Fenghuang Light Rail - Assignment Example

Fenghuang Light Rail Course Name Professor’s Name Institutional Affiliation City and State Where Institution is Located Date Fenghuang Light Rail Cost Benefit Analysis Executive Summary This analysis on the cost benefit of Fenghuang Light rail (FLR) examines its economical impact on the society’s welfare. These examinations take into consideration the 2 years lifetime of the project and a discount rate of 6%. The cost benefits are measured using Net Present Value which indicates the scope to which the benefits of the FLR exceed its TOTAL cost. The Net Present Value of FLR is $151.8874 million. However, in depth analysis shows numerous benefits attained by the residents of Canberra. Table of Contents Fenghuang Light Rail 1 Executive Summary 2 Table of Contents 3 Background 4 What is the problem? 5 What are the alternatives? 5 Fenghuang Light Rail proposal 5 Financial vs. economic impacts 9 Value the impacts (costs and benefits) 11 Costs 11 Light rail 11 Environmental conservation 12 Benefits 13 Transport benefits 13 Land use benefits 15 Wider economic impacts 16 Sensitivity analysis 17 Conclusion 18 References 19 Abbreviations FLR Fenghuang Light Rail CBA Cost Benefit Analysis NCP National Capital Planning ACT Australian Capital Territory Background Transport is a critical element of successful regional, urban and city planning. With the social and economic priorities driving action to address climate change and improve the long-term sustainability of communities, the spotlight is firmly on transport as a major contributor to the economic well-being of the society. Canberra transportation system is guided through the National Capital Planning (NCP) which tries to ensure rapid mobility using cars as the primary means of transport. However, the NCP was inducted in 1970, and its aim of facilitating fast and easy movement has been undermined by population growth, changing demographics and lifestyle choices which have placed immense pressure on the Canberra roads system. These pressures are being felt in communities all around Canberra where increasing population densities test the boundaries of existing road infrastructure. The road system in Canberra consists of its roads network, public transport, and car parking facilities. In-depth, a road network’s efficiency is dictated not only on the physical provisions but also on the system and physical fabric of the city. Ideally, a transport system should support the urban design, environmental, heritage and land use requirements of the corridor in which they are located. The transportation network is also a determinant of the commercial and residential development in the region. What is the problem? As Morrison (2013) notes, the NCA has failed to safeguard Canberra against the unwanted effects of congestion that occur with continuing population growth. Pressures originating from the increase of population in the national capital have to lead to traffic congestion, insufficient parking spaces, and transportation inconvenience in the capital. Thus, a new transport network should be introduced so as to curb the pressures and link up the entire Canberra. What are the proposal's objectives? The FLR has the role of improving the efficiency of modern transportation by reducing the traffic congestion during peak hours. The rail will be 30% faster than general traffic thus will ensure convenience for over 100,000 people. This will be done through the construction of 7 link routes in entire Canberra. Also, this alignment of rail tracks will ensure traffic lights are introduced correctly. These objectives are better illustrated in the Logframe below What are the alternatives? Expanding the existing road network is also an alternative that can also solve the congestion problem. However, the Fenghuang Light Rail has been selected because it introduces a new modern transportation system thus addressing all problems Canberra residents face about transportation. Fenghuang Light Rail proposal The Fenghuang Light Rail plan is the construction and operation of a light railroad. This project will be for two years and will cost $823million. It is proposed to develop approximately 50 hectares of land which will value at $220 million. Construction will include the building of rail stations along the track to serve the populace of Canberra. The construction is to begin in August 2017 and conclude in August 2019. The usage of the road will start in 2019 and will eventually be in full operation by 2020. Its effects economically will be visible in 2020. The light rail will have over 2000 rail vehicles by 2020. This will introduce a new dimension into the transport system especially in the ACT. The relationship between the project’s inputs and outputs (cause and effect) is summarized in the Logframe table below. This shows that the project has a logical relationship between: • Inputs (labour, land, materials, etc.) which are used in: • Project activities (construction of the light rail track) to produce a set of: • Outputs (Link entire Canberra) to achieve the projects: • Purpose (improve efficiency of transportation in Canberra) which meets society • Goal (Bring social and community benefits to Canberra residents and attract development and investment opportunities to the National Capital). Framework for Summarizing Project Design (Fenghuang light rail) Narrative Summary Measurable Indicators Means of Verification Important Assumptions Goal: 1.Improve efficiency of transport 2. Reduce traffic during peak hours 1. Increased employment and incomes 2.Time saving 3. Fuel saving 4. Fare saving 1. ABS statistics 2. Cost benefit analysis Goal to Super Goal Purpose: (aim or impact) 1.Improve efficiency of transport 2. Reduce traffic during peak hours 1. over 30% faster than general traffic 1.Government and transport Canberra light rail agency statistics Purpose to Goal 1. Small environmental cost 2. Extra time is valuable Outputs: (deliverables or terms of reference) 1 .Faster than before 2 Link entire Canberra 3. Traffic lights and system will be introduced perfectly Basic terms of reference for each output 1. Provide convenience for more than 100000 people 2. The total capacity of the vehicle proposed is 207 passengers 3.2000+ vehicles be carried during peak hours 4.Link Canberra by 7 routes and track alignment Officially project evaluation and assumption Output to Purpose 1. Increase the capacity of passengers 2. Increase the speed of vehicle to improve efficiency Safety Testing Cost Activities: (key clusters or work breakdown structure) 1.Consultation 2. Assess the funds and costs 3. Environmental evaluation 4 .Employment 5.Construction( remove contact, paying and testing) 6. Reduce the impacts during construction Inputs: Project budget Millions Transport benefits 406 Land use benefits 381 Wider economic impact198 Total project benefits 823 Labor 116 Unscheduled progress reports and assessed funds and costs Activities to Output 1. Number supply problems 2. Land available 3. Technology available 4.Construction standard met 5.Externalities are acceptable In each column, the Logframe describes the logistics of the project. The first column represents the project’s impact. These are ranked according to the causality of the project. The Measurable Indicators column quantifies how the effects will be measured. The Means of Verification column shows where the measurement information will be sourced and indicates the valuation technique that will be used in this CBA (Thayer, 2015). These include market prices, wages, fees and high cost. The Logframe summarizes the assumptions which underpin the logical relationship between inputs and outputs. These assumptions (shown in the final column) are critical for determining what can go wrong with the project and therefore the issues that should be included in risk or sensitivity analysis. These assumptions include small environmental costs, no supply of materials problems, all construction requirements will be met and land is readily available. Impacts (cost and benefits) During construction and operation, the project implements resources such as labor, materials, and consultation and overhead costs. This makes the resources unavailable for other uses by the nearby community. Also, there are some indirect impacts of the construction of the rail such as air and environmental pollution through material wastage and habitat loss in undeveloped land. In retrospect, the project offers solutions to the problems of the nearby communities by creating employment opportunities, fuel savings and eventually less air pollution. Light rail ensures the use of vehicles that do not use fuel thus providing not only a reduced amount paid for fuels but also an alternative use of fuel. The reduced use of fuels will also reduce pollution due to combustion of fuels from cars. This is well summarized in the table below which exploits the financial and economic impacts on the costs and benefits of the FLR in Canberra. Financial vs. economic impacts Impact Financial benefits Economic (real) Costs Materials cost Market price Material wastage Labor Wages Time lost Consultation Fees Time and money lost Overhead costs High cost Loss of energy Benefits Time (passengers) Additional wages improved efficiency Fuel savings reduce the amount paid for fuel Alternative use of fuel Less air pollution Eliminate medical expenses Improve people’s health In the table below show the various stakeholders involved in the project. They all have a wide range of objectives as shown below. Stakeholders Point of view Objective Government (ACT) state Increase the dividends acquired from the transportation sector Make Canberra attractive to development and investments Passengers (transport users) Individuals, companies, government agencies Reduced transportation costs Convenience and efficiency in transportation Fuel savings Local community (Canberra residents ) Individuals Accessibility and quality of life NCA Government agency To achieve suitability thus curb the population pressure on the existing road network Construction firms Company Profits The planning balance sheet below also gives a summary of the costs and benefits of the stakeholders involved in the project. Participant group COSTS BENEFITS Passengers (travelers) Transportation costs Reduced fare costs Fuel savings Time savings Local community (Canberra residents) Environmental degradation due to construction Habitat loss Quick accessibility to various Canberra regions Regional development Increased investment in the region Construction firms Resources used Direct profits from the construction activities NCA Resources used in consultation and planning of the project Achieving their goal of having an efficient transportation system in Canberra Government (ACT) Resources and funds used in facilitating the project Dividends and revenue obtained upon operation Increased investment in the capital Vast growth and development of the region Value the impacts (costs and benefits) Costs Light rail Reason: The construction of the light rail will indulge a lot of resources. These resources vary from building materials to labour implications and financial constraints. Hence, there is an opportunity cost to the society since it will have a shortage of these resources. Basis: In-depth, construction materials and other resources will be purchased in markets where prices are a good estimate of their economic value. Thus, evaluation will be undertaken using market values over the period of 2017 to 2018. The cost of acquiring the land will also be included in the construction costs. The market price of the property is $10 million per hectare. The entire light rail track requires 22 acres for its construction. This is the cost of acquiring the land to be used for construction plus other operations. The market price for all construction inputs is $23 million per kilometre; this includes the labour, materials and service costs for the entire project. Operation costs are due to increased road congestions during the construction process. This is due to the movement of materials for construction. This may lead to gridlock especially in areas close to the project site. This increased travel cost is valued at $15 per hour. However, population growth may stimulate more cost... Value Construction Light Rail $23 million per km Land $10 million per hectare Operation Travel costs $15/hr Environmental conservation Reason: Resources will be directed to ensuring that the environment is well maintained during and after the construction process. Thus, these funds will not be available for other uses. Basis: There lacks a methodology of valuation of this operation through market prices. However, through activities such as material waste disposal and recycling, proper waste management and collection and management of hazardous materials, offer an appropriate way to approximate the cost of this operation. Also, transactions have to assess and reduce the output of construction by-products. Construction sites always have a high volume of insulation waste debris and hard to recycle waste such as glass and ceramics. Thus the environmental conservation value is high (Bergheim, 2016). Thus, the cost of collecting the unrecyclable material and disposing of them will be high. This will be due to the effort of ensuring the project does not cause environmental degradation, noise and air pollution to its environs. This will also include the cost of disposal of all waste materials of the adjacent community. This will improve the health conditions of the nearby community. The Commonwealth (2009) report explains that landfills in Australia range from $42 per ton to $102 per ton (Gary and White, 2015). In addition to this cost, the landfill levy cost in ACT is $70 per ton. ACT being the national capital, this price is at its highest. Thus, the cost of disposing of a ton of unrecyclable waste in Canberra is $172 excluding the transportation and labour implications of the activity. The large project may have a significant amount of waste due to excavation and building. Eventually, this leads to 80,000 ton waste per annum that needs to be disposed. Value Environmental conservation Material Waste disposal and recycling $68.5 million per annum Suitable waste management $35 million per annum Collection and management of hazardous materials $15 million per annum Total costs $118.5 million per annum Benefits Transport benefits Reason: Reason: There will be a new form of transport that will be cheaper as compared to Canberra bus public transportation. This project will lead to improved travel times, comfort and amenity, reduction in vehicle operation costs, reduction in accident costs, health benefits, residual value and public transport operating savings. Basis Convenience and reliability benefits In public transport, the apparent journey costs reflect not only the different components of the travel time but also the quality of the route. Thus, there is a benefit of higher comfort for using light rail transportation compared to that of a bus journey. This is an advantage enjoyed by those travellers that switch from bus to light rail. This amenity benefit is assumed to be valued at 10% of the journey time of the average light rail trip. In addition to actual travel times, road users appreciate the reliability of journey times. All this add up to amenity and safety benefits. Vehicle operating costs The light rail will reduce the number of kilometres travelled thus reduce vehicle operation costs. The components of Vehicle maintenance costs include the length of a journey, traffic volume, vehicle speed, and road conditions. Total vehicle operating expenses comprise basic running costs of the vehicle which consists of depreciation, fuel, repairs and maintenance in resource cost terms. Public transport operating savings Due to The introduction of the proposed light rail system, there will be a reduction in expenses of the provision of alternative public transport services. This will be reflected by the change in bus kilometres travelled. These savings have been captured using changes in bus vehicle kilometres travelled and per kilometre values of operating and maintaining the buses. Assumptions regarding bus operating costs are contained in Appendix A. Residual value The remaining value of the benefits to be derived from light rail assets at the end of the evaluation period has been estimated as the discounted net economic benefits of extending the lifetime of the project beyond the 30-year horizon. This valuation is based on assumptions of a continuing stream of project benefits, renewal of the rolling stock and ongoing operating, maintenance and replacement cost.. Value Transport benefits Present values ($ millions) Time savings 222 Vehicle operating costs 10 net externalities 13 Accident costs 7 Health benefits 5 Amenity and reliability benefits 14 Residual value 81 Public transport operating savings 54 Total transport benefits 406 The largest element of interest is travel time savings, which is anticipated to amount to $222m in present value terms, while other journey specific benefits are smaller in comparison. The total current value of transport benefits is projected to amount to $406m. Land use benefits Reason: The light rail has the potential to be a stimulating factor for development in the region. This will lead to a better and higher use of land thus delivering densification benefits. Basis: The light rail will activate development along is track alignment. This will result in the replacement of current land use with higher value by improving the quality of the land (ACT, 2014). The project will also result in urban densification efficiency savings which leads to the reduction in the cost of provision of public infrastructure and services and benefits of urban densification. Value Land use benefits Present values ($m) Urban densification benefits 72 Land value benefits 168 Infrastructure efficiency savings 140 Total land use 381 The largest gain is an anticipated $168m increase in the value of the use of land along the light rail track alignment. The reduction in the present value cost of public provision of infrastructure and services and public densification benefits is anticipated to amount to $140m and $72m each, leading to total anticipated land use benefits of $381m in present value terms. Wider economic impacts Reason: The project ensures greater connectivity in Canberra. This leads to a better accessibility which improves the productivity of the capital. It also affects land development and business logistics which become more efficient. Basis Firms benefit highly when they are located next to each other and have good access to labour. The productivity benefits obtained by this stance are referred to as agglomeration economies (Haveman and Weimer, 2015). Thus, a reliable and improved transport system fuels the development of these economies. There are additional economic benefits that arise if output increases in sectors where competition is perfect. The firm uses gains a competitive edge from low transportation costs and efficiency in the transportation sector. A better transport system will encourage new labour force to move into the area (Moonkyu and Lawrence, 2016). They will be attracted to reduced travel times. Thus, additional revenue will be obtained from the increased labour force. Value Wider economic impacts (WEIs) Present values ($m) Agglomeration benefits 165 Revenue from increased labour supply 31 Imperfect competition 2 Total wider economic impacts 198 Cost analysis benefits summary Cost scenario ($m) present value Project Benefits 406 Land use benefits 381 Wider economic impacts 198 Total projects benefits 984 Total project costs 823 Indicators (transport, land use & WEIs) Net present value 161 BCR 1.2 IRR 0.4 Sensitivity analysis The project is sensitive to changing conditions. In that, they are assumptions in the cost of environmental conservation, limited supply problems and that the externalities are acceptable. Also, there are assumptions associated with project economic timing, land usage, discounting and methods used to perform the analysis. On implementation of +-20% on the costs and benefits, the BCR maintained at one or greater than one. This shows that the project is more beneficial to the stakeholders. The finding that Fenghuang Light Rail provides a positive economic return is healthy to changes in assumptions and impacts. It is also noted that as part of the development of the cost benefits analysis, the BCR has been tested for shifts in a range of inputs. While the balance of costs and benefits in the different categories vary in response to these trials, the overall BCR remains predominately at or above one. Thus, the project can be termed as economical. Distribution The project is beneficial to all stakeholders. The passenger is the primary benefactor alongside the ACT government which gains the residual value and revenue. The benefits cover for the funds allocated for the construction of FLR. Mainly, resources may be lost through pollution and environmental degradation. Even though the residents of Canberra who are live within the vicinity of the site will be affected by this, they will not be compensated. This may affect their health thus increase medical expenses. Conclusion This CBA illustrates that the Fenghuang Light Rail will improve the net resources within the National Capital. This will improve the economic and social welfare of the city’s populace. The project will be a worthy investment by the ACT government and will also be very useful to the Canberra residents and the entire transport system. However, it will be an edge to the environment during construction and health in the local community may be affected negatively. A countermeasure should be implemented to curb that menace. References ACT (2014) Capital Metro Agency, Full Business Case, retrieved on 12th May 2017, from; http://www.tccs.act.gov.au/light-rail-Capital-metro-project Bernheim B. D (2016) the Good, the Bad and the Ugly: a Unified Approach to Behavioural Welfare Economics, Journal of Benefit-Cost Analysis, vol 7 (1) 12-68. Gary L, White D (2015) Benefit-Cost Analysis in the States: Impact, Status, and Challenges, Journal of Benefit-Cost Analysis, vol 6 (2) 369-399 Morrison G (2013) the role of NCA, Journal of Urban Planning, Vol 32 (9) 113-156 Haveman H. R, Weimer L. D (2015) Public Policy Induced Changes in Employment: Valuation Issues for Benefit-Cost Analysis, Journal of Benefit-Cost Analysis, vol 6 (1) 112-153. Moonkyu L, Lawrence. F. C (2016) Cost Benefit Analysis to Understanding Consumer loyalty, Retrieved 12th May 2017, from; http://emeraldinsight.com/doi/abs/10.1108/08876040110387917 Thayer W (2015) An Introduction to Cost-Benefit Analysis, Retrieved 2017/05/12 http://www.sjsu.edu/faculty/watkins/cba.html Read More