Components Amount at Approval
(US$, millions) Actual at Project Closing (US$,
millions)
Percentage of Approval
Public Transport 44.90 33.91 75.52
Road Safety 14.52 10.11 69.63
Road Improvement 434.80 874.06 201
Travel Demand
Management 4.92 5.08 103.25
Institutional Development
Component 4.48 3.66 81.7
Total 503.62 926.82 106.22
ANNEX 4. EFFICIENCY ANALYSIS Methodology and Conclusion at Project Appraisal
1. A cost-benefit analysis using a transport planning model was employed for the RI component, the RS component, and the corridor element of the PT component, which together account for about 90 percent of the loan and over 90 percent of the total project cost. The project’s main benefits as identified in the analysis include: savings in VOCs; reduced congestion; time savings for pedestrians, bicycle riders, bus and auto passengers; and increased safety. In the medium and long terms, the project should boost the regional economic development of Wuhan Municipality in a sustainable manner, mainly by supporting greener growth, higher-quality urban transport services, low-carbon urban transport, and pollution and climate-change management. The benefits that were quantified included savings in: (a) VOCs, (b) passenger travel time, and (c) increased safety over the assumed project life of 20 years. The impact of CO2 reduction was estimated separately but was not listed in the quantified benefits nor included in the EIRR estimation. Other benefits not quantified include: (a) improved convenience and comfort for bus users, bicycle users and pedestrians; and (b) improved traffic management efficiency of urban transport as a whole in the project cities. Economic costs of the project were identified as capital investments. O&M costs over the project life were not specified. The EIRR for the project was estimated as 15.3 percent. The EIRR for the RI, RS and PT components was estimated to vary between 14.6 and 25 percent. Sensitivity analysis (assuming a 20 percent benefit decrease, a 20 percent cost increase, and both occurring) showed that the EIRR remains higher than the discount rate of 12 percent for most scenarios. The lowest EIRR obtained in the Sensitivity Analysis was 11.3 percent. Because the condition of the sensitivity analysis that requires the occurrence of both a 20 percent cost increase and a 20 percent benefit decrease was considered strict and unusual, the investment is considered economically feasible and has risk-resistance capacity.
2. The project components were all adjusted to a certain extent twice during project restructuring.
The scope of the PT and RS components was amended, some project activities under the PT component were cancelled, the funding arrangements for the RI component were amended, and the loan closing date was extended. The economic analysis was not re-conducted in the Restructuring Paper.
Economic Analysis at Project Completion
3. The PDO remained the same throughout project implementation. The economic analysis at project completion continued to focus on the RS and RI components and the corridor element under the PT component to estimate the project’s benefits and costs. The investment for these components and elements accounts for 97 percent of total project investment. Compared to the PAD’s economic analysis, the economic analysis in the ICR incorporates the following adjustments:
4. Fifteen originally proposed project activities were cancelled during project implementation, while most of the project activities were revised during project restructuring. The economic analysis for the ICR should focus on the real benefit and cost of the finalized project activities. The project life was assumed to be 20 years in the PAD’s economic analysis. It was revised to reflect the designed service life of each corresponding project activity.
5. Parameters on population, traffic volume, traffic modes, etc. of the analysis were revised to reflect the real economic and social situation between 2009 and 2017, and the projections for 2018 to
2038 were processed since then. Compared to the parameters used in the PAD, the population level in the ICR is lower than expected, the share of residents’ trips using motorcycles decreased sharply, and private-car ownership grew significantly faster than predicted in the PAD.
6. The benefit of avoided pollution and carbon emissions due to higher adoption of PT and reduced congestion was measured in the PAD based on the key assumption of “a nominal 10 percent improvement in the energy efficiency of the vehicle fleet from 2015.” The benefit is re-evaluated based on the predicted transport volume and the modal share of trips in the with-project and without-project scenarios.
7. O&M costs are specified in the analysis.
Main Assumptions
8. The service life of the PT route built under the PT component is 15 years according to the project design. The service lives of the three roads constructed or upgraded in the RI component are 15 years for the Shuidong Section, 10 years for Shuidong Lu, and 15 years for Jiefang Avenue after completion of the construction. The life of the RS component is assumed to be 20 years after project construction ended in 2018. The residual value of project roads is 50 percent of the original investment at the end of the project.
The discount rate adopted in this analysis is 12 percent.
9. The population and number of motor vehicles from 2009 to 2017 are published by Wuhan Statistical Yearbooks. The population from 2018 to 2038 was estimated based on the United Nation’s projection on China in its World Population Prospects. Vehicle ownership from 2018 to 2038 was estimated in consideration of the Organization for Economic Co-operation and Development’s (OECD) projection of China’s economic growth rate. The number of motorcycles continued to decrease from 2009 to 2017. The number from 2018 to 2038 was projected using the average decreasing rate of the number in the previous five years.
10. Passengers’ time savings are calculated based on the transport modal share of Wuhan Municipality, reflecting the variation trend of numbers of different vehicles. The proportion of citizens’
daily trips using public transportation, taxis, private cars, motorcycles, bicycles and walking in 2009 was 20.9 %, based on household and motor vehicle surveys. The transport mode from 2010 to 2017 was inferred based on Wuhan Statistics Yearbooks. The transport mode in the without-project scenario from 2018 to 2038 was forecasted according to traffic-count growth projection. Passengers’ time cost is estimated based on the city’s per capita GDP. It increased with the projected economic growth rate from 2018 to 2038.
11. The cost of carbon emissions is assumed to be US$15/ton of CO2. Costs for traffic accidents are CNY one million (approx. US$147,000) per death in Wuhan in 2018. These increase with projected economic growth from 2018 to 2038.
12. The routine maintenance cost of the roads built under the RI component is CNY 30,000 (approx.
US$4,400) per km per year in 2018. The maintenance cost increases by 3 percent every year thereafter.
Significant repairs occur in the 10th and 17th years. The cost is 10 times the maintenance cost in that year.
The routine management fee is CNY 10,000 (approx. US$1,500) per km per year.
Table 4.1. Summary of the Key Assumptions in Representative Years Transport modal share in without-project scenario (%)
Bus 15.3 16.9 18.4 20.1 22.1
13. The project’s economic benefit analysis compares the "with-project scenario" and "without-project scenario" to show transport cost savings in passengers’ time costs, VOCs, and road-accident costs with the improved urban transport system.
Without-project Scenario
14. The baseline is based on the assumption of a “without-project scenario” in which: (a) common transport modes of citizens include walking, bicycle, motorcycle, private car, taxi, bus, etc.; residents’
travel time is long and vehicle speed is limited; (b) traffic congestion is caused by an ill-defined hierarchy of roads that were not well maintained; (c) the PT system has limited network coverage, weak operational on-street management, and shortage of depots and facilities; (d) mobility for pedestrians and cyclists has declined due to the encroachment of cars and high rates of fatal accidents; (e) traffic management lacks necessary equipment; and (f) the capacity of buses cannot meet the population’s increasing demand. The increased traffic demand will be shared by other transport modes that are either more time consuming and unsafe or lead to worsening traffic congestion and higher carbon emissions.
With-project Scenario
The corridor element of the PT Component
15. In the “with-project scenario,” with strengthened PT route rationalization and operation, the share of residents’ trips using the PT mode increases significantly. The share of trips using private cars largely decreases. Driving speed increases due to on-street priority provided to buses on key selected road corridors and lower adoption of private cars, taxis, bicycles and motorcycles, and consequently fewer vehicles on streets. Although increased total traffic volume will reduce average travel speed, the total travel time on the corridors will be still shorter than time under the “without-project scenario.” Savings in passengers’ time costs are estimated based on the observed higher share of trips using PT and the shorter travel time of buses, as collected by PDO indicators with consideration of increased traffic volume. VOC
savings are caused by the increased operational efficiency of PT. Avoided CO2 emissions are due to greater use of PT and less use of taxis and private cars. CO2 emissions will decrease proportionally according to decreased total traffic volume and changed traffic modal share in the “with-project scenario” compared to the “without-project scenario”.
The RI Component
16. In the “with-project scenario,” with rehabilitation and upgrading carried out, and construction of three key links of the urban road network, residents’ average travel time, especially during peak hours, is shortened. Travel efficiency on project roads is increased and VOCs are saved. Savings in passengers’ time costs are estimated based on the observed shorter travel time of residents on project roads, as collected by PDO indicators and increased traffic volume during the service period. VOC savings are estimated based on shorter time passing through project roads and savings in the labor costs of drivers and bus-ticket sellers. CO2 emissions will decrease proportionally according to the decreased total travel time of motorized vehicles in the “with-project scenario” compared to the “without-project scenario.”
The RS component
17. In the “with-project scenario,” road accident costs are decreased due to various project activities of the RS component and also benefit from better traffic management brought by the PT component.
Savings in road accident costs are estimated according to the lowered incidence of fatalities of motorized vehicles captured by PDO-level indicators.
Summary of Benefit and Cost
18. Table 4.2 summarizes the benefit and cost of all three components throughout the project’s operating years.
Table 4.2. Benefit and Cost Summary (CNY, ten thousand)
Present Value (in 2011) Construction Period Operation Period
Discount rate: 12% 1 2 3 4 5 6 7 8 13 18 23 27
Economic Benefits 2012 2013 2014 2015 2016 2017 2018 2019 2024 2029 2034 2038
PT Component Benefit
a) Savings in passengers’ time costs 23,907 0 0 0 -150 1,383 3,304 4,026 4,230 6,185 6,762 6,300 4,392
b) Avoided carbon emissions 700 0 0 0 17 46 36 124 130 163 201 250 300
Subtotal 24,607 0 0 0 -133 1,429 3,339 4,150 4,360 6,348 6,963 6,550 4,692 Cost
a) Capital Investment 11,213 0 7,142 3,065 0 0 0 7,380 0 0 0 0 0
b) Operation 329 0 0 0 14 15 15 49 50 246 68 0 0
c) Management 72 0 0 0 5 5 5 16 17 19 23 0 0
d) Residual Value -1,143 0 0 0 0 0 0 0 0 0 -8,793 0 0
Subtotal 10,470 0 7,142 3,065 19 20 20 7,445 67 266 -8,703 0 0
RI Component Benefit
a) Savings in passengers’ time costs 389,646 0 0 0 0 11,452 24,531 49,256 60,701 90,855 128,740 179,724 235,030 b) Savings in VOCs 141,298 0 0 0 0 5,116 10,462 20,542 24,780 33,713 44,002 56,772 69,668 c) Avoided carbon emissions 44,500 0 0 0 0 2,061 3,969 7,568 8,881 10,735 12,699 14,936 17,025 Subtotal 575,444 0 0 0 0 18,629 38,963 77,366 94,362 135,302 185,440 251,432 321,723 Cost
a) Capital Investment 370,676 0 295,641 31,434 14,515 50,155 113,712 38,300 0 0 0 0 0
b) Operation 238 0 0 0 13 13 14 14 39 183 49 0 0
c) Management 53 0 0 0 4 4 5 5 13 15 16 0 0
d) Residual Value -28,322 0 0 0 0 0 0 0 0 -2,075 -117,075 0 0
Subtotal 342,646 0 295,641 31,434 14,532 50,173 113,730 38,319 53 -1,877 -117,010 0 0 RS Component
Benefit
Savings in road accident costs 10,070 0 0 0 0 268 403 1,675 1,793 2,439 3,184 4,107 5,040
Page 59 of 77
Present Value (in 2011) Construction Period Operation Period
Subtotal 10,070 0 0 0 0 268 403 1,675 1,793 2,439 3,184 4,107 5,040 Cost
a) Capital Investment 2,795 0 1,416 551 1,737 300 0 0 0 0 0 0 0
b) Operation 35 0 0 0 0 3 4 4 4 4 5 6 7
c) Management 7 0 0 0 0 1 1 1 1 1 2 2 2
d) Residual Value 132 0 0 0 0 0 0 0 0 0 0 0 0
Subtotal 2,970 0 1,416 551 1,737 305 5 5 5 6 7 8 9
It must be noted that this analysis is very conservative, and still shows economic viability:
(i) Discount rate is 12 percent. The new methodology recommended by the Bank will likely estimate a lower discount rate.
(ii) CO2 value US$15 per ton. The Bank guidance advises to use an increasing value from US$30 to US$50 by 2030.
(iii) Cost of a life US$147,000. While there are many methodologies to calculate the economic cost of a life, and this value would be consistent with many of said methodologies, a standard value is around US$1,000,000
(iv) The CBA conservatively does not consider time savings of private car users due to reduced congestion in corridors with increased PT modal share
19. Results. The NPV of the project’s total net economic benefits is estimated to be 2.54 billion CNY (373,582 million US$), and the project’s EIRR is 17.28 percent. The BCR is 1.71. Table 4.3 presents results of the analysis. The EIRRs of the PT, RI, and RS Components are estimated to be 23.32 percent, 17.01 percent, and 28.1 percent, respectively. Sensitivity analysis assumes a 20 percent increase in total costs and a 20 percent decrease in total benefits. The EIRR of the project as a whole decreases to 13.19 percent under the strict assumption.
Table 4.3. Economic Evaluation Summary
Component NPV
(CNY10,000 ) EIRR B/C Ratio EIRR under Sensitivity Test (%)
PT 14,137 23.32% 2.35 17.35
RI 232,798 17.01% 1.68 13.00
RS 7,101 28.10% 3.39 21.94
Total 254,036 17.28% 1.71 13.19
Comparison of EIRRs at Appraisal and Completion, and Main Explanations
20. Table 4.4 compares the results of the project’s estimated benefit and cost at appraisal and completion. In this table, the estimated present values in table 4.3 are adjusted to present value in 2009 and from Chinese yuan measured in U.S. dollars as presented in the PAD.
Table 4.4. Comparison of Present Values at Appraisal and Completion Present Value
21. The difference between the estimated EIRRs in the PAD and ICR may be explained mainly by two reasons. First, the project’s investment structure was changed during implementation. Some of the proposed activities in the PT and RS Components were cancelled. This led to a decrease in the costs and benefits of these two components. Some of the activities in the RI component were also revised but the component was less influenced. Second, as the project’s major component, the RI component achieved much better results compared to those foreseen in the PAD. The M&E indicators show that the peak-hour travel time along the project roads is shorter than the target value set at project appraisal, especially for the Shuidong Section of the Second Ring Road. Meanwhile, private-car ownership by Wuhan residents increased faster than predicted (19 percent yearly from 2009 to 2018, according to Wuhan Statistical
Yearbooks), while motorcycle ownership decreased sharply (-16 percent yearly from 2009 to 2018, according to the same source). These changes indicate that in the without-project scenario, a significantly higher proportion of residents would choose private cars for daily trips, compared to the PAD’s forecast in 2009; the traffic congestion of the project roads would be much worse than predicted in the without-project scenario. A comparison of the with-without-project scenario with this updated without-without-project scenario indicates a higher project benefit.