[VIJAYAPURA TO SANKESHWAR ROAD] FEASIBILITY REPORT

CHAPTER – 8

ECONOMIC ANALYSIS

8.1 ECONOMIC ANALYSIS

8.1.1 Introduction
The economic analysis is carried out within the broad framework of social cost-benefit analysis.
The appraisal compares the total transport costs in situations of “with” the Project and “without”
the Project alternatively called the “base case” or the “do minimum case” for the Project
highway.

The underlying objective of Economic Analysis is to maximize the returns on the investment. The
concept behind the economic appraisal of the Project is that if it is implemented, the resulting
benefits will be the decreased costs road users when compared to the costs of the ‘base’ situation.
This objective is accomplished by determining the appropriate improvement alternative that leads
to the minimum total transport costs.

The total transport costs comprise two basic components (Table 8.1), viz. road supplier costs and
road user costs.

Table 8.1 Total Transport Costs

Road Supplier Costs Road User Costs
Construction Costs Vehicle Operating Costs (VOC)
Maintenance Costs Travel Time Costs
Replacement Costs :
Costs of Environmental Impact Mitigation Measures Accident Costs
Costs of Rehabilitation and Resettlement (R&R)
measures
8.1.2 Methodology
All costs and benefits considered in the analysis are valued in money terms at the market prices.
For economic analysis, these are expressed as economic costs for avoiding distortions in the
prices of inputs such as labour, materials, equipment, and machinery i.e. market prices net of
transfer payments such as taxes and subsidies arising due to market imperfections. The transport
cost is estimated for the ‘Do nothing’ and ‘With Project’ scenarios. The reduction in these costs
under ‘With Project’ scenario, alternatively called the savings, is treated as economic benefits
corresponding to the incremental investment estimated over the life of project.

The economic appraisal is carried out by using the HDM-IV model. The model is used to
generate cash flow streams of VOC and travel time to compute the net economic benefits, as
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inputs for the estimation of the Economic Internal Rate of Return (EIRR) and Economic Net
Present Value (ENPV).for Project evaluation.

8.1.3 Investment Appraisal

Two alternatives have been considered for the economic analysis. The first is “without Project”
(do minimum) where the Project Road between Vijayapura to Yatnal section is considered
without improvement proposals. In this case, the future traffic volume will continue to follow the
existing two-lane road. In the HDM model analysis, this ‘Do Minimum’ alternative will form the
base strategy against which all other strategies will be compared. The second is ‘With Project’
alternative. This corresponds to the formation of rehabilitation of existing Project road to Two
lane with paved shoulder. In order to arrive at the net benefits associated with the second strategy,
it is compared to the ‘Do Minimum Alternative’. By comparing the above alternatives, the net
agency costs and net user costs and finally net project benefits, associated with the project during
its analysis period of 20 years are calculated.

Total road length of 168.875 km is divided into four packages. Each package length includes
average of 40.00 km. For the present study of economic analysis package – I is selected which
starts from Vijayapur (Afzalapur Takke) to near Savalagi cross i.e, 0.00 to 40.00km.

In brief, the following two Strategies have been considered and evaluated in this study:

8.1.4 "Without Project" alternative

Strategy 1: This is the “Do Minimum Scenario”. In this scenario, the agency performs routine
maintenance and pothole patching every year from the starting year. It will receive functional
overlay of 20mm plus seal coat whenever IRI reaches 10. This would have effect of reducing the
surface roughness to IRI 6.0 m/km.

This strategy has been termed “Do Minimum Scenario” where the existing road network is
maintained at current levels and no improvements are envisaged. In this situation, the projected
future traffic is assumed to use the existing road in a congested traffic flow condition.

Agency costs (maintenance cost), distance and time related vehicle operation costs together with
travel time costs and accident costs pertaining to this alternative will form the base on which net
project cost and benefit streams during the analysis period are calculated for each ‘with project’
alternative.

8.1.5 "With Project" alternative

Strategy 2: This is the scenario with augmentation of the Project Road by providing paved
shoulders on both side of the existing 2-lane carriageway with Flexible Pavement. Once the

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construction is complete, the agency will perform routine maintenance and other maintenance
works every year. Also the road will receive a 20mm functional overlay whenever IRI reaches 6,
which would reduce surface roughness to 2.5m/km.

This strategy forms a ‘With Project’ alternative and is compared to ‘Without Project’ alternative.

8.1.6 HDM Model Input Data

8.1.6.1 General
The following general input values have been considered for the HDM Model.

Table 8.2 General Inputs for HDM Model

Description:
Run Date 18-02-2020
Discount Rate (%) 12%
Analysis Period (years) 20
Calendar Year of Initial Year 2020
Output Currency Name Rupees
Input Currency Name Rupees

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Table 8.3 HDM Input - Road Sections – Basic data

Length (Km)

Carriageway
MT NMT

Width (m)

Width (m)
Shoulder
Speed Flow Surface
ID Name Road Class Climate Zone
Type Class AADT AADT
Remarks
2019 yr 2019 yr
Vijaypur - Two Lane Primary or Subtropical -
A-01 Bituminous 40 7.00 1.50 7,363 118
Sankeshwar Wide Trunk Hot / Semi-arid

Table 8.4 Road Sections – Condition of the Project Road

Bituminous Sections: Roughness Ravelled Edge
Condition Total Cracking Potholes Rut
  IRI  Area (%) Break
Year
Depth
ID Name   (m/km) Area (%) ACRA ARV (no./km) (m²/km
(mm)
A-01 Vijaypur - Sankeshwar 2019 5.20 2.60 2.20 20 52.00 10

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Table 8.5 HDM Input: Road Sections- Geometry of the Project Road

Speed
Rise + Fall Curvature Horizontal
ID Name  Speed Flow Type Limit
(m/km) Deg/km Superelevation (%)
(km/h)

A-01 Vijaypur - Sankeshwar Two Lane Wide 22 9 5.0 60

Table 8.6 HDM Input: Road Sections – Pavement Condition of the Project Road
Current Previous
Last Last Base
Surface Surface
 ID  Name Material Type Construction Rehabilitation Thickness
Thickness Thickness
Year Year (mm)
(mm) (mm)
A-01 Vijaypur - Bypass Asphalt Concrete (AC) 60 50 1998 2003 320

8.1.7 Traffic
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The Assignable traffic likely to use the Proposed Project Road has already been discussed in the Traffic Study Report. For the economic Analysis, fast
moving motorised traffic including two wheelers and non-motorised vehicles have been considered. The motorised and non-motorised with vehicle
composition are shown in (Table 8.7).
Table 8.7 MT and NMT with Vehicle Composition

Tikota

Vehicle
ADT,No' Composition
Type of Vehicles s
Car 2270 31.00
Mini -Bus 90 1.00
Pvt bus 12 0.00
Govt Bus 396 5.00
LCV 579 8.00
Truck-2axle 340 5.00
Truck-3axle 308 4.00
Truck-4 to 6 axle 340 5.00
2 wheelers 2846 39.00
3 wheelers 182 2.00
Cycle 84 1.00
Animal Drawn 34 1.00
Total (No) 7481 100 

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8.1.7.1 Capacity of the Road

There are at present a number of suggestions with respect to maximum capacity of roads in India.
IRC 64-1990 provides daily designs service volumes, which are based on Loss Of Service-B
(Volume/Capacity of 0.5) and a peak hour share of 10%. It is also suggested that the capacity will
increase by 15% with 1.5m paved shoulders. The HDM model supported by World Bank,
suggests even higher values. The two sets of data are compared in Table 8.8. Based on this
comparison, maximum capacities as per IRC 64 are considered reasonable to use.

Table 8.8 Suggested Capacities for Plain/Rolling Terrain (PCU/Hr)

Width / Lane Shoulders Maximum Capacities

Configuration (Width & Type) IRC-64 HDM
2-Lane (7m) Nil 1500 2800
2-Lane (7m) 2 x 1.5m – Paved 1725 -

8.1.7.2 Growth Rate

Traffic growth rates necessary to estimate the traffic levels in future on the project road are a
product of economic factor of the influence area and elasticity of traffic demand. Normal growth
scenario has been considered for Economic Analysis. Base year traffic as given in the Traffic
report in the year 2015, is considered in the economic analysis. Based on the observed traffic
growth on the project road, the growth rate of 5% has been adopted given in the projection of
traffic.

8.1.8 Project Costs

8.1.8.1 Capital Costs
The capital costs of the Construction / Upgradation of the Project Road including the phasing of
investment during the construction period have been calculated. The total capital costs (including
road works, bridges, culverts and utilities, land acquisition, Quality and Project development
charges) at current prices with contingency costs for road works and structures has been
considered.

The capital costs (financial) of the project road have been converted into economic costs by using
a standard conversion factor of 0.9, to construction costs (road works and structures). The
economic cost of acquisition, Quality and Project Development cost has been taken as the same
as financial cost, without resorting to shadow pricing or assessing opportunity cost in any other
alternative. The project costs, over the construction period, are shown in Table 8.9 below:

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Table 8.9 The breakup of Total Project taken in the Analysis is as follows

Abstract of Cost Estimate (Flexible Pavement)

Sl.No
Item Amount, Rs Amount, Cr
.

I ROAD WORKS    
1 Site Clearance 2,70,605.00 0.03

2 Earthwork 19,05,76,973.00  

3 Sub bases and Base Works (Cement Treated) 49,28,58,152.00 49.29

4 Bituminous Pavement Works 52,37,32,047.00 52.37

5 Taper Length 1,51,70,616.00 1.52

6 Toll Plaza with Approaches (1 No) 9,06,68,054.00 9.07

Road Furniture, Paver blocks, Foot Path, Kerb Works
7 9,36,59,293.00 9.37
and utility duct
8 Junction Improvements (Bituminous Type) 6,09,02,928.00 6.09

9 Bus bay and bus shelters 3,31,22,801.00 3.31

10 Truck lay byes (Bituminous Type) 69,62,680.00 0.70

11 Retaining wall 1,50,23,561.00 1.50

1,52,29,47,710.0
  Total Road works cost (I)  
0
  Cost/km, crores 3.82  

II Structure Works    

12 Drain Works 12,81,08,317.00 12.81

13 Cross Drainage works (Pipe Culverts) 90,70,268.00 0.91

14 Box culverts 10,98,32,456.00 10.98

15 Major Bridges 18,09,41,387.00 18.09

16 Infiltration wells for recharging water 11,15,863.00 0.11

  Total Structural works cost (II) 42,90,68,291.00 42.91

  Cost/km, crores 1.08 1.08

1,95,20,16,001.0
  Total Civil cost (I+II) = (A) 195.20
0
17 GST, 12% (A1) 23,42,41,920.00 23.42
2,18,62,57,921.0
  Total cost A2=(A+A1) = 218.63
0
18 Contingencies 2.80% of A = (B) 6,12,15,222.00 6.12
2,24,74,73,143.0
  Sub Total C = (A2+B) 224.75
0

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  Cost per Km for civil work 5.64 5.64

20 Agency charges 3% on (A) 6,55,87,738.00 6.56

21 Supervision charges @ 3% of (A) 6,55,87,738.00 6.56

22 Maintenance charges @ 2.5% of (A) for 5 years 5,46,56,449.00 5.47

23 Escalation @ 5% per annum for on A as per phasing 10,93,12,897.00 10.93

2,54,26,17,965.0
  Total Project cost including centages = D 254.26
0
  Total Length of project (km) 39.845 39.845

  Cost per Km for civil work with centages 6.38 6.38

  LA & Utility Shifting    

Afforestation charges, Plantation work and its
24 1,95,20,161.00 1.95
maintenance @ 1 % of (A)

25 Signalized Traffic 5,00,000.00 0.05

26 UGD Works 26,45,553.00 0.26

27 Street lights 1,90,84,885.45 1.91

28 High Mast - (2 Nos) 15,24,400.00 0.15

29 Shifting of water supply, sanitary lines 11,52,09,572.00 11.52

30 Shifting of Electric Lines 9,04,68,000.00 9.05

  Sub Total 22,94,32,410.45  

31 Land Acquisition cost 2,55,64,000.00 2.56

  Utility cost 27,45,16,571.45 27.45

2,81,72,00,000.0
  Total Project cost 281.72
0
  Cost per Km for Package -I 7.07  

Table 8.10 Total Project Cost

Project Cost, Crs Economical Cost,

Project Road Project Length, Km
per km, Crs
Vijyapura to 281.72
40.00 7.07
Sankeshwar

8.1.8.2 Routine and Periodic Maintenance Cost

As per the guidelines of MOSRT&H circular RW/NH-11038/1/93-DOI, the maintenance costs (at

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current prices) of Flexible pavement have been considered.

Other maintenance: additional operational expenses associated with project such as traffic
signposts, lighting etc., are considered as annual charges and included in routine maintenance
costs. For annual supervision & administration charges, it has been assumed that the arrangement
under ‘without project’ will continue for the ‘with project’ situation.

Details of the maintenance programme followed for the project road sections under different
situations along with their unit rates, followed in the analysis, are summed up below in Table
8.11 to Table 8.13

Table 8.11 Annual/Periodical Maintenance Programme for the Improved Project

Sl. Starting Interval
Maintenance Type Quantity
No. year /Intervention
1 Crack Sealing 2020 Annual 100% repair of cracks
2 Patching & Pothole filling 2020 Annual 100% repair of damaged area
3 Overlay 2023 Every 5 Years 40 BC

Table 8.12 Annual/Periodical Maintenance Programme for the Existing Road Sections
Sl. Starting Interval
Maintenance Type Overlay Thickness (mm)
No. year /Intervention
1 Crack Sealing 2020 Annual 100% repair of cracks
2 Patching & Pothole filling 2020 Annual 100% repair of damaged area
3 Thin Overlay 2020 Every 5 Years 20 PMC

Table 8.13 Unit Cost Rates for Maintenance

Sl. No. Details Financial Cost Economical Cost
1 Patching (Rs per Sq m) 272 245
2 Overlay (40 mm) Crore per km 0.30 0.27
3 Edge Repair (Rs per Sq m) 272 245
4 Crack Sealing (Rs per Sq m) 272 245

8.1.8.3 The Residual value

Considering the remaining life of the construction items the Residual value (salvage value) has
been assessed at the end of the analysis period. For structures, the life is assumed to be 50 years.

Values of the selected construction items such as LA cost, structures, sub-base, social
displacement cost etc. are included in the economic analysis as residual values at the end of the
analysis periods. These residual values are considered, as benefits to the project in the analysis.

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In order to maintain uniformity among studies, (MoSRTH and Government of India) has
suggested that 20% of the project cost shall be considered as salvage value at the end of the
analysis period for economic evaluation studies for BOT highway projects in India. The same has
been adopted for present study.

8.1.8.4 Road User Costs

The economic cost inputs that are required for estimating road user costs are:
 Price of selected (popular) models, by vehicle type
 Tyre prices
 Fuel cost including oil
 Crew cost (wages of Drivers / Assistants)
 Time costs for :
- Passengers
- Freight (holding cost)
The cost of vehicles and tyres were collected from the manufacturers, and dealers located in
Karnataka. All the transfer payments such as sales tax, excise duty and octroi are deducted from
the financial cost to arrive at the resource cost.

A pilot survey has been conducted to estimate the wages of drivers and their assistants. The crew
cost is estimated with 2400 hours of work time per annum. With respect to maintenance and
labour costs, local workshops have been contacted to assess the annual wage bill and assuming
2400 hrs of work per annum, the labour costs have been calculated per hour.

The value of passenger time has been calculated based on the average annual income of
passenger collected with the assumption of 2400 hours of work time per annum. About 30
percent of the trips are assumed to be made during non-work hours. Finally, a weighted average
of time value per hour has been calculated. Time saving values applicable to the year 1990
(IRC:SP-30) have been adopted and projected to year 2015.

Based on the above considerations, the economic costs estimated for different VOC components
are presented in Table 8.14 below:

Table 8.14 Vehicle Characteristics, Utilization Data,

and Economic Unit Costs

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2-Wheelers

MA-Truck
Car (OT)
Car (NT)

Mini Bus

2-Truck

3-Truck
Basic
Bus LCV
Characteristics

A. Vehicle Characteristics    
Gross Vehicle
1.4 2 0.2 2.5 10 3.5 15.7 25 40
Weight (t)
ESAI Factor Per
0 0 0 0.1 0.7 0.3 4.5 4.5 4.5
Vehicle
Number of Axles 2 2 2 2 2 2 2 3 5
Number of Tyres 4 4 2 4 6 4 6 10 18
Number of
4 5 2 20 55 2.3 2.4 2.5 3
Passengers
B. Vehicle Utilization Data    
Service Life (Yr.) 10 10 10 10 10 12 10 10 12
Hours Driven per
1950 1950 700 1500 2000 1600 2100 2200 2400
Yr.
Km Drive per Yr. 32000 32000 21000 60000 70000 60000 85000 86000 120000
Annual Interest
12 12 12 12 12 12 12 12 12
Rate (%)
C. Economic Unit Costs    
New Vehicle Price
303400 266028 35000 444500 897139 383145 842200 869472 1661131
(Rs.)
New Tire Price
660 1291 350 3592 6255 3593 7613 7613 7613
(Rs.)
Maintenance
120 120 110 120 120 110 110 110 120
Labour (Rs./hr.)
Crew Cost
105 105 90 105 105 105 105 105 105
(Rs./crew-hr.)
Passenger Time
30 30 40 20 20 10 10 10 10
(Rs./pa-hr.)
Cargo Time
0 0 0 0 0 50 60 85 100
(Rs./veh-hr.)
Gas/Petrol Price
51
(Rs./ kg.)
Diesel Price
39
(Rs./lt.)
Lubricants Price
140
(Rs./kg.)

The effect of traffic congestion is considered separately in HDM Manager for distance related
components (fuel, lubricants, tyres, spare parts & maintenance labour) and time related

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components (depreciation, fixed costs, wages, value of passenger time and value of commodity in
transit.

8.1.9 Economic Evaluation:

8.1.9.1 Project Cost
The initial financial Cost of Rs. 281.72 Crores (exclusive of Interest during construction cost)
is taken for Flexible Pavement in the analysis with routine and maintenance costs.

8.1.9.2 Economic Analysis

Economic evaluation was carried out for the total package. In the analysis, the ‘with project’
alternative of widening the project road in two pavement option scenarios were compared with
the base option of ‘without project’ alternative of maintaining the existing road only without
improvements. This is to arrive at the net economic benefits, which consist of reduction in vehicle
operation cost, reduction in travel time and reduction in accident cost. Results of the analysis,
carried out through HDM – 4 (Version 1.3), are summarized below in Table 8.15.

Table 8.15 Summary of NPV and EIRR of the Project Road

Proposed Length NPV Discounted NPV/Cost
Section EIRR (%)
(Km) (Rs. Million)
Vijayapura to 3777.21 36.90 1.739
40.00
Sankeshwar

The detailed analysis of HDM-4 report has been furnished in Anexure-8.1 to 8.4.

8.1.9.3 Project Viability

An economic rate of return 36.90% for improvement of the Project road with Flexible paved
shoulders is more than 12% of discounted rate and 1067 million of NPV of net benefits indicate
the firm Viability of Project Road for the proposed improvement and hence recommended for
up gradation to two lane with paved shoulder.

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