A general example of Road Project Analysis in Blue Nile state (without results tables)

Damazin – Kurmuk Road Project

Transport Economist Dr. Sulieman Khalifa Abbas

1. Introduction

The construction of the road incurs costs and generates benefits. The costs components include construction, maintenance, road management and accidents. There are socioeconomic quantifiable and non-quantifiable costs and benefits. The quantifiable benefits are assessed in this report and are considered the basis for the assessment of the economic viability of the road project. The non-quantifiable benefits can not be overlooked and might be a main factor in the decision regarding the construction of the project. They include social security, physical security, food security, clean water, education, gender issues etc.

Quantifiable benefits can be assessed in the form of operator surplus as VOS, or as producer surplus in the form of value added in production or as user surplus as cost and time saving to transport users in the community. Each of these benefit categories could be a useful tool in the evaluation of the project

Transport costs cost elements include travel time that differs largely in accordance with the time of the year and the serviceability of the tracks and the community development. Trip time could take hours or days for the same route and the same distance, and in many instances transport vehicles can be isolated in muddy areas for several days before the journey could be resumed. Evaluation of trip time depends on the benefits of utilizing the time or the opportunity cost of hours spent on travel. The point here is lack of a way to reach for medical help and especially for children, women and the elderly is a matter of serous concern in the villages.

The social costs and benefits form an important measure of project feasibility in rural areas when the social services are below the needs of the population. In cases when the project cost is higher than its economic benefits, then the consultants introduce social benefit measures to support the project. In the road project under review the economic returns justify the project.

1.1 The Project objectives

The project is an improvement of transport through the construction of a two lane road from Damazin to Kurmuk in the Blue Nile State, with the specifications provided in the design prepared by NHA in accordance with the norms established in the country.

The project aims at lowering transport cost, provide all weather access, remove wet season constraints and improve transport users accessibility to the project zone.

The State capital connections with various communities in the region will be improved leading to facilitate planning and improvement of services along the proposed route and in other areas in its zone of effect. The road will provide the basic link breaking the isolation of many villages and facilitate the arrival of health, education and other services to underprivileged communities. The project will also improve connection between the State and Southern parts of Ethiopia and improve their access to Sea ports of Sudan.

In the production sectors the road will lead to the expansion in agriculture and facilitate large scale mechanized farming that will form the basic income generator in the State. Mining is foreseen to get a large share in the economy and the road would enhance the efforts of the State in mobilizing local and foreign investment in this sector. Reasonable access to local markets in the State and links with other parts of the country and further abroad will improve products marketing.

The road project is included in phase one of the National Comprehensive Plan for Roads and Bridges in Sudan. The plan includes roads under construction and roads which attained high priority according to the objectives of the plan.

Methodology and approach

The consultant is required to review available data, complement data, forecast traffic and prepare cost benefit analysis.

NHA provided the result of traffic count and this was considered an important input in the cost benefit analysis. Further more NHA provided three documents prepared by the State and these were useful in identifying the drive towards investment in the State.

The data provided had to be supported with a forecast for agricultural progress. Therefore, there was a need to establish a progressive land use bearing in mind the importance of mechanized agriculture as the main development target.

Traffic forecast was made with the following observations:

Meetings and discussions with NHA economists in the Authority were very useful in defining the concept and foreseen prospective development. Meeting with the senior engineer in charge of the project furnished useful background information that helped the consultant in identification of key issues to be addressed.

Traffic counts were made for three days at Abu Grain and Dering. These two points are supposed to be representative to the project area as most of the traffics pass through them. According to the count light trucks represent 45% and light vehicles represent 36% of the traffic. Traffic count should give allowance for seasonal variation and this particularly important on roads serving agricultural areas. In these areas traffics vary according to on-going agricultural activities. Therefore, the total annual traffics on the road are not evenly spread over 12 months as harvest season has more pay loads on the road than other times of the year.

Documentation prepared by the State of Damazin gives a general insight of development perspective although no financial commitments appear with the proposed projects.

More weight given to large scale agriculture which was the trend before the conflicts.

It is worth mentioning that consultation with State officials could provide important inputs especially in reflection of views regarding demand for agricultural production and foreseen financial and other inputs for farming development.

One more factor to be considered in traffic projection is the Ethiopian export/import traffic via Port Sudan as it is the case via Gallabat and Homera in Gadaref State. The Ethiopian demand for Sudan oil exports could be an added input in the project benefits.

Social benefits are important factors for consideration as the area was under conflict long enough to shadow adverse effects on all amenities and services infrastructure. Most affected groups are the least privileged poor communities and in particular women, the elderly and pre-school children.

The State population at 786,000 forms 2.1% of the country population and density in the project area is low as years of conflict dislocated communities away from unsafe areas.

The passenger traffic is associated, to a large extent, with the activities of the agricultural season. There are no buses in the area and transport of villagers to weekly markets is by lorry or the few light vehicles available to a small group of traders or officials. It is noted that animal transport is widely used in the State.

Development potential

general

The area of the road project, Damazin / Kurmuk, has large potential in agriculture, animal wealth, mining and tourism. The area has fertile soils and with water resources that support large agricultural extensions. The animal wealth with 6% share in Sudan animal wealth, is an important source of development and improved road access to markets will increase its contribution in the GDP, Forestry and forestry products provide added inputs to the GDP,. Mining is another field that will benefit from the proposed project. The road is the common factor in the development of all these economic activities,

Agricultural development will be the main source for generated traffic on the proposed road. All year round traffic and lower transport cost .will facilitate increasing area cultivated and productivity in the farms. The total cultivable area is estimated around 7 million feddans out of which 3.5 feddans are rain fed where the annual rain average reaches 700 mm. The present land utilized in the rain fed cultivation is around 40% in addition to very low utilization in the irrigated areas.

Conflict in the region, beside inefficient transport system, played a crucial role in the low utilization of agriculture in the project area. Now with the peace process well established, shortages in transport infrastructure remain to be the prime obstacle for development. Considering that other factors are constant, the construction of the road will increase the cultivated area to its maximum. This is estimated at 70% percent of the total area leaving 30% for forestry, ranching and undulated areas

Mining forms another area of development in the State. Particular attention would be given to chrome ore mining queries from where the average annual loads by rail from Damazin rail station averaged 5000 tons a year thirty years ago. Transport of this traffic was interrupted by the collapse of the railways.

Agriculture:

There two types of land holding, the subsistence land holding and the market production land holding. About 74% of households own small plots of land ranging between 2 to 8 feddans where durra, millet, groundnuts etc are cultivated for household use and partly for the village markets. Large holdings were also allotted to local farmers who produce cash crops on farms size ranging between 100 and up to 3000 feddans.

Larger holdings were exploited under mechanized farming by professional farmers growing cotton, durra, sesame, sunflower etc for transport by rail from Damazin to markets in the country or for export. Mechanized farming was introduced in 1971 over an area of 725 thousand feddans with allotments of 1000 to 1500 feddans per farm and with further expansions, large investor were allotted farms ranging between 5000 and 14000 feddans.

In 1991/92 an area of 2.5 million feddans was allotted to investors in mechanized farming of up to 50,000 feddans per farm. Rain fed cotton plantation in the State reached 52000 feddans during 1996/97 season. The utilized land for cotton shrank to 2250 feddans in 2001/2002 season while durra continued as a main crop in the state with an average of 0.8 thousands feddans utilized each year during the 90s.

Agricultural production lagged back and large investors hold back their activities as main producers of cash crops. In the rain fed farming areas the annual average land cultivated, during the last ten years, was 1.4 million feddans out of a cultivable 3.5 million feddan[1].

A multitude of reasons were behind the failure of the planned agricultural development, Among the reasons were trade problems with trade partners and for some years durra and other crops were not welcomed in traditional regional markets. The conflict in the area was a main reason in agriculture set back. The railway unsatisfactory operation and its final withdrawal added to the problem.

Now there are no reasons associated with exports as markets are open for Sudan exports in agriculture, livestock, minerals and oil. The security in the area was a reason and the efforts in peace keeping have materialized. The basic hindrance to agricultural development remains to be the absence of transport infrastructure capable of meeting the transport demand and it is believed that early construction of the road will enhance economic and social development.

Traffic assessment

Traffic in a project zone is subdivided into three main categories and those are:

Normal traffic which is the traffic moving on with or without the road.

Generated traffic is that traffic induced by the construction of the road

Diverted traffic is that traffic on other routes and is attracted by the construction of the road

These subdivisions provide general guidance in traffic analysis but in the road project there was no assessment for diverted traffic although there are a large number of earth tracks whose traffics will be diverted towards the new road.

The road has a dislocation effect where villages with small number of families and with little or no land would leave their settlements and relocate themselves closer to the road where they can generate income by providing services to truckers or passengers. The benefits of such groups are not accounted for in the project.

Normal Traffic:

Normal traffic has been estimated on traffic counts at Abu Grain and Dering. The traffic count was conducted in March 2007 and this time of the year is midway between end of one season and preparation for the coming season. Therefore the figures obtained from the count points represent a below average traffic volume. After the month of March traffic takes a downward slope until heavy rains begin to increase and close most of the tracks of normal traffic. It is also noted that petrol consumption was among the lowest in the country during the 1990s decade. Diesel oil and benzene consumption in the State was 0.9% and 0.03% respectively of the total country consumption.

With these assumptions, forecast of normal traffic will be at 3 to 4 percent or about 50% of GDP growth rate in Sudan but almost equivalent to population growth rate in the State.

Origin destination count indicated that most of the traffic from north to south originates from Damazin and destined to Kurmuk. And again most of the traffic north bound originates from Kurmuk and travel to Damazin or further north.

Assessment of agricultural production:

Traffic generated from agriculture is seen as more tangible than other sources of generated traffic. The development benefits arising from agriculture have direct impact on the local community as additional income generator in the form of work or market opportunities. The increase in cultivated area has an impact on the balance of trade through exports of cash crops. They have also direct impact on the State resources in taxes and funds for provision of services. Out of 3.5 million feddans available to investors, between 20% and 85% would come into the production cycle over time in the future. During the last few years only 40% had been utilized annually and output was further decreased by low productivity.

At present efforts are made to extend the area cultivated and additional increase in productivity is expected in the farms due to improved supervision and use of insecticides and fertilizers. In addition to increased production on-time transport will decrease the waste in the products left in the fields till the next season as well as waste by spill

en-route to the markets by traditional means. These activities were not possible to perform in the farms during the rainy season and even in the dry season without an all weather good road.

Agriculture Generated traffic

Generated traffic is based on development in the mechanized agricultural sector which is considered the main source for traffic during the life time of the project. This assumption is based on the fact that traditional farming is directed mainly towards local consumption of the house holds in the State.

Large scale mechanized agriculture in the past was dominating the production as compared to village farms. Large investors can provide needed inputs in agriculture including technology, improved seeds, marketing channels etc. and are seen as prime developers of production in the State.

On this assumption it is foreseen that out of the 3.5 million feddan available 3.0 will get into production over a ten year period with 300,000 added each year. Productivity could range between 4 and 8 sacks of 90 kg. Per feddan, and transport unit is in equivalent unit of 20 tons or medium truck.

Passenger Transport:

In the area the productive activities beside agriculture, are animal husbandry and forestry. The survey at Dering and Abu Grain indicated that daily long distance travelers were 240 at Dering and 61 at Abu Grain. Passengers are mostly in the non-skilled category and their movement is limited with farming and forestry activities. Other categories are few local government officials with limited travel by official vehicles. There are also the military and international and non-governmental organizations whose movements can not be accounted for. Bus traffic will develop with the road construction but the normal practice of using Lorries and tractors with the produce will continue. Bus average trips of 60 km. and at 15% annual increase for 5 years and after a reasonable number of buses are generated then the annual increase would come to 2 – 3%.

Ethiopian Traffic Demand:

Ethiopia is a land locked country and its access to the sea ports through Sudan is seen as one of the options for Ethiopia foreign trade. Across border trade development has its weight on the project. Recent trade agreements on border trade between Sudan and Ethiopia will facilitate the increase in traffic volume on the road. Ethiopian export and import traffic did not gain a high traffic level yet, but has large potentials as a source of generated traffic.

Petroleum products are generating reasonable traffic on Gadaref – Gallabat road and some traffic from this category expected to move on the road.

Vehicle operating costs and benefits:

The costs are subdivided into the two main categories of fixed and variable costs where variable costs vary with utilization of vehicles while fixed cost is time dependent and is accounted for irrespective of asset utilization. The costs components are as follows:

Variable or running costs

· Fuel

· Oil and lubricants

· Maintenance

· Tyres

· Crew allowances

· Others

Fixed cost

· Crew wages

· Depreciation

· Interest on capital

· Insurance

· Licensing

· Overheads

Vehicle Prices

The vehicle prices were obtained from a number of sources but mainly from reliable dealers eg. DAL Corporation. It is worth mentioning that the vehicles market in Sudan went through successive changes following changes in the international markets as well as changes due to economic liberalization.

The consultant, observing that vehicles with similar functions differ widely in prices, decided to establish vehicle prices on an average that would give a reasonable share to vehicle prices in the cost analysis and are comparable to prices given by previous studies.

fuel prices:

Fuel prices are obtained from gas stations and Customs Administration

Tyre prices

Tyres prices are obtained from reliable dealers eg. DAL Corporation and Customs Administration and it is observed that there are large variations in Prices depending on their make, quality and country of origin.

Vehicle Consumption:

The consumption per unit has been obtained from the truck operating characteristics, 1983 Ministry of Planning.83 Ministry of Planning.

Vehicle Maintenance Cost:

The cost of maintenance and overhauling was obtained through interviewing workshop managers in Khartoum. Spare parts costs differ widely depending on country of origin, used or new, original or other makes. Overhauling engines and oil pumps was estimated over a five year period. The financial cost has been adjusted to give the economic cost estimate.

Wages and salaries:

The crew payments are not standardized in the country. A truck deriver can get double the pay of another driver who holds the same qualifications. Individual truck owners pay drivers on per trip basis and without a fixed salary. And since the wages and incentives are not standardized the consultant compared the results obtained from various sources and established an average for the purpose of cost calculations

Insurance:

Insurance for vehicles varies between 1% and 4% depending on the coverage selected. Third party insurance is on a fixed rate irrespective of the vehicle cost and is mostly adopted for old cars and ranges between 1% and 2%. For new vehicles a 4% is suggested for various types.

Overheads:

The estimation of overheads depends on the size and organization of the firm. In rural areas a large number of individual truck owners dominates the trucking and bus business, their overhead components is negligible. Large trucking companies will come in the area with the construction of the road or when there are specific situations calling for heavy lifts such as large construction projects. In the case of the project area overheads are estimated at 1 - 3%.

Operating characteristics:

The zone of the project is characterized partly by water courses (khore) which lowers the speed of trucks to less than 10 kilometers per hour. In addition to low speeds in the dry season, traffic stops completely in the rainy season and only 4WD vehicles can operate on the muddy areas. Beyond the earth tracks, trips towards or within the agricultural areas are made with tractors. The average speeds are estimated in the dry season, with these considerations in mind.

Annual vehicle utilization:

The vehicle utilization in the project area is very low and is generally less than 60% as the tracks are not passable with high speeds during the period extending from July to October.

The assumptions were confirmed following interviews with truck operators and drivers in addition to observations of the consultant during several trips made on similar tracks at different times and studies. Current control on speeds by traffic police was taken into consideration. Assuming that salvage value is zero, annual depreciation was obtained by dividing the economic price by the economic life of the vehicles.

Resulting Vehicle Operating Costs (VOC):

The resulting VOC for each vehicle type and each road surface type does not indicate large variation from previous estimates prepared by other consultants. At the time of this survey, the inflation rate was to a great extent kept within reasonable ranges and the exchange rate for the dollar was stable for the last few years. These factors narrowed the difference of the variation in VOC for the last few years and that made the present estimates closer to the previous estimates. The financial cost has been adjusted by deducting customs to give the economic cost estimate.

Cost differential between different tracks:

The running speeds on different road types result in different costs ratios. The speed on one lane paved road is related to speeds on other types of roads in order to generate indices and the results are used in allocation of vehicle operating costs. From the cost indices developed by NHA, and assessment was made for Damazin/Kurmuk earth road as an average condition.

Assessment of benefits

The vehicle operating saving resulting from the difference in costs of the tracks was used to generate the benefits for users of the new road. The tables should indicate benefits by type of traffic and type of vehicles using the road during 20 years of road life cycle. cost of construction

The construction and maintenance costs estimated at financial year prices to be discounted to economic prices for comparison with project benefits.

COSTS AND BENEFITS ANALYSIS

Costs and benefits are compared by subjecting them to selected discounting rates to bring them to present values.

End Results

Cost/Benefit Results:

The results show positive indicators at 12%, 15% and 18% of selected discount rates for this project. And with application of sensitivity analysis at 20% cost increase or 20% benefit decrease are obtained positive results at 12% and 15%.

Sensitivity test at 20% cost increase coupled with 20% benefit decrease shows positive results at 12% discount rate.

It should be noted that the benefit factors has been softened by 25% to offset any increase in traffic forecast. Inspite of this factor discount positive results are obtained at three discount rates.

And in line with the consultant forecast of mechanized agriculture the Agricultural Bank announced financing 650 thousand feddans in the State for the season and it is foreseen that mechanized agriculture will exceed the consultant reserved estimates.

Social Consideration:

The calculations of project results are based on user’s benefits and they are quite reasonable to confirm the viability of the project. It is believed that part of the users benefit will be transferred to others in the form of transport cost reduction.

The development aspects of the project area would increase the project benefits substantially. These are basically agricultural value added that would generate income and enhance other sectors development.

The social benefits accruing to the project zone population should be taken into consideration inspite of the fact that they were not quantified in the assessments of benefits.

b) Comparison with Previous Studies:

Most of the previous studies in Sudan generate IRR between 17% and 20% and a benefit cost ratio of 1.5 or less. Damazin - Kurmuk State with its high development potential generates higher benefits and with the geographical location as a boarder line State gives the project a regional character providing the land-locked Ethiopia with alternative access to the Red Sea ports of Sudan and with added traffic on the road

Sensitivity Test for Benefit Cost Calculations at several projected discount rates will generate Economic Indicators including IRR (%), NPV (SDG) and B/C Ratio.

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