substantial economic benefits in the project areas. Similar to methodology
 at the appraisal, two types of economic benefits are obtained for the project highways
which are savings in VOC and savings in passenger travel time costs. The component
cost of VOC are considered same as other similar highway projects in India whereas
travel time savings values are considered as provided in IRC SP 30-2009 and escalated
to year 2021. The passenger travel time cost savings is increased 7% per annum and
cargo holding time savings is escalated as per WPI index.
The unit vehicle operation cost as estimated by HDM 4.0 software for without project and
with project case are shown in Table 4.
Table 4: Unit Vehicle Operation Cost (Rs per Vehicle-Km)
3A &
Two Mini 2A
Car Bus LCV MA Tractor
Wheeler Bus Truck
Truck
Without
Project (IRI 4.7 16.8 23.3 28.9 23.2 32.7 59.9 28.7
10-12)
With Project
3.4 10.9 15.8 19.5 14.4 22.1 40.1 18.0
(IRI 2-3)
VOC Savings 1.3 5.9 7.5 9.4 8.8 10.6 19.8 10.7

The VOC savings per Veh-Km are estimated at Rs 1.3 for two wheeler, Rs 5.9 for Car,
Rs 7.5 for mini bus, Rs 9.4 for Bus, Rs 8.8 for LCV, Rs 10.6 for 2A truck, Rs 19.8 for 3A
& MA truck and Rs 10.7 for tractor.
The travel time cost are also estimated for both passenger and freight Vehicles for both
with project and without project case and are shown in Table 5.
Table 5: Travel Time Cost (Rs per Vehicle-Km)
3A &
Two Mini 2A
Car Bus LCV MA Tractor
Wheeler Bus Truck
Truck
Without
Project (IRI 2.5 19.5 70.0 140.1 0.1 0.3 0.3 0.1
10-12)
With Project
1.3 10.5 37.5 75.2 0.07 0.2 0.2 0.07
(IRI 2-3)
Travel Time
1.2 9 32.5 64.9 0.03 0.1 0.1 0.03
Savings

7. Economic Reevaluation and Sensitivity Test

Economic Reevaluation
Based on the assumptions and other estimated parameters as discussed before, the
EIRRs are calculated for a period of 30 years from the year 2014 which is the start of the
construction year. Thus the 30 years analysis year includes 7 years of construction and
some year of overlap of construction and operation periods. For the calculation of EIRR
the alternates considered are “Without project (before construction single Lane Road)”
and “With project (upgraded Intermediate lane)”. The EIRR comes out to be 18.3%
which is above the ADB recommended discount rate of 12% at appraisal. The project
therefore continues to be economic viable after construction. The net economic benefit
in terms of NPV comes out to be Rs 142.15 Crores

Sensitivity Analysis
The estimated EIRR is also subjected to sensitivity analysis to test different scenarios
which includes combinations of routine maintenance, periodic maintenance, increased
maintenance cost, reduced benefits and reduced traffic growth rate. This is carried out to
ascertain that project continued to be viable for all critical scenarios. The different cases
considered for sensitivity analysis are:

Alternates are “Without project (before construction single Lane Road)” and “With project
(upgraded Intermediate lane)”.

Case I – Base Case with no routine maintenance for both alternates

Case II – Routine Maintenance for both Alternates. This will check the impact of routine
maintenance on EIRR
Case III - 50% reduction in Traffic growth rate.
Case IV – Periodic Maintenance for upgraded Alternates. This will check the impact of
periodic maintenance on upgraded road.
Case V – Case IV + 20% less benefit
Case VI – Case IV + 20% more maintenance cost
CASE VII – Case IV + 40% more maintenance cost
Case VIII – Case IV + 20% less benefit + 40% more maintenance cost

The economic reevaluation for the Case which includes all maintenance cost are shown
in Table 6 for reference and The EIRR of all the cases are worked out and the result is
shown in Table 7.

Table 6: Economic Revaluation of Project Road

BENEFIT NET
COST S BENEFIT
Maintenanc
Year Capital e Total VOC Time Cost Total
2014
2015
2016 479.452 479.452 -479.452
2017 237.824 237.824 2.221 0.008 2.229 -235.595
2018 339.748 339.748 4.583 0.021 4.604 -335.144
2019 265.428 265.428 7.423 0.042 7.465 -257.963
2020 146.708 146.708 11.63 0.092 11.722 -134.986
2021 -0.787 -0.787 85.87 47.735 133.605 134.392
2022 -0.354 -0.354 88.551 46.371 134.922 135.276
2023 -0.563 -0.563 91.276 45.218 136.494 137.057
2024 -0.298 -0.298 94.388 44.386 138.774 139.072
 2025 45.655 -0.462 45.193 96.96 44.148 141.108 95.915
2026 -0.253 -0.253 97.263 43.737 141 141.253
2027 -0.384 -0.384 96.156 43.237 139.393 139.777
2028 -0.218 -0.218 96.937 43.754 140.691 140.909
2029 -0.324 -0.324 98.487 44.811 143.298 143.622
2030 25.906 -0.191 25.715 101.205 46.684 147.889 122.174
2031 -0.272 -0.272 98.88 46.124 145.004 145.276
2032 -0.163 -0.163 96.699 45.82 142.519 142.682
2033 -0.226 -0.226 95.055 45.827 140.882 141.108
2034 -0.139 -0.139 94.451 46.532 140.983 141.122
2035 14.7 -0.189 14.511 95.44 48.336 143.776 129.265
2036 -0.118 -0.118 97.426 50.576 148.002 148.12
2037 -0.158 -0.158 97.444 51.539 148.983 149.141
2038 -0.102 -0.102 97.419 52.398 149.817 149.919
2039 -0.133 -0.133 97.252 53.121 150.373 150.506
2040 8.341 -0.088 8.253 95.396 52.608 148.004 139.751
2041 -0.112 -0.112 93.184 51.604 144.788 144.9
2042 -0.076 -0.076 91.179 51.216 142.395 142.471
2043 -12.491 -0.095 -12.586 91.381 51.585 142.966 155.552
Economic Net Present Value (ENPV) = 1767.02
Economic Internal Rate of Return (EIRR) = 18.90%
Note- Maintenance cost is negative, as the routine maintenance cost of single lane road is high
due to low category and distressed road and the deterioration of upgraded road is not happening
over the years as the pavement condition is good after construction and traffic is low thus the no
maintenance cost of upgraded road alternative.

Table 7: Sensitivity Analysis

Case Tests
Traffic ENPV (Rs
Maintenance EIRR (%)
Growth Benefits Millions)
Cost
Rate
Base Case 18.3 1421.46
Add Routine
Case II 19.0 1787.43
Maintenance
Case III -50% 14.2 357.92
Add Periodic
Case IV 18.9 1767.02
Maintenance
Case V -20% 18.3 1586.17
Case VI +20% 18.8 1750.14
Case VII +40% 18.7 1725.01
Case VIII -20% +40% 18.2 1544.23

From the above table, it has been observed that considering all the cases the EIRR
varies from the 14.2% to 19.0%. The most sensitive case is the reduction in traffic
growth. As the traffic prediction is very uncertain, the reduction in traffic growth rate by
50% is considered for economic analysis and for that also EIRR comes out to be 14.2%
which is more than 12% and hence this case is also economic viable. When routine
maintenance and periodic maintenance is considered, the EIRR increase with respect to
no maintenance case due to the fact that cost of improvement will be less than the
savings in VOC. Moreover there will not much impact on EIRR on increase in
maintenance cost or decrease in benefits. The EIRR obtained from sensitivity analysis
confirmed that the project has robust economic viability provided there is boost from
state government for socioeconomic development, enhance local transport and increase
income for rural road users.