Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan

Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

CHAPTER - 13
13 ECONOMIC ANALYSIS

13.1 Introduction

The objective of economic analysis is to determine the feasibility of the project from the
social and economic perspective of the project area. The obtained results of economic
analysis are used for justifying the investment to the particular project and to assess the
impact of the project on improving the economic welfare of the region. This analysis mainly
depends on the major parameters of road characteristics and the characteristics of the vehicle
fleet plying on the road network. The quantification of social benefits & costs on
implementation of this proposed 4-laning of the project road stretch has been analyzed using
IRC SP-30-2009. These road improvements bring about a reduction in transportation cost in
terms of reduced vehicle operating cost, travel time cost, Accident cost etc.,

13.2 Methodology of the analysis

This economic evaluation has been carried out by comparing ‘Do Minimum’ alternative with
the ‘Project Case’ situation. The packages considered for the analysis are

Table - 13.1 Total Civil Cost

Length Civil Cost (Crores)

Package - I 7.300 Km 549.09

Strengthening of the existing pavement by way of providing routine maintenance to the

existing two lanes is taken as the ‘Do minimum’ case. The upgrading of existing pavement
from two lane road to 4 lane is taken as the’ Project Case’ situation. These two alternatives
are analyzed for a period of 20 years.

Also, the sensitivity analysis is carried out for the two packages by varying the costs and
benefits streams of the project. Usually, the following three scenarios are taken up in the
sensitivity analysis.

a) Increase the project cost by 15%

b) Decrease the benefit for the project by 15%

c) Increase the project cost by 15% and decrease the benefit by 15%.

FEEDBACK INFRA IN JV WITH

NHAI 1 MUKESH & ASSOCIATES
Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan
Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

13.3 Stages of Economic Analysis

The economic evaluation of the project involves many stages and some such major heads are
given below.

1. Definition of Road Networks

2. Definition of Vehicle fleet and their characteristics

3. Definition of improvement strategies – Lane addition, Periodic & Routine

Maintenance

4. Analysis of the Project

13.3.1 Definition of Road Networks

Based on subgrade CBR, existing pavement condition and the traffic characteristics of
vehicles plying on the road stretch the road network can be analyzed. The following features
will be taken into account for the road network analysis.

 Inventory details such as length, shoulder width,

 Geometric details such as rise and fall, average horizontal curvature, speed limit,

 Pavement inventory details including roughness, percentage of cracking, ravelled area

etc.,

 CBR of the soil, characteristic deflection

13.3.2 Definition of vehicle fleet and their characteristics

On defining the road network, the next stage is the definitions of corresponding vehicle fleets
plying along the project road stretch. The vehicles taken in the analysis are as follows.

1. Two wheeler

2. Three wheeler

3. Car

4. LCV

5. Two axle trucks

6. Three axle trucks

7. Multi axle trucks

FEEDBACK INFRA IN JV WITH

NHAI 2 MUKESH & ASSOCIATES
Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan
Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

Factors considered in the Vehicle fleet are given below,

a) Type
b) Age
c) Make
d) Engine horse-power
e) Power - Weight ratio

Table - 13.2
Vehicle Operating Cost for Do Minimum Case.

RF 10 Two lane Road Roughness = 6000

2&3 Two
VOC Factors Cars Buses LCV MAV
Axle Wheelers
Fuel Cost 1.13 3.36 3.03 3.56 0.49 7.84
Spare Cost 0.25 0.46 0.29 0.9 0.31 0.58
Maintenance Cost 0.14 0.25 0.11 0.33 0.17 0.38
Tyre Cost 0.17 1.16 0.46 0.85 0.04 1.46
Engine Cost 0.14 0.17 0.08 0.14 0.03 0.35
Other Cost 0.04 0.07 0.03 0.08 0 0.08
Grease 0.02 0.01 0.01 90.03 0 0.03
Total 1.89 5.48 4.01 5.89 1.04 10.72

Fixed Cost 1 0.68 2.94 2.14 0.29 3.17

Depreciation Cost 0.11 0.19 0.49 0.36 0.05 0.61
Total 1.11 0.87 3.43 2.5 0.34 3.78

Table - 13.3
Vehicle Operating Cost for Project Case.

RF 0 Two lane Road Roughness = 2000

Two
VOC Factors Cars Buses LCV 2&3 axle MAV
Wheelers
Fuel Cost 1.19 3.37 3.25 3.5 0.48 7.8
Spare Cost 0.01 0.3 0.13 0.4 0.02 0.26
Maintenance Cost 0.01 0.27 0.05 0.15 0.01 0.17
Tyre Cost 0.12 0.86 0.26 0.48 0.03 0.82
Engine Cost 0.12 0.08 0.08 0.12 0.03 0.2
Other Cost 0.03 0 0.03 0.07 0 0.07
Grease 0.02 0 0.01 0.01 0 0.01
Total 1.5 4.88 3.81 4.73 0.57 9.33

Fixed Cost 0.83 0.57 2.57 1.95 0.24 2.89

Depreciation Cost 0.09 0.16 0.43 0.33 0.04 0.56
Total 0.92 0.73 3 2.28 0.28 3.45

FEEDBACK INFRA IN JV WITH

NHAI 3 MUKESH & ASSOCIATES
Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan
Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

13.3.3 Routine and Periodic Maintenance cost

The project road is given routine maintenance like patching, edge repair works, etc and
around Rs.6 lakhs is allotted every year for each kilometer. Also, the periodic maintenance
of providing overlay is done for every 5 years and nearly 10 lakhs is allotted for each
kilometer. The respective costs for 4-lane roads (without project), were considered
proportionately. The project road is given maintenance both periodic and routine as per the
following scheme.

 Periodic Maintenance-Overlay (Alternative 0) : Scheduled (Every 5th Year)

 Routine maintenance (Alternative 0) : Scheduled (Every Year)
 Periodic Maintenance-Overlay (Alternative 1) : Scheduled (Every 5th Year)
 Routine maintenance (Alternative 1) : Scheduled (Every Year)
13.3.4 Analysis of the Project

On inputting the above-mentioned parameters, the project is carried out for a period of
20years. The major factors considered in the project analysis are

Discount rate : 12%

Salvage value : 15%
Standard Conversion Factor : 0.9
Construction period : 2 years
Phasing for the new construction : 40% in the 1st year
60% in the 2nd year

The analysis is done for a period of 20years by comparing two alternatives.

 Alternative 0 - Do minimum Situation

 Alternative 1 – New Alignment (Project Case)

Do minimum alternative is the one in which the existing pavement has not been subjected to
any major changes and given only routine maintenance and periodic maintenance. In the
Project Case alternative, the existing road is given 4 laning by new alignment.

13.4 Project cost

The project cost includes the lane addition cost, repair & rehabilitation of bridges & cross
drainage structures all along the project road stretch. The cost estimate for the entire length of
the project road has been calculated separately based on the quantities worked out for the

FEEDBACK INFRA IN JV WITH

NHAI 4 MUKESH & ASSOCIATES
Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan
Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

major items of work to be executed in the project on the basis of preliminary engineering
design of roads, structures and adopted rates.
Cost of Package - 4 lane of the project road

Project Cost Length Financial Cost (Rs. In Crores)

Madurai – Chettikulam 7.300 Km 549.09

(Elevated Corridor)

13.5 Project Benefits

The net benefits of the project can be quantified under the three major heads of
1. Road Agency Costs
2. Vehicles Operating Costs
3. Accident Cost

The benefits of project include the benefits accrued on providing overlay to existing road and
addition of lanes to the existing two lanes. The vehicle operating cost includes the cost of the
tyres, fuels, lubricants, etc. The increase in the road agency cost of the project has
substantially decreased the vehicle operating cost and the travel time cost.

The appropriate saving in travel time and vehicle operating costs on utilizing the proposed
project road are also quantified and the results of the same are enclosed. A more efficient
facility enables the speed of the vehicle to go up and thereby reducing the travel time. The
benefit streams have been computed annually over the 20 years benefit period for all the
homogenous sections.

Package I : Economic Analysis Summary (Rs. in millions)

Economic Internal Rate of Return
Year Do Minimum Project Case Benefit Net Benefit

FEEDBACK INFRA IN JV WITH

NHAI 5 MUKESH & ASSOCIATES
Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan
Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

Construction
Total
Total VOC &
VOC
Maintenance
2017 0 0 0.00 0.00 0.00
2018 1131.87 36270 0.00 -36270 -36270
2019 1273.20 24180 0.00 -24180 -24180
2020 1435.08 -30 941.34 493.73 463.73
2021 1625.77 -30 1039.11 586.66 556.66
2022 1835.52 -30 1148.86 686.66 656.66
2023 2085.42 -30 1273.43 811.99 781.99
2024 2374.37 -30 1414.00 960.37 930.37
2025 2709.27 -30 1572.98 1136.29 1106.29
2026 3081.52 -30 1765.55 1315.97 1285.97
2027 3454.83 -30 1966.75 1488.08 1458.08
2028 3889.26 -30 2196.86 1692.39 1662.39
2029 4385.77 -30 2458.48 1927.29 1897.29
2030 4954.52 -30 2770.60 2183.93 2153.93
2031 5607.55 -30 3138.38 2469.17 2439.17
2032 6359.14 -30 3508.20 2850.94 2820.94
2033 7236.93 -30 4017.57 3219.36 3189.36
2034 8254.02 -30 4471.05 3782.97 3752.97
2035 9435.61 -30 5001.40 4434.21 4404.21
2036 10811.99 -30 5574.86 5237.13 5207.13
2037 12419.59 -30 6224.88 6194.70 6164.70
Total -19518.15
IRR -2.77%

13.6 Result of Economic Analysis

The results suggest that the development of the project corridor with higher order traffic
facilities (4-Lane) for smooth and efficient movement of the traffic results in positive
economic returns. The EIRR (Economic Internal Rate of Return) for the construction
Package I is calculated as -2.77% considering the saving in VOC and time delay.
Hence, the project Section is Economically not Viable for Package I.

13.7 Sensitivity Analysis

Sensitivity analysis has been carried out for three variations in costs and benefits. The
following are the cases considered for the analysis,
Case I : Cost increased by 15% and Base Benefits
Case II : Base Cost and Reduction in Benefit by 15%

FEEDBACK INFRA IN JV WITH

NHAI 6 MUKESH & ASSOCIATES
Construction of 4-lane Elevated Corridor and Ground Level improvements from Pandiyan
Hotel Junction (KM 0/000) to Chettikulam (KM 7/300) of Madurai Natham Section FINAL FEASIBILITY
(Package-1) of NH-785 on EPC Mode under Bharatmala Pariyojana Phase-I in the state REPORT
of Tamil Nadu.

Case III : Cost increased by 15% and Reduction in Benefit by 15%

Sensitivity analysis has been performed for both with time and without time alternatives. The
scenarios has taken into account, the possible construction costs overrun, traffic volume,
revenue shortfalls, interest rate volatility, non-compliance or default by contractors, and
political risks. The summary of the sensitivity analysis is furnished in the following Table.
Results of the Sensitivity Analysis

Project Scenarios Description EIRR (%)

I Net Benefit -2.77%

II Cost increased by 15% -3.72%

Package 1
III Reduction in benefit by 15% -3.87%

Cost increased by 15% and

IV -4.80%
reduction in benefit by 15%

13.8 Conclusion

The project is economically viable for widening the existing carriageway to four lane
carriageway standards without time saving options. Whereas the EIRR for Package I is
-2.77%. Considering the importance and necessity, Package I can be taken up for
improvement. Therefore, it is inferred that the project of widening the existing two-lane road
to two/four lane with paved shoulder is economically viable.

FEEDBACK INFRA IN JV WITH

NHAI 7 MUKESH & ASSOCIATES