Assessment of Transportation Infrastructure: Roads and Bridges

1. Assessment of Transportation Infrastructure: Roads and Bridges Yu.V. Kozyr, RSA, General Director of Kopart 36-86, Greena street, Моscow 117628, kozyr@kopart.ru Bangkok, July, 2007

2. The role of transportation infrastructure in society • The role of transportation infrastructure in Society is similar to that of money in the economy, although, the role of roads play a more important part: without money, only natural economy can exist based on the barter of goods, however, without roads the exchange of goods is restricted to a relatively limited area.

3. Who are the beneficiaries? • When valuing roads (bridges) one has to first determine: who this assessment is being made for – the owner of the facility, its users or Society as a whole? The value of a facility to Society is the sum total of the values attached to the road by the road users and owners.

4. Assessment of Roads on Behalf of the Owner – the State • Assessment of roads on behalf of the State can be made in two ways: one approach is based on costs and the second one – on perceived benefits from construction and subsequent operation.

5. Approach is based on costs • The cost based assessment considers the costs associated with design, preparation and construction works, cost of the maintenance performed (everything priced as at the date of assessment), and also, the current condition of the roadbed (degree of wear).

6. Approach is based on perceived benefits • Assessment based on perceived benefits from construction and operation can be schematically represented as follows: • Value of facility (NPV) = • = PV (benefit from operation) – PV (design and construction cost) – PV (operation costs) = • = PV (increase of taxes and revenues stipulated by the assessed road operation + increase of associated revenues for the corresponding state enterprises + reduction in payment of death and injury allowances + reduction of medical care costs for the Health and Social Development Ministry + reduction of costs for the Ministry for Emergency Situations, militia, fire brigades and ambulance – PV (design and construction costs) – PV (operation costs), • where PV – cost as of the date of assessment (for the values given in parenthesis).

7. Assessment of Roads on Behalf of the Road Users • Assessment of roads on behalf of the users can be made by one of the following methods: • Value of facility = PV (reduction of costs, including time cost, as a result of the use of the road under assessment as compared to the use of any alternative roads). • Value of facility = PV (revenues and benefits, which cannot be obtained without using the road under assessment – costs associated with driving these roads and other costs associated with obtaining the abovementioned revenues). • Lower limit of the value of facility = PV (costs associated with the road use (cost of fuel, depreciation of the vehicles, road tax and mandatory insurance (OSAGO)). This assessment method is based on the fact that road users spend money to use the road (i.e. to drive on this road) only because the benefit they receive is higher than the costs.

8. Necessity of research data • In the assessment of infrastructure facilities, such as roads, an important role is played by research-based assessments, such as dependence on the change in the road network, increase of the roads traffic capacity and the change of the tax revenues for the local budgets. • For example: people living in a town or village which is equidistant from two cities, will generally opt to travel to the larger city. • Such factors must be taken intoconsideration

9. The state government decision made on the basis of “narrow” state interests • The state government decisions to construct or repair a road made on the basis of “narrow” state interests, provided the funding is available, should depend on the following criteria: • Perceived benefits for the state (budgets at all levels) from operation of a road exceed expected costs of construction and subsequent maintenance of the road (or only maintenance, if the road is already in existance).

10. The state government decision made on the basis of “broad” state-societyinterests • The state government decisions to construct or repair a road made on the basis of “broad” state-society interests, provided the funding is available, should depend on the following rule: • Perceived benefits for the society (i.e. perceived benefits for the budgets at all levels + perceived benefits for the road users) exceed expected costs of construction and subsequent maintenance of the road (or only maintenance, if the road is already in existance). • The last rule, broadly speaking, should incorporate the enhanced living standards of the population using the road, which involves quantitative assessment of the human life value…

11. Valuation of non-commercially used roads • Types of value to be determined: • Value in use • Investment value • Where intra-enterprise roads are valued, going concern value can be used as the value base. In such cases value of roads represents a portion of the total value of an enterprise. • Applicable approaches: • Depreciated replacement cost (DRC) • Income approach • Note. To evaluate bridges, apart from the above approaches, a comparative approach can be also used. An example of that approach is shown in Slides 22-32.

12. Approach 1: Depreciated replacement cost (DRC) • Value of an existing road = • Costs of construction of a new identical road • ( -) (minus) • Cost equivalent of total accumulated wear and tear

13. Assessment of costs involved in new road construction Unit costs (from Reference Books (KO-Invest (Russia) RS-Means (Europe) Marshall &Swift (California)) Adjustments of standard unit rates based on local conditions Soil type Road category Designed traffic intensity Unit cost of road bed construction x road length = cost of road bed construction Calculation of unit cost of road construction = Cost of new road construction x road length= = cost of engineering communications construction Unit cost of engineering communications construction

14. Assessment of physical wear and tear Designed traffic intensity Life cycle wear and tear (actual wear and tear caused by movements of vehicles) Operational traffic intensity Total physical deterioration Repairs wear and tear Time (weathering) wear and tear

15. Economic obsolescence valuation • Loss of value caused by factors external to the asset concerned • Example: asphalt road was used only by the factory. The factory was closed. Therefore, traffic intensityon the road reduced. • Economic obsolescence will be affected in two ways: 1. decrease in road usage 2. reduction in road traffic will impact on the calculation of construction and maintenance costs.

16. Approach 2: Income approach • The construction of non-commercially used roads constitutes an investment activity of the state to achieve social goals and commercial benefits

17. Social goals • Better labour and recreation conditions for the public • Quicker and more comfortable travel of people on new roads and repaired old roads and new opportunities to physically reach remote locations • Social investments efficiency benchmark: • To reach maximum return on a unit of used (invested) funds. • Return can be measured in kind: • With reduced time spent on travel between locations – in number of saved hours per one kilometer of travel; • With increased highway traffic capacity – in changed quantities of vehicles moving per time unit; • Reduced rate of injuries per year or per 1,000 vehicles a year

18. Commercial benefits • Construction of virtually any new large-scale facility always starts with the construction of roads to such a facility. • Construction of a new road in a remote scarcely populated area causes booming economic activity in its proximity : gas stations, cafes, motels and other facilities appear. Traffic intensity on the road gradually increases. Thus, the value of road-adjacent land plots greatly appreciates in value.

19. Conclusion: • Commercial benefits associated with construction of roads for the state are: Higher economic activities of territories (higher tax collections, higher lease payments, higher interest of the state and its constituents in the ownership of real estate facilities) • Benefits of construction of roads for private investments are : • Increase in traffic of people (for owners of cafes, motels and gas stations) • Higher sales income and real estate lease rates (for developers)

20. Sources of funding construction and repairs of roads • Money in the Road Fund (built up by road user’s taxes) • Budget funds of municipalities • Private investments

21. Transformation of commercial benefits to value under income approach • If you know sources of commercial benefits, you can transform them to assess commercial efficiency of construction of non-commercially used roads • For the state/municipalities: NPV = - road construction costs – capitalized portion of repairs costs + expected total increased receipts due to road construction (higher lease payments on state-owned real estate facilities, higher land tax, higher value of the state property in its interest in newly built real estate facilities) + expected reduced maintenance and operating costs related to publiclyowned municipal enterprises (transport enterprises and utilities) and emergency services (police, ambulances, firefighters) • For private investors: NPV = - road construction costs + expected total increased receipts due to road construction (an increase in people traffic, higher sales of newly built real estate facilities)

22. Example of bridge evaluation based on comparative approach

23. DESCRIPTION OF ASSESSABLE FACILITY • Design of АО Skanska «Bridge «IKEA», Moscow, Russia No. 01-0300 was issued 18.10.99 and provided for construction of a three span motorway bridgewith “traffic on top”, of 114 m length, 8.8 m wide with two buttresses. • Medium buttress height from the edge of foundation – 5.5 m • Buttresses – reinforced-concrete, solid-cast • Abutments – reinforced-concrete, solid-cast. • Length between buttresses: 34,0 – 46,0 – 34,0 м. • Bridge superstructure– Double T- metal beams with reinforced-concrete paving slabs • Pedestrians bridge superstructure – reinforced-concrete

24. DESCRIPTION OF ASSESSABLE FACILITY (continued) • Bridge structures composition:columns, beams, slabs, etc. • Material Specifications: • Concrete В 30 (К 35); • steel bars А III (А400Н), AIV (А500W), • Steel structures: • binding bolts St52-3, • welded beams and columns St52-3 or S355JRG2 , • Square pipesS355J2H, • Hot-rolled sectionsSt37-2, St52-3 or S355J2 • Corrugated sheetSt37-2, • hot dipped galvanized grills, • bolts 8,8 (DIN931) • hot dipped galvanized screws 8,8 (DIN934) • hot dipped galvanized washers (DIN126)

25. Composition of assessable facilities

26. Location of assessable facility • The assessable facility is located at the IKEA warehouse in Khimki, Moskovskaya Oblast, about 3.5 km away from the Moscow outer motorway. Traffic accessibility is good. Access to loading devices and vehicles is in place. Shipment of assessable structures during purchase-sale is in place

27. TECHNICAL CLASSIFICATION OF MOTOR ROADS OF GENERAL USE • According to technical classification of motor roads of general use the assessable structures of a motor bridge can be used for a motor road of category IIwith two traffic lanes of 3.75 m width and with no central dividing strip • Class of К load for АК standard loadshould be accepted as equal to: • For motor roads I А, IБ, IВ, category I I – 11.5(kN); • For motor roadscategories I I I and I V –10.0 (kN); • For motor roadscategory V – 6 (kN); • For bridge structures and pipes on roads of all categories – 14(kN) • For wooden bridges - 11.3 (kN)

28. Traffic intensity • Road category allows for determination of motor bridge traffic intensity of less than 4,000 vehicles per day • Estimated speed – 100…120 km/h. • This data can be used to estimate the frequency of road repairs

29. COST PARAMETERS OF MOTOR BRIDGES OF CATEGORY II • Information about a similar facility No.1: • Urals news • «Bridge length is 220 m. ….Tentative cost of a motor bridge is RUB 100 million.» • Information source: toz.khv.ru/template.php • Unit cost: 100 000 000 / 220 = RUB 454,545/LM

30. COST PARAMETERS OF MOTOR BRIDGES OF CATEGORY II (continued1) • Information about a similar facility No.2: • «The overall length of the bridgecrossing is 0.7km, the bridge length is 170 LM and its estimated cost is about RUB 150 million at current prices. With such considerable construction costs and relatively low prospective traffic intensity of 800 vehicles per day ( including cargo traffic) the payback period will be about 15 years which is twice as much as what is acceptable. Taking into consideration the shortage of finances in the road fund, the construction of a new bridge crossing is not feasible in the short run ». • Information source: http://government.mosreg.ru • Unit cost: 150 000 000 / 170 = RUB 882 353 /LM. • Information about a similar facility No.3: • «The bridgecrossing of 391 m costingRUB 215 million has become the longest crossing». • www.volga-astrakhan.ru • Unit cost : 215 000 000 / 391 = RUB 549 872 LM

31. Conclusion • Based on the study of costs of today’s bridges available on various Internet sites a tentative average unit cost is determined (refer to the above data): • UNIT COSTS: • Length 170 m– RUB 882 353 /LM • Length 220 m–RUB454 545 /LM • Length 391 m– RUB 549 872 /LM • Average unit cost – • RUB 628 923 /LM

32. Final calculation(comparative approach) • Average unit price – RUB 628 923 /LM • Bridge length – 114 m • Total cost of construction of the assessable bridge : • 114 х 628 923 = RUB 71 697 222 million

33. Commercially used roads:valuation for owners • Prw – road value for owners, • <N> - average number of cars travelling on the road per day (traffic), • <l> - average distance of one trip, • p – payment per 1 km • M – expected operating time for the road, • Ce1 – operating costs per 1 year, • gp – expected growth rate of payments, • goc – expected growth rate of operating costs, • r – discount rate for payments, • rf– risk free rate.

34. Commercially used roads:valuation for users • Pruextra – road extra value for users in comparison with value of free charge road, • tfc – time for moving of <l> km, if use free charge road, • tc – time for moving of <l> km, if use charge road (tc < tfc), • ptu – time unit value, • cu – user’s costs (gas oil + depreciation of car), • gpt – expected growth rate of time unit value, • gcu – expected growth rate of user’s costs, • cu - % savings, an account of time saved when using a toll road (i.e. cu > 0, if tc < tfc)

35. Final Summary • On a final note, I would like to sum up the principal point covered during this presentation: • First of all, it’s extremely important to identify precisely who will benefit • Secondly, one must pinpoint what type of value is to be determined • Finally, having done this, one must apply one of the following methods: • Depreciated Replacement Cost (DRC); • Discounted Cash Flow of Beneficiaries