Cost-Benefit Analysis of Changsha Rail Transit - Case Study Example

Cost Benefit Report of Changsha Rail Transit Student’s Name Subject Professor University/Institution Location Date Cost Benefit Report of Changsha Rail Transit Contents Introduction Proposal Background Problem Objectives Alternatives Costs and Benefits Valuation of Costs and Benefits Discounting Decision Criteria Sensitivity Analysis Conclusion Bibliography Introduction This is a report detailing the cost benefit analysis of the Changsha Rail Transit located in Changsha, which is also the capital city of Hunan. Hunan is a province located in south central china. It will cover the impact of the ongoing project on the economy of the region and the society. The values used herein are aggregated over a period of ten years at the standard discount rate of 5% that gives information on the net present value of an investment. It is important to mention that line 1 and line 2 are operational and thus serve to shed more light on this CBA. Proposal The proposal seeks to construct a rail transit for the city that will connect the Changsha metro lines that are under construction. The planned Changsha metro rail is intended to have six lines operational and connecting the city of Changsha with the addition of a maglev aero train that connecting the city to the Airport. It will have lines running from the east to the west of the city, northwest to the southwest connected by line 4 and the southwest to the northeast of the city. In addition, connection to the airport is also an important aspect that has been addressed by the transit with the construction of a maglev link to the city’s airport at an estimated construction cost if four hundred million euros. Two lines are already operational, line 1 and 2. The project began in 2010 with the construction of line 1 beginning at the time and ending in 2016, covering a distance of twenty-three kilometers with an estimated cost of fourteen billion. The construction of all the lines is expected to be completed in 2025, and as has been seen, operations start soon after completion. This transit is expected to ease congestion in the city and improve the transport efficiency. Logframe: Summarising Changsha Rail Transit Project Design Narrative Summary Measurable Indicators Means of Verification Important Assumptions Goal: (sector or program objective) 1 Increase the welfare of Changsha 2. improve the time efficiency quality life 1.Positive net present value 1.Cost Benefit Analysis Goal to Super Goal Purpose: (aim or impact) 1. .Improve the traffic situation of Changsha Externalities: 1. Environmental pollution, such as water pollution and air pollution End of Project Status 1. Expected completion time is 2020. 2. The total is 234.3KM. 3. 35% of trips to be made by metro by 2020. 4.Intelligent transportation system 1.Changsha Market prices 2.Annual SoE report Purpose to Goal 1. increase the amount of travel 2. improving and majorizing traffic standard Outputs: 1.New transport line, such as, metro and aero train stations 2.intelligent system 3. Fail-safe system Externality damage: 4.Environment pollution, 1. Now, it is opened line 1&2, and aero train. 2. Changsha will have completed 12 orbits. 3. Increased road traffic and Metro system 4. The construction ventilation channel 1.Final of project report Market prices Output to Purpose 1.urban design un changed 2.Expand the rail transit the value 3.expands landing for transportation system Activities: 1.Environmental effect report 2. Construct and design the Changsha Rail Transit and transport map. 3. Operate Fail-safe system and Intelligent system for Changsha Rail Transit. 1. Materials and labor 2. Environment assessment 3. Construction site 1.Construction reports 2. project budget and some market prices Activities to Output 1. In conformity with the standard construction 2.Construction standards met 3.High technical index 4. Suitable for urban demand. Conditions Precedent 1.Government permission Background The city of Changsha is among the few cities in China famed for its rich history and culture that spans for more than three centuries. It opened its doors to foreign trade during thee nineteen hundred leading to the settlement of both the Americans and the Europeans. Moving away from history, the city has distinguished itself by being a key transport, commercial and commercial center in the country. The city has an extensive transport system featuring rail, road and air. The Changsha rail transit project began in 2010 and line 2, the Huangxing Line, that transverses the east and west of Changsha was opened to the public in 2014 whereas line 1 was ready for use by the public in April 2016. The city serves a population of over 48,500 people who live in the city and hence the Changsha transit seeks to solve the transport problem presented by a large population with few bus terminals. Movement within the city is important and efficiency is important for a growth in the economy. Problem Traffic congestion in the city of Changsha, caused by an ever-increasing population and affordable means of transport is a growing concern. To ease such congestion is a priority because it leads to lower productivity and time wastage in traffic. The city is also a favorite destination for tourists thanks to the rich history and this leads to more traffic in an already congested city. What are the Objectives The objectives of this project is to improve the traffic situation of Changsha, thereby ensuring productivity through improving time efficiency. It also aims at reducing air pollution via reducing air pollution caused by vehicular emissions. The transit is also aimed at connecting the whole city of Changsha in an efficient and cost-effective manner. Alternatives An alternative to ease traffic in the city is via a Tram line in the city. However, this would not be able to cover the whole city and would suffice in the city center alone. Another alternative is increase the number of taxis operating in the city but this would only add to the problem. Costs and Benefits The resources required for such a project are vast and are required in construction and operation once done. They include costs such as land, labor, technology in design, construction materials. The costs incurred in labor include the wages and salaries that will be paid to the workers, the money required to buy land for construction is factored in on the land cost whereas technology design and construction materials cost is factored in on the prevailing market price which changes depending on the economic conditions. Another immeasurable cost that would be incurred in the project include environmental pollution and the expenses from such would include the money used to control water pollution, air pollution and underground garbage from the underground subways. The benefits to accrue from the Changsha rail transit in China include an increase in tourism, less water pollution, time efficiency for the passengers, employment, less air and water pollution, reduced noise pollution and saving the cost of the bus system. This would allow convenient movement for both the citizens and tourists leading to an increase in the economy of the region. Business opportunities would also be increased by the underground stores introduced in the transit. Changsha Rail Transit: Incidence of costs and benefits COSTS BENEFITS City Residents Environmental pollution during construction Inconvenience during the project Labor cost Efficient transport system Increased productivity Time efficiency Wages and salaries Local community • land loss •labor Benefits from an improved economy and an efficient transport system Wages and salaries Environment Pollution: air water and land Loss of natural resources Tourism Inconvenience during construction • increase in accessibility of tourist sites • faster movement within the city • ease of access to the airport. Construction industry Resources used Revenue from construction Government Resources for expansion of complementary infrastructure Dividends from the project Labor Land Materials Valuation of Costs and Benefits The costs of running such a project include; Land The land used for the construction of the terminals, that used in the rail system and the underground lands used for subways. The highest price for land in China is $500, and this is prime city properties or lands located is such. Required land for stations would have to be bought, and this is factored in as capital cost. Other than that, some arable land would be lost leading to some decline in the agricultural productivity of the region. Labor The project involves a lot of people working in different departments synergistically to provide results. As such, the project requires money for wages whose rate changes also depending on the economy of the province in particular and of the country in general. Construction Materials The project requires the input of modern scientific and technologically advanced materials in its construction. Much money would be spent in the purchase and hire of such materials as needed and these are subject to the prevailing market prices. Equipment such as excavators, diggers, modern machinery in the construction of rail systems, cement, ballast, steel, vehicles for transporting such to the sites are considered as costs involved in the project and budgeting tries to cater for such. Construction materials may be a bit expensive, but they are necessary expenditures in the project. Intelligent Facilities Due to the construction of an intelligent rail system, the project needs to incur costs for the advancement of intelligence. Only that this is a kind of preventive expenditure and would significantly change the output value. The advanced technology would have to be imported, and this raises the cost of the project. Management The cost of managing the project goes hand in glove with that of labor, design, and construction material sourcing. It is from the management that decisions to either increase or reduce the workforce comes from, and this affects the cost of the project. The management is also involved in implementing the intelligent movement of the trains which include both the aero train and metro trains. Train Noise Pollution New trains in the city would increase noise pollution in the city. This is considered as a negative value because it causes discomfort in the society while at the same time negating the work done through reduction of automobile noise. Construction Emissions Emissions from the construction of the various phases of the project would lead to an increase in the number of health issues associated with such. However, the symptoms take long before development and hence can be missed. However, since they affect not only humans but also the environment, they are regarded as disbenefit or negative benefit. Operating and Maintenance Costs The cumulative cost of operating and maintaining the Changsha rail transit is manageable once all the lines are up and running because the benefit of such would involve the participation and collection of fare. Maintenance of infrastructure, operations in stations, administrative staff, rolling stock maintenance and much more require capital that mostly comes in the form of cost. Some of the economic benefits that would result from such a project include: Time Savings During Travels Traffic caused by the rising number of vehicles in the city is a constant headache to the residents of Changsha. The rail transit would save time for both the passengers that use the road to travel throughout the city and transfer from the vehicle system to rail would increase because of the efficiency provided. In economics, time used during travel is regarded as a cost to consumers. A reduction in the period spent on the road avails more time for work and other activities that are valuable to the traveler and hence time saved can be converted to money accrued. This can be done through valuing time as a percentage of the going wage rate and offering different percentiles to variable purposes to be undertaken by the trip. From the values obtained in research, it can be shown that the value of time increases drastically when rail transit is used within the city as compared to the road because of traffic. Reliability The reliability of a transit rail is almost unquestionable. Passengers can and should expect reliable trips via the use of metro since they can count on the trains to arrive on time and as scheduled. This moves them away from the random and at times annoying delays that are frequent when one uses the road network due to traffic gridlocks. Marked Reduction of Automobile Operation Costs When the project comes to completion, most travelers in Changsha will switch from vehicular to the rail system due in part to their reliability and consistency and time costs. As a result, the reduced number of vehicles on the roads means that the remaining users would experience marked reductions in travel time hence one serving to strengthen the other. Owners of vehicles that prefer rail would reduce their operating costs since they would not be using their vehicles on a regular basis. This means that they would save big on maintenance and repair costs, tire depreciation and overall depreciation with every mile added to the odometer. On the other hand, the operating cost of the public bus system would be reduced significantly due to the drop in the number of buses operating in the city. Parking Infrastructure Benefits The shift from vehicular travel to rail transit translates to fewer cars going into the city. This is because of the assumption that one vehicle can be served by a single parking space for a single day for the three hundred and sixty-five days in a year. Another assumption is that fifty percent of demand for parking is in surface space whereas the other percentage uses structured parking. With the introduction of the rail, such services would only serve the few individuals that decide to continue using their vehicles. Tourism Development Tourism would be promoted in the region following the successful completion of the project. This is because an efficient transport system which is reliable is important in attracting more tourists to the historic city. The value of such benefits would be reflected on the travel costs incurred by the tourists. Increase in Employment Opportunities This kind of benefit would be prevalent from the onset of the project because many would be employed as laborers and the value of this benefit is dependent on the prevailing market prices. Underground stores in the subways would also be important in solving the unemployment problems because they would require shopkeepers to run the business. The transit would also hire specialized personnel to maintain the project thus leading to employment opportunities. Other benefits included are land value impact which proposes that the value of land appreciates over-time reflecting the improvements made in the surroundings. Another point to note is that with less travel time, housing patterns may change thereby generating land use impacts. Improved economic activity is also an imperative benefit of the transit system caused in part by the shortened travel time. Discounting The identified values of costs and benefits are generated over a period of 10 years from 2018. For the project to be understood by a layman, the future values will have to be expressed in present day values and as such, since the project presents no risks whatsoever. It may be categorized as a real rate of return after the removal of inflation. However, a model value can be calculated that show the project going above and beyond the expectations threshold that has been set. Decision Criteria Of the three criteria used in CBA, two are ratios. One of the ratios includes a benefit-cost ratio that uses the present value of the benefits then divides it by the value of present costs. The society benefits only with a ratio greater than one. The second ratio is the IRR which is akin to rate of profit. The last one is the NPV that is the simplest form because it represents the value by which either the present benefits exceed the present cost or vice versa. Sensitivity Analysis The report takes into account assumptions made on the values of construction material, population growth, environmental costs and much more. The transport system in China is an important factor that would make everyone’s life better and even improve the economy. And since it has a positive value, the project is worth investing into. Conclusion In conclusion, this CBA shows that the Changsha Rai transit would help not only the people concerned and involved in the project but also the whole city leading to economic growth in the region. Productivity also would be increased during the years that it would operational. Bibliography Belay, A.M., Torp, O., Thodesen, C. & Odeck, J. 2016, "A framework for Organizing a Resilient Cost Benefit Analysis for Construction Projects", Procedia Engineering, vol. 145, pp. 1169-1176. Bradsher, D. 2013,’’ Despite a Deadly Crash, Rail System Has Good Safety Record’’. Retrieved March 29, 2017 from: http://www.nytimes.com/2013/09/24/business/global/despite-a- deadly-crash-rail-system-has-good-safety- record.html?action=click&contentCollection=International%20Business&module=Relate dCoverage®ion=Marginalia&pgtype=article Deng, L., Zhang, Z., Liu, K., Zhou, W. & Ma, J. 2014, "Fare Optimality Analysis of Urban Rail Transit under Various Objective Functions", Discrete Dynamics in Nature and Society, vol. 2014, pp. 1-8. Great tunnel of China 2016, , Singapore Press Holdings Limited, Singapore. Huang, Y., Hu, X., Zhang, D., Fang, X. & Li, X. 2016, "Supporting and evaluation systems of low carbon transport: Study on theory and practice", Advances in Mechanical Engineering, vol. 8, no. 1, pp. 168781401562483. Zhu, P., Tian, H., Xiao, H. & Yu, H. 2010, "Forecast and Analysis of the Effectiveness of Changsha Rail Transit Based on CA/GIS", , pp. 1022. China's energy-saving subway goes into operation 2016, , COMTEX News Network, Inc, Woodside. 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