socio economic.pdf

A SIMPLE SOClOECONOMlC METHODOLOGY FOR ROAD IMPROVEMENT

BERGER, Louis Chairman of the Board ..

Louis Berger International, Inc. ,?

GREENSTEIN, Jacob Chief Soils Engineer

Louis Berger International, Inc.

1st North American Pavement Management Conference (1985)

TRB Committee AFD10 on Pavement Management Systems is providing the information contained herein for use by individual practitioners in state and local transportation agencies, researchers in academic institutions, and other members of the transportation research community. The information in this paper was taken directly from the submission of the author(s).

BERGER, LOUIS and GREENSTEIN, JACOB

The paper p r e s e n t s a methodology f o r road improvement developed and implemented i n Thai land from 1980 t o 1 9 8 4 . Approx- ima te ly 40,000 k i lome te r s of roads were i n v e n t o r i e d , and 3,000 k i lome te r s , compris ing 85 road s e c t i o n s throughout t h e count ry , were s e l e c t e d as having t h e h ighes t p r i o r i t y f o r improvement. Five road improvement a l t e r n a t i v e s were analyzed, namely, recon- s t r u c t i o n , r e h a b i l i t a t i o n , ove r l ay , s e a l c o a t , and r o u t i n e m a i n - tenance. A socioeconomic a n a l y s i s was c a r r i e d ou t t o determine popula t ion p r o j e c t i o n s and n a t i o n a l , r e g i o n a l , and l o c a l economic growth f o r e c a s t s . A macroeconomic f o r e c a s t i n g approach was adopted t o determine t r a f f i c growth rates. Improvement b e n e f i t s r e l a t e mainly t o r e d u c t i o n s i n road u s e r and maintenance c o s t s f o r t h e improved roads . The economic i n d i c a t o r s analyzed were i n t e r n a l r a t e of r e t u r n ( IRR) , b e n e f i t c o s t r a t i o a t a 15 per - c e n t d i scount r a t e ( B / C r a t i o ) , opening o r f i r s t year r a t e of r e t u r n (FYRR), and n e t p r e s e n t va lue i n opening year d i scounted a t 15 pe rcen t . Because of funding l i m i t a t i o n s , t h e 3 , 0 0 0 k i l o - meters of roads i n i t i a l l y s e l e c t e d a s having t h e h ighes t p r i o r i - t y f o r improvement were ranked i n o r d e r of p r i o r i t y ; of t h e s e , 1 ,200 k i lome te r s w e r e s e l e c t e d for ' immedia te improvement. The IRR w a s used t o determine p r i o r i t i e s i n t h e investment program and t h e FYRR t o e s t a b l i s h t h e o r d e r - o f p r o j e c t implementation.

KEYWORDS: road improvement, economic p r i o r i t y i n d i c a t o r s , i n t e r n a l r a t e of r e t u r n , b e n e f i t c o s t r a t i o , f i r s t year b e n e f i t r a t i o , road u s e r b e n e f i t s , and s t r u c t u r a l and f u n c t i o n a l evaluation.



INTRODUCTION

Nearly 40 million people in Thailand (70-80 percent of the total population) are farmers with an annual national agricultural income per capita of between $US 250 and $US 290 from 1978 to 1982. The World Bank, the Asian Development Bank, and other lending agencies all play an important role in financing Thai road projects. However; the policy of both the Thailand Road Authority and of the lending agencies is that all proposed road improvements must be demonstrated economically feasible. To achieve this objective, a special road improvement methodology was developed. It required an inventory of both pavement roughness and surface cracking, measured along the entire 40,000-kilometer network. To determine priorities, traffic volumes were determined both by physical counts and by projections from an agricultural-economic growth study. In addition, structural evaluations of the pavements were made, where necessary, using nondestructive techniques, and a benefit-cost analysis was performed.

Using this methodology, 85 road sections, comprising 3,000 kilometers, were selected as having the highest priority for road improvement. However, because of funding limitations, a further screening was required to establish the ranking order for each of these sections. Five reconstruction -alternatives, rehabilitation, overlay, seal coating, and routkne maintenance, were analyzed using economic priority indicators such as IRR, FYRR, NPV, and B/C ratio. The methodology described in detail in this paper is currently being used by the Thailand Road Authority to improve, overlay, rehabilitate; and reconstruct 1;200 kilometers of the highest ranking priority roads.

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1.0 SCREENING STUDY

The screening study of national and provincial road networks had three major objectives:

(1) To establish an order of priority for road improvement at a prefeasibility study level;

(2) To identify individual road improvements that are': likely to be economically feasible in the next 5 to 7 years; and

(3) To identify the roads for which improvement or construction should begin during the 5- to 7-year period; under budget and construction capability limitations.

The screening process included four stages. The first stage eliminated the number of roads currently under study, design; or construction. The second stage eliminated paved road links that would not require resurfacing or reconstruction for the next 7 to 8 years and unpaved roads that would not achieve the minimum



first year benefit ratio (FYB). In Thailand (1980), a minimum FYI3 of 12 percent was used, and this ratio was equated with an AADT forecast of 200 or less. The roads that failed the second screening were analyzed for potential development benefits, and those with such potential were moved to the fourth stage.

Roads passing the second screening stage were then analyzed at varying levels of improvement and subjected to an FYB test. Roads with an FYJ3 of less than 12 percent (in 1980) were eliminated. Roads passing the third stage plus those with development potential by-passed from the second stage were subjected to a benefit-cost analysis extending over the projected life of the road, defined as 15 years from the year of opening to traffic.

The results of this analysis are presented in the form of the economic internal rate of return (IRR); ranked from the highest to a cut-off point of 12 percent (1980); together with the cost of construction. It should be noted that the screening study is a comparative one in that the level of feasibility of each road passing the fourth screening stage is ranked. Thus; inaccuracies caused by the above simplification apply to all roads and should not affect the final ranking of a road by IRR.

Using this methodology, 85 road sections;.; comprising 3 ; 000 kilometers, were selected as having the highest priority for road improvement. Because of funding limitations, however, a further socioeconomic evaluation was carried out to rank these roads to establish which sections should be improved first.

2.0 SOCIOECONOMIC METHODOLOGY FOR ROAD IMPROVEMELJT

Five road improvement alternatives were analyzed:

(1) Construction of new pavement system.

(2) Rehabilitation with granular base course and asphalt concrete surface course, the granular thickness varying between 15 and 30 centimeters and the asphalt concrete between 5 and 10 centimeters.

(3) Asphalt concrete overlay, usually between 5 and 12 centimeters.

(4) Asphalt seal coat.

(5) Routine maintenance.

The socioeconomic evaluation was carried out according to the following methodology.



2.1 Population and Economic Forecasts

To determine traffic growth rates on a consistent basis, a macroeconomic forecasting approach was adopted. The twin objectives of this approach were to produce acceptable overall growth rates by vehicle type and to differentiate between roads to the maximum extent possible. Traffic growth was determined as a function of the growth in population and in product per capita at the changwat (local) or regional level. The population and economic forecasts by changwat were derived from regional and national forecasts, thus ensuring consistency. For each road, the following social and economic parameters were determined:

(1) Population density, from 11 to 583 per square kilometers.

(2) Agricultural employment as a percentage of the economically active population, from 50 to 80 percent.

(3) Agricultural production as a percentage of gross changwat production, from 20 to 60 percent.

(4) Houses with motorcycles and private vehicles, from 10 to 60 percent and 3 to 16 percent respectively (1980).

The general conclusion obtained by analyzing the relationship between these socioeconomic indicators is that traffic growth rates are dependent on the absolute level of development of each road section.

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The population of Thailand is about 50 million, and most ofi. these inhabitants are engaged in agriculture. The population is well distributed throughout the country, and the capital city of Bangkok is the only true metropolitan area; accounting for 11 percent of the total population.

Population projections over the study forecasting ,period were determined for national, regional; and changwat levels. The projected national population in the year 2000 is 64 mi l ~ o n , 34 percent higher than that for the study base year of 1982. Bangkok's population is expected to be 8.6 million, a 58 percent increase over 1982. The changwat population growth rate per annum varies mainly between 0.1 and 4.7 percent. This analysis was done for 54 changwats and was based on population data for annual growth rates since 1970 and the assumption that the government policy of discouraging migration to Bangkok is successful.

The gross domestic product (GDP) was the basic economic indicator used to analyze Thai economic growth. The national annual GDP growth rate for both 1971-1976 and 1976-1981 averaged 7.1 percent. A change in the sectorial composition of the Thai



economy is in progress, with manufacturing output increasing its share of the GDP at the expense of agriculture; the largest sector of the GDP.

The GDP contribution of agriculture; forestry; and fishing declined by 25 percent from 1971 to 1982 while the share of manufacturing increased 31 percent. This structural change in the economy is expected to continue. Although there is room for further growth in the agricultural sector; industry will expand much faster in the next few years; overtaking agriculture as the main contributor to the GDP. This is occurring despite the fact that industry now employs only 10 percent of the workforce; compared with the 70 to 80 percent engaged in agriculture.

To analyze the population and economic forecasts, the following economic indicators were determined for each region in Thailand :

(1) Gross regional product (GRP). This varied between $US 2 and $US 5 billion in 1982 and was estimated to vary between $US 5 and US$ 15 billion in the year 2000, with a gross domestic product of $US 45 billion in the year 2000.

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(2) Gross regional product growth rate pea annuin. This varied mainly between 4.5 and 8.5 percent with a GDP-growth rate of 6.0 and 5.3 percent from 1986 to 1991 and from 1991 to 2000 respectively.

(3) GRP per capita growth rate. This varied mainly between 2.5 and 5.0 percent with the GDP per capita gross rate J

X decreasing from 4.4 to 3.8 percent from 1986 to 1991 and from 1991 to 2000 respectively.

( 4 ) GRP per capita. This varied between $US 150 and US$ 550 in 1982 and was estimated to vary between $US 270 and $US 1130 in the year year 2000.

(5) Per capita product (1976-2000) and the growth rate per annum were determined for each changwat.

2.2 Traffic Analysis

Traffic growth rates for 1982-1986; 1986-1991, and 1991-2000 were calculated for each changwat-region from the following equation:

P a a Annual growth rate factor = 0.5 [ ( 1 + ) ( I+%) +(l+-P) ( I+&) ] 100 100 100 100 Growth rate in 8 = 100 (annual factor-1)

Where:



p = national population growth rate in % per annum G = real GDP per capital growth rate in 8 per annum p = changwat/regional population growth rate in 8 per annum g = real gross changwat/regional product per capita growth

rate in % per annum a = income elasticity factor given below:

Value of "a"

Vehicle Type 1982-1986 1986-1991

Cars 1.5 Light Trucks 1.8 Medium Trucks 1.0 Heavy Trucks 0.8 Light Buses 1.0 Heavy Buses 0.8

Growth rates fox motorcycles are 12.0, 7.0, and 4.0 percent respectively for each of the forecasting periods; adjusted by the difference between the population growth rate of the changwat-region and the national rate.

To complete the traffic analysis, base year AADT values were developed using annual survey census and inventory survey traffic counts. An axle load study was also carried ou'i for each road for the purpose of pavement strengthening.

2.3 Inventory and Road Evaluation I A road inventory was used to identify each separate link of

the road network and to evaluate its engineering properties such as geometry, soils, pavement, shoulder and surface conditions, drainage facilities, bridges, distance to available material sources, etc. This information was used to estimate the amount of work necessary to improve the road to any given higher standard and to estimate the maintenance and vehicle operation costs. This information was then incorporated in the economic evaluation presented later in this paper.

An inventory was carried out on all of the project's roads; emphasizing road surface conditions and pavement adequacy for carrying the projected traffic loading in terms of equivalent standard axles (ESA). The present serviceability index (PSI), the roughness (in mm/km), and the surface conditions were determined for each kilometer. Figure 1 presents the relationship between the PSI, roughness, and the pavement conditions developed in Thailand (1983). This analysis was done for three different surfaces: asphalt concrete (AC), surface treatment (ST), and penetration macadam (PM). Generally, for a given measured roughness, the PM surface has the highest PSI and the AC surface the lowest.



The structural adequacy of the pavement and subgrade system was determined by nondestructive testing. The deflection basins were measured using the Benkelman beam and the subgrade and pavement elastic modulus and CBR backcalculated. In situ distructive testing, such as CBR; density; classification; moisture, etc., was carried out to verify or correlate the conclusions of the deflection analysis. The engineering properties of the subgrade and pavement materials were used to determine the needed work quantities for the five road improvement alternatives.

2.4 Cost Analysis

The computerized cost analysis include four major factors:

(1) Unit Cost Analysis. A precise unit cost analysis is needed to achieve an accurate cost estimate within a plus or minus 15 percent range of the final construction cost. The unit cost analysis was carried out in terms of both economic and financial costs. Economic costs are defined as financial costs less import duties and indirect taxes. The unit cost analysis included the analysis of hourly operational cost of equipment, equipment efficiency, labor cost for each work $<em, $profit; and detailed indirect and direct cost analyses.

(2) Road Improvement Cost. The estimated improvement costs for each road project and for each road improvement alternative were determined by applying the appropriate unit cost to the quantities required for each rehabilitation alternative. 3

Financial costs for the investment program and economic costs for " economic analysis were determined. Costs in local and foreign currencies were determined for both local and foreign contractors. Costs in foreign currency for foreign contractors are usually 10 to 20 percent higher than those for local contractors.

(3) Maintenance Costs. Routine maintenance is normally carried out annually with possible variations in seasonal levels of operation. Factors influencing the routine maintenance expenditures are traffic volume; quality of surface and shoulder materials, service life, carriageway width; side road approaches and medians, gradient, quality of bridges; and drainage facilities. Routine maintenance costs were determined for both the existing and the improved road conditions. In addition to routine maintenance, paved roads require periodic maintenance in the form of seal coats applied to the roadway surface. In Thailand, routine maintenance can be done for road surfaces in poor, fair, or good condition. However, road surfaces in bad or very bad condition; with a roughness of over 5500 rnrn/km; need a minimum 5 cm of asphalt concrete overlay.



(4) Vehicle Operating Costs (VOC). The detailed analysis of VOC carried out in Thailand is given in the study performed for the Department of Highways of Thailand [l]. In this analysis, the recommendations given in References [2, 3, 41 were adjusted for the representative vehicle and the environmental and road conditions of Thailand. VOC were determined for each road condition as shown in Figure 1. The VOC analysis concluded that improving the road surface from a bad to a good condition reduces the VOC approximately 40 to 50 percent.

2.5 Economic Analysis

(1) Feasibility Criteria. In the evaluation of maintenance or road improvement projects; the primary consideration is the order in which the projects should be undertaken, that is, a project's relative priority vis-a-vis competing projects. What form a project should take is generally clear-cut because of engineering considerations. Thus a study road section was considered feasible for immediate improvement if the following conditions were met:

- Aternative projects that yield greater benefits are not available; and

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- The project met the set minimum fate of return (IRR) For the Thai road improvement study, financed by the World

Bank, a minimum IRR of 15 percent was adopted in 1983. In practice, so many study projects yielded high rates of return, that budget limitations should have been set at a much higher t

level than 15% percent. Given the tentative nature of the ,*

results, a high minimum rate would be required before a project is implemented. Reconstruction or rehabilitation projects yielding a bare 15 percent IRR have opening year rates of return of about 8 percent, subject to high risk. Clearly, -such projects would need to be of exceptional value apart from their economic benefits to justify an early undertaking. In general, it was concluded that projects should not be implemented on the basis of their economic value if their opening year rate of rewrn is below 15 percent; irrespective of their IRR. On this basis; 44 sections; totaling 842 kilometers; were ruled out fox immediate improvement. At the other extreme; over a quarter of the total study road length yielded IRR's of over 4 0 percent and opening year rates of return of over 25 percent.

A high minimum return before implementation is necessary in order to insure that such very high return roads are not delayed to accommodate barely feasible roads. The opening year rate of return is the preferred criterion for judging maintenance projects because optimum timing is far more significant for these projects than for new construction projects. The opening year benefits of the latter change over time only in proportion to the



FIGURE I PSI VERSUS ROUGHNESS BY SURFACE TYPE

MEASURED ROUGHNESS M (mm/km)



growth in their potential traffic. Maintenance project opening year benefits, on the other hand, rise sharply over time as pavement deterioration progresses.

(2) Improvement Benefits. Virtually all the benefits from the proposed improvements can be considered to be obtained by future normal traffic, that is, present traffic volumes plus projected traffic growth. However, this is a simplification; very bad roads result in marginal trips not being made or even in changes in routing. As the study year traffic volumes relate to reasonable operating conditions, all benefits were assumed to apply to normal traffic. Traffic was not considered to be reduced by poor existing conditions in later years of the analysis period. No generated traffic was therefore assumed f xom the improvements.

The improved roads would require less maintenance than if they remained unimproved, but it is easy to double-count benefits from maintenance and from differential roughness. Any major expenditure on the unimproved road would restore the surface condition for part of its length, reducing differential roughness. Only standard maintenance used by the Department of Hi2hways was therefore assumed for both improved-,and unimproved conditions. ri

The annual existing and improved road maintenance costs for each road section were calculated. The difference between the cost streams was included as a net benefit or cost to the improvement project in the cost-benefit analysis.

Road user benefits were calculated based on the reduction in the surface roughness after improvement and also on the higher operating speeds possible on the smoother and, where applicable, wider carxiageway.

The residual value of the improvement expenditures at the end of the analysis period was considered a benefit.

(3) Economic Analysis and Priority Indicators. The 1 economic indicators analyzed were internal rate of return, benefit-cost ratio at a 15 percent discount rate, opening year rate of return, and net present value in opening year discounted at 15 percent.

The economic analysis for each region and for all study roads was determined. Table 1 presents an example which ranks priorities by opening year rate of return. Of the total study road length, 15 percent has an FYRR exceeding 40 percent; 17 percent an FYRR from 25 to 39 percent, and 33 percent an FYRR from 15 to 24 percent.



Table 2

ECONOMIC ANALYSIS RESULTS (Northeastern Region)

(1) Rough- Economic NPV

Study Length 1986 nese cost/Km. IRR FYRR at 15% B/C Ratio Road No. Km. ADT 000 000nun/km. Mill.Bt. % % Mill. Bt. at 15%

(1) $US 1 = 22 Baht

The proportions differ considerably between regions. The central region in Thailand produces much higher rates of return than other regions. Roads in the northeastern region have the lowest returns; with 58 percent of the study length yielding an FYRR of less than 15 percent. This variation among the regions reflects the much heavier traffic or ESA loading on the central region roads, and as the roughness values indicate, more deteriorated conditions than for roads in other regions.

The regional disparity in the results causes an allocation problem in that if roads are improved on the bgsis of their FYRR and IRR rankings, the central region will receive most of the funds (58 percent, compared with 30 percent of the total study road length which is in the region). Nevertheless; on purely economic grounds, it is difficult to argue in favor of having roads maintained to a higher standard in the less developed areas of Thailand. 4

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The implementation of the socioeconomic methodology presented in this paper has enabled the Thailand Road Authority, under severe budget limitations, to rationally establish which 1,200 kilometers of roads to overlay, rehabilitate, or reconstruct out of the 3;000 kilometers having the highest FYRR and IRR*

LIST OF REFERENCES

1. Kingdom of Thailand, Ministry of Communications, Department of Highways; Second Provincial Road Project - Feasibility Study and Detailed Engineering Design, 1984.

2- Jan De Weille Bank, Quantification of Road User Saving - Staff, Occasional Paper No. 2, Johns Hopkins University Press 1966.

3 - R. Winfrey; Economic Analysis for Highways, International Text Book Company; Scranton, Pennsylvania.

4. Tables fox Estimating Vehicle Operating Costs on Rural Roads in Developing countries, TRRL, Lab. Report 723, 1979.



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