ORR Project
PROJECT APPRAISAL OF HYDERABAD OUTER RING ROAD PROJECT (ORR)
Submitted for Phase –III Project Evaluation
Submitted by: GROUP-19
1- Dr. Yogita Rana (B01)
2-Dr. P. Ashok Babu (B11)
3- Vivek Pandey (B17)
4-Ministhy S.(A-37)
1
ORR Project
PROJECT APPRAISAL OF HYDERABAD OUTER RING ROAD PROJECT
Introduction:
Hyderabad Urban Development Authority (HUDA) is currently engaged in developing a 162.38 km long
ORR (Outer Ring Road) to the Hyderabad City connecting various National Highways and State Highways
in and around the city. It is to be developed in three stages involving private partnership from the years
2007-2037.
The study is a critical appraisal of the project including financial analysis, economic analysis, sensitivity
analysis impacting the viability of the project, risk analysis and stakeholder benefits.
Background: There is already an Internal Ring Road (IRR) that connects various parts of the Hyderabad
city. ORR is a second ring road system that is being planned around the Hyderabad metropolitan area. It
is envisaged that the ORR would be a catalyst and a driver for channeling growth in the city. HUDA
wants ORR to be a ‘growth magnet’.
HUDA has created a SPV called Hyderabad Growth Corridor Limited (HGCL) that is the single point
organization for all activities related to the project including mobilization of finances, project design
finalization, bidding etc.
Objectives:
The ORR project is supposed to:
2

Reduce congestion and to accelerate urban growth

Give a boost to the development area and connect the urban settlements in and around the
Hyderabad Metropolitan area (HMA)

Provide linkage to radial arterial roads (33 radial roads proposed)

Connect new urban nodes outside the city such as the Hi Tech city, Games village, Hardware
Park, Singapore Township, Biotech Park, Apparel Park, Finance Park etc.

Provide high speed connectivity to 22 forthcoming satellite townships

Provide quick access to upcoming international airport from strategic parts of the city

Provide space for impending MRTS and bus systems to be constructed in the future growth plan

Reduce congestion in the city of Hyderabad by offering an alternate transport route connecting
the periphery of the city. Reduction in congestion within the city will also help in increasing the
traffic speeds.
ORR Project
Basic Project Details:
The proposed ORR is 162.3 km and connects NH-7 and NH-9. It passes through Shamsabad, Hayatnagar,
Medchal and Patancheru and intersects 3 National and 5 State highways.
It will have a configuration of 8 lane divided carriageway with a design speed of 120kmph for the
expressway corridor. In addition to the 4 lane facility, one emergency lane is proposed for breakdown
vehicles, provision for rail corridors, green belt/ future widening and provision for water trunk lines.
There is provision for earthen shoulder, slopes, drains on either sides and the right of way is 125m.
There is rough, rocky terrain in one place that will involve rock cutting. To enable unhindered traffic
movement, 6 accesses are provided with NH, SH, and major arterial roads. Apart from these, at 5 minor
intersections, overpasses and underpasses are also provided.
PHASE WISE PLAN
1. Phase I: is a 24 km stretch between Gachibowli on the old Bombay road to Shamsabad on the
Hyderabad-Bangalore sector of NH-7. Work commenced on this stretch on June 5, 2006. The
government invested around 500 crores from its own resources for the phase 1. This project
was completed by 2009 and 13.58% of the total ORR area was covered.
2. Phase II A: of 61.8km is proposed to be implemented on a PPP approach. HUDA has invited bids
from private players to construct the project on a BOT basis, on an annuity repayment model,
costing Rs 2439 crores. It is divided into five contract packages. This work was to be completed
by 2009 end. And 32.71% of the total ORR area is to be developed.
3. Phase IIB: Given the geographical terrain of this stretch, HUDA feels that it might not be able to
attract private sector players. So HUDA approached multilateral financial institutions for
financing this stretch of 77.58 km and the Japanese Bank for International Cooperation (JICA)
was interested in providing the financial assistance of 3187 crores.
4. The work was expected to be completed by end of 2010 and a total of 53.7% of total ORR area is
to be developed.
5. This analysis in one way reflects the attractiveness of the project from financial and economic
view points for this multilateral agency to consider investing in it.
Name of structure
Expected Completion date as per project plan
ORR Phase 1
Dec 2008
ORR Phase 2A
Dec 2009
ORR Phase 2B
June 2010
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ORR Project
Financial Analysis of the project:
Objectives:
1. Assessment of the financial viability of the proposed investment in the project
2. Assessment of the adequacy of the financing plan for the project
3. Sensitivity analysis of how the project’s returns are impacted as a result of change in
project variables
Analysis methodology: The input data was obtained by the estimates and reports of financial consultant,
and interviews with HUDA officials during the study of the project. The analysis considers a time period
of 30 years from FY07 to FY37. This includes the initial 5 years of construction from FY07 to FY11.
Inputs to the model include identifying the project costs and associated revenues. The data is present in
the Excel sheet annexure.
PROJECT REVENUES:
Four major revenue streams were considered namely:
1. Revenue from value addition charges: HUDA intends to develop the land adjoining ORR and
make it commercially viable. It is proposed that buyers will pay HUDA for both the land and the
built up space.
2. Revenue from development of intersection land banks: In the ORR, there are 10 major
intersections where 250 acres of land will be available for commercial development. HUDA
intends to commercially develop these intersections land banks on a PPP basis. The two
potential revenue streams associated with this is a) license fees the land/buildings will bring in
and b) revenue sharing on the rental income received wherein HUDA has decided that 3% of its
total rental revenue should be shared with HUDA.
3. Revenue from sale of land for township development: HUDA intends to develop the land banks
in the vicinity of ORR as independent townships on a PPP basis. 12 Areas have been planned to
be sold to developers for township development between FY08 and FY12. The townships derive
value only because of ORR, and so revenues from sale of land for township development are
included in the financial model. The year wise sales schedule and potential revenue generated
are shown in the excel sheet. The basic assumptions regarding development expenses incurred
is 10% of sales value and capital gains taxes to be paid are 20% of gains after reducing
development expenses. These will be deducted from gross revenue and net revenue is
calculated.
4
ORR Project
4. Toll Revenues: The Government is favorable to implement toll collection at a future date. But
currently the possibility is an uncertainty due to present political compulsions. Hence toll
revenues are not considered for the financial model as a conservative measure.
PROJECT COSTS:
The cost heads are classified into two major categoriesa) Initial capital costs
b) Subsequent Annual maintenance costs and fixed obligations.
It is assumed that for the project to remain relevant economically, these fixed costs have to be
necessarily incurred-example: maintenance as per schedule to prevent deterioration of roads. The
fixed costs being in the nature of a compulsory expense, they are discounted at a risk free rate.

Initial Capital Costs: Falls under two heads further; a) Construction Costs and b) Relief and
rehabilitation costs
1. Construction Costs: Represents the capital expenditure incurred on the project for each of
the phases-I, IIA and IIB. This is based on the forecasted cost estimates and is included in the
analysis. The construction costs for phase IIA is not considered since the stretch is being
proposed to be implemented with PPP on a BOT format. The annuity costs that HUDA needs
to pay to the private participants as part of the BOT arrangement is included in as a part of
the fixed obligations costs.
2. R&R costs: As per the Government policy of R&R, the total package for the ORR affected
people includes the expenses incurred for cash compensation and provision of alternate
development land. The costs of alternate land development is (INR 500 cr) and cash
compensation is (INR 750cr) for those who are affected by the land acquisition. The total
R&R costs are proposed to be incurred over a period of two years-INR600 crore in FY08 and
INR650crore in FY09.

Fixed Compulsory Expenses: Falls under two heads a) BOT Annuity to private partner and b)
Maintenance to be incurred by HUDA
1. BOT Annuity: It is estimated that the total project costs for the entire Phase IIA 61.8 km is
around INR 1385 crore. This excludes a government grant of INR346 Crore. The concession
period is 15 years including a construction period of 2.5 years. The estimated annuity
commitment for HUDA is of the order of INR 188 crore. It is estimated that the annuity
payments start after the project begins operations.
2. Maintenance: HUDA will undertake both the regular and periodic maintenance of the ORR. The
regular maintenance includes patching up of the potholes, shoulder correction et al. The regular
5
ORR Project
maintenance cost is estimated to be INR0.05 crore per year. Apart from this, periodic
maintenance involving overlay of 50mm BC after 7 years involving INR2.5 crore per km is also
undertaken. In the model, periodic maintenance costs have been considered as equivalent
annuity costs.
TERMINAL VALUES:
In the project ORR is considered as ‘going concern’ basis and terminal values for various revenue and
cost parameters have been included in the analysis instead of determining the salvage value of the
project on the basis of costs as in the case of economic analysis.
RESULTS OF FINANCIAL ANALYSIS:
The NPV of the project works out to be INR 542 crore using base costs and assumptions. The project
can be financially viable provided it is completed as per project plan and the initial costs and
revenue estimates.
The IRR computations is 218% .This is not a a reliable figure, because of multiple changes in cash
flows.
Sensitivity analysis
The robustness of a project’s financial viability can be determined by varying the different input
parameters and determining the project NPV in each case. This exercise is popularly known as the
sensitivity analysis.
Even in the present case, a sensitivity analysis was performed to determine the NPV by changing the
input parameters with respect to the base case. The variables that were used in the sensitivity
analysis are as follows:

Percentage yearly increase in value addition charges and market values

Realization from township sales

Construction costs

Delay in realizing the proceeds from township sales

Discount rate
The results of the sensitivity analysis are described below:
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ORR Project
1. Change in the yearly % increase in value addition charges and market values
The base scenario assumes a yearly appreciation of 5% in value addition charges, rental, market
values and license fees. In the Sensitivity analysis, the corresponding NPV values were calculated
by taking yearly increase as 3%, 4%, 6% and 7%.
The table below gives the results of the analysis. It can be seen that if the percentage reduces to
4% from 5% (base case), the NPV reduces by 42%
%Increase in
value addition
charges per
annum
3%
NPV
121
315
%Change in
NPV
-78%
-42%
3.
4%
5%
6%
7%
542
809
1123
0%
49%
107%
(BASE CASE)
Change in realization from township sales
Projected sales realizations by development and sales of townships in and around ORR are given in
the data CD. Despite these being conservative estimates, there is a likelihood of HUDA not realizing
the projected sales completely. Therefore the sensitivity of NPV with respect to drop in sales
realization was assessed. The sales realizations were assumed to be 50%, 70%, 80% and 90% of the
forecasted sales. Table provides the results of such an analysis.
It was found that NPV values were very sensitive to changes in realization from township sales, as
the NPV dropped by 93% for a 10% drop in projected sales.
7
Realization
factor in
township sales
50%
70%
80%
90%
100%(BASE)
NPV
-1969
-965
-462
40
542
%Change in
NPV
-463%
-278%
-158%
-93%
0
ORR Project
Change in construction costs
The variations in NPV to changes in construction costs were also examined. This scenario assumes
an escalation in construction costs by 5% and 10% and calculates the NPV. The results of this
sensitivity analysis is given in Table below:
It was seen that the 5%increase in construction cost reduced the NPV by 33% and a 10%increase
reduced the NPV by 66% as compared to the base case.
%Increase in
Construction
Costs
0%
5%
10%
NPV
542
364
185
%Change in
NPV
0%
-33%
-66%
Delay in realizing the proceeds from township sales
The sales projections for various townships are listed down in the data CD. The effect of a delay in
realizing these cash flows by one and two years on the NPV was examined. The results are given in
It was seen that delay by one year in realizing the cash flows reduced the NPV by 106% as compared
to the base case.
Delay in realizing
township sales
0years
1 year
2years
NPV
542
-35
-547
%Change in NPV
0%
-106%
-201%
Change in discounting factor:
The discount rates were varied to find the sensitivity of the NPV to those changes. In the base
scenario, a discounting factor of 13% was assumed. NPV is extremely sensitive to the changes in the
discounting factor. A 2% increase in discount rate decreased the NPV by 107% as compared to base
case.
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ORR Project
Discounting
Factor
12%
13%
14%
15%
NPV
964
542
219
-36
%Change in NPV
78%
0%
-60%
-107%
The sensitivity analysis points at the risk to be borne by the Government in the project
implementation.
STAKEHOLDER ANALYSIS:
The four different referent groups analyzed were

Government

Unskilled labor

Households

Private Business

Project affected people (separately analyzed in R&R Head)
The stakeholders were identified and their costs/benefits were based on UNIDO/ADB guidelines and
based on socio-demographic trends. Here also the sensitivity of project NPV to different variables
was considered and a discount rate of 12.5% was used.
a) Government: Cash inflows accrue to government in the form of property tax, advertisement fee,
entertainment tax (from malls, theme parks etc), stamp duties and licensing fees. The projections
were made using the various earnings under each category to the municipal corporation of
Hyderabad based on the 2007-08 municipal budget. Each component of the government earnings
have been projected from FY07 to FY25.Growth rates of phase I was assumed at 80% and for phase
IIA and Phase IIB was assumed as 65% of Hyderabad’s growth average. The revenue projections for
each category of taxes have been calculated on the tax revenue data from year 2001 to 2006. A
weighted average method was used on past data to calculate the projections. The NPV of tax
revenues to govt came to INR 1566.543 crores . The tables are given in Excel.
b) Unskilled Labor: The benefit to this group has been calculated as the gain in terms of differential
wage defined as the difference between wages earned in agriculture (Rs 53 for AP) and wage
earned in industry/construction (Rs128).The earnings were calculated in different phases. Based
on a conservative estimate of number of dwellings, commercial establishments, industrial
houses to be developed, the number of unskilled laborers were estimated as 7500, the workers
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ORR Project
working for 310 days. The benefits per phase were INR 34.7, 22.11, 31.16 and total 87.9 cr
respectively for the ORR project. The tables are given in Excel.
c) Households: Apart from direct gain in terms of travel time saving, fuel saving, reduction in
accidents etc, general public/households will be benefitted in terms of additional/incremental
employment due to ORR. The gain equivalent of additional wages is calculated after considering
growth pattern of work force participation interpolated for ORR region using population ratios
for the region and current \wage data interpolated from Indiastat data source. The wage
projections show a total benefit of INR 224.9 cr with 62.5 coming from manufacturing. Data is
shown in Excel sheet.
d) Private Business: Here the benefits in terms of capital formation are captured using data on
economic value added to various businesses (India stat data source). The projections are made
by keeping the growth pattern of Andhra as benchmark and arriving at Hyderabad and ORR
region by assuming a growth to be 25% more than that of the state. Then area wise weights are
applied for ORR and the year wise values of the value added to businesses are projected till
2025. NPV works out to be INR454.99 crore. Data is shown in Excel sheet.
e) The net stakeholder benefits comes to be positive and INR2440 crore : private business getting
INR 455 cr, households getting INR225 cr, unskilled labor getting INR88 cr, government getting
INR1567 cr, and project affected people getting INR 105 cr.
ECONOMIC ANALYSIS:
RELIEF AND REHABILITATION ECONOMIC ANALYSIS (Data in Excel sheet)
Construction of the ORR will lead to the displacement of several families living in the affected
area. HUDA has announced the Relief and Rehabilitation measures for those individuals and
families that are affected by the ORR project which includes providing cash compensation and
alternate land after developing it at its own costs.
HUDA has identified 4 categories of project affected families.
1. Agriculture and vacant land owners
2. HUDA approved plot owners
3. Encroached land losers
4. House, Housing sites and Institutions
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ORR Project
Of these categories, the compensation packages awarded to category (i) and (iii) were nearly identical,
with the affected families in category (iii) being awarded 90% of the compensation awarded to families
in category (i).
Each of the three resulting categories are now analyzed below
Cost – Benefit analysis of R&R:
Agricultural and vacant land-owners and encroached/assigned land losers:
All owners of agricultural or vacant land are entitled to a cash compensation of 180% of the approved
land rate (LAO). In the case of a landowner losing 80% or more of his/her land holdings
due to acquisition by HUDA, they are entitled to a developed plot of approximately 360 sq. ft. per acre
lost.
Costs:
In order to estimate the economic value of the land lost the market price per acre of land that had been
acquired is multiplied by the financial market price of land by a shadow factor of 0.9 (as recommended
by the ADB and UNIDO guidelines on quantifying the economic costs of resettlement).
Second, the productivity of the agricultural land lost was done by considering the historical land use of
agricultural land and the crops that were grown, as well as the average revenue from these crops.
The economic value of the land was calculated by considering the annual revenues obtained from the
land as perpetuity, and thereby calculating the value of the land based on a 12.5% rate of interest on the
perpetuity. The per acre cost of land for each village based on both the methods described above were
compared, and the higher cost was taken as the per acre cost of land in each village.
This assumption rendered the analysis to be conservative from the perspective of project affected
people. In addition, a solatium of 42% - equivalent to the amount estimated by HUDA – was added on to
the cost of the land to represent the transaction costs of displacement. In this manner the total
economic costs of the land lost by project affected families across all affected villages were calculated.
This cost was estimated to be INR 240 crore.
Benefits:
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ORR Project
The benefits for agricultural and vacant landowners who were displaced were two-fold. First, a cash
compensation of 180% of the market value of the land inclusive of a 42% solatium was paid to each of
the affected landowners. In addition, it was assumed that 20% of the landowners whose lands were
acquired would lose 80%or more of their land holdings – a conservative estimate from the
Stake holder’s perspective. In order to estimate the value of the additional land given, it was assumed
that the land would be provided in an area where the market value of land would be 50% of the market
value of the lost land. This value was then augmented by 25% to take into account the structural value
of the developments.
These estimates are again conservative with regards to the project affected families.
In this manner, the total compensation and benefits to project affected stakeholders was estimated, by
taking into account the number of families displaced in each village and the consequent benefits to each
family. The total economic benefits amounted to INR524.2 crore. These benefits were spread over two
years in the ratio 45:55.
By taking into account the costs of resettlement, the benefits, and by considering a discount factor of
12.5%, an NPV was arrived at for the Agricultural and Vacant landholders and Encroached/Assigned land
owners. The NPV arrived at was INR266.5 crore, indicating that the compensation awarded to this group
of affected families was well in excess of the losses incurred.
HUDA approved plots
All owners of HUDA approved plots were given a choice of compensation packages. They could choose
to receive a Cash compensation of 300% of the approved market rate of the land, or Developed plots
equivalent to 75% of area of the plot acquired.
Costs:
In order to estimate the costs to the affected parties, the market price per acre of land that had been
acquired, on a per village basis. In order to estimate the economic value of this land, the financial
market price of land is multiplied by a shadow factor of 0.9 (as recommended by the ADB and UNIDO
guidelines on quantifying the economic costs of resettlement). By following this
12
ORR Project
procedure for all affected villages the total economic costs of the lands lost by project affected families
was calculated. In addition to the economic cost of the lost land, a transition cost of 42% of the market
price of the land was added. The overall costs to the displaced groups, viz., controlling institutions,
houses and housing sites, was calculated to be INR2.23 crore.
Benefits:
For those families who claimed the cash compensation, the benefits were simply the amount of cash
that they received. This was calculated on a per village basis, by multiplying the compensation per
square yard (three times the PV rate per square yard), with the total area for which the compensation
was being sought. For those families who claimed compensation in terms of land, the land they had lost
was estimated, and thereby the amount of land they would be entitled to under the resettlement plan.
In order to estimate the value of the additional land given, it was assumed that the land would be
provided in an area where the market value of land would be 50% of the market value of the lost land.
This value was then augmented by 25% to take into account the structural value of the developments.
These estimates are again conservative with regards to the project affected families.
For our base case, we also assumed that all affected families opted for compensation in terms of Land.
Based on these assumptions, the total benefits accruing to project affected families were calculated to
be INR59.6 crore. These benefits and the associated costs were spread over two years in the ratio
45:55.By taking into account the costs of resettlement, the benefits, and by considering a discount
factor of 12.5%, an NPV was arrived at for the land holders on HUDA approved properties.
The NPV arrived at was INR (107.3) crore, indicating that if all families opted for compensation in terms
of land and if the land was provided at a location where the value of land was lower than the acquired
land, then the compensation awarded to this group of affected families was inadequate.
Institutions, houses and house sites
All owners of Institutions such as schools, hospitals, houses, and housing sites, etc. were to be given an
alternate site of the same area, and compensation equal to the structural value of the development on
the acquired site.
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ORR Project
Costs:
In order to estimate the costs to the affected parties, the market price per acre of land that had been
acquired was used, on a per village basis. In order to estimate the economic value of this land, the
financial market price of land was multiplied by a shadow factor of 0.9 (as recommended by the ADB
and UNIDO guidelines on quantifying the economic costs of resettlement). The total economic costs of
the lands lost by project affected groups were thus calculated.
In addition to the economic cost of the lost land, a transition cost of 42% of the market price of the land
was added. The overall costs to the displaced groups, viz., controlling institutions, Houses and Housing
Sites, were calculated to be INR2.23 Crore.
Benefits:
Government of Andhra Pradesh’s Compensation Package for ORR Project Affected Families indicates the
amount of land given as compensation to affected groups in this category. In order to estimate the value
of this additional land given, it was assumed that the land would be provided in an area where the
market value of land would be 50% of the market value of the lost land. This estimates are again
conservative with regards to the project affected families. Since these landholders were to be
compensated for the structural value of any buildings lost, this parameter is not taken into account in
either the costs or the benefits section.
For the base case, it is also assumed that all affected families opted for compensation in terms of Land.
Analysis done later in this section explores the sensitivity of this assumption. Based on these
assumptions, the total benefits accruing to project affected families in this category were calculated to
be INR0.6 crore. These benefits and the associated costs were spread over two years in the ratio 45:55.
By taking into account the costs of resettlement, the benefits, and by considering a discount factor of
12.5%, an NPV was arrived at for the land holders of Institutions, Houses or Housing sites.
The NPV arrived at was INR(1.48) crore, indicating that if all land holders opted for compensation in
terms of land and if the land was provided at a location where the value of land was lower than the
acquired land, then the compensation awarded to this group of affected land holders was inadequate.
14
ORR Project
Economic Analysis from Traffic Modeling
Transportation demand modeling
Introduction
Traffic congestion is a serious problem in Hyderabad. The pace of economic growth and the exponential
increase in the growth of the number of motor vehicles is further compounding the problem. Public
transportation systems are often overloaded and the delay to the commuters has increased, resulting in
inconvenience and discomfort to the commuters. Furthermore, the congestion results in substantial
economic losses including increase in vehicle operating costs and travel time delay. Therefore, suitable
measures to address the growing mobility needs and increasing congestion are needed urgently.
The Planning for ORR has to first consider the factors contributing to the congestion in the city, namely.,
a) The growing gap between demand for travel and the limited transportation infrastructure
capacity to support it
b) Inefficient traffic management, discipline and operations.
c) Lack of parking space, which is forcing the motorists to park their vehicles on the road.
d) The absence of the efficient public transportation system, which is encouraging people to use
their personalized transport.
e) Illegal encroachments have led to an effective reduction in carriageway width for motorists
ORR is expected to reduce the congestion in the city of Hyderabad by providing better connectivity
resulting in various economic benefits by reduction in vehicle operating costs and travel time. An
integrated and behaviorally based network-level methodology has been used to estimate the travel
demand growth in the city and the proposed ORR expressway. The demand projections from the above
network level planning model were used as inputs for evaluating economic benefits from the proposed
project including travel time savings, and reduction in vehicle operating costs.
Traffic demand modeling for Hyderabad city
Several agencies have been involved in modeling traffic demand for Hyderabad as a part of their
involvement in different transportation projects being planned in Hyderabad. There were studies
conducted by EPTRI,DMRC,L&T RAMBOll etc for analyzing traffic demand. Their models studied trip
production, trip attraction, trip distribution, model-split analysis of the trips etc. By using regression
analysis, and developing Multi Nominal Logit(MNN) models.
All these studies that had conducted economic analysis did not adequately consider complete network
level effects including the effect of diversions from existing facilities, and are characterized by the use of
ad-hoc assignment procedures such as capacity restrained methods or percentage diversions. In some
studies only the concerned facility traffic is considered based on observed ground counts or simplifying
assumptions about diversions are made, but the extent of diversions etc. were not modeled
systematically. This may be problematic as currently the proposed ORR facility does not exist fully, and
15
ORR Project
the future traffic patterns may vary considerably. Effects of changes over time were also not adequately
analyzed. Hence, a new modeling methodology was used in this project
The new study methodology created by IIT Madras, emphasized the process of collection of:

Past reports and data

Data compilation and analysis

Demand modeling for base

Model validation

Expected schedule of network
On this model, demand and supply for traffic is forecasted. Thus an updated demand/supply for each
network is developed consisting of public mode and private mode trips and converted them to persontrips and Passenger Car Unit (PCU).The road link volumes in passenger car unit per hour is arrived at,
which is studied in HDM-4 Model. (Highway Development Model)Economic Analysis is arrived at using
this model.
As indicated above, secondary data was collected from various agencies like HUDA and MCH in addition
to some of the existing studies. The data thus compiled were used for developing traffic demand models
for the base year (2003) and the models developed were validated with that of the EPTRI (2003) study.
Later based on the network schedule prepared for completion of various upcoming projects, the data
has been forecasted for each phase and the network maps were updated and used for developing the
traffic demand models for the forecasted period. The person trips obtained were later converted to PCU
trips per hour and were assigned on to the new links and these link volumes were given as an input to
HDM-4 tool for economic analysis.
Data from the earlier reports and the road network maps were collected from various agencies and
were reviewed to assess the existing traffic scenario. Secondary data such as population, employment,
traffic analysis zone map, details of HUDA jurisdiction, existing highways, fare matrices, growth factors
and details of proposed new structures were obtained from the Hyderabad Master Plan-2020.
Traffic demand modeling for the base Year 2003
The data in the year 2003 (base year) is used as a reference point. After validating and standardizing the
data for the base year, forecasts were made for the analysis period(horizon years, 2007-2037) for each
of the following three scenarios.
Scenario I: Business as usual: Existing roads with normal growth
Scenario II: Existing roads + ORR
16
ORR Project
Scenario III: Existing roads + ORR + Development of radial roads
Trip generation
This is the first stage in the Traffic Demand modeling procedure. It is used to predict the number of trips
being produced from and attracted to each zone. Using regression analysis the trip productions and
attractions of each zone were estimated for the base year. The trips that were estimated using the
available variables (population and employment)
The estimated trip equations using base year data were further used to get the trips for the horizon
years. The equations generated for the base year data are tabulated in Table below.
Variable
Type of trip
Present Study
R Square
HBW_P
Home based Work Trip 681.93+0.2944*population
Production
0.9165
HBE_P
Home based Education
Trip Production
-403.82+0.2342*population
0.8104
HBO_P
Home based OtherTrip
Production
935.91+0.0627*population
0.3761
HBW-A
Home based Work Trip
Attraction
10074.63+0.4087*employment
0.0598
HBE_A
Home based Education
Trip Attraction
5043.88+0.1309*population
0.1043
HBO_A
Home based Other Trip
Attraction
2261.38+0.0376*population
0.0790
These show the weightages for the base year data for various types of trips.
Trip distribution
Trip Distribution is second stage in the four step demand modeling procedure. This stage determines the
trip interchanges between all the zones within the study area. It gives the number of trips produced
from a given zone that are attracted to another zone in the study area. Based on the gravitational theory
analogy, it was assumed that the number of trip-interchanges between a given pair of zones is directly
proportional to the size of the productions and attractions for those zones and inversely proportional to
the travel time and distance between the zones. It can be shown that.
FORMULA :
17
ORR Project
T ij=P i * (A J *F ij* K ij) / Sigma j=1 to n (A j* F ij* K ij)
Where
T ij = Number of trips from zone i to zone j
P i = Number of trip Productions in zone i
A j = Number of trip Attractions in zone j
F ij = Friction factor with exponential deterrence function
K ij = Optional adjustment factor
This model was further calibrated as follows:
The calibrated gravity model parameters were developed using
BPR procedure and are given in Table below
TABLE
Calibrated gravity model parameters
Trip purpose
Parameter Value
Work
0.040378
Education
0.04672
Other
0.05963
The average zonal trip length in minutes for each of the trips were calculated and compared with that of
the average zonal trip length estimated in the EPTRI study. The results of this comparison are given in
Table below
TABLE (Mean trip lengths)
Trip Purpose
Present study (Minutes)
EPTRI (Minutes)
Work
33.02
34.67
Education
30.75
32.71
Others
29.36
30.51
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ORR Project
In the present study the data was analyzed by taking the above utility equations developed in the EPTRI
study. These equations were adopted for estimating the modal share using multi-nominal logit (MNL)
model. Based on the MNL model, mode shares were obtained for different modes of Public Vehicles
(Bus, MMTS), Private vehicle (2-wheeler, cars) and Intermediate Public Transportation (Autos)using a
multinomial logit model. However, only two variables cost and travel time was used in the mode choice
analysis, as the reliability attributes for different modes were not available in the dataset. The
comparative modal share results of the present study with that of the EPTRI study are given in Table
below:
Study/Mode
2-wheeler
4-wheeler
IPT
Bus
MMTS
EPTRI
46.55
3.15
8.56
41.44
0.33
Present Study
41.38
2.43
4.85
41.89
9.45
Comparison of modal shares between the present and EPTRI studies is shown above.
The variation in the modal share that is seen in the table, between the present study and EPTRI could
be attributed to the non availability of the variable reliability.
Trip assignment
User equilibrium method for the base year 2003
It is very difficult to obtain good estimates on the congested network with all or nothing assignment
technique. The capacity restraint method which is very sensitive to the number of iterations does not
converge to an equilibrium solution and one or more iteration can change the results substantially.
Therefore an equilibrium assignment technique was used in the present study. This technique uses the
theory of capacity restraint to trips on the network until no one can improve their trip timings by
changing their paths.
The road network was composed of various links and nodes. A link is defined as a one-way part of the
route between two intersections and depending up on the assignment technique to be used the
detailed information concerning the length of the road, speed, travel time, capacity of the road, number
of lanes etc. was collected. Nodes are to two types . zone centroid and intersection, it should be noted
that the paths were not allowed to be built through the zone centroids, other than the origin and the
destination end.
The speed flow relationships of three types of links are required for modifying the speeds for each
incremental loading. Mathematical models developed for each link type are as follows.
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ORR Project
Two-lane road: S = Sf *(1.0 . 0.570(v/c)3.0)
Four-lane road: S = Sf *(1.0 . 0.636(v/c)2.7)
Six-lane road: S = Sf *(1.0 . 0.605(v/c)3.0)
where,
S = Speed in kmph
Sf = Free flow speed in kmph
V = Assigned volumes in PCU•fs
C = Capacity of road link in PCU•fs
The initial free flow speeds for the assignment of public and private modes are summarized in Table
below
Mode
2 lane
4 lane
6 lane
Public Transport
15
20
25
Private Transport
30
35
40
PCU conversion factors
The results obtained after trip distribution stage was in terms of number of person trips. These had to
be converted to corresponding PCU’s for updating link speeds in trip assignment stage. The factors
which were used for converting the person trips to corresponding PCUs were calculated in the manner
below .
Region
Private
vehicles
Public vehicles
Goods vehicles
HUDA
0.398979
0.067010
1.2814
We have already mentioned that three scenarios are considered;
1. Existing roads+ Normal growth
2. ORR+ Existing roads+Normal growth
3. ORR+RR+Existing roads+Normal growth
20
ORR Project
In each of the three scenarios, public transportation systems in the form of MRTS (Mass Rapid Transit
System or Hyderabad Metro Trains)and MMTS (Multi Modal Transport System) were considered.
Scenario I: Business as Usual (BAU)
If we assume that the prevailing scenario continues in future, it will have serious consequences on the
transportation system of Hyderabad. BAU Scenario will lead to a decline in bus rider ship, increase in the
usage of personalized vehicles such as motorized two wheelers and IPT modes such as auto-rickshaws.
This in turn would lead to traffic congestion, which can lead to higher travel times and increase in the
vehicular emissions.
On the basis of analysis of problems forced by the commuters with increase in the number of
motorize vehicles, the following two scenarios were considered as alternative options for congestion
mitigation.
Scenario II: Existing roads + ORR
HUDA, knowing the importance of ORR project to decongest the traffic flow has been giving priority for
completing the project in time. It had decided to take up the development of ORR project since traffic
intensity has increased significantly in the inner ring road. In addition, there was a need for providing
access controlled corridor connecting areas of proposed satellite towns for efficient movement of
traffic. The main objectives of the proposed ORR were to relieve the congestion on the metropolitan
area and the IRR by effectively by-passing the external to external traffic and to connect to the
upcoming new international airport. It will also facilitate dispersal of urban growth promoting the
balanced growth in the HUDA jurisdiction. For the purpose of this analysis, it is being assumed that in
scenario II, the radial roads would not be upgraded, but only routine maintenance is being undertaken.
Scenario III: Existing roads + ORR + Radial roads
In this scenario, in addition to the ORR construction, up gradation of major arterial radial roads also
undertaken. The IRR and ORR are connected by eleven major arterial roads. Though provision of
expressway in the form of ORR may be useful in bypassing the external to external traffic, to reduce
congestion in the core city, it should have good connectivity with the IRR. Realizing this HUDA has
proposed 33 Radial roads in the master plan which will not only provide connectivity between core of
the city to the ORR, but also serves as connecting links with proposed satellite town ships. These radial
roads were also expected to serve the traffic that is to be generated from the activities of the outer
municipalities. The ORR with its service roads connected to the core radial roads is expected to promote
the balanced development of Hyderabad metropolitan area.
Data forecasting
1. Forecasting population
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ORR Project
The component wise observed population details of Hyderabad under HUDA jurisdiction were given in
Master Plan of Hyderabad-2020 (2006) for the years 1981, 1991, and 2001.
Hyderabad has witnessed a decadal growth in the population between the years 1991 and 2001.
Keeping this decadal growth in view, two methods were proposed for forecasting the population for the
horizon years.
First, a projection was made assuming that all four components of MCH, Municipalities,
Secunderabad cantonment, and other semi rural areas will grow at a uniform rate of 36.80% for the next
ten years from 2001.
Second, a projection was made assuming all the four components will grow individually from the
year 2001 with the growth factors as given in Table below:
1991-2001
Population 2011
Census Growth
(in million)
Factor
Population 2021
MCH
19.34
4.3
5.1
Municipalities
72.08
2.95
5.086
Secunderabad Cantt
19.3
0.24
0.29
Semi Rural Area
83.02
1.57
2.88
COMPONENTS
(in millions)
Since individual component growth rates would provide conservative and realistic estimates population
it was decided to use individual component growth rates for the present study.
2. Forecasting employment
The employment details were forecasted as the ratio of main workers population to the total population
in Hyderabad.
Employment participation rate observed for individual components of Hyderabad in 2001
After projecting the population, the component wise participation rates were used in projecting the
employment details.
Components
2001
MCH
26.92
Municipalities
29.5
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ORR Project
Secunderabad Cantt
30.38
Semi Rural Area
29.0
3. Forecasting Per Capita Trip Rate (PCTR)
PCTR is assumed to increase with time, i.e., the number of trips made from each zone will increase in
proportionate to the significant attributes affecting a particular type of trip.
Hence the beta coefficient estimated for the base year for all the trips varies in proportionate to the
PCTR estimated for the horizon years. PCTR for the years 2001, 2011 & 2021 are given Table below.
The increment over the base year was worked out using growth rates as adopted in Chennai, Bangalore,
and Delhi for similar type of traffic modeling studies by DMRC (2003). The PCTR values adopted in
Hyderabad Metro DPR (2003) are given in Table
Year
PCTR Value
2003
0.73
2011
0.80
2021
0.90
The trip generation coefficients derived based on the above PCTR values were calculated and were used
for estimating the number of trips generated for each zone.
Forecasting travel fares
Annual Consumer Price Index was used for forecasting the travel fares. Consumer Price Index numbers
are used to measure relative price changes from one time period to another. Price Index numbers
indicate the price changes for several related services over a period of time and also this number is used
to estimate the present and future cost based on the past. Percentage change in the price index is
calculated every year and then the future price of a particular service is estimated using the ratio
method based on the past price index and the price of that service. Consumer Price Index for Hyderabad
used in this study was obtained from ‘Central Statistical Organization Ministry of Statistics and
Programme Implementation’, New Delhi, India.
Year
CPI
2000
377
2001
404
23
%Change in CPI
7.16
ORR Project
2002
423
4.7
2003
438
3.55
2004
452
3.2
2005
482
6.64
2006
514
6.64
Forecasting fares for APSRTC,
The fare structure for the road public transportation system in Hyderabad as in the year 2000-2001
used as a base for estimating the fares in the horizon years using the above price index table.
Forecasting cost incurred on personal vehicles
The existing (2007) observed fuel costs spent by a commuter to travel a distance of one kilometer were
one rupee for a two wheeler and Five rupees for a four-wheeler. Taking these costs as a base, the fuel
costs for the horizon years were estimated based on the Consumer Price Index.
Forecasting for MMTS
The existing fare structure for the Multi Modal Transit System (Deccan Chronicle, 2007) is as tabulated
below; the fares are estimated for the horizon years in a similar manner as explained above using Price
Index tables.
Forecasting for Hyderabad Metro
DMRC in its DPR for Hyderabad Metro has recommended the following fare structure shown below for
the year 2008 and recommended to escalate the cost at the rate of 4% per annum beyond 2008 with the
actual revision of fares being done every three years.
Travel demand modeling for the horizon years
The base year road network map (with only radial roads and inner ring road) was updated with new
road sections in the years as mentioned. After projecting all the attributes like population, employment,
fare matrix for buses and trains, fuel costs per kilometer for private motorized vehicles for the
respective year of analysis, we developed the travel demand model for measuring the volumes on the
new links of the updated road network. This procedure was repeated till the analysis period by updating
the road network each year as per the schedule. The link volumes thus measured in each year were
used as input for HDM for the estimation of road user and life cycle cost analysis.
Economic analysis
24
ORR Project
1. Introduction
Maintaining and operating pavements on a large highway system involves complex decisions about how
and when to resurface or apply other treatments to ensure the performance of the highway and keep
the operation costs at reasonable level. The objective of the economic analysis is to identify the costs
and benefits associated with the project with respect to the different rehabilitation/construction
options.
The cost-benefit analysis was carried out by using discounted cash flow technique to obtain the
Economic Internal Rate of Return and net present value methods for the proposed investments linked
with the project.
The society costs pertaining to the highway development, that were considered in this analysis include:
Agency costs
o Capital cost
o Recurrent cost for maintenance (annual & periodic)
o Residual value at the end of the analysis period
Road user costs
o Vehicle Operating Costs (VOC)
o Travel time cost
The economic analysis was carried out from 2007 to 2037 (horizon years), which includes three years
construction period (2007 to 2010). All the costs and benefits considered in the study were valued in
monetary terms and expressed in economic prices by converting all the financial costs into economical
costs using a standard conversion factor of 0.9. The routine, recurrent and periodic maintenance costs
were worked out based on MORTH (Ministry of Road Transport and Highways) guide lines for Highway
Projects. The direct benefits considered in the study include VOC savings for the vehicular traffic using
the project and the time savings for passengers and goods in transit. The benefit streams have been
computed annually over the 30 year analysis period for all the homogeneous sections.
The VOC calculation takes into account the capacity of the road, pavement characteristics, roughness
against the surface treatments and strengthening policies and various traffic characteristics, geometric
condition, and vehicular characteristics.
25
ORR Project
TABLE
Fuel consumption(In liters per hundred km)equations for different types of vehicles
Bus
-5.85+0.001023*LK+0.09177*RF+469.7/V +0.006243*V*V +0.5563*GVW
Truck
7.17-0.92*PW+0.1432*RF-0.389*W+567.1/V +0.007868*V*V
Car
13.81+8.0367*RF+0.00034*RG+621.3/V +0.005005*V*V
Jeep
-10.91+0.088*RF+0.0005918*RG+432.3/V+0.005312*V*V
Fuel consumption (in litre/100km) equations for different types of vehicles
Legend to Table
RF = Rise and fall in m/km
PW = Power/weight ration in Kw/tonne
W = Pavement Width in m
GVW = Gross vehicle weight in tonnes
V = Speed in km/hr
RG = Roughness in mm/km
LK = Age of vehicles in 1000 km
The transport users who enjoy benefits due to reduction in travel time are the passengers using
different transport modes such as cars, taxis, scooters, cycles and buses and the transportation
operators are direct beneficiaries of travel time savings with improved highway facilities.
In HDM-4 the time savings for passengers and goods vehicles were derived separately. For computing
travel time savings (Value of Time, VOT) for passengers of cars and buses, a weighted average
occupancy was used for example car . 4 persons and bus . 30 persons. The average payloads considered
for goods vehicles are LCV . 2.8 tonnes, 2-axle trucks . 10 tonnes, 3-axle trucks . 16 tonnes and MAV . 20
tonnes. It has been assumed from the earlier studies that for the average car passenger VOT has been
taken as INR 40 per hour and INR15 per hour for a bus passenger.
2. Routine and periodic maintenance costs
Routine maintenance costs each year for patching up potholes and shoulder corrections etc, involve an
amount of INR 1,00,000 for the radial roads and INR 5,00,000 for the ORR. An overlay of 50mm
bituminous concrete for every seven years involve an amount of INR1 crore and INR5 crore for radial
roads and ORR respectively.
26
ORR Project
3. Data inputs to HDM model
Project road sections:
Though there are 33 radial roads, only the existing major arterial roads have been considered in the
analysis. Existing traffic has been assessed and projected for the analysis period on 12 radial roads. The
intersection of the twelve radial roads with the proposed outer ring road would form 12 nodes, which in
turn divide the ORR in 12 homogeneous sections. These twelve homogeneous project road sections
were taken as inputs to HDM-4.
General inputs:
In addition to the project road sections, the following inputs were also provided for the analysis: analysis
period (horizon years), construction period, salvage value, discount rate, project costs, construction
phasing, conversion factor and traffic growth rates.
In addition to the above general inputs the general pavement characteristics like type of surface,
thickness of the pavement surface, overlay thickness required for routine maintenance and its schedule,
geometric characteristics like length of the road section considered, current strength of the road
indicated by the structural number and the condition of the road indicated by IRI value were also
provided.
Economic analysis:
As discussed earlier, the benefits of ORR will be the VOC savings and VOT savings. Costs will be the
agency capital costs and the recurrent costs.
A project is said to be viable if the economic internal rate of return is greater than that of the discounted
rate and a larger positive value of net benefits.
Three scenarios have been considered and evaluated for the economic analysis:
Scenario I: Without ORR project and routine maintenance of radial roads
In this scenario, the agency performs maintenance of the existing radial roads without upgrading them
to four or six lanes.
Scenario II: With ORR project and routine & periodic maintenance of radial roads
This is the scenario with the construction of ORR by the end of 2010 with flexible pavement. Once the
construction is over, the agency will perform routine maintenance and patching every year. The radial
road network is not improved but will receive overlays of 50mm every time when the roughness reaches
3.5I RI.
Scenario III: With ORR project + Improvement and routine & periodic maintenance in radial roads
27
ORR Project
In this scenario in addition to the construction and routine maintenance of the ORR, the radial roads are
assumed to be up graded to 6-lanes from the existing 4-lanes. Also once the construction is over the
agency will perform periodic & routine maintenance.
Determining economic viability:
The four step travel demand modeling was analyzed for the year 2006, in which the existing road
network consists of twelve major arterial roads as the radial roads. Later ORR was included in the year
2011 network and the updated network was analyzed by the four step demand modeling process. The
new link volumes on the ORR and the radial roads are also calculated.
The above link volumes on ORR sections and the radial road sections with the compositions and growth
factors were later given as inputs to HDM-4 tool for calculating the net discounted cash flow for the
analysis period assuming a 12.5% discount rate. The growth factors for forecasting the AADT (Annual
Average Daily Traffic) on the radial roads were considered.
The net discounted cash flow for the analysis period using a 12.5% discount rate was analyzed for
Scenario-II against the base Scenario-I.
Costs and benefits for the analysis period
Currency: INR (crore) Analysis Period: 30 years
(Increase
in (Increase
in Savings in VOC
road
agency road
agency
costs)
costs)
Savings
travel
costs
in Net Economic
time benefits
Capital Costs
Recurrent
Costs
Undiscounted
7108.056
13.114
42683.315
36383.048
71945.205
Discounted
6039.828
2.516
5735.113
4625.515
4318.285
Results of Economic Analysis
Improvement Scheme
EIRR(%)
With ORR project and Routine and periodic 18.2%
maintenance of radial roads
28
ORR Project
Assumptions in the study
The transportation demand models were developed based on the compiled secondary data obtained
from various sources
o Minor road network is available only for the MCH area and used in the study
o External to External traffic and the freight traffic considered for the analysis is taken as a fraction of
the Home-based Trip Productions (based on assumptions in EPTRI study as a 30.6% addition)
o Among the intra zonal trips the walk and cycle trips were excluded, as these are not affected by the
proposed expressways directly
o Forecasting the fares for bus, MMTS and fuel consumption cost spent by the commuter on their
motorized vehicles is based on the variation of the annual Consumer Price Index for Hyderabad
(Government of India, Ministry of Statistics and Programme Implementation, Central Statistical
Organization)
o Benefits due to safety improvements are not considered. It is assumed that the safety impact will
improve under the assumption that suitable enforcement, engineering, and education measures will be
undertaken along with the proposed project. From an economic analysis standpoint, this improvement
is neglected, leading to a conservative estimate of EIRR in this study.
RISK ANALYSIS
We have seen that the Sensitivity analysis of the project against critical input parameters resulted in
giving very important results.
The variables changes were
a) % yearly increase in value addition charges and market values-changes from the base value of 5%
b)Realization of township sales were changes from base value of 100%
c) % increase in Construction costs were changed from base value of 0%
d) Delay in realizing the proceeds from township sales were changes from base value of 0 years
e )The discounting factor was changed from base value of 13% ( taken at SBI PLR rates)
The results of sensitivity analysis were as follows: (data in excel sheet)
a) If the % value addition charges, rental, market values and license fees reduces to 4% from the base
value of 5%, the NPV reduces by 42% and NPV reduces by 78% if the value addition charges reduces
to 3%. This is a huge risk that the HUDA is undertaking.
29
ORR Project
b)If the projected sales realizations from township is not 100% and changes to 90%, the NPV
reduces by 93% and by 185% if the sales dropped to 80%. The sensitivity is huge considering that
real estate sales can sometimes be really unpredictable and this risk has to be borne by HUDA.
c) If the construction costs increases by 5%, the NPV drops by 33% and if the construction costs
increases by 10%, NPV drops by 66%. Since construction costs are dependent on costs of material
that is liable to change, there is a real risk in this aspect.
d) If there is a delay in realizing the proceeds from township sales by 1 year, reduces the NPV by
106% which is a very worrying proposition.
e) If the discounting factor is changes to 14% from the base value of 13%, the NPV reduces by 60%
and further reduces by 107% when the discount factor is 15%. The risk is to be borne by HUDA.
The Government agency (HUDA) is running a huge risk if the assumed parameters are getting
changed. In a dynamic environment, all the variables are likely to change. However, considering
the economic viability and attraction of the project, the risk has to be borne by the Government.
The private player is assured of a fixed annuity and is not going to bear the risk in such a huge
project.
OVERALL ANALYSIS AND RECOMMENDATIONS:
The study is based on the data provided at a stage when HUDA was trying to attract JICA, a
multilateral lending agency for investing in phase 2B of the project.
1. The financial analysis shows a positive NPV which is based on many assumptions of
revenue inflow, which are highly sensitive to changes in variables. To attract an investor
in such a scenario would require strong Government Commitment to pay off the
annuity.
2. The IRR in the financial flow again is based on varied cash flows that could be misleading
since these are based on projections subjected to change in political environment E.g.:
In ORR, an agitation over Telangana can make the law and order vulnerable and the
project could be stalled, the townships sales need not take off, the expected percentage
value additions could be less etc
3. So as policy makers we are keener to see whether the project is viable from the
Economic view point. The project as analyzed gives positive benefits after the Economic
Analysis of Relief and Rehabilitation and also a good EIRR after doing traffic modeling
study. There are positive benefits to various stakeholders including unskilled labor on
undertaking the project as shown in the report.
4. However when a huge project costing around 6000 crore is carried out in phases that
are interdependent on each phase, based on many assumptions and studies, there is a
30
ORR Project
huge risk involved that has to be borne by the Government agency. Attracting an
international multi lateral lending institution, will require a strong justification of
economic benefits.
This study has helped us to understand the dependence on different data models adopted, the
sensitivities involved in changing variables, the importance of various assumptions, the inability of
trusting pure financial analysis at times, hidden factors that might influence the project, etc. Still the
success of the ORR in real life showcases that sometimes Government will have to undertake projects
when the economic benefits outweigh financial considerations.
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