PAD - LGED

accordance with the “Rule of a Half”, whereby only half of the product of differential vehicle
operating costs and of differential vehicle-km is taken as the value of benefits. It is assumed that
generated traffic will develop over three years from the first year of operation of the improved
road, as follows: (i) 20 percent for the first year; (ii) 60 percent for the second year; and (iii) 100
percent during the third year.
18. Overall VOC savings were found to be substantial in the case of the first RTIP-I project,
reducing by 15-25 percent where a road with an IRI of ten was improved and by 40-60 percent
where a road with an IRI of 18 was improved. 20 Results from the initial appraisals of RTIP-II
road projects indicate a similar order of VOC savings.
19. Due to data limitation, it was not possible to estimate the VOC benefits arising from
diverted traffic (i.e. traffic which may be diverted from other parts of the road network at a
considerable saving in vehicle operating costs). It is likely that the addition of these benefits
would result in a substantial increase in project EIRRs. A similar remark could apply in the case
of changes in the modal distribution of the traffic on project roads, especially those involving the
transfer of traffic from Non-motorized to Motorized forms of transport.
iv) Results of economic appraisal and sensitivity analysis:
20. The detailed economic appraisal was carried out for each proposed roads sub-project (See
Economic Appraisal background paper for more details). The analysis for each road calculates
base case values for EIRR, and ENPV. These results have been subjected to sensitivity tests,
involving:
• An increase of 20 per cent in project costs;
• A decrease of 20 per cent in project benefits;
• A combined increase of 20 per cent in project costs and a 20 per cent decrease in project
benefits;
• Restriction of benefits to normal and generated traffic (ie. excluding household income
benefits);
• Restricting benefits to normal traffic only; and
• Switching value analysis (increased cost and reduced benefits)
(i) Upazila road improvement
21. The economic appraisal of the UZR improvement component was carried out for 103
UZR, with a total length to be upgraded of 734 km. In general, these sub-projects have the
potential for high economic returns, owing to the fact that most of the candidate roads have
undeveloped earthen surfaces and with improvement will have a major impact in terms of
expanding community access, generating increased household incomes, reducing roughness, and
saving vehicle operating costs. The weighted average EIRR is 41 percent and all the roads
appraised have a base case EIRR greater than 12 percent. The weighted average is ENPV of
US$348 million. The results are robust if cost increases up to 118 percent or benefit decreases up
to 54 percent. However, when the benefits exclude the income benefits, the viability of the
component is below the 12 percent threshold.
20 World Bank, Project Appraisal Document on a Proposed Credit in the Amount of SDR 138 milliom (US$ 190 million
equivalent) to the People’s Republic of Bangladesh for the Rural Transport Improvement Project, May 22, 2003.
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