Consultancy Services for Preparation of a Manual for … … · · 2015-08-01The United Republic of Tanzania Ministry of Works Good roads for national development Tanzania National

The United Republic of Tanzania

Ministry of Works

Good roads for national development

Tanzania National Roads Agency

(TANROADS)

20152015

Consultancy Services for Preparation of a Manual for

Carrying out Economic Appraisal and Evaluation of

Trunk and Regional Roads Investment Projects

Intercontinental Consultants and Technocrats Pvt. Ltd.A-8, Green Park, New Delhi - 110 016, India

Afrisa Consulting Ltd.P.O. Box 66607, Plot 274, Block D, Kunduchi, Bagamoyo Road, Dar Es Salaam, Tanzania

in association with Grant Thornton Advisory Private Ltd. L 41, Connaught Circus, New Delhi 110001, India

and

(Sub-Consultant)

(Sub-Consultant)

Acceptance Testing Report

The United Republic of Tanzania

Ministry of Works

Good roads for national development

Tanzania National Roads Agency

(TANROADS)

20152015

Consultancy Services for Preparation of a Manual for

Carrying out Economic Appraisal and Evaluation of

Trunk and Regional Roads Investment Projects

Intercontinental Consultants and Technocrats Pvt. Ltd.A-8, Green Park, New Delhi - 110 016, India

Afrisa Consulting Ltd.P.O. Box 66607, Plot 274, Block D, Kunduchi, Bagamoyo Road, Dar Es Salaam, Tanzania

in association with Grant Thornton Advisory Private Ltd. L 41, Connaught Circus, New Delhi 110001, India

and

(Sub-Consultant)

(Sub-Consultant)


Consultancy Services for Preparation of a Manual for Carrying Out Economic Appraisal and Evaluation of Trunk & Regional Roads Investment Projects


2015

Intercontinental Consultants and

Technocrats Pvt. Ltd. (ICT)

in association

with

Grant Thornton Advisory Private Ltd.

and

Afrisa Consulting Ltd.

i

Table of Contents

List of Abbreviations ................................................................................................................................ ii

ACCEPTANCE TESTING REPORT

1. Project Background ......................................................................................................... 1

2. Objectives of the Assignment ........................................................................................... 1

2.1 Overall Objectives .................................................................................................................... 2

2.2 Specific Objectives of the Consultancy Services ..................................................................... 2

2.3 Present Report ......................................................................................................................... 3

3. Acceptance Testing Plan .................................................................................................. 3

3.1 Step 1: Stakeholder Consultations ........................................................................................... 4

3.2 Step 2: Stakeholders Workshop ............................................................................................... 4

3.3 Step 3: Economic Appraisal: FAQs .......................................................................................... 5

3.3.1 What is an economic appraisal of highway investment projects? ................................ 5

3.3.2 What is the process to carry out an economic appraisal? ............................................ 6

3.3.3 How can I estimate baseline traffic? ............................................................................. 7

3.3.4 What are the factors to be considered in forecasting traffic demand? ......................... 7

3.3.5 How to carry out traffic demand forecasting? ............................................................... 8

3.3.6 What shall be the scope or extent of design in feasibility studies? ............................... 9

3.3.7 What are the engineering surveys to be carried out to develop a preliminary design?

.................................................................................................................................... 10

3.3.8 What are the guidelines to be referred to while carrying out preliminary design in

Tanzania? ................................................................................................................... 10

3.3.9 What are the likely externalities and dis-benefits/costs of the road development

interventions? .............................................................................................................. 11

3.3.10 What are the costs to be considered in feasibility studies? ........................................ 11

3.3.11 How to derive the costs for items considered in the preliminary design? ................... 12

3.3.12 How to determine the economic cost and Standard Conversion Factor (SCF) for the

economic appraisal? ................................................................................................... 13

3.3.13 What are the benefits to be considered and what are the methods available for

valuing these benefits? ............................................................................................... 13

3.3.14 How these benefits can be identified & quantified? .................................................... 15

3.3.15 What are the software(s) to be employed for undertaking economic appraisal? ....... 16

3.3.16 How can I configure HDM-4 to suit Tanzanian conditions? ........................................ 17

3.3.17 What are the calibration requirements of HDM-4? ..................................................... 17

3.3.18 What are the input data to be considered in estimating VOC and VOTT in HDM-4? . 18

3.3.19 What are the input data required to determine road accident benefits in HDM-4? .... 18

3.3.20 What are the major outputs in HDM-4, which can be used in economic appraisal and

decision-making? ........................................................................................................ 19

3.3.21 What is sensitivity & risk analysis and how can this be incorporated in the economic

appraisal? .................................................................................................................... 20

3.3.22 What should be the content of the feasibility report? .................................................. 21

4.0 Sum Up .......................................................................................................................... 22



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List of Abbreviations

AADT Annual Average Daily Traffic

ADT Average Daily Traffic

DFR Draft Final Report

DP Development Partner

EIRR Economic Internal Rate of Return

FAQs Frequently Asked Questions

GDP Gross Domestic Product

GoT Government of Tanzania

HDM-4 Highway Development and Management

ISOHDM International Study of Highway Development and Management

IWT Inland Water Transport

NGO Non-Government Organization

NMT Non-motorized Traffic

NPV Net Present Value

RED Road Economic Decision

RSA Road Safety Audit

RUC Road Users Charges

SCF Seasonal Correction Factor

TANROADS Tanzania National Roads Agency

ToR Terms of Reference

TRRL Transport Road Research Labouratory

VFM Value for Money

VOC Vehicle Operating Cost

VOTT Value of Travel Time

VRU Vulnerable Road User



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ACCEPTANCE TESTING REPORT

1. Project Background

Development of transport infrastructure in general, and road network in particular, is very

important for the socio-economic growth of the country. Road network development has two

major components, viz. (i) construction of new roads; and (ii) preservation or maintenance of

the existing roads. In any developing country including Tanzania, for undertaking both these

activities, judicious and optimum utilization of the limited resources is important. This

requires proper and consistent economic appraisal for road investment projects to ensure

good value for the money spent.

It is generally observed that the road improvement needs are usually more than the available

financial resources; hence the investment appraisal exercise is carried out to establish the

economic strength and desirability of road projects. The investment appraisal exercise,

among others, is useful in setting priorities of different road improvement interventions. The

economic appraisal exercise needs a variety of data inputs, such as all the cost components,

and identification and valuation of the benefits and externalities. The results of economic

appraisal are obtained for the set appraisal period in terms of economic internal rate of

return (EIRR), net present value, (NPV), etc. using discounted cash-flow technique.

While undertaking the above exercise, different input data reflecting the costs and benefits

streams for the appraisal period, discount rates, and several other parameters are utilized,

which influence the results of the appraisal exercise considerably. In fact, the approach and

methods adopted by different experts for carrying out the investment appraisal exercise may

not be necessarily uniform, which, in turn, yield different results and also difficult to set

priorities for different projects. Under this situation, it would be difficult to set any decision-

making criteria and also decisions.

With the above background, TANROADS entrusted the Consultancy Services for

Preparation of a Manual for Carrying out Economic Appraisal and Evaluation of Trunk and

Regional Roads Investment Projects. The Study aims at developing standard procedures

and processes, which could minimize the deviations from an acceptable and prescribed

range.

2. Objectives of the Assignment

The Terms of Reference outline the objectives of the assignment as follows: the purpose of

this study is to develop an evaluation (appraisal) framework in which impacts of

transportation investments can be better assessed in the context of economic growth. This

arises from the recognition that investment in infrastructure can result in high rates of

economic growth, which are fundamental to the economic well being of Tanzania.

The need for this assignment is motivated by the fact that failure of transportation

investments to maintain pace with growing demand renders the provision of infrastructure

more expensive than it would have been both in terms of the time value of money and the



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competitiveness of Tanzanian products competing in the global marketplace. This

assignment will help provide a methodology by which TANROADS will derive information

necessary to guide policy and investment decisions towards achievement of national

development objectives.

2.1 Overall Objectives

The main purpose of the Consultancy Services is to strengthen the investment appraisal

function within TANROADS and the wider road sub-sector in general. The ultimate objective

is to provide updated guidelines, frameworks and baseline data to be used by TANROADS

and other stakeholders mainly consultants for investment appraisals (both ex-ante and ex-

post assessments) in order to aid decision making at strategic, program and project levels.

This effort will serve to standardize the approaches taken by various consultants employed

by TANROADS in executing feasibility studies for various activities thus defining the overall

direction for strategy, policy and investment decision making for the National Roads in

Tanzania.

The overall objectives of the assignment are therefore summarized as to:

Develop a standardized methodology and procedural guide (manual) for evaluating or

appraising trunk and regional road investment at strategic, program and project level that is

consistent with international best practices in the highway infrastructure field; and

Provide training to TANROADS in the application of the proposed highway investment

appraisal tools and procedures.

2.2 Specific Objectives of the Consultancy Services

Develop a standardized framework and procedure for road investment appraisal for strategic,

program and project level;

Develop a standardized framework and procedures for all basic inputs (as well as definition of

data collection protocols) to the road investment appraisal tools, namely HDM-4, RED and

other related road investment including requirements for model calibration / customization;

Collect baseline input data and updating the VOC which were established in 2004; and

Identify all economic and social factors (i.e. social benefits) to be considered during

preparation of feasibility study report.

The consultancy services have been carried out through the mandated deliverables

illustrating the progress of the study at defined intervals. The sequence of the deliverables to

complete the consultancy services is shown below, in terms of milestones achieved. The

Acceptance Testing Report is the final deliverable under the Study.



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2.3 Present Report

The present document is the Acceptance Testing

Report on the TANROADS’ Investment Appraisal

Manual (2015) prepared under the consultancy

services as per the requirements of the ToR. The

Acceptance Testing Report, besides the study

background and project objective, includes the

Acceptance Testing Plan for the investment

appraisal system. For the purpose, the Consultants

have developed a series of questions and

corresponding answers, pertaining to the feasibility

study and the economic appraisal for road

development projects, referring the same to the

relevant chapters / clauses in the Manual.

These Qs&As are particularly designed in such a

manner so that it could also conform to the

application of the TANROADS’ Investment Appraisal

Manual (2015) for undertaking the economic

appraisal of road investment projects. The

Acceptance Testing Plan consists of the entire spectrum and functional areas of a feasibility

study and economic appraisal with concepts, approach and methods, etc. in a simple

language to understand and effective usage of the Manual. The Plan also highlights the

suitable references for specific tasks for higher level of applications with proper

understanding.

3. Acceptance Testing Plan

During the consultancy services, the Consultants organized a series of presentations on the

intermediate outcomes of different analyses, small group workshops, discussions, etc. on a

regular basis to update the activities including contents of the draft and final versions of all

the mandated deliverables, determination of all the baseline values of the components of

vehicle operating cost (VOC), value of travel time (VOTT), accident cost, use and application

of the HDM-4 Model including configuration, calibration, major data inputs, obtaining outputs

and its analysis for decision making, etc.

The Consultants have been particularly engaged in discussions with the TANROADS

Officials concerned on several issues relating to the feasibility studies and economic

appraisal of road and bridge projects. A brief note on the consultations with relevant

stakeholders during the Study is presented in the Final Report (Chapter 6). These interactive

sessions, and the feedback given by the participants of TANROADS and other stakeholders

have been duly incorporated in all the subsequent deliverables under the Study, particularly

in the TANROADS’ Investment Appraisal Manual (2015). The present Acceptance Testing

Report is also based on the feedback and suggestions given by the TANROADS Officials

during the presentations made on the TANROADS’ Investment Appraisal Manual (Draft

Version).



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The Consultants have envisaged the plan for the acceptance testing of the Manual in three

following steps:

Step 1: Continuous consultation with TANROADS’ Officials and other stakeholders

during the preparation of the Manual;

Step 2: Present the economic appraisal in the context of Tanzania and the tentative

contents of the Manual during the Stakeholders Workshop on the Study bringing

together wide range of Users, and soliciting their views; and

Step 3: Preparation of list of ‘Frequently Asked Questions (FAQs) about economic

appraisal and linking the answers of the same to the contents presented in the Manual

and the Final Report, to test the coverage and its acceptance for its intended usage.

3.1 Step 1: Stakeholder Consultations

In order to get feedback and suggestions on the approach and methodology to be adopted

for undertaking the consultancy services, an extensive stakeholders’ consultation was

organized at different stages of the Study. Through the consultation process, the

Consultants were benefitted in acquiring knowledge of the ground reality, valuable guidance,

and identifying concerns on several important components of the economic appraisal of the

Trunk and Regional roads under TANROADS. The Final Report (Chapter 6) compiles

summary of the meetings with different stakeholders, which also conforms to the

requirements of the ToR. It may be stated that the consultation was one of the basic

approach and methods adopted to solicit the views of different stakeholders representing

different groups of policy makers, planners, and decision makers in transport and allied

sectors, international agencies funding transport infrastructure projects, different groups of

road users – organized or unorganized, the NGOs and civil societies engaged in different

activities in transport sectors, etc.

For the purpose, the Consultants made extra efforts to identify the relevant stakeholders with

active participation of the officials of TANROADS, and prepared a comprehensive list of the

stakeholders, and grouped in (i) the Ministries and Government Departments; (ii) Training

Institutions and Professional Bodies; (iii) Private Sector Organizations; (iv) Civil Society

Organizations / NGOs; and (v) Development Partners (DPs). The list of stakeholders is given

in the Final Report (Annexure 6.1).

3.2 Step 2: Stakeholders Workshop

As part of the ToR, the Consultants organized the Stakeholders Workshop (December 2014)

after submission of the Draft Final Report (DFR). The DFR included the detailed background

document towards the preparation of the TANROADS’ Investment Appraisal Manual. Theme

of the Workshop was to present the outcomes of the DFR and the contents and application

of the Model so that the participants drawn from different ministries and entities could be

sensitized on the Study, the application of extant Economic Analysis Models, and also the

coverage and contents of the TANROADS’ Investment Appraisal Manual.

The Consultants made all the necessary arrangements and handouts on the presentation

with the Analytical Executive Summary (print and electronic copies) of the DFR and other



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required facilitation for conducting the Stakeholders Workshop. The Workshop was

considered as grand success, as the presentations were rated as excellent with very active

presence with constructive suggestions and observations of the participations. The

Consultants recorded all the feedback received from the participants of the Workshop, which

have been duly addressed in the Manual. The key observations received from the various

stakeholders and corresponding compliance by the Consultants are presented in the Final

Report (Annexure 20.2).

3.3 Step 3: Economic Appraisal: FAQs

For effective reference and utilization of the contents of Final Report (2015) and the

TANROADS’ Investment Appraisal Manual (2015)1, the Consultants have framed relevant

questions, to understand the need as well as methods for undertaking the economic

appraisal for investment in road development projects. These questions are framed in such a

way to provide conceptual clarity to the users of the Manual and to act as a guide for

effective use of the Manual and the Final Report. The questions relating to different

functional areas of economic appraisal are linked with the corresponding answers and

reference to the contents presented in the Final Report and the Manual, to test the coverage

and its acceptance for its intended usage. The following sections present the questions and

the answers addressing the economic appraisal issues.

3.3.1 What is an economic appraisal of highway investment projects?

[Ref.: Chapter 2: Overview of Economic Appraisal of the Manual deals with the above question]

The basic concept and purpose of carrying out an economic appraisal for investments in

road development projects is to ensure better allocation of national resources, which could

enhance income for investment and consumption. The objective of the economic appraisal

of a project is to measure its economic costs and benefits from the point of view of the

country as a whole to estimate whether the net benefits are more than those obtainable from

other investment opportunities. The economic analysis of a project also aims to choose the

means using the least resources for a given output. It is important to note that all resource

inputs and outputs have an opportunity cost through which the extent and value of project

items are estimated. Project should be chosen where the resources would be used most

efficiently.

Economic appraisal is a systematic process for exploring and examining alternative uses of

resources, focusing on assessment of needs, objectives, options, costs, benefits, risks,

funding, affordability and other factors relevant to decisions. Economic appraisal is defined

as “process of justifying and reaching a decision to invest resources in the road being

appraised”.

In other words, the economic appraisal is a type of decision making tool applied to a project,

program or policy that takes into account a wide range of costs and benefits, denominated in

monetary terms or for which a monetary equivalent can be estimated. It is also a key tool for

achieving value for money (VFM) and satisfying requirements for decision accountability.

1 Referred to as the “Manual” in the Question-Answer Sections.



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The economic appraisal of road investment projects should not be considered as a

mechanical process; while undertaking the appraisal a high degree of analytical ability and a

broad imagination need to be applied. The consequences of a project being appraised must

be clearly understood and formulated, and the feasible alternatives must be fully considered.

Economic appraisal should ensure the sustainability of project effects, e.g. intended benefits

to the road users of road development for long-term, and preserving the national road asset

by maintaining it adequately. In fact, projects are sustainable, if the proposed benefits are

realized throughout the appraisal period, e.g. 20 years. Sustainability should also adequately

address the social and environment concerns, which might occur on account of the

proposed interventions of road development. The appraisal should also cover the distribution

of project effects and judging project social acceptability and it is important to determine who

benefits and who pays the costs.

With the overall basic concept, as mentioned above, the economic appraisal compares the

total economic cost implications of ‘with project’ option (investment proposal for road

development project) and ‘without project’ option (either do nothing or do minimum). The

above exercise is based on the concept of benefits forgone from not using a good or

resource in its best alternate use.

3.3.2 What is the process to carry out an economic appraisal?

[Ref.: Chapter 2: Overview of Economic Appraisal of the Manual also addresses the above question]

The feasibility study process has been discussed in the Manual (Section 2.3), in which

selecting the preferred option for a road development project, identifying and working out the

project costs and benefits, and undertaking the cost-benefit analysis duly supported with the

sensitivity and risk analysis, etc., need to be elaborated for making any decision for the

investments in specific road project or program. The table given below presents the main

tasks to be carried out in a feasibility study. The contents of the following table may also be

considered as a checklist of the activities.

Stage Task

Context & Objectives

Define objectives and rationale of the project

Locate the project within its geographic, economic and social context

Fieldworks & Surveys

Assess traffic demand (both vehicular and person movements)

Geotechnical investigations for route location, materials, hydrology, etc.

Pavement and Materials Investigation

Environmental surveys

Social surveys

Safety assessment

Engineering Design

Pavement design

Geometric design

Design of structures and drainage

Road Safety Audit

Selecting the Preferred Option

Establishing project costs

Establishing project benefits

Comparative analysis (economic or cost-effectiveness, and financial if applicable)

Sensitivity and risk analysis

Reporting the feasibility study



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3.3.3 How can I estimate baseline traffic?

[Ref.: Chapter 4: Traffic Demand Analysis discusses the estimation of baseline traffic]

Establishment of the baseline traffic data is foremost task for the traffic demand analysis.

The data are collected to assess the existing level of traffic, its movement and loading

pattern on the project road(s). The baseline traffic data are established by undertaking the

primary surveys on the project road, such as:

Classified Traffic Volume Count;

Origin-Destination & Commodity Movement Surveys;

Axle Load Survey;

Travel Time Survey;

Junction Turning Movement Survey; and

Stakeholder Consultations.

It is also suggested that appropriate Seasonal Correction Factors (SCFs) need to be

obtained from the TANROADS’ Baseline Traffic Study (2009), and suitably used on the

average daily traffic to derive the annual average daily traffic.

Traffic surveys must be planned in a comprehensive manner by studying the project

influence area in view of observing the movement pattern of the traffic and competing roads

from where the traffic may be diverted or use the new project road. Similarly, additional

surveys may be planned where there is a possibility of diversion of traffic from competing

modes of travel, e.g. railways, IWT, etc.

3.3.4 What are the factors to be considered in forecasting traffic demand?

[Ref.: Chapter 4: Traffic Demand Analysis discusses the methods of forecasting traffic demand]

The demand for transportation refers to as a demand stemming from the requirements of

some commodities and services at different places. It is basically derived from the need for

persons to travel to another location, and transport goods to make them available where

they can be used/stored/consumed/processed. Traffic is generated as a result of the

interplay of a number of contributory factors. Forecast of traffic has, therefore, to be

dependent on the forecast of different factors, such as population, gross domestic product,

vehicle ownership, agricultural output, fuel consumption, agricultural production and

associated activities. There could be various factors influencing future traffic, including those

not known presently, which might alter the traffic demand in future. However, the main

factors considered for forecasting model are as follows: (i) growth in population; (ii) changes

in economic performance; and (iii) changes in operational traffic and/or road network

characteristics resulting in changes in vehicle operating costs (VOCs), route choice, time

saving, comfort and convenience, and also boosting up the agricultural activities in the rural

areas with improved road transport infrastructure.

In order to establish the traffic-forecasting model for the Trunk and Regional roads in

Tanzania and subsequent projection of traffic for future years, procedure/guidelines

recommended in the TANROADS’ Baseline Traffic Study, 2009 (Chapter 8) should be

referred to.



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3.3.5 How to carry out traffic demand forecasting?

[Ref.: Chapter 4: Traffic Demand Analysis discusses the methods of forecasting traffic demand]

Traffic demand analysis is back-bone for economic appraisal of any road development

project, as the outcomes of traffic demand analysis are important inputs for selection of road

geometric design elements, pavement design, road safety, environmental and social impact

analysis; and finally for carrying out the economic appraisal of the investment in the project.

The traffic demand analysis aims at analyzing:

Base Year Traffic, i.e. Average Daily Traffic (ADT), and Annual Average Daily Traffic

(AADT) duly adjusted with the appropriate seasonal adjustment factor(s);

Traffic movement pattern in the project area(s);

Probability of traffic diversion from the existing routes and competing modes of transport;

Incidence of the generated traffic on account of reduced transportation cost due to the

improved transport facilities;

Additional traffic (if any) due to increased socio-economic activities and opportunities in

the project area; and

Traffic forecasting model and subsequent traffic projection on the project road(s).

Traffic Demand being a derived demand, is based on different influencing factors. Hence, it

needs to be analyzed on a comprehensive basis in view of suitable supply of future

infrastructure to the road users. Traffic demand should essentially include all passenger and

freight carrying vehicles – Motorized and Non-motorized (NMT); as well as the Vulnerable

Road User (VRU) Groups, i.e. pedestrians, old age people and NMT.

Further, traffic serving local, inter-regional, national, international/regional (East Africa) or

any specific project or purpose, and also consideration of vehicle fleet modernization due to

technical up-gradation in long term should be considered in traffic demand analysis. In order

to establish the traffic-forecasting model for the Trunk and Regional roads in Tanzania and

subsequent projection of traffic for future years, procedure/guidelines recommended in

Chapter 8 of the TANROADS’ Baseline Traffic Study (2009) should be referred to. For ready

reference, the following components should be considered for establishing the traffic

forecast model.

(i) Trend Analysis: The traffic forecast model for Tanzania should be based on several

historical data, such as traffic on different sections on the primary road network, registration

of different types of vehicles, consumption of fuel (diesel/petrol), particularly by transport

sector, etc.

(ii) Econometric Models: This exercise is mainly based on various causal

interdependent relations, viz. (i) growing population and transport needs, (ii) growth in

different economic activities (primary: agriculture, mining, etc.; secondary: manufacturing,

construction, etc.; and tertiary: transport and communications, trade and business, etc.) and

transport demand; and (iii) growth in the national gross domestic product (GDP) and per

capita income, and contribution of the transport sector or related sector(s). These analyses

are required to be carried out as per the available historical data at national and regional

levels.



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(iii) End User Approach: Effects of transport requirements of new or forthcoming

projects in the catchment area in nth year need to be assessed for passenger and freight

traffic, duly converted into specific type of vehicles. Such projects usually come up in phases

spread over a few years or on certain intervals; and their demand for transportation would

also be accordingly changing, so due care is required to capture the reality while estimating

the transport needs. The results of above analysis should be added in the traffic project

suitably.

(iv) Divertible Traffic: Due to improvement of a particular road, there would be a high

probability of traffic moving from alternative routes/modes/roads to the improved road, if

beneficial to the road users mainly on account of operating cost, time, distance and comfort

advantages. Hence, while undertaking the forecasting exercise, the extent of the divertible

traffic from the existing alternate route/modes/roads must be estimated.

(v) Generated Traffic: The concept of generated traffic is governed by the general

demand theory, i.e. demand is a function of price, as transport demand will increase if

transport cost decreases. With this functional relation, any improvement option in the

transport infrastructure, e.g. improved road would reduce the vehicle operating costs

considerably, and in turn, reduction in overall transport cost, and accordingly, increase in

traffic demand, i.e. generated traffic. The level of increase in traffic demand on account of

generated traffic would depend on the prevailing transport market of the project area. The

extent of generated traffic needs to be incorporated while formulating the traffic forecast on

any road improvement option.

It may be noted that the HDM-4 Model requires the following data relating to the traffic

demand analysis for economic appraisal:

Base year classified traffic in terms of AADT for all the representative vehicles: Motorized

and Non-motorized;

Vehicle-wise Annual Traffic Growth Rates;

Diverted Traffic after the improvement;

Generated Traffic; and

Step-in traffic (End User Traffic), wherever relevant.

Also, any additional traffic with the project scenario, e.g. due to increase in agricultural

activities in the rural area should be taken as exogenous benefits for the economic appraisal

as outlined in the Manual (Section 4.6.1).

3.3.6 What shall be the scope or extent of design in feasibility studies?

[Ref.: Chapter 5: Engineering Design presents the coverage on the design issues]

One of the principal objectives of feasibility studies should be to make recommendations

about the geometric design standards for a project so that the optimum balance between the

road construction cost and road user cost is obtained over the project analysis period. The

geometric design elements and the pavement design have significant influence on the total

project cost. Hence, it is important to design both of these components at feasibility study

stage to a reasonable level of accuracy, to enable appropriate decision making regarding

proposed investment.



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Selection of routes and appropriate cross section of the highway are the important

considerations in feasibility study, e.g. choice between the requirement of a bypass or a

route through an urban center shall be established at feasibility stage. Further, it is important

to include all the design considerations to incorporate the needs of all road users at

feasibility study stage. For example, appropriate surveys shall be conducted to provide for

the needs of pedestrians, pedal cyclists, motor cyclists, mini buses, motor bikes, parking

requirements on built up areas, bridge and culvert types, etc.

The need for footpaths, pedestrian over bridges or underpasses, wide shoulders, cycle

lanes/ cycle tracks, right turning lanes, additional land for appropriate junctions, bus bays,

laybys for trucks, etc. have to be established at the feasibility study stage since they have

significant influence on road safety and project costs.

The preliminary design should cover all the drainage requirements, particularly at junction

locations. The detail design of all safety elements, like road furniture, traffic signs and road

markings, etc. shall be done at the detail design stage. However, provisions for the same

shall be considered at feasibility study stages, so that project costs include a tentative

estimate for such items.

It is important to identify the extra width of land required at the feasibility study stage. For

example, at the location of junctions, it may be that more land is required to accommodate

the extra width required for facilities for pedestrian movement, parking, loading etc.

At the feasibility study stage, different design options shall be developed for economic

appraisal, e.g. choice between an alignment with bypasses having two lane cross section

and a route through an urban center having two lane plus paved shoulder cross section are

two design options to be considered for economic evaluation.

3.3.7 What are the engineering surveys to be carried out to develop a

preliminary design?

[Ref.: Chapter 5: Engineering Design brings out a detailed note on the engineering surveys]

The surveys to be carried out depend upon the type of proposed improvements, i.e. whether

the project is an upgrade from gravel road to paved standards, widening of existing paved

road, construction of entirely new paved road or maintenance of the existing road, etc. The

type of surveys to be carried out for different projects is detailed in the Manual (Chapter 5),

and the formats to be used for different surveys are provided in the Final Report (Annexures

9.1 to 9.6 of Chapter 9).

3.3.8 What are the guidelines to be referred to while carrying out preliminary

design in Tanzania?

[Ref.: Chapter 5: Engineering Design presents the list of guidelines and manuals for preliminary

design]

The Ministry of Works and TANROADS have issued various guidelines for data collection,

field investigations and engineering design, to which the design engineers and consultants

can refer to while developing various design options for feasibility studies. The list of major

guidelines is given as follows.



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Manual / Standard Prepared by

Road Geometric Design Manual (2011) TANROADS

Pavement and Materials Design Manual (1999) Ministry of Works

Laboratory Testing Manual (2000) Ministry of Works

Standard Specifications for Road Works (2000) Ministry of Works

Field Testing Manual (2003) TANROADS

Road Maintenance Manual (2009) TANROADS

A Guide to Traffic Signing (2009) Ministry of Infrastructure Development2

A Guide to Road Safety Auditing (2009) Ministry of Infrastructure Development

Environmental Code of Practice for Road works (2009) Ministry of Infrastructure Development

Road Sector Compensation and Resettlement Guidelines Ministry of Infrastructure Development

Land Surveying and Mapping Standard of Tanzania (Land

Surveying Regulation CAP 390)

Ministry of Lands, Housing & Human

Settlements Development

TRRL Laboratory Report 706: The TRRL East African

Flood Model TRRL, D Fiddes 1974

TRRL Laboratory Report 623: The Prediction of Storm

Rainfall for East Africa TRRL, D Fiddes 1974

British Standards, BS 5400 British Standards

3.3.9 What are the likely externalities and dis-benefits/costs of the road

development interventions?

[Ref.: Chapter 6: Project Cost – Identification & Valuation should be referred to address the question]

The development of roads causes a wide range of environmental impacts including

damages to the existing flora and fauna of the area where the activities are proposed, and

this may cause some dis-benefits along with the intended benefits to the target groups,

which should be thoroughly addressed and mitigated, and the entire cost implications should

be brought out accordingly. The costs required for environmental and social impact

mitigation measures should be included in cost estimate for economic appraisal at feasibility

study stage (Final Report, Annexures 9.7 and 9.8 of Chapter 9). Based on preliminary

design, need and extent of acquisition of land and settlements should be established at the

feasibility study stage.

3.3.10 What are the costs to be considered in feasibility studies?


One of the major objectives of a feasibility study is to identify and estimate the total cost

implications of the improvement works, which would be appropriately used in the economic

appraisal of the proposed investment. The decisions on whether project should be taken up

for implementation depend upon various economic performance indicators obtained from the

2 The Ministry of Infrastructure Development was later restructured and responsibilities were assigned to the

Ministry of Transport and the Ministry of Works; at the time of writing this report, there is no Ministry of Infrastructure Development in GoT.



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estimated cost of the project and probable benefits. Hence, it is important to get the project

cost nearer to accurate as much as possible (within +/- 10% limits). Cost of the following

components must be included in deriving the total cost of the project:

Engineering works;

Relocation of utilities;

Environmental mitigation and monitoring works;

Land acquisition;

Compensation for resettlement;

Allowance for contingencies;

Construction supervision;

All Taxes; and

Road maintenance costs during the appraisal period.

The engineering works must include costs for site clearance/ clearing and grubbing, removal

of topsoil, earthworks, pavement layers (surface, binder, base and sub-base courses),

concrete works (bridges, culverts, kerbs and others), shoulders (paved and unpaved),

drainage works, junction improvements, traffic signs and road markings, roadside safety

barriers, rest areas, bus bays and laybys, road studs, footpaths and cycle tracks, pedestrian

over bridges/ underpasses, street lighting, etc. All facilities provided to improve road safety

must be taken into account while costing the civil works.

3.3.11 How to derive the costs for items considered in the preliminary design?


At the feasibility study stage, it is not practical to estimate the costs of individual projects to a

high level of accuracy. However, good procedures at this stage should enable a fairly

reasonable level of accuracy to enable irreversible decision on investments. The cost for

each item of engineering works depends on the type of technology adopted for the execution

of that particular item of civil work, i.e. labor intensive or technology intensive. Ideally, rate

analysis needs to be carried out for each item of civil works, based upon the unit rate of

labor, equipment and materials to be consumed for implementation of considered item of

civil works.

However, analysis of rates has not been well developed for Tanzania, and adoption of

schedule of rates of other countries may not be appropriate for the conditions in Tanzania

during feasibility study stage. Therefore, it is most suitable to collect the historical item rates

adopted in similar contracts in the region where the proposed project is located and apply

these rates to various items included in the road works with provision for escalation, if

required. This approach would be more realistic and much nearer to the cost likely to be

incurred by the road agency for implementing the project. The components of project costs

are detailed in the Manual (Chapter 6).



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3.3.12 How to determine the economic cost and Standard Conversion Factor

(SCF) for the economic appraisal?

[Ref.: Chapter 7: Project Benefits – Identification & Valuation of the Manual elaborates the above

issues]

In an economic appraisal, the input data for different cost components are required in terms

of economic cost. The costing exercise of different components in a feasibility study is

generally based on the market prices, i.e. also known as financial cost. It is important to

highlight that the market prices of different traded commodities do not necessarily represent

the true or resource cost to the economy. This phenomenon is observed due to the market

imperfection that usually exists in developing countries. The market prices of different cost

components of man, machine and materials also consist of varieties of taxes, duties, levies,

surcharge, cess, development charges, subsidies, etc., which are merely transfer of

payments in an economy, as they don’t contribute or add value to the economy.

The factors distorting resource costs, which are built in the market prices, require to be

corrected. The economic costing exercise addresses this issue, so that the economic

appraisal is based on the economic costs of the respective components. There are several

methods of economic costing based on different concepts and approaches, but the basic

idea is to capture the resource cost. For imported products, the common practice is to obtain

the border price, and for domestic products and resources, the costs should be net of taxes,

duties and subsidies. These are widely accepted methods in road development projects, as

these methods are easy to follow and full-fill the criteria to a large extent.

For determining the Standard Conversion Factor (SCF), the relative weights observed in a

typical road development / intervention costs in different studies in Tanzania should be

obtained. The weights obtained should broadly represent the major cost components in

terms of: (i) man (labor: skilled, semi-skilled and unskilled); (ii) machine (plant, machineries,

transport vehicles, road construction equipment, etc.); and (iii) materials (cement, aggregate,

sand, earth work, granular materials, bitumen, steel, etc.). For the purpose, the component-

wise cost data need to be collected, and analyze the cost structure in terms of man, machine

and materials.

Using the above technique, the Consultants have estimated the SCF to be adopted in road

investment projects in Tanzania. Refer to the Manual for detailed understanding of the SCF

(Chapter 7, Section 7.15).

The value of SCF is estimated as 0.83 in the Manual, which should be appropriately used in the

economic appraisal.

3.3.13 What are the benefits to be considered and what are the methods

available for valuing these benefits?


question]

The basic approach for identification and estimation of investment benefits of the road

development is largely based on comparing the costs under two situations, viz. with project

case (i.e. with the proposed intervention), and without project case (i.e. base case or doing



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nothing). The analysis would aim at estimating the implications of project cost to the

economy under the two above-mentioned situations. The exercise refers to that if the

proposed intervention does not come into being what would be the economic costs under ‘do

nothing’ situation. Difference in the costs under the two situations, i.e. with project and

without project (i.e. opportunity foregone), would be the project benefit.

For an illustration, on a road with poor pavement condition (i.e. considered as base case or

without project case), the cost of vehicle operation would be much higher than that on a road

with good pavement condition (with project case). If one compares the cost of vehicle

operation under these two situations, there would be lower vehicle operating cost (VOC) on

the good road than the poor road, and that is the “project benefit”. With this basic framework,

the identification of project benefits is worked out. In other words, the identification of

benefits should aim at un-surfacing the influence (positive and negative) of the proposed

intervention, i.e. investment in road development project.

Spectrum of Benefits: Direct & Indirect: Investment in a road development project brings

out benefits in many forms, such as travel comfort and convenience, reduced travel time and

reduced operating cost to the road users, inhabitants of the project area in general and

marketing of their produce in particular, society at large on account of increased level of

facilities utilization, general economic development due to improved transport infrastructure,

etc. So, there are several direct and indirect benefits of a road development project, but

some of benefits are quantifiable (tangible), and some non-quantifiable (intangible). The

benefits, which are normally considered while carrying out economic appraisal, are as

follows:

Direct savings on the costs of operating vehicles;

Economies in road maintenance;

Time savings by travelers and freight;

Reduction in road accidents; and

Other benefits not captured in the above (like wider effects on the economic

development of the region, and social and environment development).

It may be noted that the valuation for assessing the economic benefits including rural road

development is based on the following two main approaches: (i) Consumer Surplus; and (ii)

Producer Surplus.

(i) Consumer surplus: the approach is the most widely used for estimation of benefits

to traffic in the economic appraisal of investment in road development project. This

technique is based on the economic theory of consumer surplus, as an individual consumer

derives from consumption of a particular good, and the utility from other goods, which the

individual has to forgo in order to purchase this particular good, i.e. the measure of surplus

utility the consumer derives from the consumption of this good. The benefits estimation

based on the consumer surplus approach, are largely measurable, so tangible in nature,

which cover: vehicle operating costs; time costs; road accident costs; and a combination of

these three.



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(ii) Producer surplus: the approach is an alternative to the consumer surplus method.

Instead of measuring the benefits to traffic, the benefits to production as a result of the

investment are estimated. While carrying out the economic appraisal of rural roads with low

volume traffic, the producer surplus method aims at identifying the changes in agriculture

output/benefit in the project area. In cases, where no road exists and a significant change in

vehicle accessibility is planned, the producer surplus method can appear to be the most

appropriate procedure.

3.3.14 How these benefits can be identified & quantified?


question]

The estimation of tangible benefits, i.e. quantifiable, of a road development project, are

illustrated in the following sections.

(i) Savings in Vehicle Operating Costs (VOCs)

Due to any road development project, the saving in VOC is one of the most important

components in the economic appraisal, which is tangible benefit. The exercise of VOC

estimations for different vehicles under different road conditions (with or without road

improvement option) is carried out with the help of standard software, viz. HDM-4 and RED.

Chapter 8 of the Manual presents the working and baseline values of different components

of the VOC. It is important to mention that data relating to various components of VOC are

collected at market prices, and those need to be converted into the economic cost for

carrying out the economic appraisal.

(ii) Economies in Road Maintenance

It is often observed in developing countries that routine and periodic maintenance on the

existing road network, in general, is either non-existent or not adequately carried out.

Consequently, the road network “fails” and requires rehabilitation with higher capital

investments, i.e. a road development activity or with project option, not maintenance. It may

be noted that there would be savings in road maintenance cost from a project of

rehabilitation of the same road, i.e. in poor condition, as under with project situation, the fund

allocated for maintenance in without project situation would be saved. Maintenance savings

can be observed with the following types of project: (i) Paving a gravel road where traffic

levels have increased; and (ii) Strengthening or reconstructing a road that has deteriorated

badly. On account of this, savings in maintenance cost due to road improvement is a

potential benefit. For the purpose, the road agencies need to be approached to collect

details on the ongoing maintenance cost and related information, which could be used in the

economic appraisal.

(iii) Savings in Travel Time

Savings in travel time is also one of the tangible benefits in an economic appraisal of the

investment in road improvement project. Due to the higher speed on an improved road (i.e.

with project situation), as compared to poor road condition (i.e. without project situation),

there would be savings in travel time for passenger and freight traffic. Overall savings in

travel time would depend on the length of road section, level of road improvement, proper



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traffic management, particularly in commercial and inhabited areas, type of traffic mix

(motorized and non-motorized vehicles). Chapter 8 of the Manual brings out a detailed note

on the estimation of value of travel time (VOTT) with methods and assumptions for

passenger (working and non-working trips) and freight traffic.

(iv) Reduction in Road Accidents

It is desirable to estimate the level of reduction in road accidents, and also to consider the

same as one of the benefits in the economic appraisal of a road development plan. A

detailed note determining the cost of accidents for fatal and injuries with rationale, method of

estimations and supporting assumptions has been presented in the Manual (Chapter 10).

The argument in support of considering the reduction in road accident is largely based on

the assumptions of comprehensive road safety audit of the design and implementation of its

recommendations. Reduction in road accidents in the economic appraisal should be

considered only when the proper road safety audit (RSA) has been administered in road

design as strongly suggested with specific conditions given. In absence of proper road safety

measures and improved enforcement, there would be rather high probability of increase in

road accidents, due to higher speed, careless driving, and unsafe road infrastructure

resulting in dis-benefits to the society.

3.3.15 What are the software(s) to be employed for undertaking economic

appraisal?

[Ref.: Chapter 4: Review of Economic Appraisal Tools (Final Report) addresses this question]

The Highway Development and Management Model, popularly known as HDM-4, is the most

popular software used for economic appraisal of road improvement projects, particularly in

developing countries. HDM-4 has been produced by the International Study of Highway

Development and Management Tools (ISOHDM), sponsored by the World Bank, the Asian

Development Bank, the Department for International Development (UK), the Swedish

National Road Administration, and other sponsors. The Model is used to combine technical

and economic appraisal of road projects, to prepare road investment programs, and to

analyze road network strategies. The Model also provides a system for the analysis of road

management and investment alternatives.

Apart from HDM-4, the Road Economic Decision (RED) Model, developed by the World

Bank, is used for carrying out economic appraisal for low volume rural roads, having traffic of

50 to 300 vehicles per day. The RED Model performs economic evaluation of road

investment options using the Consumer Surplus Approach, which is customized to the

characteristics and needs of low volume roads, e.g. accessibility to an area and to uplift the

socio-economic condition.

In the case of TANROADS, it is recommended to use HDM-4 Model since it can be used for

economic analysis in nearly all the situations, while RED Model is used exclusively for low

volume rural roads. Moreover, the latest version of HDM-4 Model is well suited for

addressing the requirements of economic appraisal including low volume roads, for

undertaking feasibility studies in Tanzania. The specific aspects of various aspects used for

economic appraisal and its merits and demerits have been detailed in the Final Report

(Chapter 4).



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3.3.16 How can I configure HDM-4 to suit Tanzanian conditions?

[Ref.: Chapter 11: HDM-4 Model: Data Inputs and Applications covers the above question]

HDM-4 Model Configuration based on the results of the studies undertaken in various

countries defines the default values used in the model. Important default values are given in

the Manual (Annexure 11.1). User should ideally configure these values to reflect local

conditions of the project area in the Model. The basic aspects of the Model are defined with

the configuration parameters listed as follows:

Traffic Flow Pattern: Commuter, Free Flow, Inter Urban, etc.

Speed Flow Types: Single Lane, Two Lane, 4-Lane, etc.

Accident Classes: Number and Type of Road Accidents.

Climate Zones: Tropical, Sub-Tropical, Humid, Temperate, etc.

Currencies: Currency for data inputs/outputs

Road Network Aggregate Parameters: Traffic Volume, Road & Geometry Class,

Compaction, Structural Adequacy, etc.; and

Road Calibration Sets: Depending on Pavement Types.

3.3.17 What are the calibration requirements of HDM-4?

[Ref.: Chapter 11: HDM-4 Model: Data Inputs and Applications deals with the above question]

HDM-4 Model Calibration is required for accuracy of prediction of certain behavior, e.g.

pavement performance to reflect the local conditions as predicted by the model. The

accuracy of the predicted pavement performance and vehicle resource consumption

depends on the extent of calibration applied to adapt the default values of the Model suitable

to the local conditions.

The pavement performance model needs to be calibrated to reflect the pavement

deterioration on the roads where the model is applied. Depending on the purpose, resources

and time, the HDM-4 calibration could be organized at three levels, which will provide

different levels of accuracy in the prediction behavior. The levels of HDM-4 calibration by

purpose and data requirements are described as follows:

Level-1 (Application): Based on the desk study of available data, some field

investigations/ surveys and engineering experience of pavement performance;

Level-2 (Verification): Based on measured pavement condition data collected from a

large number of road sections to verify and adjust the predictive capability of the model;

and

Level-3 (Adaptation): Experimental data collection required monitoring the long-term

performance of pavements within the study area. Requires well-structured field research

and statistical analysis.

Out of the above, Level-1 calibration of HDM-4 model is essential for undertaking feasibility

studies. The Manual (Annexure 11.2) brings out values of all the parameters required for

Level 1 calibration for HDM-4 analysis and also illustrates the methodology to update these

parameters while undertaking feasibility studies in the future.



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3.3.18 What are the input data to be considered in estimating VOC and VOTT in

HDM-4?

The Manual presents different components of the vehicle operating costs (VOCs) and the

value of travel time (VOTT) and their baseline values, which could be utilized by any

standard software, e.g. HDM-4, for the economic analysis of a road investment project. The

Final Report (2015) illustrates the approach and methodology in detail for determining the

values of different components of the VOC and the VOTT, and also setting up the baseline

values for HDM-4 Model for economic appraisal. For estimating the VOC for different types

of vehicles in HDM-4 model, under varied road, traffic and climatic conditions, the fleet

structure of the country needs to be determined apart from the standing and running charges

of the following components.

Standing Charges Running Charges

Vehicle Prices / Cost (Interest & Depreciation) Fuel & Lubricants

Vehicle Prices / Cost (Interest & Depreciation) Tyre & Tubes

Insurance Charges Crew Costs

Annual Vehicle License Fees Maintenance Charges (Spare Parts and Labor)

Overheads / Operating Charges Miscellaneous Expenditures

The Manual, among others, presents the baseline values of VOC and VOTT in Chapter 8.

3.3.19 What are the input data required to determine road accident benefits in

HDM-4?

[Ref.: Chapter 9: Road Safety in Project Appraisal works out components of road accident benefits]

It is expected that road improvements will result in reduction in road accidents, provided

appropriate engineering features has been provided on the road to improve safety, e.g.,

footpaths or cycle tracks to segregate pedestrians and cyclists from high speed motorized

traffic. Therefore, it is prudent to consider road accident benefits in the economic appraisal.

To estimate road accident benefits, the following information should be obtained:

Number of road accident fatalities, major injuries and minor injuries on the project road;

Cost of the road fatalities, major and minor injuries in the country; and

Potential reduction in road accidents after the road improvements.

The data on number of fatalities, and major and minor injuries can be obtained from the

police stations located along the project road. There are various methods to estimate the

cost of road accident fatalities and injuries. These methods and its merits and demerits are

discussed in detail in the Manual (Chapter 9), and in the Final Report (Chapter 14). The

recommended methods to estimate the cost of road accident fatalities and injuries in

Tanzania are shown as follows.

Particular Equation

Value of Road Accident Fatality 60 * GDP/ Capita

Value of Injury 12 * GDP/ Capita

The reduction in road accidents after road improvement depends upon the type of road

improvements proposed. The Manual (Chapter 9) provides indicative reduction factors in



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road accidents for various types of road improvements. The designer shall use this as a

guide to consider the reduction in road accidents after road improvements. HDM-4 (Version

2.0) considers road accident in terms of fatalities/million vehicle-km, which can be estimated

using the traffic volume count, the current road accident data and potential improvements.

The cost of the road accident fatalities and injuries should be provided as separate input

data. Using the above set of data, HDM-4 will estimate the road accident benefits due to

proposed road improvements.

3.3.20 What are the major outputs in HDM-4, which can be used in economic

appraisal and decision-making?

[Ref.: Chapter 11: HDM-4 Model – Data Inputs & Applications presents outputs of HDM-4 Model]

HDM-4 Model produces several output reports in tabular and graphical forms, showing

results for “with” and “without” project scenarios as illustrated below:

Traffic: Section-wise AADT details for Motorized and Non-motorized Traffic; and

Volume/Capacity Ratios by flow period

Road User Effects: Accident Summary; RUC Summary per vehicle-km by vehicle for

Motorized and Non-motorized Traffic; Vehicle free speed and operating speed: and Crew

hours, Labor hours, Fuel Consumption, Depreciation and Overhead Costs, etc.;

Road Deterioration Work Effects: Average Roughness Section-wise and Project-wise;

Pavement Condition and Road Drainage Condition; and Road Works Summary by

section and by year;

Cost Stream and Economic Evaluation: Comparison of Cost streams: Discounted and

Undiscounted: Economic Analysis Summary; and Road Agency and User Cost Streams:

Discounted and Undiscounted;

Program and Strategy Analysis: Optimum Section Alternatives under Constrained and

Unconstrained Budget Scenarios; Work Program Optimized by Section and by year

under Constrained and Unconstrained Budget; and Other Similar Reports;

Environmental Effects: Emissions and Energy Usage by Vehicle and Annual Summary;

Input Data Reports;

Multi-Criteria Analysis Report; and

Asset Valuation Report.

Of the above, user can select the reports depending on the purpose, scope and objective of

the specific analysis of the economic appraisal.

Customized Reports for Model Based Outputs: In order to appreciate the requirements of

the TANROADS, a number of crucial parameters and performance indicators on different

costs components, benefit areas, sensitivity checks under different scenarios, etc. are

required to be analyzed for making decisions. Accordingly, the Manual presents a

consolidated and customized excel generated report utilizing the HDM-4 analysis results for

decision-making. The proposed format is presented in the Manual (Annexure 11.3).

It is recommended in the TANROADS Investment Appraisal Manual (2015) that whenever an analysis is carried out, the “object file” produced after any analysis by HDM-4 must be submitted to TANROADS for monitoring, record and redoing the analysis for changed parameters that may be required for sensitivity check and viability analysis.



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3.3.21 What is sensitivity & risk analysis and how can this be incorporated in

the economic appraisal?

[Ref.: Chapter 7: Project Benefits – Identification and Valuation elaborates on this issue]

While carrying out the economic appraisal of an investment, the results of the exercise are

normally based on the prevailing known and ideal conditions, and the corresponding costs

and benefits are accordingly estimated with the assumptions that the prevailing condition

would remain unchanged in future as well, which may not be correct in real life situation,

particularly for long-term. So, in order to evaluate the economic strength and robustness of

any investments against any critical and adverse conditions, a number of analyses are

carried out so that the decision could be taken with higher level of confidence, whether the

project would sustain against risk and uncertain situations. For assessing the risk and

uncertainties, which may occur in future, there are several methods used depending on the

size of the project and anticipated threat to the output of the project, which are briefly

discussed in the following sections:

(i) Sensitivity Analysis

For assessing the economic strength of an intervention option against any adverse

conditions, the Sensitivity Analysis is carried out under different scenarios, i.e. by changing

the values of key variables of the “Costs and the Benefits” considered in the appraisal

exercise. The analysis incorporates the effects of adverse situations by changing the values

of certain crucial parameters applied in the project. Under this analysis, values of key

variables, e.g. (i) intervention cost [i.e. project cost], (ii) estimated and projected traffic level,

(iii) delays in project implementation, etc., are changed in the sensitivity analysis one at a

time, or in combination, to adjudge the sustainability of the intervention option against those

changes or anticipated adverse conditions.

This analysis is simple to carry out and also easy to appreciate the impact of changes in the

values in an appraisal for decision process. The sensitivity analyses are recommended to be

carried out by: (i) increasing the intervention cost by 10% in normal condition and 20% for

higher level uncertainty; (ii) decreasing the benefits by lowering the level of projected traffic

[the project beneficiaries] by 10% in normal condition and 20% for higher level uncertainty;

(iii) delaying the project implementation or completion by one year, for illustration, which

would affect the delays in realization of benefits by one year; and (iv) combination of two or

three above-mentioned adverse conditions to observe the results on the values of EIRR and

NPV, whether the investment in project is viable or not if compared with the given cut-off

rate, i.e. 12% commonly used in developing countries including Tanzania. However, the

sensitivity analysis should be carried out as per the requirements of the ToR of the specific

study for road investment projects.

(ii) Risk & Uncertainty Analysis

The analysis of project risks associated with the value of key project variables with the

probability of its remaining at the same level, and, thus, the risk is associated with the overall

project result. It may be appreciated that the economic analysis of projects is necessarily

based on uncertain future events and inexact data and, therefore, inevitably involves

probability judgment. Accordingly, the economic evaluation considers the sources,

magnitude, and effects of the risks associated with the project by taking into account the



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possible range of the values of the basic variables and assessing the robustness of the

project’s outcome with respect to the changes in these values.

The exercise is carried out on an iterative basis with number of changes by specifying the

probability of an individual input variable obtaining a range of values. With this method, the

probability distribution of the NPV and other output parameters can be worked out. The

above analysis is carried out with deploying standard software capable of the stochastic risk

analysis on the central deterministic NPV and EIRR estimates.

(iii) Switching Value Analysis

Under this analysis, impact of the percentage change in a particular crucial variable in the

appraisal exercise is evaluated for the project decision, to get the NPV at zero or the EIRR to

fall to the cut-off rate. In terms of NPV, the value of each variable must assume to reduce the

NPV of the project to zero. This exercise establishes the sensitivity of particular variable in

the economic appraisal.

All the above-mentioned methods, viz. sensitivity analysis, risk and uncertainty analysis, and

the switching value analysis aim at evaluating the robustness of an investment in any

intervention against external adverse conditions. The application of these methods are

important and integral part of the economic appraisal for the decision making process. While

undertaking the sensitivity, risk and uncertainty, and the switching value analyses under an

economic appraisal, it is important to note that the most suitable methods should be used

considering the size of project in terms of monetary and physical, socio-economic-political

situations, and also conforming to the requirements of given terms of reference (ToR) and

scope of the feasibility studies.

3.3.22 What should be the content of the feasibility report?

The feasibility study report marks the end of the appraisal process and should recommend

whether the project should go ahead, and to what standard it should be built. In case of the

intended project found not viable, the report should recommend alternative designs or

approaches to the project that would increase the economic rate of return.

The main objective of the feasibility study is to assess the technical and economic viability of

the road investment project for detail design and implementation. The major outputs of the

feasibility study are:

Traffic demand analysis;

Preliminary engineering design;

Environmental and social impact assessment and mitigation measures;

Estimation of project costs;

Estimation of project benefits;

Cost-benefit analysis; and

Risk analysis of proposed investment.

A full checklist of what the feasibility study report should contain and the general order of

topics to be covered in the feasibility study report are given in the Manual (Chapter 12).

However, the user can opt for a different method, if the objectivity and the coverage of the

feasibility study can be presented in more legible manner.



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4.0 Sum Up

A proper economic appraisal will facilitate the road agencies in making right decisions for

investments in road development projects in a transparent manner ensuring the project

benefits the society at large and ensures efficient use of resources. Therefore, it is important

to have an economic appraisal model for the country and the road agencies to ensure the

investment on road network infrastructure yields optimum benefits and value for money.

Towards this, the TANROADS’ Investment Appraisal Manual (2015) is to ensure a

consistency in approach and methodology for undertaking the economic appraisal of the

investment road development projects in Tanzania. It may be noted that the primary

objective of the present Manual is not to address the issue whether to invest in roads or in

some other infrastructure development, as most of such decisions will already have been

taken before the project is initiated for feasibility studies. Therefore, the purpose of economic

appraisal is to decide for the most appropriate type of road improvement and its economic

returns, considering the cost implications and expected benefits, and economic returns.

However, it is important to note that the economic appraisal of road improvement projects

should not be considered as a mechanical process; rather a high degree of analytical ability

and a broad imagination are required. The consequences of a project being appraised must

be clearly understood and formulated, and the feasible alternatives must be fully considered.

The Manual is, inter alia, formulated keeping the above issues in view.

________________

NOTES

Documents

Consultancy Services for Preparation of a Manual for … … · · 2015-08-01The United Republic of Tanzania Ministry of Works Good roads for national development Tanzania National