EVALUATION OF HIGHWAY PROJECT FEASIBILITY IN SRI LANKA, CURRENT PRACTICES AND WAY FORWARD

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1 EVALUATION OF HIGHWAY PROJECT FEASIBILITY IN SRI LANKA, CURRENT PRACTICES AND WAY FORWARD,C. S. Wijenayake 2, H. A. D. W. Bandara 2, Dr. H. R. Pasindu 2 1 University of Moratuwa Sri Lanka 2, University of Moratuwa Sri lanka 2, University of Moratuwa Sri lanka 1 chathusha.wijenayake@gmail.com, 3 pasindu@uom.lk ABSTRACT At present Sri Lanka is in stage of rapid developed and many expressways and highways are being constructed. They are intended to provide accessibility and high mobility between main economic regions in the country. But the estimation of the direct benefits of transport infrastructures is not enough to show the actual amount of the benefits from such projects. In Sri Lanka most of economic feasibility studies have been done without estimating the regional benefits of the project and the overall impact to the economy. This study is focused on studying the global practices and methodologies used to assess the wider economic benefits of highway infrastructure projects and to develop a framework to incorporate wider economic benefits from highway infrastructure projects in Sri Lanka. As per the current practices in Sri Lanka, benefits are quantified under a) Travel time saving b) Vehicle operating cost reduction c) Accident reduction. However wider economic benefits are not quantified and assessed under the current practice which is of paramount importance for project evaluation and decision making especially for a developing nation. Case studies and feasibility studies in global context have adopted several methodologies to assess and quantify the wider economic benefits of highway projects. Thus this research will summarize the current practices in Sri Lanka and in global context and recommend a framework which can be used to quantify wider economic benefits under three main categories a) Reliability b) Market access c) Intermodal connectivity. Keywords Highway; Benefits; Economy; 1. INTRODUCTION

2 As a developing country Sri Lanka should have a well-planned road network to provide an easy accessibility between the economic regions and to provide high mobility. Highway and freeway infrastructure count for a significant amount of national investments and thus it is vital that we evaluate all options available to select the option which yields the maximum benefit for citizens and to overall economy of the country In Sri Lanka, all feasibility studies about expressways or highways have been done using direct benefits such as travel time saving, vehicle operating cost saving and accident cost saving. However, in reality there are many type of indirect benefits such as change in land use, increase in manufacturing, agriculture production, education, tourism etc. Those are induced due a new construction or a rehabilitation of a highway or expressway and account for a significant proportion of rela benefits of the project. When carrying out a benefit cost analysis of a transport infrastructure project, these wider economic benefits should also be taken into account to portray a clear picture of the actual costs and benefits of the project and its final impact to the economy. However, right throughout the challenge had been to quantify these wider economic benefits to incorporate them into cost benefit analysis. 2. OBJECTIVES This research proposed to achieve the following objectives for a successful outcome. 1. Identify possible direct and indirect economic benefits of highway and freeway infrastructures towards regional development and overall national economy. 2. Review current methodologies which are used to quantify the economic benefits of highways on a global context. 3. Introduction of tools for assessing wider economic benefits of transportation 4. Give recommendations on the indirect/wider economic benefits that should be included in the economic evaluation of highway projects in Sri Lanka 3. METHODOLOGY 3.1 Scope From the literature review it was vivid that highway and expressway feasibility reports have quantified travel time saving, vehicle operating costs, accident costs and emission costs. Those factors are mainly considered the benefits in Cost-Benefit Analysis. However, in the global context, some feasibility reports have made an effort to quantify wider economic benefits such as increase in agricultural & industrial production, tourism, business attraction, access to labour and consumer market etc. Different methodologies have been used to quantify these impacts to economy in terms of a currency figure.

3 3.2 Global Context Following are couple of examples to illustrate the efforts make by various agencies to quantify wider economic impacts in highway infrastructure analysis. In the economic study for road infrastructures development in Wonosobo in Indonesia, they have used three indicators to analyze the economic benefits of the road infrastructures development in Wonosobo. Indicators for comparing the condition before and after the construction are poor household population, agricultural production and regional economic growth. (HIDAYAT-PUTRO, 2013) In Economic Impacts of the Southwest Indiana Highway Corridor they have considered both user benefits and also indirect benefits. To estimate indirect benefits, business expansion, business attraction and tourism have been used as indicators. Impact to business profit margin as a result of transport cost reduction is considered for business expansion (Cambridge Systematic, 1996). Honbu and Miyagi (1995) and Hayashi and Okuda (1995) analyzed the benefits by using the changes of trade in inter regions and the returns to the region by the Expressway (YAMAUCHI.H, 2003). However a comprehensive study has been done by Transportation Research Board, Washington D.C which presents tools to evaluate wider economic benefits under market access, intermodal connectivity and reliability. (Cambridge Systematics, INC). In the economic evaluation report of the Hangzhou- Ningbo Corridor, they have estimated indirect benefits such as improving investment environment, promoting commodity exchange and circulation, providing convenient transportation for tourists and promoting development in small towns and urbanization. A % of increment in those indicators is considered as a indirect benefit from the highway system. (Liu, 2003).In Economic Analysis of Local Government Investment in Rural Roads in Nepal, The increment of potato and vegetable selling, cost saving of food importing and business merchandise income have been quantified as an economic value. (Programme, 2011). 3.3 Data Collection Selected feasibility studies and economic evolution reports of transport infrastructures projects from around the world and from the Asian Development Bank were used for the identification of the type of estimated benefit, used methodologies, average benefit/cost ratio and the percentage of each kind of the benefit out of the total project cost. 3.4 Data Analysis

4 A set of 20 feasibility study reports of major highway and expressway projects have been selected, mostly out of South East Asian region and Figure 1 depicts the percentage of those projects which have taken quantified various aspects of benefits. Figure 2 and Figure 3 shows the variation Figure of each 1 type of estimated benefit as a percentage from the project cost from selected 15 projects worldwide. Figure 4 shows the variation of each type of estimated benefit as a percentage from the project cost from 9 projects done by Asian Development Bank. Figure 2

5 Figure 3 Figure 3, ADB projects From above set of selected highway and expressway feasibility studies it is clear that in projects where wider economic benefits are accounted for, as regional development benefits, it exceeds more than 300% of cost on average. It consolidated the fact that wider economic impact should be accounted for since it adds up to a very significant amount which can change the Cost-Benefit Ratio significantly.

6 3.5 Current Methodologies Used to Quantify Wider Economic Benefits When analyzing the feasibility studies and post impact analysis reports, it is evident that different methodologies have been adopted to quantify these wider economic benefits. Table 1 below elaborates some of the methods used to capture wider economic impact of several projects. Table 1 The reason for the use of different methodologies is that there isn t a widely accepted model which can be used to quantify wider economic impact due to the reason that many variables are involved unlike the accepted travel time saving, vehicle operating cost, accident cost and emission costs. Some methods are based forecasted figures through econometric models comparing with or without project scenarios. Most of the methods mentioned above are based on taking a percentage of increased regional domestic production and business growth assuming that percentage is related to highway/expressway s contribution to the increase in production.

7 However, a widely accepted model will provide better platform to quantify the wider economic benefits while making is comparable among different projects to choose the best, yielding the most impact to the economy. 4. STARTEGIC HIGHWAY RESEARCH PROGRAM 2 TOOLS TO ASSESS WIDER ECONOMIC BENEFITS SHRP 2 (Transportation Research Board, Washington D. C) is a comprehensive study done to develop models to assess the wider economic benefits of transportation projects. In the process, wider economic benefits are primarily categories into 3 segments. Reliability: Increase in supply chain efficiency and decrease in delivery and freight costs as a result of reliability of the route. Market Access: Increased connectivity among economic hubs provide access for new consumer markets and labour markets. Intermodal Connectivity Effects: With increase in efficiency of reaching intermodals such roads n rail leading to airport and marine ports more economics hubs will be easily connected. Frequency of flight and maritime shipments will increase. All these three categories can be qualitatively incorporated in 3 mainly used investment analysis tools 1. Cost-Benefit Analysis (BCA) 2. Economic Impact Analysis (EIA) 3. Multi Criteria Analysis (MCA) BCA and EIA is based on monitory figures and thus accounting framework should be used to identify the above mentioned 3 categories of wider economic benefits into monitory figures. Three separate tools have been presented by SHRP 2 report and those tools have the following accounting framework to capture wider economic benefits. Quantifying Reliability: A statistical indicator such as standard deviation or buffer time is used to measure the travel time variation. This is then factored by a reliability ratio and the report mentioned above presents a framework for a reliability spreadsheet which can be used to value the travel time reliability based on factored results. Quantifying Market Access: Statistical indicators such as effective market size or effective market density are used to quantify market access benefits. Economic value is obtained by an

8 elasticity, percent increase in economic activity (income or GDP) due to 1% increment in effective market scale or effective density. Quantifying Intermodal Connectivity: This is most commonly measured through a statistical index that reflects both the average travel time to the nearest intermodal air, marine, and rail terminals, and the magnitude of connecting services and number of connections to outside origins that can be accessed from each of these terminals. The value of this index is reflected by an elasticity that shows the percent productivity increase resulting from 1% change in accessibility to each type of intermodal terminal. Logic behind the tools are applicable to different highway and expressway scenarios and it presents statistical derivations in the calculation for instances where some data are not present. 5. CONCLUTION AND DISCUSSION In the Sri Lankan context, highway and expressway feasibility studies are still based on conventional Cost-Benefit Analysis method capturing travel time saving, accident cost reduction, vehicle operating cost reductions and emission reductions. However in the global context, efforts have been made to capture the wider economic impact through transportation projects and similar in depth economic impact analysis is required by organizations such as World Bank and Asian Development Band for funding. It s right time Sri Lanka adopts a widely applicable framework and a set of tools to quantify the wider economic impact. Tools presented in SHRP 2 comprehensive transport study provide a platform assess the economic impact in the form of Reliability, Intermodal Connectivity and Market Access. However, when using the tools in focus, it should be noted that some essential data required have not been established for Sri Lanka. For eg, no study had been conducted to estimate the Reliability Ratio highway and expressways in Sri Lanka. In such a scenario, a prior sensitivity analysis of the final economic impact value to the unknown input variables should be done and a reasonable estimate must be used. Another key factor is that some of the wider economic impacts can already be captured when taking the economic value of travel time saving and thus attention should be paid to prevent the scenario of double counting of benefits. 6. REFERENCES

9 Board, Transportation Research (2014). SHRP 2 Tools to Assess Wider Economic Benefots of Transportation AUTHORITY, M. O. (2013). ECONOMIC ANS FINANCIAL REPORT ON THE NORTHERN EXPRESSWAY AFFRDABILITY AND DELIEVERY MODELS-REV 2. MINISTRY OF PORTS AND HIGHWAYS ROAD DEVELOPMENT AUTHORITY. Bank, A. D. (2015). India: Madhya Pradesh State Roads Sector Project II. Asian Development Bank. Bank, A. D. (2015). India: National Highway Corridor (Sector) I Project. Asian Development Bank. Bank, A. D. (2015). Kyrgyz Republic: CAREC Transport Corridor 1 (Bishkek Torugart Road) Project 2. Asian Development Bank. Bank, A. D. (2015). Lao People s Democratic Republic: Northern Greater Mekong Subregion Transport Network Improvement Project. Asian Developmet Bank. Bank, A. D. (2015). Solomon Islands: Second Road Improvement (Sector) Project. Asian Development Bank. Bank, A. D. (2015). Uzbekistan: Central Asia Regional Economic Cooperation Corridor 2 Road Investment Program (Tranche 1). Asian Development Bank. Bank, A. D. (2016). India: Rural Roads Sector II Investment Program (Project 3). Asian Development Bank. Bank, A. D. (2016). Kazakhstan: CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe Western People's Republic of China International Transit Corridor] Investment Program (Tranche 3). Asian Development Bank. Bank, A. D. (2016). Nepal: Road Connectivity Sector I Project. Asian Development Bank. Cambridge Systematic, I. w. (1996). Economic Impacts of the Southwest Indiana Highway Corridor. Indiana Department of Transportation. Division, T. E. (2016). Economic Feasibility Analysis for Central Expressway Project,University of Moratuwa. Transportation Engineering Division,Department of Civil Engineering.

10 Engineering, M. H. (2015). TRAFFIC STUDY FOR IMPACT EVALUATION OF PROPOSED FLYOVER AT RAJAGIRIYA INTERSECTION AT WELIKADA RAJAGIRIYA. Colombo: Master Hellie s Engineering. Forum, I. T. (2015). Carbon Valuation for Transport Policy. HIDAYAT-PUTRO, M. A. (n.d.). Road Infrastructure Development Impact on Poverty Reduction in Rural Highland. HIDAYAT-PUTRO, M. S. (2013). Road Infrastructure Development Impacts On Poverty Reduction In Rural Highland Agricultural Areas Wonosobo,Central Java,Indonesia. Aries System Corporation. International, S. (2013). Final Report Report Economic Evaluation of The Nothern Expressway Project. Deloitte Touche Tohmatsu. Kim, E. G. (February 2004). An Application of an Integrated Transport. ResearchGate. Kumarage, A. S. (2000). ASSESSING PUBLIC INVESTMENT IN THE TRANSPORT SECTOR. Colombo: Department of National Planning, Ministry of Finance & Planning,Colombo. Li, Z. (2006). Review of Literature on highway Project Benefit-Cost and Tradeoff Analyses. Chicago: Illinois Institute of Technology. Liu, L. N. (2003). Evaluating the Economic Benefits of Newly Opened Expressways in China. Liu, L. N. (2003). Evaluating the Economic Benefits of Newly Opened Expressways in China. AUTHORITY, M. O. (2013). ECONOMIC ANS FINANCIAL REPORT ON THE NORTHERN EXPRESSWAY AFFRDABILITY AND DELIEVERY MODELS-REV 2. MINISTRY OF PORTS AND HIGHWAYS ROAD DEVELOPMENT AUTHORITY. Bank, A. D. (2015). India: Madhya Pradesh State Roads Sector Project II. Asian Development Bank. Bank, A. D. (2015). India: National Highway Corridor (Sector) I Project. Asian Development Bank. Bank, A. D. (2015). Kyrgyz Republic: CAREC Transport Corridor 1 (Bishkek Torugart Road) Project 2. Asian Development Bank. Bank, A. D. (2015). Lao People s Democratic Republic: Northern Greater Mekong Subregion Transport Network Improvement Project. Asian Developmet Bank. Bank, A. D. (2015). Solomon Islands: Second Road Improvement (Sector) Project. Asian Development Bank.

11 Bank, A. D. (2015). Uzbekistan: Central Asia Regional Economic Cooperation Corridor 2 Road Investment Program (Tranche 1). Asian Development Bank. Bank, A. D. (2016). India: Rural Roads Sector II Investment Program (Project 3). Asian Development Bank. Bank, A. D. (2016). Kazakhstan: CAREC Transport Corridor I (Zhambyl Oblast Section) [Western Europe Western People's Republic of China International Transit Corridor] Investment Program (Tranche 3). Asian Development Bank. Bank, A. D. (2016). Nepal: Road Connectivity Sector I Project. Asian Development Bank. Cambridge Systematic, I. w. (1996). Economic Impacts of the Southwest Indiana Highway Corridor. Indiana Department of Transportation. Division, T. E. (2016). Economic Feasibility Analysis for Central Expressway Project,University of Moratuwa. Transportation Engineering Division,Department of Civil Engineering. Engineering, M. H. (2015). TRAFFIC STUDY FOR IMPACT EVALUATION OF PROPOSED FLYOVER AT RAJAGIRIYA INTERSECTION AT WELIKADA RAJAGIRIYA. Colombo: Master Hellie s Engineering. Forum, I. T. (2015). Carbon Valuation for Transport Policy. HIDAYAT-PUTRO, M. A. (n.d.). Road Infrastructure Development Impact on Poverty Reduction in Rural Highland. HIDAYAT-PUTRO, M. S. (2013). Road Infrastructure Development Impacts On Poverty Reduction In Rural Highland Agricultural Areas Wonosobo,Central Java,Indonesia. Aries System Corporation. International, S. (2013). Final Report Report Economic Evaluation of The Nothern Expressway Project. Deloitte Touche Tohmatsu. Kim, E. G. (February 2004). An Application of an Integrated Transport. ResearchGate. Kumarage, A. S. (2000). ASSESSING PUBLIC INVESTMENT IN THE TRANSPORT SECTOR. Colombo: Department of National Planning, Ministry of Finance & Planning,Colombo. Li, Z. (2006). Review of Literature on highway Project Benefit-Cost and Tradeoff Analyses. Chicago: Illinois Institute of Technology. Liu, L. N. (2003). Evaluating the Economic Benefits of Newly Opened Expressways in China. Liu, L. N. (2003). Evaluating the Economic Benefits of Newly Opened Expressways in China. Hangzhou: College of Management,Zhejiang University. Hangzhou: College of Management,Zhejiang University. Manzo, F. (2013). The Benefits Of The Illiana Expressway. ILEPI.

12 Programme, U. N. (2011). Economic Analysis of Local Government Investment in Rural Roads in Nepal. Ministry of Local Development,Local Governance and Community Development Programme (LGCDP),Pulchowk, Laliitpur, Nepal. Programme, U. N. (2011). Economic Analysis of Local Government Investment in Rural Roads in Nepal. Ministry of Local Development,Local Governance and Community Development Programme (LGCDP),Pulchowk, Laliitpur, Nepal. YAMAUCHI.H, U. (2003, February 5). A COST-BENEFIT ANALYSIS OF JAPAN'S EXPRESSWAY PROJECTS WITH AN COMPUTABLE GENERAL EQUILIBRIUM MODEL. Retrieved from trid.trb.org:

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