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© Frontier Economics Ltd, London.
Ex post evaluation of cohesion policy
interventions 2000-2006 financed by the
Cohesion Fund – Work Package B:
Cost-benefit analysis of selected
transport projects
FINAL REPORT – EXECUTIVE SUMMARY
20th June 2011
Acknowledgements
Acknowledgements
This report has been written by a team led by Frontier Economics together with
Atkins and the Institute of Transport Studies (University of Leeds), following the
call for tenders 2009CE160CAT051.
The report has been completed thanks to the help, feedback and information
received from a series of individuals and officials both in the Commission and in
Member States.
First, the authors are grateful for the helpful comments and advice received from
members of the Evaluation Unit in DG REGIO, including Veronica Gaffey,
Jurate Vaznelyte, Adam Abdulwahab, Lucia Pacillo, Patty Simou and Kai
Stryczynski; and from Commission officials who participated in several meetings
of the Steering Committee which oversaw the implementation of the study.
Second, we are also grateful to the national representatives who participated in
the Workshop with Member States on Ex Post Evaluation of Cohesion Fund (including
former ISPA) 2000-2006 held in Brussels on the 3rd of February 2011 for sharing
their experience about the Cohesion Fund instrument and their views about the
findings of our study.
Third, we would like to extend our thanks to the three external experts who
advised the team throughout the implementation of the study providing detailed
feedback on methods and findings: (in alphabetical order) Professor Antonio
Estache (ECARES, Université Libre de Bruxelles), Professor Emile Quinet (Paris
School of Economics - Ecole des Ponts ParisTech) and Professor András Timar
(Professor Emeritus, University of Pécs, Faculty of Engineering Mihály Pollack).
Finally, this study could have not been completed without the support of staff in
the DG REGIO Geographic Unit and project stakeholders at Member State
level. Specifically, we received invaluable help from the following individuals:
High Speed railway Madrid – Barcelona in Spain
Javier Asensio (Ajuntament de Barcelona); Carme Bellet Sanfeliu (Universitat de
Lleida) ; Miguel Benito (DG REGIO, European Commission); Alfonso
Abengozar Tejero (RENFE); Oriol Clos (Ajuntament de Barcelona); Ana Raquel
García Rubio (Ministerio de Economía y Hacienda); Sergi Lozano (Institut
d‟Estudis Territorials); María Muñoz (Ministerio de Economía y Hacienda);
Isabel Meléndez (Ajuntament de Barcelona); José Antonio Nieves (Ministerio de
Economía y Hacienda); Luis Nistal Martínez (ADIF); Antonio Rodríguez
(RENFE); Gaspar Ros Moreno (DG REGIO, European Commission);
Concepción Sanz (Ministerio de Fomento); Rosa Sebastián Escolano (ADIF);
Manuel Villalante (Departament de Política Territorial i Obras Públiques,
Generalitat de Catalunya).
iv Frontier Economics, Atkins, ITS | June 2011
Acknowledgements
A2 motorway in Poland
Magdalena Adamczuk (CUPT); Malgorzata Bronowicz (GDDKiA - Warsaw);
Michal Grzybowski (CUPT); Andrzej Jankowski (Gmina of Strykow); Roman
Jankowski (Town office in Konin); Krzysztof Jan Kalinski (Mayor of Lowicz);
Rafal Karolczak (Lodz Special Economic Zone); Barbara Kielar (GDDKiA -
Lodz); Paul Knight (EIB); Szymon Milczarek (GDDKiA - Lodz); Monika
Milwicz (GDDKiA - Warsaw); Gregorz Obara (GDDKiA - Warsaw); Emilia
Pieczara (Ministry of Infrastructure); Ewelina Rapela (Konin County Council);
Steve Richards (EIB); Tomasz Smollen (GDDKiA - Warsaw); Wieslaw Tomczyk
(Gmina of Strykow); Robert Wojdynski (GDDKiA - Warsaw); Przemyslaw
Wrobel (CUPT)
Algarve railway in Portugal
Marta Albuquerque (REFER); Helena Azevedo (POVT); Ana Paula Barreiros
(REFER); Duarte Ladeira (POVT); Maria Lopes (CP); Germano Martins
(POVT); Edoardo Pires (REFER); Mario Rodrigues (DG REGIO, European
Commission); Luisa Maria Soares (REFER); Lilia Sousa (CP); Helena Vieira
(POVT); Miquel Vila (DG REGIO, European Commission)
A23 motorway in Spain
Miguel Benito (DG REGIO, European Commission); Carlos Casas (Unidad de
carreteras del Estado en Teruel); Justo Borrajo Sebastián (Ministerio de
Fomento); Pedro Galán Bueno (Ministerio de Fomento); Antonio Garcia Cañada
(Ministerio de Fomento); Jesús Iranzo (Unidad de carreteras del Estado en
Teruel); Rafael López Guarga (Ministerio de Fomento); Joaquín López Sanchez
(Ministerio de Fomento); Gaspar Ros Moreno (DG REGIO, European
Commission).
Agiou Konstantinou bypass in Greece
John Krassakopoulos (Ministry of Transportation); Soultana Lyngeri (DG
REGIO, European Commission); George Logothetis (Ministry of Economy); Mr
Evangelos Psathas (Mayor of Agios Konstantinos); John Voloioutis (PATHE)
M1 northern motorway in Ireland
Jim Deane (Department of Finance); Richard Evers (NRA); John Fitzsimons
(NRA); Philip Hopkins (Department of Transport); Alan O'Brien (AECOM);
Fergal Trace (NRA)
Acknowledgements
Railway Thriassio-Pedio-Eleusina-Korinthos in Greece
Isaia Karamida Linta (Ergose); Soultana Lyngeri (DG REGIO, European
Commission); George Logothetis (Ministry of Economy); Ms Vitou Katerina
(OSE)
IX B corridor in Lithuania (including Vilnius Southern bypass)
Albertas Arūna (Transport Investments Directorate); Laura Bogušienė (Ministry
of Finance); Laura Danielutė (DG REGIO, European Commission); Arvydas
Domatas (Transporto ir kelių tyrimo institutas); Zita Dubickienė (Ministry of
Transport and Communications); Mantas Kaušylas (UAB "Kelvista"); Ieva
Kriščiūnaitė-Kačiuškienė (Ministry of Finance); Ilona Lankininkienė (Vilnius
Municipality); Jurgita Matiliauskaitė (Ministry of Finance); Aurelija Meškauskaitė
(Transport Investments Directorate); Mindaugas Pakštys (Ministry of Finance);
Kristina Petrauskienė (Lithuanian Road Administration); Gintautas Predkelis
(Transport Investments Directorate); Mindaugas Šidagis (Ministry of Transport
and Communications)
Bratislava Rača – Trnava Railway Upgrade in Slovakia
Rozália Dzvoníková (Ţeleznice Slovenskej Republiky); Stefan Elek (Národná
diaľničná spoločnosť, a.s.); Marian Hantak (Ministry of Transport, Posts and
Telecommunications); Zuzana Krajcirikova (Národná diaľničná spoločnosť, a.s.);
Juraj Majtan (Bratislava Regional Chamber of SCCI); Miroslav Matusek
(Ţeleznice Slovenskej Republiky); Štrba Peter (Ţeleznice Slovenskej Republiky);
Rastislav Prokopic (DG REGIO, European Commission)
M0 Budapest ring road (eastern section) in Hungary
György Bátovszki (Mayor of Csömör municipality); Péter Bucsky (Nemzeti
Infrastruktúra Fejlesztő Zrt.); Beatrix Horváth (Nemzeti Fejlesztési Ügynökség);
Csaba Kelen (KOZLEKEDES Ltd, Budapest); Kyriacos Ktenas (DG REGIO,
European Commission); Violetta Tarnócziné (Nemzeti Infrastruktúra Fejlesztő
Zrt.); Attila Tompos (Nemzeti Infrastruktúra Fejlesztő Zrt.)
Disclaimer
Disclaimer
The views expressed in this report are those of the authors and do not necessarily
reflect the official opinion of the European Commission or indeed of any of the
authors of the Work Packages. Any errors or omissions remain the responsibility
of the authors.
The European Commission and the authors accept no responsibility or liability
with regards to this report.
Specifically:
this report is of general nature and is not intended to address the
specific circumstances of any particular entity or individual; and
this report does not constitute professional or legal advice.
Reproduction or translation is permitted, provided that the source is duly
acknowledged and no modifications to the text are made.
Glossary
Glossary
Acronym Definition
AADT Average Annual Daily Traffic
ADIF Administrador de Infraestructuras Ferroviarias (The railway
infrastructure manager in Spain)
AHVV Average Hourly Value of time for one Vehicle
AVE Alta Velocidad Española (Spanish high-speed railway service)
B/C ratio Benefit cost ratio. Also BCR.
BIR Benefit investment ratio
BOE Boletín Oficial del Estado (Spanish official state gazette)
CBA Cost Benefit analysis. Also COBA
CF Cohesion Funds
CP Comboios de Portugal (A state-owned company which operates
freight and passenger trains in Portugal).
CSO Irish Central Statistical Office
CUPT Centre for EU Transport Projects, in Poland. Body set up to
implement programmes and projects of the transport infrastructure
development, particularly programmes and projects co-financed by
EU funds in the programming period of 2007 - 2013.
DIA Environmental Impact Declaration (Declaración de Impacto
Medioambiental), in Spain.
DoF Irish Department of Finance
EBRD European Bank for Reconstruction and Development
EC European Commission
EIA Environmental Impact Assessment
x Frontier Economics, Atkins, ITS | June 2011
Glossary
Acronym Definition
EIB European Investment Bank.
EIRR Economic internal rate of return.
ENPV Economic net present value.
ERDF European Regional Development Fund
FDI Foreign Direct Investment
FNPV(C) Financial net present value of the investment.
FNPV(K) Financial net present value of capital.
FRR Financial rate of return.
FRR(C) Financial rate of return of the investment.
FRR(K) Financial rate of return of capital.
GDDKiA Generalna Dyrekcja Drog Krajowych Autostrad (Polish General
Directorate for National Roads and Highways). Established in the
Polish Ministry of Transportation, GDDKiA is the authority in charge
of managing the national roads and the implementation of the state
budget in the sector.
GDP Gross Domestic Product
HEATCO EC funded research project in charge of "Developing Harmonised
European Approaches for Transport Costing and Project
Assessment".
HGV Heavy goods vehicle.
INE Instituto Nacional de Estadística (Spanish National Statistics Institute)
IRR Internal rate of return.
ISPA Instrument for Structural Policies for Pre – Accession
Glossary
Acronym Definition
JASPERS Joint Assistance to Support Projects in European Regions. A joint
initiative of the EIB, EBRD and EC to assist the 12 Central and
Eastern EU Member States in the preparation of major projects to be
submitted for grant financing under the Structural and Cohesion
Funds.
LAV Linea de Alta Velocidad (Spanish High-speed line)
LGV Light goods vehicle.
LRA Lithuanian Road Administration
MCA Multi-Criteria Analysis
NDS Národná diaľničná spoločnosť (Slovakian highway authority)
NRA National Roads Authority
NTDP Lithuanian National Transport Development Programme
OKA Hungarian National Highway Databank
PATHE Patras, Athens, Thessaloniki, Evzoni
PCU Passenger Car Units
PIA Personal Injury Accidents
PLN Polish Zloty
PSV Passenger Service Vehicle (i.e. bus or coach)
PTE Portuguese Escudos
POVT Programa Operacional Temático Valorização do Território (The
Portuguese government programme for the implementation of
infrastructure projects)
PVB Present Value Benefit
REFER Rede Ferroviária Nacional (The railway infrastructure manager in
Portugal)
xii Frontier Economics, Atkins, ITS | June 2011
Glossary
Acronym Definition
RENFE Red Nacional de Ferrocarriles Españoles (The railway public operator
in Spain).
RSA Irish Road Safety Association
SEZ Special Economic Zone
SME Small and Medium size Enterprise
TEN-T Trans European transport network
TOR Terms of Reference
VAT Value Added Tax
VOC Vehicle Operating Costs
VOT Value of Time
ŢSR Železnice Slovenskej Republiky (Slovakian rail authority)
ŢSSK Železničná spoločnosť Slovensko (Slovak state-owned passenger
train operating company)
Executive Summary
Executive Summary
Frontier Economics, together with Atkins and the Institute for Transport Studies
(University of Leeds), is pleased to present this Final Report for the study “Ex
post evaluation of cohesion policy interventions 2000-2006 financed by the
Cohesion Fund – Work Package B: Cost-benefit analysis of selected transport
projects”.
Context
The Cohesion Fund was established in 1993 to strengthen the economic and
social cohesion of the European Union.1 The eligibility criterion is that the GNP
per capita in the applicant country is 90% or less than the EU average.
During the period 2000-2006, 17 countries have received funding from the
Cohesion Fund and ISPA (Instrument for Structural Policies for Pre-Accession,
aimed at accession countries) for transport and environment projects.
The Council Regulation2 states that “in order to ensure the effectiveness of Community
assistance, the Commission and the beneficiary Member States shall, in cooperation with the
EIB where appropriate, carry out a systematic appraisal and evaluation of projects,”.
This study focuses on the ex post evaluation of a selection of ten transport
projects in EU countries benefitting from EU Cohesion and ISPA funding
during the period 2000-2006. The study forms part of three studies
commissioned by DG REGIO to assess the effect of the Cohesion Fund and
ISPA on economic and social cohesion and draw lessons for the future. These
studies are package A (overall); package B (transport); and package C
(environment). The Terms of Reference (TORs) for Work Package B identify the
three key questions that this study addresses:
Question 1: What were the impacts of the examined projects?
Question 2: How can ex post cost benefit analyses (CBA) contribute to the
practice of ex ante cost-benefit analysis?
Question 3: What are the potential and the limits of ex post CBA as a tool
to identify the impact of infrastructure projects?
The first question is specific to the ex post evaluation of the ten transport
projects selected. During the period 2000-2006, there were 260 individual
1 Council Regulation (EC) No 1164/94 of 16 May 1994 establishing a Cohesion Fund [Official
Journal L 130, 25.05.1994].
2 Ibid.
2 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
transport projects co-financed by the Cohesion Fund, for a total eligible value of
about €8.6bn and contributions from the Cohesion Funds of about €7.2bn. The
TORs of this study shortlisted 40 transport schemes, covering a total of 103
individual transport projects. Therefore, out of the 40 schemes identified in the
TORs, we selected 10 of them for in-depth ex post evaluation. In aggregate,
these schemes encompass 38 individual transport projects, that is about 15% of
the individual projects co-financed by the Cohesion Fund in the period 2000-
2006.
Approach
To address the three questions above, as specified in the TORs, we completed
three tasks in sequence:
In Task 1, we selected, out of the list of 40 transport projects provided in the
TORs, a shortlist of 20 projects. For each project, we carried out an initial
review. We presented the results of this review in a three-page project
description, which included an initial overview of the quality of the ex ante
CBA, information on the degree of completion of the project, and the
identification of the data requirements to complete a full ex post CBA. We
used the results of this review to select ten transport projects for an in-depth
ex post CBA analysis.
Task 2 was the core of the study and focused on the ten selected transport
projects. In this task, we first undertook a review of any existing ex ante
cost-benefit analysis carried out at the time of the funding application. We
also reviewed any interim progress report where available. This initial review
acted as background material for the in-depth ex post evaluation of these
projects, which provided an assessment of the overall performance of the
investment. We based the ex post evaluations both on the data already
available and, where necessary, on data collected by the project team. We
then compared the results of the ex post evaluations with any available ex
ante evaluations, to assess the appropriateness of the CBA methodology
being applied and to identify any cause for possible discrepancies between
expected results and actual outcomes.
Finally, in Task 3, we assessed the potential for ex post cost-benefit analysis
to become an integral part of the infrastructure funding appraisal and
evaluation process in the EC and in Member States. We identified the
lessons that can be drawn from ex post evaluation to help improve the
methods of ex ante evaluation. In particular, we looked at the extent to
which the use of ex post CBA can strengthen the evidence base
underpinning the ex ante analysis in several areas of project appraisal. We
also focused on identifying methodological strengths and weaknesses of
cost-benefit analysis.
Executive Summary
Projects considered for the ex post evaluation
Before presenting the overall results of our analysis, Tables I and II contain a
brief summary of the ten projects included in the study..
Table I. Rail projects
Project Description
AVE Madrid -
Barcelona (Spain)
The railway Madrid – Barcelona – French border is a high speed line
connecting Madrid to the French border via Barcelona. At the moment of
writing, only the section Madrid – Barcelona is operational. The segment
between Barcelona and the French border is still under construction and it is
expected to be operational in 2013. The LAV is part of the TEN-T Priority
Project 3 (high-speed railway axis of south-west Europe), whose main
objective is to provide high-speed rail connections between the Iberian
Peninsula (Portugal and Spain) and the rest of Europe.
Algarve Railway
(Portugal)
This project covers the modernisation of the railway line between Coina (near
Lisbon) to Faro (in the Algarve region) in Portugal, including the branch to
Porto de Sines. The total extension of both rail segments is around 275 km
and 50 km respectively. The project is part of the TEN-T Priority Project 8
(Multimodal Axis Portugal/Spain – Rest of Europe).
Railway Thriassio –
Kiato (Greece)
The project covers a rail upgrade between Thriasio (north west of Athens)
and Kiato in Greece. The new line has replaced a former single track metric
line passing through a number of urban areas. The 112km section runs
parallel to the European TEN-T network Motorway Priority Axis 7
(Igoumenista-Patras-Athens-Sofia-Budapest) and forms part of longer term
proposals to upgrade the Piraeus-Athens-Patra line. The route is covered by
four funding applications for cohesion funding. Three of the sub-projects are
related to the section of track running from Thriasio to Korinthos. An
additional funding application was made for the section of track between
Korinthos and Kiato.
Bratislava Railway
Upgrade (Slovakia)
This project covers a rail upgrade between Bratislava Rača and Trnava in
Slovakia. The 39km section forms part of the Corridor Va TEN-T rail corridor
which runs in Slovakia between Bratislava, Ţilina and Košice, then onto the
border with Ukraine. The section of line also forms part of Priority Axis No.
23. The modernization project includes two separate applications for funding,
the first including the upgrade of the line between Bratislava Rača to
Šenkvice (FM001), and the second upgrading the line between Šenkvice and
Cífer and all the stations along the section between Bratislava Rača and
Trnava (FM003).
Source: Funding applications and supporting material
4 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
Table II. Road projects
Project Description
A2 Motorway
(Poland)
This project involved the construction of approximately 100km of new
motorway between the towns of Konin and Strykow in central Poland. The
route is of national and international importance and forms part of the
European Route E30 between Berlin and Belarus. This section of the A2 is
part of a wider package of projects to construct a high standard road
transport link between Berlin and Warsaw, as well as improving connectivity
at local and regional scale. The section between Strykow (at the eastern end
of the project) and Warsaw is currently under construction.
A23 Motorway
(Spain)
This project covers the construction of 75 km of the A23 motorway in Spain,
covering two separate segments, one of 63.5 km between Teruel and
Calamocha and another of 11.5 km between Huesca and Nueno. The A23
(also called Autovía Mudéjar) is a high capacity road, long 440 km (370km in
service), connecting Sagunto, on the Mediterranean coast north of Valencia,
and the Somport road tunnel, which connects France and Spain through the
central Pyrenees. The A23 partially belongs to the European route E07
connecting Pau (France) and Zaragoza (Spain).
Agios Konstantinos
Bypass (Greece)
This project involved the construction of a bypass around the town of Agios
Konstantinos and an upgrade of an existing Bypass around Kamena Vourla,
both in Greece. This is part of the PATHE (Patras-Athens-Thessaloniki-
Evzoni) corridor. The route is of national importance because it links the two
largest cities in Greece (Athens and Thessaloniki), internationally the route
supports an important link between Greece, Central Europe, and the
Balkans.
M1 Northern
Motorway (Ireland)
This project covers the construction of two sections of the M1 motorway in
Ireland. The first section runs from Cloghran to Lissenhall and the second
section joins this road with the Balbriggan Bypass further north. The M1
Motorway is part of the TEN-T Priority Axis 13 (Ireland – United Kingdom –
Benelux). The main objective of the investments in this corridor is the
reduction in journey times between Ireland, the UK and mainland Europe.
IX B Corridor
(Lithuania)
This project covers the modernisation of one of the two main motorway
routes in Lithuania. This is part of the IX B transport corridor, 315km of
motorway linking the port city of Klaipeda with the capital city of Vilnius, via
Kaunas. The route then links Lithuania with other destinations in Eastern
Europe. The project also involved the construction of the Vilnius Southern
bypass.
M0 Budapest Ring
Road (Hungary)
The M0 Eastern Sector is the eastern component of the Budapest orbital
motorway, whilst the M31 is a linking motorway between it and the M3 (the
motorway to the north east of Hungary). The project has important
international, national and local dimensions. Budapest sits on the junction of
three land based Helsinki corridors, is the focus of the national transport
network and is the economic centre and capital of Hungary. Congestion in
the city centre, particularly in the vicinity of the Danube is severe. This
project therefore performs an important function in facilitating the movement
of international and national traffic while also providing some traffic relief to
Budapest.
Source: Funding applications and supporting material
Table III shows the opening dates of the various projects. It also indicates when
the most recent ex ante CBA was undertaken for each project. We also obtained
Executive Summary
information on project capital costs and Cohesion Funds contribution from each
project‟s funding applications. Most projects were divided into various
subprojects, each with its own different completion dates and, in some cases,
different ex ante analysis.
Table III. Opening dates and cost of the projects considered
Opening date(s)
Date of ex ante appraisal
Capital costs - EURm
(% Cohesion Fund contribution)
Rail projects
AVE Madrid -
Barcelona (Spain) 2003 - 2008 2001
1,719 (61%)
Algarve Railway
(Portugal) 2003 - 2006 1999
419 (77%)
Railway Thriassio –
Kiato (Greece) 2005 - 2007 2000
619 (47%)
Bratislava Railway
Upgrade (Slovakia) 2003 - 2009 2001
234 (39%)
Road projects
A2 Motorway
(Poland) 2006 2003
476 (82%)
A23 Motorway
(Spain) 2001 - 2005 1999 and 2003
203 (83%)
Agios Konstantinos
Bypass (Greece) 2008 2002
441 (55%)
M1 Northern
Motorway (Ireland) 2003 1995
232 (66%)
IX B Corridor
(Lithuania) 2006 - 2009 1999
154 (79%)
M0 Budapest Ring
Road (Hungary) 2008 - 2010 2004 367
(74%)
Source: Funding applications
Table IV lists the main objectives of each of the ten projects as stated in their
funding applications. The table shows that safety was the main stated objective in
8 of the 10 projects, followed by the objectives of reducing travel time (6
projects) and increasing capacity (4 projects).
6 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
Table IV. Summary of main project objectives
Project Stated project objectives
Rail projects
AVE Madrid - Barcelona (Spain)
Reduction in travel times on the existing corridor.
Increase capacity and safety conditions on the rail line.
Algarve Railway (Portugal)
Reduction in travel times and increase productivity.
Reduction in operating costs on the line.
Increase safety conditions.
Railway Thriassio – Kiato (Greece)
Reduction in travel times.
Increase safety conditions on the rail line.
Bratislava Railway Upgrade (Slovakia)
Reduction in travel times.
Increase safety conditions on the rail line.
Meet interoperability requirements.
Road projects
A2 Motorway (Poland)
Reduction in congestion on existing roads.
Improve safety conditions.
A23 Motorway (Spain)
Increase capacity on existing corridor.
Improve communications in low density areas.
Improve safety conditions.
Agios Konstantinos Bypass (Greece)
Reduction in travel times.
Increase safety conditions.
Improve connectivity between Greece and the EU.
M1 Northern Motorway (Ireland)
Reduction in travel times.
Facilitate growth at Dublin airport.
IX B Corridor (Lithuania)
Increase pavement strength.
Divert traffic away from Vilnius city centre.
Improve safety conditions on the existing corridor.
M0 Budapest Ring Road (Hungary)
Reduction in transport costs (travel times and congestion).
Divert traffic away from Budapest city centre
Source: Funding applications
In the next section we present a summary of the results of the in-depth ex post
evaluation of these projects.
Executive Summary
Results of the ex post evaluation
Tables V and VI present the economic appraisal indicators (Present Value of
Benefits, Present Value of Costs, Net Present Value, Benefit Cost Ratio, and
Internal Rate of Return) for the ten transport projects included in the study. In
carrying out the ex post evaluation, we have calculated a High case (optimistic)
outcome and a Low case (pessimist) outcome. For each indicator, tables V and
VI show the values for both High and Low case.
Table V. Ex post evaluation of rail projects – economic appraisal indicators
PVB (€m)
High
Low
PVC (€m)
High
Low
NPV (€m)
High
Low
BCR
High
Low
IRR
High
Low
Rail projects
AVE Madrid -
Barcelona (Spain)
5,744
4,856
7,692
7,593
-1,948
-2,736
0.7
0.6
3.7%
2.6%
Algarve Railway
(Portugal)
410
379
331
331
79
48
1.2
1.1
7.4%
6.7%
Railway Thriassio –
Kiato (Greece)
583
358
326
326
258
32
1.8
1.1
9.3%
6.1%
Bratislava Railway
Upgrade (Slovakia)
443
291
231
231
98
40
2.0
1.4
10.4%
7.8%
Note: For all schemes except for Bratislava Railway Upgrade (Slovakia) and Railway Thriassio – Kiato
(Greece) figures reported are in factor prices as oppose to market prices.3
3 Market prices (MP) refer to the prices for which a good or service is offered in the marketplace.
Factor prices (FP) are equal to market prices excluding the effects of taxes and subsidies on
products.
8 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
Table VI. Ex post evaluation of road projects – economic appraisal indicators
PVB (€m)
High
Low
PVC (€m)
High
Low
NPV (€m)
High
Low
BCR
High
Low
IRR
High
Low
Road projects
A2 Motorway
(Poland)
1,168
791
268
268
900
523
4.4
3.0
22.8%
18.2%
A23 Motorway
(Spain)
253
198
225
225
28
-28
1.1
0.9
6.3%
4.6%
Agios Konstantinos
Bypass (Greece)
488
438
206
206
283
233
2.4
2.1
13.4%
12.6%
M1 Northern
Motorway (Ireland)
4,140
4,040
235
235
3,905
3,805
17.6
17.2
53.0%
53.0%
IX B Corridor
(Lithuania)
300
288
88
88
212
200
3.4
3.3
56.0%
55.0%
M0 Budapest Ring
Road (Hungary) 1,187 213 974 5.6 24.8%
As tables V and VI show, most projects yield a positive net present value,
indicating that their economic benefits exceed their costs. In the AVE Madrid –
Barcelona project the NPV is negative for both the High case and the Low case
due to the high upfront capital costs of the project. The cost-benefit analysis of
this project, however, does not account for the wider socio-economic impacts of
the investment. These wider economic benefits include the impact on mobility
and accessibility, socio-economic structures, urban image and spatial effects.
These impacts are expected to be significant, although it is still too early to
appreciate their extent. Moreover, the wider economic benefits are difficult to
quantify in monetary terms, and therefore be added to the cost-benefit analysis in
a consistent way, as there is no agreed methodology for doing so.
The benefit-cost ratio of the ten projects ranges from 0.6-0.7 (Low-High) of the
AVE Madrid-Barcelona high speed train project in Spain to 17.2-17.6 (Low-
High) of the M1 Northern Motorway project in Ireland. The average benefit-
cost ratios for the ten projects are 3.6 (Low) and 4.0 (High); while the average
IRRs are 19.1 (Low) and 20.7 (High). If we exclude the M1 Northern Motorway
project in Ireland and the IX B Transport corridor in Lithuania (both projects
have a very high IRR), the average IRRs are 10.4% (Low) and 12.3% (High).
Executive Summary
These findings confirm that, overall, the projects analysed have delivered value
for money with the exception of the AVE Madrid-Barcelona high speed line
whose high capital costsexplain its unfavourable cost-benefit ratio.
Tables VII and VIII present the financial appraisal indicators obtained from the
ex post financial analysis of the ten selected projects. For each project, the tables
present the Net Present Value and the Internal Rate of Return of Investment
(“I”), and the Net Present Value and the Internal Rate of Return of Capital (“C”),
showing the results for both the High and Low case scenarios.
Table VII. Ex post evaluation of rail projects - Financial appraisal indicators
FNPV (I)
(€m)
High
Low
FIRR (I)
High
Low
FNPV (C)
(€m)
High
Low
FIRR (C)
High
Low
AVE Madrid -
Barcelona (Spain) -4,288
-4,766
0.6%
0.4%
-351
-919
4.5%
3.7%
Algarve Railway
(Portugal) -299
-299
-3.6%
-3.6%
-111
-111
0.2%
0.2%
Railway Thriassio –
Kiato (Greece) -101
-184
3.4%
1.8%
98
10
7.3%
5.3%
Bratislava Railway
Upgrade (Slovakia) -11
-28
4.4%
3.3%
81
65
15.1
13.6
Source: Funding applications and supporting material
10 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
Table VIII. Ex post evaluation of road projects - Financial appraisal indicators
FNPV (I)
(€m)
High
Low
FIRR (I)
High
Low
FNPV (C)
(€m)
High
Low
FIRR (C)
High
Low
A2 Motorway
(Poland) -263
-263
-3.5%
-3.5%
47
47
11.6%
11.6%
A23 Motorway
(Spain) -230
-230 n/a
-55
-55 n/a
Agios Konstantinos
Bypass (Greece) -166
-173
-1.3%
-1.7%
-78
-85
1.0%
0.5%
M1 Northern
Motorway (Ireland) -235
-235 n/a
-81
-81 n/a
IX B Corridor
(Lithuania) -95
-95 n/a
-28
-28 n/a
M0 Budapest Ring
Road (Hungary) 220 n/a -49 n/a
Source: Funding applications and supporting material
The financial NPV of seven of the ten projects is negative. However, this is not
surprising since most of these projects do not generate direct commercial
revenues and the financial analysis does not take the Cohesion Fund
contributions into account. Without taking those EU contributions into account,
some projects have a negative financial NPV but a positive economic NPV. The
interpretation is therefore that Cohesion Fund contributions help to „unlock‟ the
economic benefits of these projects.
Wider economic benefits
Our analysis also considered the wider social and economic impacts of each
project. Quantifying these wider impacts of transport projects on economic,
social and physical environments can be challenging. Normally, these are
impacts which cannot be included in the standard CBA, for a variety of reasons:
the lack of an agreed methodology to identify their monetary value;
the lack of data, which would make the quantification impossible even if
an agreed methodology was available; and,
Executive Summary
the difficulty to isolate a project‟s true impacts with a great deal of
certainty, especially in the context of rapidly changing environments (for
example, in the new Member States).
Therefore, the approach we used to assess the wider economic impacts was
largely qualitative. Below we summarise our findings in this area for each of the
ten projects included in the study.
AVE Madrid - Barcelona (Spain)
Most studies carried out on wider socio-economic impacts conclude that high-
speed rail is not a sufficient condition to cause major transformations in the cities
and regions connected by it. High-speed rail only facilitates socio-economic
changes that may be already underway. Access to high-speed rail services may
provide important competitive advantages to those cities that are on the high-
speed rail network compared with those that are not on the network and have
therefore fewer train services. According to the economic literature and
experience in other European countries where high-speed rail services have also
been introduced, the main wider economic impacts of high-speed rail
infrastructure and services appear to be mobility and accessibility, socio-
economic structures, urban image and spatial effects. We have found this to be
the case for the cities connected by the Madrid-Barcelona high-speed line,
particularly Zaragoza and Lleida.
Algarve Railway (Portugal)
The lack of any form of impact monitoring since the opening makes identifying a
causal link between the project and any wider effect very problematic. In this
kind of situations, it is difficult to separate the impacts of the project from the
impact of other ongoing changes in the economy. Nonetheless, there is some
evidence that per capita income might have improved in the regions connected
by the railway line. It is however problematic to attribute these changes just to
this project.
Railway Thriassio – Kiato (Greece)
This new line is approximately three years into its expected economic life, whilst
economic and social impacts often take many years to materialise. In addition,
the recent economic downturn is likely to have offset some of the potential
benefits of the project. As a result, the wider impacts of the project are hard to
isolate. Nonetheless, we were able to identify the following findings:
a number of stations on the new line are in peripheral locations relative
to their previous town centre positions. As a result they are now less
accessible compared to the stations located on the old routes;
the new out-of-town stations do offer a focal point for development
and have been integrated into local town master planning exercises;
12 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
the removal of trains from the built-up areas, and associated level
crossings, has offered local congestion benefits;
We note, however, that the true wider socio-economic benefits of the
project are unlikely to materialise until the line completes the rail link
between Patra port and Athens.
Bratislava Railway Upgrade (Slovakia)
The project was implemented during a period of rapid economic growth and
increasing car ownership. As a result, passenger numbers on the line have actually
fallen relative to 2005 levels. Moreover, the continued works on other segments
of the line have caused delays and cancellations further contributing to the fall in
passenger numbers. Finally, due to the global economic recession in 2008-2009, it
is difficult to attribute regional development impacts directly to the project.
However, we found that the project had contributed to meeting aspirations of
Slovak transport policy to increase accessibility to wider EU markets. It has also
been successful in improving communication and trade links between the two
major economic centres of Bratislava and Košice. The improved link also offers
increased accessibility to jobs located in the major urban areas of Bratislava and
Trnava.
A2 Motorway (Poland)
The project was implemented against a backdrop of rapid economic growth in
Poland. Therefore, it is difficult to establish a causal link between the A2 project
and specific impacts. Nonetheless, it is clear from our consultation with
stakeholders that the project (and future proposals to extend the A2 to Warsaw
and proposals for the north south A1 route) is regarded as a key enabler of
economic growth in central Poland. Key benefits of the project identified by
stakeholders include:
faster and more reliable connectivity between Poland and neighbouring
countries;
increased foreign direct investment in Poland;
quality of life improvements through reduced traffic on the bypassed
routes;
increased land values along the corridor; and
supported tourism access
Adverse impacts reported include noise and poorer air quality on the existing
R14 (at the eastern end of the A2 motorway).
A23 Motorway (Spain)
We note that the subprojects under analysis in this evaluation are relatively minor
compared to the whole of the A23. It is therefore difficult to establish causality
Executive Summary
links between these investments and any wider impact. Moreover, the A23 is one
of the many interventions that affected the region during the same period.
However, for the purpose of this evaluation, we managed to isolate the impacts
that are more specific to the segments considered.
In relation to the three subprojects located in the province of Teruel, we
obtained information about two new infrastructure projects (an industrial park
and an airport) developed in the area since the opening of the first road
segments. In relation to the subproject Huesca – Nueno, new infrastructures (an
industrial park, a technology centre, and new university buildings) have been
developed along the A23 near Huesca since the opening of the new road.
Agios Konstantinos Bypass (Greece)
This project was implemented during a period of economic change, making it
difficult to isolate its wider impacts. That said, stakeholders felt that the project
had helped unlock the following benefits:
it allowed the removal of traffic from bypassed settlements to enable
urban re-modelling;
it facilitated drainage works to address historical flooding issues;
it led to improved air quality and noise conditions; and
it enhanced ferry port access.
Collectively such impacts are helping Agiou Konstantinos to develop as a tourist
location.
M1 Northern Motorway (Ireland)
It is difficult to establish a link between the project and wider socio-economic
impacts as the project was implemented during a period of rapid growth in the
Irish economy. It is however clear that the project has formed an important
component of the general upgrade of the Ireland‟s transport network. The
construction of the project was a key factor in facilitating the construction of the
second terminal at Dublin Airport. There is also evidence of substantial growth
in the towns adjacent to the project, where congestion levels have dropped as a
result of the M1 Northern Motorway.
IX B Corridor (Lithuania)
Due to the rapid economic growth experience by Lithuania during the
construction phase, the specific wider impacts of this project are hard to isolate.
Nonetheless, it is clear that the project contributed significantly to the upgrading
of the Lithuanian transport network. Together with other projects, it helped set
up Free Economic Zones and open new logistic centres. It also contributed to
the regeneration of brownfield locations along the motorway (for example with
the set up of new shopping and residential centres).
14 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
M0 Budapest Ring Road (Hungary)
The M0 Eastern Sector and M31 are youthful in terms of their expected
economic life. The M0 opened 2 years ago and the M31 four months ago. As
such, their impacts on society and the economy have so far been limited.
Additionally, the recession has affected the economy throughout the period the
M0 has been open. Primarily as a consequence of their youthfulness, quality of
life benefits/costs (accessibility, air quality and noise disturbance) are thoe
impacts most readily observable. Accessibility benefits have been included in the
CBA and therefore we have not taken them into account in this case. There has
been, however, some economic development along the M0 corridor (e.g. retail
and logistic centres) and it is expected that more will occur, as municipalities are
zoning more land in the locality of the M0.
Key findings from the ex post evaluation
Some of the main contributions of ex post evaluation programmes are:
raised transparency and accountability;
strengthening the evidence base; and
providing feedback on the ex ante process.
We use these categories to illustrate our findings from the ten transport projects
regarding the benefits of ex post evaluation to project stakeholders (including
promoters), Member States and the European Commission.
Transparency and accountability. Overall, the ten transport projects
examined in this report demonstrate an acceptable or good value for money
from the perspective of the European taxpayer. There were however some
exceptions. Whilst these general finding represent positive news, in the spirit
of transparency and accountability, the publication of such ex post findings,
including those that identify a less satisfactory outcome, does allow
stakeholders, Member States and the Commission to ask hard and
sometimes uncomfortable questions of each other and the Member State‟s
planning authorities, which fosters accountability.
Strengthening of the evidence base. With only 10 transport projects
considered, the sample is too small in itself to demonstrate the existence of
any statistically significant patterns. However, with a full ex post programme,
a more extensive evidence base can be developed. This can then aid in the
planning of future transport projects. We summarise below our findings in
key areas.
Capital costs. We have found that the average of the difference
between ex ante and ex post capital costs across the ten projects is
Executive Summary
13.5%. This value is rather low and in line with current experience.
Nine projects have experienced cost overruns. The following factors
may contribute to explaining this difference between ex ante and ex
post values:
Firstly, the large cost overrun is associated with ex ante costs that
were developed well in advance of construction;
then project delays, alterations in scope and other unforeseen
circumstances all increased capital costs;
finally, we note that some Member States took the opportunity
when applying for Cohesion Funds to update the ex ante CBA with
a more up to date set of capital costs.
Utilisation rates. Generally, the utilisation rates we found are
compatible with the objective to build in sufficient spare capacity to give
room for growth over a project‟s lifetime. However, in one case (A23
Motorway in Spain), the utilisation rate was very low, while another
project (M1 Northern Motorway in Ireland) shows very high levels of
utilisation. These examples sugges an imbalance between ex ante
demand forecasts and actual demand.
NPV. Seven out of the 10 case study projects yielded an NPV that was
lower ex post than expected ex ante. We have also found that in eight out
of ten transport projects differences between ex ante and ex post travel
demand are a primary cause of the differences in NPV, whilst in five
transport projects differences in capital costs also contribute to this
discrepancy. Whilst a sample size of 10 cannot provide any statistically
robust conclusions, it appears to us that these findings, in conjunction
with some low utilisation rates and the actual cost overruns, are
indicative of optimism bias being prevalent in the ex ante analysis.
Feedback. An important attribute of CBA ex post analysis is the feedback
it can provide on demand modelling, ex ante appraisal and infrastructure
design. Some of the lessons learnt from our analysis of the ten transport
projects are:
Modelling practice. Ex ante demand modelling would benefit from
improvements in study area definition, modal coverage and inclusion of
induced traffic/variable demand.
Improved definition of the counterfactuals. We have identified
inappropriate assumptions regarding travel demand, traffic growth
and vehicle speeds in the „without‟ project scenarios. For rail and
toll motorway projects it is essential that the pricing policy is
defined correctly. Not only does the pricing policy affect the
16 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
distribution of benefits between operators and users but it also
strongly influences the demand for a project.
CBA practice. The CBA analyses would have benefited from:
more consistency in scope, the inclusion of environmental
externalities in the CBA and the incorporation of network effects;
a disaggregation between business and non-work transport user
classes;
an opportunity to improve the comparability of CBAs for decision-
makers, by moving towards harmonised definitions, measures
(units), methods and assumptions where appropriate – so that for
example the values of time, safety and environmental impacts used
in CBA will be on the same basis, even if they will not (rightly) be
exactly the same throughout the EU.
Risk analysis. The main sources of differences between ex ante and ex
post economic analyses were capital costs and travel demand.
Differences in travel demand occurred due to variances between ex ante
and ex post in terms of economic growth, development impacts and
whether other transport projects in the locality had been constructed. A
more comprehensive risk analysis at the ex ante stage would have enable
the assessment of these effects.
Identification of wider impacts. The lack of project monitoring
frameworks, to be implemented at project opening, makes the
identification of wider impacts particularly challenging. This is especially
the case for projects being implemented as part of a wider
modernisation strategy, during periods of economic change. In these
cases, identifying a causal link between a project and wider socio-
economic impacts is challenging.
Project design. The ex post analyses did not identify any unintended
consequences aside from impacts on noise that should have been
mitigated against. This suggests improvements in the design of such
mitigation measures are needed, however, the sample size is too small to
make a general statement based on this study.
Good practice guides and regulation. The desire for and need of
good practice guides on economic appraisal and demand modelling was
identified both in our interviews and in the Member States workshop.
There was a mixed response to the need for more regulation.
Executive Summary
Cost-benefit analysis as a method
One of the objectives of the study was to assess cost-benefit analysis as a
method. To do so, we considered five aspects of such an assessment as specified
in the TORs.
Strengths and weaknesses of CBA (as applied by Member States): Ex
ante CBA is a mature method regularly used worldwide. There is a basic
level of consistency in the use of CBA methodology for the appraisal of
transport infrastructure across EU Member States. Our findings from the
ten transport projects confirm the following:
the CBA framework used for the appraisal of these projects is both
consistent with DG REGIO‟s guidelines and with good practice. All
the appraisals consider investment costs (including ongoing
maintenance costs) on one side and measure the user benefits as well as
some externalities. Future benefits are discounted correctly and some
risk analysis, albeit limited to a handful of assumptions, has been
undertaken;
however, we found that the scope of the ex ante analysis has often been
narrower than what would be ideal. Often, the analysis only considers
times savings, vehicle operating cost savings and safety benefits, while
other impacts (for example, CO2 emissions, noise, pollution) are not
always taken into account;
different EU Member States use different appraisal parameters. This in
itself is not an issue, but there appears to be little similarity in some
instances between the values used and other sources for these values,
such as HEATCO;
we also identified weaknesses in the demand modelling, the definitions
of the counterfactuals and the modelling of network effects. We note
that a robust treatment of demand and the counterfactuals is
fundamental to the reliability of a cost-benefit analysis.
Effectiveness of CBA in decision-making (supporting the project
generation and project decision of the Member States and the
Commission). Whilst cost-benefit analysis is regularly used worldwide, it
forms only part of a broader decision-making process – even in countries
with a long history of using it. For many of the projects we reviewed, we
found that CBA had been used mainly to confirm that the project offered
value for money and to support the application to access EU funding.
Furthermore, it is clear from our discussions with stakeholders that this
limited role still remains in some EU Member States. One of the reasons,
aside from the time it takes to embed CBA into existing planning processes,
18 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
is that often projects are motivated by environmental and regional
development objectives. As these factors are not generally fully included in
the CBA, there may be concerns that CBA may lead to the prioritisation of
less desirable projects. However, we think that even within these constraints,
CBA can offer relevant information and be a useful tool to decision-makers
compared to the extent to which CBA is currently used.
at a technical level, CBA is particularly strong in comparing projects
that have relatively similar impacts. Thus, it can be used to help make
design choices, alignments (depending on the environmental impact),
and help prioritise different elements of a transport investment strategy;
at a political level, CBA also adds transparency to the decision making
process, and improves the accountability of the decision-makers.
Utility of ex post CBA (from the point of view of the project
promoters, Member States and the Commission). Ex post CBA can add
value to the planning process. t adds transparency, strengthens the evidence
base and provides feedback on the methods and techniques used to design
and appraise the infrastructure. For these reasons, active ex post CBA
programmes have been in place for some time in the UK and in France, for
example. Perhaps one of their key contributions has been to develop an
improved understanding of “optimism bias”: the systematic bias during the
planning phases of a project, whereby the benefits are overestimated, whilst
costs and completion times are underestimated. Ex post evaluation
programmes can help identify instances of optimism bias by identifying cost
overruns and their causes.
Ex post CBA as a tool for evaluating project impacts. Ex post CBA‟s
main strengths are its holistic approach, that is, its ability to consider a
project as a whole, as well as its ability to deliver an unambiguous indicator
of a project‟s economic worth. A further strength of ex post transport CBA
is that it focuses on the direct impacts of the transport project and its
associated externalities. This makes the project monitoring programme
reasonably straightforward. The focus on direct impacts is also a weakness,
since there can be a gap between project objectives (e.g. increased
employment and wealth to a region) and the inputs to a CBA.
Relevance and potential utility of CBA for macro-economic modelling.
A key strength of CBA is its ability to deliver an unambiguous indicator of a
project‟s worth. Macroeconomic models on the other hand focus on a
narrow range of impacts. Transport impacts included in a CBA that are not
relevant for macroeconomic modelling include those associated with non-
work time savings, safety and environmental externalities. At best, therefore,
only a fraction of transport CBA output is relevant for macroeconomic
Executive Summary
modelling ,namely, that associated with business and freight impacts and any
productivity changes due to agglomeration benefits. The value of transport
CBA output as a GDP indicator is undermined for two reasons:
it is a „net‟ benefit, that is, a series of gains and losses will occur as the
economy adjusts to a change in transport supply and economic activity
relocates in response to changes in transport accessibility; and
transport CBA measures the added value of bringing new resources into
use (increased output and employment), while macroeconomic
modelling measures the gross value.
These differences between CBA and macroeconomic modelling mean that in
practice the macroeconomic impacts of changes in accessibility are best
modelled by linking transport accessibility models directly with
macroeconomic models. This can lead to some inconsistencies between the
economic forecasts from the macroeconomic model and those that underpin
the transport model. These inconsistencies can be overcome through either
the use of a Land Use Transport Interaction (LUTI) model or a Spatial
Computable General Equilibrium (SCGE) model – neither of which are
trivial modelling exercises.
Recommendations
The study offers a set of recommendations on how to improve the practice of ex
ante project appraisal in the context of current EU regional policy instrument
processes and practices. Specifically, based on the findings of our study, we
recommend the Commission to undertake a review of the following areas:
Quality and consistency of ex ante CBA. Consider changes that could be
introduced into current regulations to improve the quality and consistency of
the ex ante CBA analysis applied to major transport infrastructure projects
supporting EU funding applications. These changes could include a set of
objective indicators regarding scope and depth of the CBA that the
application of the DG REGIO CBA guidelines should adhere to. Such
indicators would relate to, among others, issues such as appropriate network
definition to account for induced and redistributed traffic; appropriate
demand analysis and forecast modelling; thorough assessment of
environmental impacts – including climate change impacts – on the basis of
the latest available guidelines in the CBA literature; quantified risk and
sensitivity analyses; or compulsory inclusion of a lower-cost alternative
option to the proposed investment projects in the analysis submitted as part
of the funding application.
Ability to undertake ex post evaluation. Examine the possibility of
changing current regulations to improve the “evaluability” of major
20 Frontier Economics, Atkins, ITS | June 2011
Executive Summary
transport infrastructure projects that benefit from EU funding to better
assess their “value for money” ex post. Such improvements would require,
for example, a definition of “value for money” in terms of the opportunity
cost of the public funds used in the project, reaching from control of costs
through to delivery of outcomes, including system-wide impacts and more
focused outputs; requirements to set up a monitoring framework for data
collection and evaluation; set up fixed intervals to monitor ramp-up and
distribution effects and carry out ex post evaluations; systematic data
collection efforts; and assessment of potential role of alternative project
appraisal techniques;
Provision of training and further guidance. Create or facilitate ways to
provide guidance and train public sector officials on the use of ex ante CBA
analysis and ex post project “evaluability” design. This could be achieved by,
for example, sharing examples of good practice amongst practitioners;
offering qualified and targeted training on specific aspects of the CBA
analysis; and, creating opportunities for project promoters and potential
consultants to learn and share their knowledge.
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