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)

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:

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

ORR Project

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.

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.

ORR Project
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
ORR Phase 1

Expected Completion date as per project plan

Dec 2008

ORR Phase 2A

Dec 2009

ORR Phase 2B

June 2010

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 projects 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.
5

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.
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ORR Project
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 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
multiple changes in cash flows.

is not a a reliable figure, because of

Sensitivity analysis
The robustness of a projects 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:

7

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%

4%

NPV

121

315

%Change in
NPV

-78%

-42%

5%

6%

7%

542

809

1123

0%

49%

107%

(BASE
CASE)

3. 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.

Realization
factor in
township
sales

50%

70%

80%

90%

100%
(BASE)

NPV

-1969

-965

-462

40

542

ORR Project
%Change in
NPV

-463%

-278%

-158%

-93%

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
Constructio
n 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.
9

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 Hyderabads 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
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ORR Project
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 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
sheet)

ECONOMIC ANALYSIS

(Data in Excel

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.
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ORR Project
1. Agriculture and vacant land owners
2. HUDA approved plot owners
3. Encroached land losers
4. House, Housing sites and Institutions
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
12

ORR Project
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:
The benefits for agricultural and vacant landowners who were displaced were twofold. 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 holders 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.
13

ORR Project
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
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.
14

ORR Project
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.

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 Pradeshs 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
15

ORR Project
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.

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.,
16

ORR Project
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 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:

17

Past reports and data

Data compilation and analysis

ORR Project

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 person-trips 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
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
18

ORR Project
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 Production

681.93+0.2944*populati
on

0.9165

HBE_P

Home based
Education Trip
Production

403.82+0.2342*populati
on

0.8104

HBO_P

Home based
OtherTrip
Production

935.91+0.0627*populati
on

0.3761

HBW-A

Home based Work

Trip Attraction

10074.63+0.4087*emplo
yment

0.0598

HBE_A

Home based
Education Trip
Attraction

5043.88+0.1309*populat
ion

0.1043

HBO_A

Home based Other

Trip Attraction

2261.38+0.0376*populat
ion

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 :
T ij=P i * (A J *F ij* K ij) / Sigma j=1 to n (A j* F ij* K ij)
19

ORR Project
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

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
20

ORR Project
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.
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)
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ORR Project
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 PCUfs
C = Capacity of road link in PCUfs
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 PCUs 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
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)
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ORR Project
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
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.
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ORR Project
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:
COMPONENTS

1991-2001
Census
Growth Factor

Population
2011

Population
2021

(in million)

(in millions)

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

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

Secunderabad Cantt

30.38

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ORR Project
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

25

%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.
26

ORR Project

Economic analysis
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.

27

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
+0.5563*GVW

+0.006243*V*V

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
28

ORR Project
years involve an amount of INR1 crore and INR5 crore for radial roads and ORR
respectively.
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.
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ORR Project
Scenario III: With ORR project + Improvement and routine & periodic maintenance
in radial roads
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

road agency road agency VOC
costs)
costs)

in Savings in Net
travel time Economic
costs
benefits

Capital
Costs

Recurrent
Costs

Undiscounte
d

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
30

EIRR(%)

ORR Project
With ORR project and Routine and
periodic maintenance of radial roads

18.2%

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)
31

ORR Project
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.
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
32

ORR 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 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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33