World Bank Document - Mumbai Railway Vikas Corporation Ltd ...

IV.
APPRAISAL SUMMARY
A. Economic and financial analyses
44. Economic analysis: Since this project is a continuation of the earlier MUTP-1
project, the economic analysis for this project has been conducted comparing the proposed
additional project components as the ‘with’ alternative against the situation at the end of MUTP-
1 as the ‘without’ alternative.
45. The analysis has been carried out of the project’s incremental costs and benefits.
The economic analysis for the suburban rail component done at the stage of MUTP-1 has been
updated to current prices. The assumptions have been modified after comparing the results of the
earlier analysis with the actual outputs for traffic, average trip length, increase in other traffic
(passengers and freight), procurement of rakes and the cost of various components. The revised
assumptions were then used to add the proposed components (MUTP-2A) and their costs to
estimate the total benefits of the whole project. The difference in costs and benefits for MUTP-1,
‘with’ and ‘without’ MUTP-2A were computed to arrive at the economic rate of return for the
proposed component.
46. The evaluation shows that the project will have an economic rate of return of 17
percent and net present value, discounted to 2010, of US$262 million in 2008 prices at a 12
percent discount rate over a thirty-five-year evaluation period (2010 to 2045). The above results
indicate that the project is very viable economically and the Mumbai city will gain from the
better suburban system, the lifeline for commuter transport in the city. Detailed analysis is
provided in Annex 9.
47. Financial analysis: MRVC has made financial projections of the Mumbai
suburban system over a 35-year period, based on 2008-09, and related them to the overall
financial performance of IR. It took into account the impact of both the on-going MUTP-1
(assumed to be completed in 2010-11) and MUTP-2A (assumed to be completed in 2014-15). A
Base Case analysis was undertaken, as well as sensitivity analyses for the key assumptions. The
model was originally developed as part of the Financial and Institutional Study of the Mumbai
Suburban System in 1996 and has since been used regularly to forecast demand, earnings and
operating expenses, generally performing well.
48. In 2008-09, the Mumbai system represented an estimated 12 percent of IR’s
passenger traffic (measured in passenger-km) and about seven percent of IR’s total traffic
including freight. However, because of the very high average loads carried and the low average
fare, it only generated about 1.5 percent of IR’s total revenue and about two percent of its total
working expenses (excluding depreciation). Because MUTP-2A will reduce over-crowding and
thus require more assets and services to carry the same volume of traffic, its financial
performance is likely to deteriorate for at least the medium-term. However, its comparatively
small share of the total IR business means that it will have only a minor impact on the financial
performance of IR as a whole, which is far more dependent on railway-wide tariff policies and
continued strong growth in freight traffic. Detailed financial analysis is given in Annex 9.
12