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Module 1 Session 1.4 Visual 1
Module 1
Understanding the Project andProject Management
Session 1.4
Understanding the Project Analysis Report (PAR)
Module 1 Session 1.4 Visual 2
Instructional Objectives
By the end of this session, when given a summary Project Analysis Report and a worksheet, you should be able to:
1. Summarize the key project parameters described in the PAR
2. Review the financial and economic analyses including the rate of return
3. Identify at least two of the assumptions in the PAR
4. List at least two assumptions not treated explicitly in the PAR
5. For each assumption, perform a subjective risk analysis
6. Develop guidelines for when to reassess the feasibility of the project
Module 1 Session 1.4 Visual 3
Purpose:Enable decision makers to evaluate project for funding
The Project Analysis Report
MILLENNIA
NATIONAL HIGHWAY PROJECT
Module 1 Session 1.4 Visual 4
Currency Equivalents2
CURRENCY EQUIVALENTS
US$ 1.00 = LCU 20.00
SYSTEM OF WEIGHTS AND MEASURES: METRIC
Metric Imperial
1 meter (m) 3.281 feet
1 square meter (m2) 10.764 square feet
1 cubic meter (m3) 35.315 cubic feet
1 kilometer (km) 0.621 mile
1 square kilometer (km2) 0.386 square mile
1 metric ton 2,205 pounds
Module 1 Session 1.4 Visual 5
Acronyms and Abbreviations
ACRONYMS AND ABBREVIATIONS
ADGB - Additional Director General, Bridges
ADGR - Additional Director General, Roads
CMF - Contract Management Framework
CRRI - Central Road Research Institute
DGRD - Director General, Road Development
ERR - Economic Rate of Return
GDP - Gross Domestic Product
GNP - Gross National Product
HDM - Highway Design and Maintenance Model
ICB - International Competitive Bidding
ILA - International Lending Agency
MOT - Ministry Transport
MRC - Milenian Roads Congress
PWD - Public Works Department
RDB - Regional Development Bank
TA - Technical Assistance
VFM/RUC - Vehicle Fleet Modernization/Road User Charges Study
FISCAL YEAR
April 1 - March 31
ACRONYMS AND ABBREVIATIONS
ADGB - Additional Director General, Bridges
ADGR - Additional Director General, Roads
CMF - Contract Management Framework
CRRI - Central Road Research Institute
DGRD - Director General, Road Development
ERR - Economic Rate of Return
GDP - Gross Domestic Product
GNP - Gross National Product
HDM - Highway Design and Maintenance Model
ICB - International Competitive Bidding
ILA - International Lending Agency
MOT - Ministry Transport
MRC - Milenian Roads Congress
PWD - Public Works Department
RDB - Regional Development Bank
TA - Technical Assistance
VFM/RUC - Vehicle Fleet Modernization/Road User Charges Study
FISCAL YEAR
April 1 - March 31
Module 1 Session 1.4 Visual 6
Table of ContentsTABLE OF CONTENTS
1. The Transport Sector .........................................................................................................................A. Economic Setting and the Transport Sector ...........................................................................B. Transport Planning and Coordination ....................................................................................C. Transport Investments .............................................................................................................D. Transport Pricing and Taxation ..............................................................................................
2. The Roads Sub-Sector.........................................................................................................................A. The Roads Network ..................................................................................................................B. The National Highway System .................................................................................................
Administration .....................................................................................................................Financing ..............................................................................................................................Maintenance ..........................................................................................................................Engineering ..........................................................................................................................Construction/Contracting/Contract Administration .......................................................
C. Intercity Road Traffic ...............................................................................................................D. Road Safety ................................................................................................................................E. Training ......................................................................................................................................F. Research and Development ......................................................................................................G. Highway Planning .....................................................................................................................H. The Road Transport Industry ..................................................................................................
The Vehicle Fleet ..................................................................................................................Vehicle Utilization and Traffic Growth Rates ..................................................................
Module 1 Session 1.4 Visual 7
Table of Contents (continued)
3. The Project...........................................................................................................................................
A. Objectives ...................................................................................................................................
B. Project Description ....................................................................................................................
Part A of the Project - Road Modernization Works
.........................................................
Part B of the Project - Bridge Construction and Reconstruction
....................................
C. Project Costs and Financing ....................................................................................................
D. Project Implementation ............................................................................................................
E. Procurement ...............................................................................................................................
F. Environmental Impact ...............................................................................................................
4. Economic Evaluation...........................................................................................................................
A. Assessment of the Highway Modernization Component (Part A of the Project) ................
B. Assessment of Aksala Bridges Component (Part B of the Project) ......................................
C. Project Risks ..............................................................................................................................
Module 1 Session 1.4 Visual 8
Table of Contents (continued)
Annexes
1.1 Expenditures under the Current Five-Year Plan 1985-90............................................................
3.1 Road Monitoring Equipment...........................................................................................................
3.2 Terms of Reference for the TA to the MOT...................................................................................
3.3 Summary of Project Costs ...............................................................................................................
3.4 Contract Management Framework ................................................................................................
3.5 Terms of Reference for the Supervision Consultants ...................................................................
3.6 Project Implementation Schedule....................................................................................................
3.7 Project Organization Chart.............................................................................................................
4.1 Economic Evaluation........................................................................................................................
Module 1 Session 1.4 Visual 9
Tables
2.1: The Road Network ..........................................................................................................................
2.2: Villages Connected to the Road Network .....................................................................................
3.1: Amounts and Methods of Procurement ........................................................................................
4.1: Economic Evaluation of Part A .....................................................................................................
4.2: ERR Sensitivity to Cost Increases .................................................................................................
4.3: Economic Evaluation of Part B ......................................................................................................
Table of Contents (continued)
Module 1 Session 1.4 Visual 10
MILLENNIA
NATIONAL HIGHWAY PROJECT
THE TRANSPORT SECTOR
A. Economic Setting and the Transport Sector
1.1 Millennia, a federation of many states, is a large and populous
country. It covers about 2 million km2 and has a population of about 300
million. Agriculture dominates the economy, absorbing about two-thirds
of the labor force and generating about one-third of the GDP; the service
and industrial sectors absorb the remainder of the labor force, and
account in equal proportions for the remainder of the GDP. Growth of
the GDP in earlier years was about 2.7% per annum, but in recent
decades it has been steady at about 4.5% per annum. Per capita income,
in real terms, is about US$350 per annum.
The Report
Module 1 Session 1.4 Visual 11
1.15 The scope for improving road pricing was reviewed under the
VFM/RUC study (paragraph 1.10). This study examined the extent of vehicle
usage, the composition of the fleets, and the charges levied on the various
classes of vehicle, and concluded that road users paid about 3.5 times
government expenditure on roads. The study also concluded that
the structure of road user charges was flawed in that it encouraged the use
of inefficient vehicles, the charges did not penalize vehicles sufficiently for the damage that they
cause to the pavements, and the charges that are made are levied through economically inefficient
means, such as sales and excise taxes instead of, for example, fuel taxes.
The Report (continued)
Module 1 Session 1.4 Visual 12
The Report (continued)
2.41 The government’s commitment to prepare within twelve months an
Action Plan based on (i) the VFM/RUC Study and on (ii) the ILA’s report on
Policy Issues on Road Transport in Millennia, was confirmed at loan
negotiations with the ILA; also confirmed was the government’s
determination to implement the Plan thereafter.
Module 1 Session 1.4 Visual 13
2.43 Using various scenarios for GNP growth, industrial growth, and
probable demographic changes, the Planning Commission estimated demand
for rail and road transport for the year 20002 . . . .
. . . Therefore, traffic growth
rates of 12 percent to 15 percent per year are to be expected. These results
only highlight the need for the proposed project and magnify the importance
of the continued dialogue between the government and the ILA on sector and
project management issues.
The Report (continued)
Module 1 Session 1.4 Visual 14
Possible Additional Sections: Demand Analysis
More detailed analysis of need or demand
Size of market to be served
Market share likely to be attained
Marketing strategy
The Report (continued)
Module 1 Session 1.4 Visual 15
3. THE PROJECT
A. Objectives
3.1 The objectives of the project are to:
• modernize key sections of the national highway network
• promote improvement in:
- road engineering and construction
- network management
- contract management
• assist in construction of a new bridge with approaches and the
reconstruction of flood-damaged bridges.
The Report (continued)
Module 1 Session 1.4 Visual 16
The Report (continued)
B. Project Description
3.4 The proposed project includes two parts, A and B:
Part A
• modernizing six sections of national highways (civil works and supervision) totaling about 290 km in length
• equipment for monitoring and managing the national highway network
• institutional strengthening including:
• fellowships and training in the supervision of road works for professional and field staff
• technical assistance to MOT
• studies to prepare follow-up projects
Part B
• reconstruction of six flood-damaged bridges
• construction of one new bridge with approaches
Module 1 Session 1.4 Visual 17
3.20 The design of the new structures has been standardized to use identical 42.2
meter spans made of prestressed concrete and well foundations. The new bridges will
be at a higher level on the same site, or just beside the old bridges. Land acquisition is
minimal and no one needs to be relocated or resettled because of the construction.
The Report (continued)
Module 1 Session 1.4 Visual 18
Contract Management Framework
3.23 Experience shows that particular attention needs to be paid to minimizing
implementation difficulties. To address this concern, a contract management
framework (CMF) was designed which integrates a streamlined decision-making
structure in the states and at MOT, with supervision of works by international
consultants. The framework spells out the duties and responsibilities of state PWD
and MOT officials and those of the consultant (annex 3.4).
The Report (continued)
Module 1 Session 1.4 Visual 19
F. Environmental Impact
3.37 With the exception of the bypass, the civil works are within the existing right-of-way. However, limited land acquisition was necessary and some people had to be resettled because of the construction. A resettlement specialist reviewed the land acquisition and the resettlement procedures used in each state. The review revealed that the acquisitions had been done long ago, that most plots acquired were small, and that about 650 households had been affected. This did not include people trespassing on the right-of-way, who have been, or will be evicted on short notice without compensation. Since the acquisitions had taken place long ago, at a time when the PWDs were not informed of the ILA’s policy on involuntary resettlement, it was agreed with the government of Milenia not to pursue the fate of the 650 households.
3.39 The project has a clearly beneficial environmental impact: by reducing congestion and improving accessibility it contributes to cutting vehicle emissions and improves the quality of life. . . .
. . . A potentially adverse impact is the unstructured development that usually occurs along road improvements.
The Report (continued)
Module 1 Session 1.4 Visual 20
Possible Additional Sections: Financial Analysis
For revenue-earning entity: Costs Cost recovery Fees (education) Charges (health care) Tolls (roads)
For private, profit-oriented firm: Balance sheets Projected income and expense Projected sources of funds Projected uses of funds Rate of return Financial ratios
The Report (continued)
Module 1 Session 1.4 Visual 21
4. ECONOMIC EVALUATION
A. Assessment of the Highway Modernization Component (Part A of the Project)
4.1 The economic returns of modernizing the six highway links in the project were
estimated by comparing the total costs to the economy of the no-improvement (base)
case with those of the improvement option. Both options were modeled with the
assistance of the HDM. The pattern of evolution of costs in the base case is well
mapped. It involves a continuation of current maintenance practices (at increasing
costs because of increasing traffic volumes), increased congestion and, therefore,
decreased vehicle speeds.
The Report (continued)
Module 1 Session 1.4 Visual 22
Benefits
4.4 The proposed project will modernize and expand to four lanes heavily congested
two-lane sections of the national highway network. The project's main benefits will be
savings in vehicle operating costs, reduced congestion, and increased speeds. The
competitiveness of the road transport industry in Millennia is expected to ensure that
project benefits, which will accrue directly to users, but principally to transport
operators, are eventually passed on to consumers. Lower transport costs should
manifest themselves in lower distribution costs, and eventually in lower and/or more
competitive tradable goods market prices.
The Report (continued)
Module 1 Session 1.4 Visual 23
The Report (continued)
Table 4.1: Economic Evaluation of Part A
Road Section Economic
State From To Costs (LCUs) ERR
Ohadi Nevah Oner 688.5 41.5
Awoi Emon 326.8 53.7
Emon Onuj 161.7 37.7
Enaim Krawen Drofarc Creek1 579.1 43.3
Aksala Imaim Sotlasol2 738.3 37.6
Nagichim Oner Atnas 429.5 62.2Anilorac Selegna Salsagev3 462.7 49.3
Bridge
Total Project 3,386.6 (weighted) 45.2
1. Including the Drofarc Creek bridge2. Including the Fuen bridge3. Excludes the Selegna bridge, which is in Kroy state.
Module 1 Session 1.4 Visual 24
The Report (continued)
Table 4.2: ERR Sensitivity to Cost Increases
Best Estimate Increase in Costs ofRoad Section ERR 10% 50% 100%
Nevah to Oner 41.5 39.3 33.0 27.7Emon Bypass 53.7 50.2 40.6 33.4Emon to Onuj 37.7 35.7 29.5 24.3Krawen to Drofarc Creek 43.3 42.0 37.7 33.7Imaim to Sotlasol 37.6 35.4 29.2 24.1Oner to Atnas 62.2 59.3 50.7 43.5Selegna Bridge to Salsagev 49.3 46.9 39.6 33.5
Module 1 Session 1.4 Visual 25
4.5 The proposed project should yield considerable institutional benefits, especially to
the Government. The project will promote the use of better, more modern, equipment-
intensive road construction techniques. It will also employ consultants to supervise the
civil works within a new contract management framework. The technical and
managerial innovations incorporated in the project should improve the efficiency of
road works and their quality and durability. Also, under the project, management of
the MOT investment program will be improved. All these actions are expected to
generate lifetime cost savings rather than one-off benefits.
The Report (continued)
Module 1 Session 1.4 Visual 26
Benefits
4.11 The main benefit of reconstructing the washed-away bridges is the saving in
vehicle operating cost of avoiding the long detours. For the damaged bridges the main
benefits are avoided repair cost, the removal of load restrictions, and the increasing
maintenance cost of keeping the bridges in use; two of . . . .
The Report (continued)
Module 1 Session 1.4 Visual 27
Table 4.3: Economic Evaluation of Part B
Aksala Bridges
Length Economic Costs ERR on Road No. over river near (m) (Millions of LCUs) %
SH-17 Nadroj Nodnol 126.6 33.1 99.0MDR-62 Nosduh Sirap 168.8 38.6 47.0SH-7 Tsea Areneg 253.2 61.2 62.0SH-7 Enies Nilreb 126.6 34.9 105.0MDR-68 Ras Bergaz 317.6 62.6 116.0SH-7 Ebunad Dirdam 84.4 35.8 65.0
The Report (continued)
Module 1 Session 1.4 Visual 28
Conversions and Abbreviations
Executive Summary
Statement of the Problem (Need or Demand)
Description of the Proposed Project
Financial and Economic Evaluation
Agreements and Recommendations
Annexes
Typical Summary for a Summary PAR
Module 1 Session 1.4 Visual 29
Familiarizes the manager with the project
Serves as basis for initial Implementation
Planning
Serves as a reference point for judging when to
reevaluate project parameters/assumptions and
call back project analysts
Benefits of PAR for Project Manager
Module 1 Session 1.4 Visual 30
New project managers should read PARs carefully when appointed to the project.
The PAR: provides orientation to the project
helps project manager determine if/when a new analysis is needed
serves as foundation of the initial Implementation Plan
Summary