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Insights on Transport Project Evaluation Techniques

Insights on Transport Project Evaluation Techniques. Sudhir Gota Clean Air Initiative for Asian Cities Center. Training on the Transport Co-benefits Guidelines 27-28 October 2010 Metro Manila. How to evaluate projects?. NPV, IRR BCR FYRR etc. ∑ COSTS. ∑BENEFITS.

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Insights on Transport Project Evaluation Techniques

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  1. Insights on Transport Project Evaluation Techniques Sudhir Gota Clean Air Initiative for Asian Cities Center Training on the Transport Co-benefits Guidelines 27-28 October 2010 Metro Manila

  2. How to evaluate projects? NPV, IRR BCR FYRR etc ∑ COSTS ∑BENEFITS Skillful quantification of project implications. Assumes road user as a consumer. A Physician would never think of expressing general state of health by a single indicator – Janos Kornai (1979)

  3. Different Approaches/Methodologies “There exists different approaches to evaluate projects, calculate cost and benefits and one needs to use appropriate ‘tools’ depending upon data, accuracy, resources, requirement etc.” Making a decision on which decision making tool to use is a big problem in itself !! Source : http://interacc.typepad.com/synthesis/2009/09/hammers-and-nails.html

  4. Costs of Transportation Transport Infrastructure costs Vehicle costs – Fixed and Variable (Fixed Costs – Vehicle purchase, Registration cost, Taxes, Insurance. Variable Costs - Fuel, Oil, Tires, Parking, Toll, Maintenance, Repair) Travel Time costs Accident and safety costs Environmental costs – Air and Noise pollution and Climate impact

  5. Costs – Transportation User Costs Time Costs Accidents Costs Vehicle Operating Costs • property damage • administration costs • lost output • medical costs • human costs • Fuel • Lubricant oil • Tire wear • Crew time • Maintenance labor • Maintenance parts • Depreciation • Interest • Overheads • Passenger time • Cargo holding time

  6. Benefits in transport projects Wider Impact Direct Impact Source: ADB and CAI-Asia Center, 2009

  7. Benefits in transport projects ( 1990’s) World Development Report, 1994 “Although there is no consensus on the nature of the impact of infrastructure on growth, many studies have indicated that the role is substantial and frequent, and often greater than that of investment in other forms of capital. BUT there is need to explain why the findings vary so much from study to study. Until this problem is resolved, results are neither specific or solid enough to serve as a basis for designing policies for infrastructure investment.” Box 1.1, page 15

  8. Benefits in transport projects ( 2000’s) SACTRA Report - Little empirical evidence of broader impacts, and what there is is contradictory. Some indicates significant impact on rates of economic growth, most suggests that there is some impact but that it is small. The state of the art is poorly developed, and the results do not offer convincing evidence of the size, nature or even direction of regional and local impacts. ADB - Based on the available econometric literature reviewed, roads appear to have strong indirect and direct effects on poverty reduction, and these are even clearer when roads are combined with complementary investments, such as schooling.

  9. Multi Criteria Appraisal Multi-criteria appraisal overcomes some of the problems of traditional approaches by allowing the decision-maker to assess the weights to be assigned to different indicators, objectives and impact groups. Preferences differ from decision maker to decision maker, so the outcome depends on who is making the decision and what their goals and preferences are.

  10. Few insights on Project appraisal/evaluation

  11. Importance of Dynamic Baseline (1)

  12. Importance of Dynamic Baseline (2) Source : Ahmedabad Municipal Corporation

  13. 2. Ex-ante and Ex-post require different approaches DETAILED ANALYSIS Accuracy SKETCH ANALYSIS Modified from John Rogers, World Bank

  14. 3. Estimating Speed is critical 14

  15. 4. Be careful with Speed flow equations Not accurate after V/C ratio exceeds 1 Source : Green Transport- ADB, HCM-2000 and IRC

  16. 5. Vehicle Operating Costs – Roughness(1) Assuming roughness is decreased from 13 to 2 for 1 km, assuming 1000 large buses/day = savings of 400,000 Pesos/Year/km on fuel ONLY Source : modified from Green Transport- ADB

  17. 5. Vehicle Operating Costs – Roughness (2) Source : World Bank Review

  18. 6. Transportation User Costs (1) Source : Modified from World Bank Review

  19. 6. Transportation User Costs (2) Based on a World bank review of 44 projects Fuel Costs are 38% (say 40%) of total VOC for ASEAN Travel Time costs are 12% of VOC for ASEAN Maintenance Part and Labor are 12% of total VOC for ASEAN Thus, in case you have CO2, back calculate fuel use and then derive VOC !!

  20. 7. Include Induced Traffic Source : ADB 2010

  21. 8. Consider Replication Effects where possible Source : ITDP

  22. 9. Make realistic traffic projections Source : Phil. Sayeg, Sam Zimmerman and others

  23. 10. Impact of Construction construction causes delay, increased and slow vehicle operation, accident, and environmental costs A typical 4 lane high speed road generates 2000 tons/km of CO2 emissions. In a metro - construction emissions are of high intensity and it can range from 3 to 12 years of operation emissions Source : Mikhail Chester el al.

  24. 11. Select appropriate Project lifecycle Source : ADB (2010) – Reducing Emissions from Transport Projects

  25. 12. Consider Technological Improvements By assuming an annual increase in fuel efficiency of 1% and 3% in a typical Indian expressway project , it has been estimated that the decrease amounts to 4700 tons/km, 12600 tons/km cumulatively over twenty years’ lifecycle or in other words reductions of 11% and 29% from without change in technology scenario. The fuel can become less carbon intensive, more cleaner and thus may change the emission profile. Analyst needs to consider such improvements in future. Though the impact would be similar in with and without project case but it would prevent inflating the numbers !!

  26. 13. Co-benefits in Economic Analysis Quantifications with CO2 with 85 $/ton, PM10 with 15000 $/ton and NOx as 3500 $/ton. CO2 would make significant impact on economic analysis ONLY when it exceeds 400$/ton Source : ADB 2010

  27. Find out more: CAI-Asia Center www.cleanairinitiative.org www.cleanairinitiative.org/portal/GreenTrucksPilot Bert Fabian, Transport Program Manager bert.fabian@cai-asia.org Sudhir Gota, Transport Specialist sudhir@cai-asia.org Alvin Mejia, Environment Specialist alvin.mejia@cai-asia.org Unit 3505, 35th floor Robinsons-Equitable Tower ADB Avenue, Pasig City Metro Manila 1605 Philippines “Air Quality in a Changing Climate” www.BAQ2010.org For information email: baq2010@cai-asia.org 27

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