Financial and Economic Study of Alternatives for the proposed N2 Wild Coast Toll Highway for the section of the road from Mthatha to Port Shepstone Addendum to Screening Report Prepared for CCA Environmental Prepared by: Barry Standish Antony Boting 20 November 2006
N2 Wild Coast Toll Road: Evaluation of Alternatives i Executive Summary This report is an addendum to the earlier report on the financial and economic study of alternatives for the proposed N2 Wild Coast Toll Highway for the section of road from Mthatha to Port Shepstone dated 11 February 2006. The report was submitted as part of the scoping phase of the environmental impact assessment (EIA) of the project. It analysed the financial and economic costs of a number of alternative alignments. Since that time three new greenfield routes have been proposed. These are: 1. The Coastal Mzamba route, which is a variation on SANRAL s preferred route, 2. A proposal made by Dr Keith Cooper of WESSA, 3. A proposal made by Mr Mark Gallagher. This report analyses the financial and economic implications of these three routes and compares them to SANRAL s preferred route as presented in the earlier report. The Coastal Mzamba route and the WESSA route are analysed as greenfield routes from Lusikisiki to Port Edward and compared to SANRAL s preferred greenfield alignment as presented in the earlier report. The Mark Gallagher route is analysed from Mthatha to Port Shepstone and is compared to SANRAL s preferred alignment as well as to the alternative of upgrading the existing N2 between these two cities. When looking at the new greenfield alignments between Lusikisiki and Port Edward (the Mthamvuna River) the Coastal Mzamba route is marginally more expensive (0.3%) than SANRAL s preferred route, while the WESSA alignment is twice as expensive both financially and economically when compared to the other two. SANRAL s preferred route, the Coastal Mzamba route and the WESSA routes have costs with a financial present value (PV) of R3.09bn, R3.10bn and R6.20bn respectively. The respective economic PV of the costs are R2.67bn, R2.67bn and R5.27bn respectively.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives ii For the route from Mthatha to Port Shepstone, the Mark Gallagher alignment is more expensive than either the proposed N2 toll highway along SANRAL s preferred alignment or upgrading the existing N2. The main reason is the need for large bridges and tunnels that would be required for this alignment to conform to national road design specifications and their high costs mean that the Mark Gallagher alignment is financially and economically less viable than the do nothing alternative. SANRAL s preferred route, upgrading the N2 and the Mark Gallagher alignment have financial Net Present Values (NPVs) of R4.22bn, R364m and negative R5.47bn respectively. Their respective economic NPVs are R3.79bn, R354m and negative R4.40bn.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives iii Table of Contents Executive Summary...i Table of Contents... iii List of Tables... iv List of Figures... iv 1 Introduction...1 2 Evaluating the Coastal Mzamba and the WESSA Alignments...2 3 Evaluating the Mark Gallagher Alignment...5 4 Conclusion...9 5 Appendix A: Methodology... 10 5.1 Quantifying Road Construction and Upgrade Costs... 10 5.1.1 Initial Construction and Upgrade Costs... 10 5.1.2 Future Rehabilitation and Periodic Maintenance Costs... 11 6 Appendix B: Map of Alternative Routes... 12
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives iv List of Tables Table 1: Key data used in the analysis of alternative greenfield alignments...2 Table 2: Financial and Economic Evaluation of Greenfield Alternatives...3 Table 3: Key data used in the analysis of upgrading the existing N2, constructing the N2 Wild Coast road and the Mark Gallagher alignment..6 Table 4: Financial and Economic Analysis of alternatives in relation to the do nothing alternative...7 List of Figures Figure 1: WESSA Alignment Mtentshwana River Crossing...4 Figure 2: Mark Gallagher alignment proposed crossing point of the Mzimvubu River...8
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 1 1 Introduction This report serves as an addendum to the earlier report on the financial and economic study of alternatives for the proposed N2 Wild Coast Toll Highway for the section of road from Mthatha to Port Shepstone. This was dated 11 February 2006 and was submitted as part of the scoping phase of the environmental impact assessment (EIA) of the project. Three additional greenfield routes have now been proposed since the first report was submitted. The first route is a variation of SANRAL s proposed greenfield alignment between Lusikisiki and Port Edward while the remaining two routes are proposed by outside parties in an attempt to minimise the environmental impact of the new road The new routes are labelled: 1. The Coastal Mzamba route, which is the variation on SANRAL s preferred route, 2. A proposal made by Dr Keith Cooper of WESSA, 3. A proposal made by Mr Mark Gallagher. These routes were examined first hand in a field trip organised by SANRAL between the 15 th and 19 th of October 2006. This report analyses the financial and economic implications of these three routes and compares them to SANRAL s preferred route as presented in the earlier report. The Coastal Mzamba route and the WESSA route are analysed as greenfield routes from Lusikisiki to Port Edward and compared to SANRAL s preferred greenfield alignment as presented in the earlier report. The Mark Gallagher route is analysed from Mthatha to Port Shepstone and is compared to SANRAL s preferred alignment as well as the alternative of upgrading the existing N2 between these two cities.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 2 2 Evaluating the Coastal Mzamba and the WESSA Alignments This section of the report compares the Coastal Mzamba route and the WESSA route to SANRAL s preferred greenfield alignment between Lusikisiki and Port Edward (the Mthamvuna River). The information that has been used in this part of the analysis is given in Table 1. More detailed information relating to the bridge construction costs is given in Appendix A. Table 1: Key data used in the analysis of alternative greenfield alignments Preferred Alignment Coastal Mzamba WESSA Route Source Distance (Lusikisiki to Mthamvuna River) (km) 78 78.3 93 Map Cost of Upgrading in 2023, 2031 & 2038 (Rm) 134.6 135.0 160.4 SANRAL Database Number of Large Bridges 2 2 5 SANRAL Database Total Cost of Bridges (R millions) 530.3 530.3 1,870.5 SANRAL Database Length of Tunnel (km) - - 4.1 SANRAL Database Total Cost of Tunnel (R million) - - 2,460 SANRAL Database Average PSI 4.0 4.0 4.0 Assumption Average LV speed (km/h) 96.8 96.8 96.8 Tolplan Average HV speed (km/h) 77.4 77.4 77.4 Tolplan All three alignments would involve the construction of completely new roads. The WESSA route would join the existing R61 between Bizana and Port Edward some 16km inland after which it follows the R61 alignment to the existing crossing (Mitchell Bridge) over the Mthamvuna River. In this case 16km of the existing R61 would have to be upgraded to national road standards. Table 2 gives the financial and economic present value (PV) of the costs of these greenfield alternatives. This part of the analysis uses only costs and does not take into account benefits that accrue when considering the implications of the do nothing alternative. Hence the present value of costs is measured (as opposed to the net present value of costs and benefits). In consequence there is no benefit:cost (B:C) ratio or internal rate of return
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 3 (IRR). The values are reported in 2005 prices to keep them comparable to the estimates made in the original report Table 2: Financial and Economic Evaluation of Greenfield Alternatives Comparison of Alternatives PV (R Millions, 2005 Prices) Preferred Financial CBA Coastal Mzamba WESSA Capex & Opex (excl Bridges) -664.9-667.2-711.9 Large Bridge & Tunnel Costs -530.3-530.3-2,966.8 Road User Costs -1,899.1-1,905.4-2,521.8 Total Costs -3,094.3-3,102.8-6,200.5 Comparison of Alternatives PV (R Millions, 2005 Prices) Preferred Economic CBA Coastal Mzamba WESSA Capex & Opex (excl Bridges) -555.1-557.0-594.5 Large Bridge & Tunnel Costs -441.5-441.5-2,470.4 Road User Costs -1,669.1-1,674.7-2,210.0 Total Costs -2,665.8-2,673.2-5,274.9 The overall present value of the financial costs, which include the construction, upgrade and maintenance costs of the road, bridge construction costs and the road user costs for the greenfield alternatives are: The preferred alignment: The Coastal Mzamba: The WESSA alignment: -R3.09bn -R3.10bn -R6.20bn The Coastal Mzamba route is only slightly more expensive (0.3%) than SANRAL s preferred alignment. The former route is about 300m longer, so this increases construction costs, maintenance and upgrade costs and overall road user costs marginally. The Coastal Mzamba route crosses the main river gorges at the same places as SANRAL s preferred option, so the large bridge construction costs are the same. The WESSA alignment is twice as expensive as the other two routes. The WESSA alignment is not only longer, resulting in higher construction, maintenance & upgrade and road user costs, but it also traverses more rugged terrain necessitating more bridges and requiring a tunnel of 4.1km in length. In addition to these costs, land would need to be acquired alongside the R61 and the community resettled elsewhere. These resettlement costs
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 4 have not been included in the analysis but would work to reinforce the conclusion drawn above. The WESSA alignment crosses the Mtentu River upstream of SANRAL s proposed alignment and before the Mtentshwana River, a tributary of the Mtentu River, joins up with the main gorge. This necessitates an additional large bridge crossing the terrain shown in Figure 1. Figure 1: WESSA Alignment Mtentshwana River Crossing The conclusion from this section is therefore that there is only a marginal difference in costs (0.3%) between SANRAL s preferred alignment and the Coastal Mzamba route, but that the WESSA alignment is twice as costly both financially and economically.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 5 3 Evaluating the Mark Gallagher Alignment This section compares the Mark Gallagher proposed alignment to two other alignments. These are the proposed N2 Wild Coast Toll Highway (which incorporates SANRAL s preferred alignment for the greenfield route between Lusikisiki and the Mthamvuna River) and the upgrading of the existing N2 from Mthatha to Port Shepstone. All three proposed alignments are analysed in relation to the do nothing alternative. All the costs on all the roads (the greenfield route where relevant, the existing R61 and the existing N2) are taken into account for each alternative. In addition all road user costs on all the roads are also taken into account. In each case the road user costs are compared to the road user costs that would be incurred in the do nothing alternative. This difference in road user costs is the road user benefit. By doing this, the alternatives are directly comparable with each other. The information that has been used in this part of the analysis is given in Table 3. It must be noted that the average travelling speed of light and heavy vehicles is the same for all three alternatives. In practise the Mark Gallagher alignment would result in a lower travelling speed and higher road user costs because of greater vertical slopes. For the purposes of this exercise, however, the average speeds for all three alternatives have been kept the same.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 6 Table 3: Key data used in the analysis of upgrading the existing N2, constructing the N2 Wild Coast road and the Mark Gallagher alignment Existing N2 Nonupgraded Upgraded Road Source Distance in km (Mthatha to Port Shepstone) 310.4 310.4 Road Map Cost of Upgrading (R/km) - 3,566,508 SANRAL Database Periodic Maintenance & Rehab (R/km p.a.) 180,000 339,476 SANRAL Database Routine Maintenance (R/km p.a.) 25,000 25,000 SANRAL Database Average PSI 2.5 4.0 Assumption Average Light Vehicle speed (km/h) 86.7 96.8 Tolplan Report Average Heavy Vehicle speed (km/h) 69.4 77.4 Tolplan Report Nonupgraded Upgraded N2 Wild Coast Toll Highway Road Source Distance in km (Mthatha to Port Shepstone) - 235.1 Aerial Map New Road Construction (NPV - R millions) - 1,211 SANRAL Database Upgrade / Rehabilitation Costs (NPV - R m) - 200 SANRAL Database Periodic Maintenance(R/km p.a.) - Included in Upgrade / Rehab Costs above Routine Maintenance (R/km p.a.) - 25,000 SANRAL Database Average PSI - 4.0 Assumption Average Light Vehicle speed (km/h) - 96.8 Tolplan Report Average Heavy Vehicle speed (km/h) - 77.4 Tolplan Report Mark Gallagher Alignment Nonupgraded Upgraded Road Source Distance in km (Mthatha to Port Shepstone) - 251.4 Aerial Map New Road Construction (NPV - R millions) - 1,176 SANRAL Database Upgrade / Rehabilitation Costs (NPV - R m) - 214 SANRAL Database Periodic Maintenance(R/km p.a.) - Included in Upgrade / Rehab Costs above Routine Maintenance (R/km p.a.) - 25,000 SANRAL Database Average PSI - 4.0 Assumption Average Light Vehicle speed (km/h) - 96.8 Tolplan Report Average Heavy Vehicle speed (km/h) - 77.4 Tolplan Report In Table 4 the options of constructing SANRAL s preferred route, upgrading the existing N2 between Mthatha and Port Shepstone and constructing the Mark Gallagher alignment are considered in relation to the do nothing alternative. In so doing, benefits for each option can be calculated as the reduction in costs between the respective alternative and the do nothing alternative.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 7 Table 4: Financial and Economic Analysis of alternatives in relation to the do nothing alternative Comparison of Alternatives Financial CBA Economic CBA NPV (R Millions, 2005 Prices) Pref Align Exist. N2 Upgr. Mark Gallagher Pref Align Exist. N2 Upgr. Mark Gallagher Capex & Opex (excl Bridges) -1,244.4-757.3-1,233.3-1,040.7-637.5-1,032.0 Bridge & Interchange Costs -530.3 0.0-7,302.4-441.5 0.0-6,080.7 Road User Cost Savings 5,996.2 1,122.0 3,061.0 5,267.5 991.4 2,714.7 Total Benefits 4,221.6 364.6-5,474.7 3,785.3 353.9-4,398.0 B:C Ratio 3.4 1.5 0.4 3.6 1.6 0.4 IRR 26% 15% N/A 27% 15% N/A The Mark Gallagher alignment has a total financial NPV of negative R5.47bn. This means that the do nothing scenario is more attractive than this alignment. The main reason for the large negative NPV is the large bridge, tunnel and interchange costs. When looking only at the road construction costs (i.e. ignoring the bridge and tunnel construction costs) Table 4 indicates that the costs associated with the Mark Gallagher alignment are less than those for SANRAL s preferred alignment, but more than upgrading the existing N2. The reason for this is that the Mark Gallagher alignment makes greater use of the existing R61 than SANRAL s preferred alignment, and is shorter in distance than the existing N2. When looking at the Road User Cost Savings, it can also be seen that the Mark Gallagher alignment has greater savings than upgrading the N2, but not as much as the SANRAL preferred alignment. However, it is the bridge and interchange costs for the Mark Gallagher alignment that makes it so costly. The Mark Gallagher crossing of the Mzimvubu River will necessitate a large bridge and some tunnelling. The proposed crossing point is indicated in Figure 2. The bridge required to cross the river would be built on the spur indicated in the figure, where the difference in height between the two banks of the river can be clearly seen.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 8 Figure 2: Mark Gallagher alignment proposed crossing point of the Mzimvubu River For comparison purposes, SANRAL s preferred alignment has a positive NPV of R4.2bn while upgrading the existing N2 has a positive NPV of R365m. Because of their positive NPVs both alternatives are more attractive than the do nothing option whereas this is not the case for the Mark Gallagher alignment. The financial benefit cost ratio for the proposed N2 Wild Coast Toll Highway is 3.4, compared to 1.5 for upgrading the existing N2 and 0.4 for the Mark Gallagher alignment. The proposed project has an IRR of 26% while upgrading the existing N2 has an IRR of 15%. Because the financial NPV of the Mark Gallagher alignment is negative it does not have an IRR.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 9 The economic benefit cost ratio for the proposed project is 3.6, compared to 1.6 for upgrading the existing N2 and 0.4 for the Mark Gallagher alignment. The proposed project has an economic IRR of 27% while upgrading the existing N2 has an IRR of 15%. Because the economic NPV of the Mark Gallagher alignment is negative it is not possible to determine an economic IRR for that alternative. These results all indicate that it would not be financially or economically beneficial to society to construct the Mark Gallagher alignment. 4 Conclusion The following conclusions are drawn: For the new greenfield alignments between Lusikisiki and Port Edward (the Mthamvuna River) the Coastal Mzamba route is only marginally more expensive (0.3%) than SANRAL s preferred route, while the WESSA alignment is twice as expensive when compared to the other two. For the route from Mthatha to Port Shepstone, the Mark Gallagher alignment is considerably more expensive than either the proposed N2 toll highway along SANRAL s preferred alignment or upgrading the existing N2.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 10 5 Appendix A: Methodology 5.1 Quantifying Road Construction and Upgrade Costs Construction costs for the proposed N2 Wild Coast toll road were supplied by SANRAL. The costs for the various sections of the road are as follows: 5.1.1 Initial Construction and Upgrade Costs The proposed greenfields section between Lusikisiki and the Mthamvuna River was estimated from the SANRAL cost database records and equate to R11.436m per kilometre, spread over three years. This rate includes culverts, intersections and minor to medium size bridges. It excludes the price of constructing major bridges such as those over the Msikaba and Mtentu River gorges and the cost of tunnels. Bridge costs on the three new routes are as follows: Route River Length Width Unit Cost Total Cost (Rm) Coastal Mzamba Route Msikaba 600 17.2 R25,000/m² 258.0 Mthentu 1,200 17.2 R25,000/m² 516.0 WESSA Route Msikaba 1,350 17.2 R25,000/m² 580.5 Mtentu 1,200 17.2 R25,000/m² 516.0 Mtentshwana 1,200 17.2 R25,000/m² 516.0 Mzamba 750 17.2 R10,000/m² 129.0 Ntlakwe 750 17.2 R10,000/m² 129.0 Tunnel 4,100 R600,000/m 2,460.0 Mark Gallagher Route Mzimvubu 3,200 17.2 R25,000/m² 1,376.0 Mtamvuna 1,800 17.2 R10,000/m² 309.6 A N Other 300 17.2 R10,000/m² 51.6 Tunnel 1 14,320 R600,000/m 8,592.0 Tunnel 2 440 R600,000/m 264.0 No major bridge costs are required in upgrading either the existing N2 or R61. Any construction work that would be required to be done on the existing bridges would be covered in the rate per kilometre of road upgrade.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 11 Initial upgrade costs where the proposed road is aligned on top of an existing road are estimated from the SANRAL cost database. They equate to R3.57 million per kilometre, spread over three years. 5.1.2 Future Rehabilitation and Periodic Maintenance Costs Future rehabilitation costs for the proposed N2 Wild Coast toll road are taken as those given in the cost schedule supplied by SANRAL. These costs occur at discreet intervals in time on the various sections of the road. Future rehabilitation costs for the existing N2 and R61, if they are to be upgraded and not kept at a minimum level of serviceability, are obtained by taking the future rehabilitation cost schedule for the proposed project (as in the point above) and calculating an average rate per kilometre per annum. This average rate per annum equates to R328,359 per kilometre per annum. On the do-minimum roads where the riding surface is kept at a minimum acceptable level of quality, periodic maintenance costs of R40,000 per kilometre per annum and rehabilitation costs of R140,000 per kilometre per annum are used. For all roads an annual routine maintenance cost of R25,000 per kilometre is used.
Proposed N2 Wild Coast Toll Highway: Screening of Alternatives 12 6 Appendix B: Map of Alternative Routes