4 Description of Feasibility Study Tasks

Chapter 9 –Financial and Economic Analyses

This chapter should detail the total project costs, estimate revenues, and conduct financial and economic analyses.

9.1 Costing of Entire Project and Phases

Cost estimates of the following items should be included:

  • Cost of infrastructure for the corridor – based on unit costs as far as possible (Annex 11 provides a checklist of infrastructure cost items);
  • Cost of maintenance of the infrastructure (per annum)
  • Cost of facilities – stations and terminals
  • Maintenance cost and operation of the facilities – stations and terminals (per annum)
  • Fleet investment (public and private)
  • Cost to mitigate environmental impacts
  • Cost to cover possible social impacts and to generate appropriation of the work
  • Resettlement of housing, trade and facilities;
  • Complementary services, illumination, safety, special access etc.
  • Complementary works – cultural, parks, historic buildings etc.
  • Consultancy

9.2 Fares Policy: This should be presented in terms of compatibility with other modes and ease of use. It should cover at least: basic fare structure, use of contactless smartcards with external card readers at major stations and terminals (impossible without pre-paid loading) and demonstrate how this integrates with other Mass Transit modes.

9.3 Estimation of Revenues by Source

Revenues from each source should be estimated for each phase and for different fare structures. The revenue items include:

  • Fare revenue
  • Advertising
  • Route bidding etc.
  • Property development etc.

9.4 FIRR and EIRR over 15 Years

Most systems will require a cost-benefit analysis, comparing – in economic terms – the situation implementing the project with the “do-nothing” case.

The costs considered above should be evaluated against benefits, excluding items such as taxes, and using market prices as far as possible.

The results would normally be expressed in terms of:

  • Internal rate of return
  • Net present value
  • Cost-benefit ratio
  • Sensitivity of project viability to cost overrun/revenue reduction

Details should be given of all assumptions made in the analysis.

9.5 Financial Structuring of the Project

The proposed financial structure should be given with reference to other options not selected and to international best-practice. (The recommended working model for HCBRT, as determined from best practice studies, involves the deregulation by area concession of the operation of units to the private sector. The financial and risk analysis of operating the system would thus be carried out by either the bidders or the concession holder.)

PPP Potential: Although of mixed outcome for HCBRT, high volumes at terminals are of possible commercial interest. Certainly, the sites close to such terminals are highly valued. This may permit a PPP approach to part of the funding, to improve project viability, in which case details should be given.

Financial Support: During this stage, the city (or the state) may wish to procure financial support from the national government or one of the major international lending agencies. Negotiating a grant or loan-contract is a procedure that varies according to agency culture, but will normally require final detailed engineering design of at least some of the major works (often the works which will be built during the first year of the loan).

9.6 Sustainability Analysis of the System

For both infrastructure and vehicles, a detailed risk analysis at various stages of the project with mitigation strategies.

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