Assessment of Transportation Infrastructure: Roads and Bridges Yu.V. Kozyr, RSA, General Director of Kopart 36-86, Greena street, Моscow 117628, kozyr@kopart.ru Bangkok, July, 2007
Assessment of Transportation Infrastructure: Roads and Bridges
Yu.V. Kozyr, RSA, General Director of Kopart 36-86, Greena street, Моscow 117628, kozyr@kopart.ru Bangkok, July, 2007
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The role of transportation infrastructure in society
The role of transportation infrastructure in Society is similar to that of money in the economy, although, the role of roads play a more important part: without money, only natural economy can exist based on the barter of goods, however, without roads the exchange of goods is restricted to a relatively limited area.
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Who are the beneficiaries?
When valuing roads (bridges) one has to first determine: who this assessment is being made for – the owner of the facility, its users or Society as a whole? The value of a facility to Society is the sum total of the values attached to the road by the road users and owners.
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Assessment of Roads on Behalf of the Owner – the State
Assessment of roads on behalf of the State can be made in two ways: one approach is based on costs and the second one – on perceived benefits from construction and subsequent operation.
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Approach is based on costs
The cost based assessment considers the costs associated with design, preparation and construction works, cost of the maintenance performed (everything priced as at the date of assessment), and also, the current condition of the roadbed (degree of wear).
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Approach is based on perceived benefits
Assessment based on perceived benefits from construction and operation can be schematically represented as follows: Value of facility (NPV) = = PV (benefit from operation) – PV (design and construction cost) – PV (operation costs) = = PV (increase of taxes and revenues stipulated by the assessed road operation + increase of associated revenues for the corresponding state enterprises + reduction in payment of death and injury allowances + reduction of medical care costs for the Health and Social Development Ministry + reduction of costs for the Ministry for Emergency Situations, militia, fire brigades and ambulance – PV (design and construction costs) – PV (operation costs), where PV – cost as of the date of assessment (for the values given in parenthesis).
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Assessment of Roads on Behalf of the Road Users
Assessment of roads on behalf of the users can be made by one of the following methods: Value of facility = PV (reduction of costs, including time cost, as a result of the use of the road under assessment as compared to the use of any alternative roads). Value of facility = PV (revenues and benefits, which cannot be obtained without using the road under assessment – costs associated with driving these roads and other costs associated with obtaining the abovementioned revenues). Lower limit of the value of facility = PV (costs associated with the road use (cost of fuel, depreciation of the vehicles, road tax and mandatory insurance (OSAGO)). This assessment method is based on the fact that road users spend money to use the road (i.e. to drive on this road) only because the benefit they receive is higher than the costs.
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Necessity of research data
In the assessment of infrastructure facilities, such as roads, an important role is played by research-based assessments, such as dependence on the change in the road network, increase of the roads traffic capacity and the change of the tax revenues for the local budgets. For example: people living in a town or village which is equidistant from two cities, will generally opt to travel to the larger city. Such factors must be taken into consideration
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The state government decision made on the basis of “narrow” state interests
The state government decisions to construct or repair a road made on the basis of "narrow" state interests, provided the funding is available, should depend on the following criteria: Perceived benefits for the state (budgets at all levels) from operation of a road exceed expected costs of construction and subsequent maintenance of the road (or only maintenance, if the road is already in existance).
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The state government decision made on the basis of “broad” state-society interests
The state government decisions to construct or repair a road made on the basis of "broad" state-society interests, provided the funding is available, should depend on the following rule: Perceived benefits for the society (i.e. perceived benefits for the budgets at all levels + perceived benefits for the road users) exceed expected costs of construction and subsequent maintenance of the road (or only maintenance, if the road is already in existance). The last rule, broadly speaking, should incorporate the enhanced living standards of the population using the road, which involves quantitative assessment of the human life value…
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Valuation of non-commercially used roads
Types of value to be determined: Value in use Investment value Where intra-enterprise roads are valued, going concern value can be used as the value base. In such cases value of roads represents a portion of the total value of an enterprise. Applicable approaches: Depreciated replacement cost (DRC) Income approach Note. To evaluate bridges, apart from the above approaches, a comparative approach can be also used. An example of that approach is shown in Slides 22-32.
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Approach 1: Depreciated replacement cost (DRC)
Value of an existing road = Costs of construction of a new identical road ( -) (minus) Cost equivalent of total accumulated wear and tear
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Assessment of costs involved in new road construction
Soil type Designed traffic intensity Road category Unit costs (from Reference Books (KO-Invest (Russia) RS-Means (Europe) Marshall &Swift (California)) Adjustments of standard unit rates based on local conditions Calculation of unit cost of road construction Unit cost of road bed construction Unit cost of engineering communications construction x road length = cost of road bed construction x road length = = cost of engineering communications construction = Cost of new road construction
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Assessment of physical wear and tear
Designed traffic intensity Operational traffic intensity Life cycle wear and tear (actual wear and tear caused by movements of vehicles) Repairs wear and tear Time (weathering) wear and tear Total physical deterioration
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Economic obsolescence valuation
Loss of value caused by factors external to the asset concerned Example: asphalt road was used only by the factory. The factory was closed. Therefore, traffic intensity on the road reduced. Economic obsolescence will be affected in two ways: 1. decrease in road usage 2. reduction in road traffic will impact on the calculation of construction and maintenance costs.
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Approach 2: Income approach
The construction of non-commercially used roads constitutes an investment activity of the state to achieve social goals and commercial benefits
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Social goals
Better labour and recreation conditions for the public Quicker and more comfortable travel of people on new roads and repaired old roads and new opportunities to physically reach remote locations Social investments efficiency benchmark: To reach maximum return on a unit of used (invested) funds. Return can be measured in kind: With reduced time spent on travel between locations – in number of saved hours per one kilometer of travel; With increased highway traffic capacity – in changed quantities of vehicles moving per time unit; Reduced rate of injuries per year or per 1,000 vehicles a year
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Commercial benefits
Construction of virtually any new large-scale facility always starts with the construction of roads to such a facility. Construction of a new road in a remote scarcely populated area causes booming economic activity in its proximity : gas stations, cafes, motels and other facilities appear. Traffic intensity on the road gradually increases. Thus, the value of road-adjacent land plots greatly appreciates in value.
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Conclusion:
Commercial benefits associated with construction of roads for the state are: Higher economic activities of territories (higher tax collections, higher lease payments, higher interest of the state and its constituents in the ownership of real estate facilities) Benefits of construction of roads for private investments are : Increase in traffic of people (for owners of cafes, motels and gas stations) Higher sales income and real estate lease rates (for developers)
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Sources of funding construction and repairs of roads
Money in the Road Fund (built up by road user’s taxes) Budget funds of municipalities Private investments
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