Engineering Economics

Module 2.6: Engineering Economics

Contents

1.0 Introduction.......................................................................................1

2.0 Schedule of Rate (SOR) & Rate Analysis ............................................1

2.1 Need for SOR...................................................................................2

2.2 Rate analysis ...................................................................................2 2.2.1 Excavation................................................................................3 2.2.2 Brick Masonry ...........................................................................3 2.2.3 Stone Masonry ..........................................................................4 2.2.4 Steel Work................................................................................5 2.2.5 Concrete Work ..........................................................................5 2.2.6. Sample Rate Analysis for Material Carriage for a Road Project .........7

2.3 Consolidated Rates and Block Cost.................................................... 15 2.3.1 Consolidated Rate for RCC Roads ............................................... 15 2.3.2 Summery of cost of road network .............................................. 16 2.3.3 Consolidated Rate for Sewerage and Storm water Drainage ........... 16 2.3.4 Block Cost for Water and Waste Water Treatment ........................ 17 2.3.5 Cost Estimate for Solid Waste Management ................................. 20

3.0 Bill of Quantity (BOQ) .....................................................................21

4.0 Financial Analysis of Infrastructure Projects...................................25

4.1 Cost of Project ............................................................................... 25 4.1.1 Technical Know-how and Engineering Fees .................................. 25 4.1.2 Miscellaneous Fixed Assets........................................................ 26 4.1.3 Preliminary and Capital Issue Expenses ...................................... 26 4.1.4 Pre-operative Expenses ............................................................ 26 4.1.5 Provision of Contingencies ........................................................ 27 4.1.6 Margin Money for Working Capital .............................................. 27 4.1.7 Initial Cash Losses ................................................................... 27 4.1.8 Sample Cost Estimate for Head Works ........................................ 28

4.2 Project Cash Flow ........................................................................... 29 4.2.1 Net Present Value Method......................................................... 30 4.2.2 Internal Rate of Return Method (IRR) ........................................ 31 4.2.3 Discount Cash Flow Method (Present Value Return on Investment Method) ......................................................................................... 34 4.2.4 Pay Back or Pay Off Period Method............................................ 36 4.2.5 Rate of Return on Investment Method (R & I) .............................. 37 4.2.6 Profitability Index .................................................................... 38

5.0 Financial and Economic Analysis: Case of Jammu Sewerage Project 40

5.1 Cost Estimates ............................................................................... 41

5.2 Financial Analysis ........................................................................... 46

Annex I: Sample Block Cost of Material and Labour in Water Supply Projects

i

1.0 Introduction

All municipal engineers and managers involved in urban infrastructure projects,

frequently face problems in terms of cost estimates, economic and financial

analysis, rate analysis, project benefit cost analysis etc. The question is how to

tackle these aspects to predict or assess cost, how to minimize the risk and

impact of overspends against budgets, and how to ensure that there is an

appropriate balance between technical aspects and the related costs.

Therefore this module has been structured to include the following components

• Overview of SOR and Rate analysis

• Sample infrastructure project cost estimates

• Key concepts of project viability

• Project financial and economic analysis

2.0 Schedule of Rate (SOR) & Rate Analysis Estimation of the project cost is necessary for evaluation of the required

investments in any project. The construction industry is an ocean of activities and

details, too many items descriptions and tiny technical differences but even these

apparently tiny and miniscule detail differences change and affect the analysis,

application of these activities.

The item when is translated into a monetary value through a technical analysis of

the composition of its constituent activities is termed as analysis of Rates. This is

to arrive at a rate based on unit which can subsequently be multiplied with the

quantity of units is called as the item-rate.

A composition of the body made with all the item description, specifications and

rates is commonly termed as the Schedule of Rates. Since the subject of

Schedule of Rates has been raised it is important to understand that whenever

term SOR is applied it indirectly or directly is inferred that one is talking about an

activity or a set of activities pertaining to construction.

Therefore, to understand and interpret a Schedule of Rates (herein after referred

to as the SOR) means working at the various aspects of the item description,

specifications and Rate analysis template.

The SOR forms the basis for most of the developmental works carried out by the

Government. All Government projects use SOR either specific to a particular

department or developed by some other department. The SOR is taken as the

datum for estimation, selection of most competitive bidder, extra item

settlement, cost escalations, dispute redressed, arbitration and award of work.

1


Like all other states in the country, various state departments all use SORs for

diverse developmental activities. Although, the Schedule of Rates (SOR) prepared

by The Public Works Department (R&B) forms the basis for all other SORs, many

of the departments and organizations have developed their own SORs, at various

time intervals and for divergent needs.

2.1 Need for SOR The SOR is the single most important factor in the preparation of the tenders and

estimates of various developmental works carried out under various departments.

The entire estimates and the projections, awards and arbitrations are based on

these rates that are applied to the items under the development. The costs and

estimates of the various projects and developmental works such as roads,

buildings, bridges, culverts, irrigation, water supply and sewerage projects,

maintenance works depends mainly on the quality and accuracy of the SOR.

2.2 Rate analysis Rate analysis for different activities / items under a project is one of the most

important steps towards estimation of project cost. Comprehensive approach to

rate analysis is given in the table2.1 below.

Chart 2.1 Comprehensive Approach to Rate Analysis

Basic Rates of

materials

Contractor’s Profit

Lead & Lift

Overhead

Charges

Labour Input

Sundries

Wastage

Machinery

Conveyance Material Cost

T & P

Lump sum

Cost

W .C

Rate

Analysis

JnNURM - Rapid Training Programme Preparation of DPRs

CEPT, Ahmedabad 2


The following section include some typical samples of Rate Analysis for items such

as excavation, brick masonry, stone masonry, steel work and concrete work.

2.2.1 Excavation

Item Description Unit

Rate

(Rs.)

Excavation for foundation up to 1.5m depth including sorting out

and stacking of useful materials and disposing of the excavated stuff

up to 50 meter lead for Loose or soft soil

cum 38.44

Sample Rate Analysis

Description Unit Quantity Rate

(Rs.)

Amount

(Rs.)

DETAILS OFCOST OF10.00 Cum

LABOURS

Mazdoor (male) Each 2.0000 90.30 180.60

Mazdoor (female) Each 1.6700 90.30 150.80

Cost of 10.00 Cum 331.40

Add 1% for W.C.& O.H. 3.31

Add 15% for Contractor's profit 49.71

Cost of 10.00 Cum. 384.43

Cost of 1.00 Cum 38.44

W.C. – Water Charges

O.H. – Over Head

2.2.2 Brick Masonry

Item Description Unit Rate

(Rs.)

Brick Work using common burnt clay building bricks having crushing

strength not less than 35 Kg/Sq cm in Foundation and plinth in

cement mortar 1:5 ( 1 Cement : 5 Fine Sand)

For Conventional Bricks

Cum 1356.06


CEPT, Ahmedabad 3



2.2.3 Stone Masonry Item Description Unit Rate (Rs.)

(I) Uncoursed rubble masonry with hard stone of approved

quality in foundations and plinth in cement mortar 1:6 (1

cement: 6 course sand) including levelling etc. complete

Cum 1254.64



(Rs.)

Amount

(Rs.)

DETAILS OF COST OF 1.0000 CU.M

MATERIALS Cum 1.0000 98.00 98.00

Rubble Each. 7.0000 13.00 91.00

Through & bond stone Cum 0.3300 1214.51 400.79 Cement Mortar 1:6 L.S. 2.00 2.00 Cement Concrete 1:6:12 591.79

Labour

Mason IInd Class No. 0.6300 94.20 59.35

Mazdoor (male) Each. 0.6300 90.30 56.89

Mazdoor (female) Each. 0.4700 90.30 42.44

Bhisti Each. 0.0700 91.60 6.41

Carriage of stone Cum 1.1600 279.49 324.21

Sundries L.S. 0.50 0.50


(Rs.)

Amount

(Rs.)

Detail of cost of 1.0000 Cum

Materials

First class bricks 1000No. 0.4750 1293.00 614.18

614.18

Labour

Mason Ist Class Each. 0.2100 100.00 21.00

Mason IInd Class Each. 0.2100 94.20 19.78


Bhisti Each. 0.1000 91.60 9.16

Carriage of Bricks 1000No. 0.4750 231.08 109.76

Scaffolding L.S. 0.50 0.50

214.38

For Cement mortar (1:5) Cum 0.2400 1418.58 340.46

Cost of 1.00 Cum 1169.02

Add 1% for W.C. & O.H. 11.69


Cost of 1.00 Cum 1356.06


CEPT, Ahmedabad 4



(Rs.)

Amount

(Rs.)

489.80

Cost of 1.00 Cum 1081.58 Add 1% for W.C. & O.H. 10.82 Add 15% for contractor profit 162.24 Cost of 1.00 Cum 1254.64

2.2.4 Steel Work


(Rs.)

Providing HYSD bar reinforcement for RCC work including bending ,

binding , and placing in position up to floor two level

MT 32917.59

Sample Rate Analysis Description Unit Quantity

Rate

(Rs.)

Amount

(Rs.)

Details Cost of 1 MT

MATERIALS

(a) Steel M.T.1.025 1.025 25500.00 26137.50

(b)Sundries & Binding wire. L.S.1.000 1.000 88.00 88.00

Total 26225.50

LABOURS

(a) Unskilled Mazdoor. Each 10.00 90.30 903.00

(b) Blacksmith I st. class. Each 10.00 100.00 1000.00

Total 1903.00

CARRIAGE OF MATERIALS M.T. 1.025 242.67 248.74

248.74

Total 28377.24

Add 1% for W.C. 283.77

Add 15% C.P & O.H. charges 4256.59

Total cost for 1 MT 32917.59

2.2.5 Concrete Work


(Rs.)

providing and laying controlled cement concrete m200 and curing

complete excluding cost of formwork and reinforcement for

reinforced concrete work in slabs, landings, shelves, balconies,

lintels, beams, girders and cantilever up to floor two level

Cum 2755.98


CEPT, Ahmedabad 5




(Rs.)

Amount

(Rs.)

DETAILS OF COST OF 0.9091 Cum

Materials Cement Tonne 0.4000 3300.00 1320.00

Crushed stone Aggregate 20mm size Cum 0.5700 281.00 160.17

Crushed stone Aggregate 10mm size Cum 0.2800 281.00 78.68

Coarse Sand Cum 0.4250 63.00 26.78

1585.63

Labour

Mazdoor (male) Each. 1.0500 90.30 94.82


Bhisti Each. 0.4700 91.60 43.05

Mason Ist class No. 0.0900 100.00 9.00

Mason IInd Class No. 0.0900 94.20 8.48

Mate Each. 0.0800 90.30 7.22

Carriage of stone aggregate 20mm size Cum 0.8500 257.84 219.16

Carriage of Coarse sand Cum 0.4250 195.44 83.06

Carriage of cement Tonne 0.4000 101.27 40.51

566.71

Equipments

Hire and Running charges of mechanical

mixer L.S. 1.0000 5.50 5.50

Sundries L.S. 1.0000 0.95 0.95

Scaffolding L.S. 1.0000 1.10 1.10

7.55

Cost of 0.9091 Cum 2159.88

Add 1% for W.C. & O.H. 21.60


Cost of 0.9091 Cum 2505.46

Cost of 1.00 Cum 2755.98


CEPT, Ahmedabad 6


2.2.6. Sample Rate Analysis for Material Carriage for a Road Project

Ref. to MoRTH Spec.

Description Unit Quantity Rate Rs Cost Rs Remarks/ Input ref.

Loading and Unloading

of Stone Boulder/Stone

aggregates/Sand/

Kanker/ Moorum.

cum

Placing tipper at loading

point, loading with front

end loader, dumping,

turning for return trip,

excluding time for haulage

and return trip

Unit = cum

Taking output = 5.5 cum

Time required for

i) Positioning of tipper at

loading point

1 Min

ii) Loading by front end

loader 1 cum bucket

capacity @ 25 cum per

hour

13 Min

iii) Maneuvering,

reversing, dumping and

turning for return

2 Min

iv) Waiting time,

unforeseen contingencies

etc

4 Min

Total 20 Min a) Machinery Tipper 5.5 tonnes

capacity hour 0.330 231.53 76.40 P&M-048

Front end-loader 1 cum

bucket capacity @ 25

cum/hour

hour 0.330 601.97 198.65 P&M-017

b) Overhead charges

@ 08 % on (a)

22.00

c) Contractor's profit

@ 10 % on (a+b)

29.71

Cost for 5.5 cum = a+b+c 326.77 Rate per cum =

(a+b+c)/ 5.5 59.41

Note Unloading will be by

tipping.

say 59.00


of Boulders by Manual


CEPT, Ahmedabad 7


Ref. to MoRTH Spec.


Means

Unit = cum Taking output = 5.5 cum a) Labour Mate day 0.110 86.70 9.54 L-12 Mazdoor for loading and

unloading day 0.750 86.70 65.03 L-13

b) Machinery Tipper 5.5 tonne

capacity hour 0.750 231.53 173.65 P&M-048

c) Overhead charges @ 08 % on (a+b)

19.86

d) Contractor's profit

@ 10 % on (a+b+c)

26.81

Cost for5.5 cum = a+b+c+d

294.87

Rate per cum = (a+b+c+d)/5.5

53.61

Note Unloading will be by

tipping.

say 54.00


of Cement or Steel by

Manual Means and

Stacking.

Unit = tonne

Taking output = 10

tonnes

a) Labour Mate day 0.080 86.70 6.94 L-12 Mazdoor for loading and

unloading day 2.000 86.70 173.40 L-13

b) Machinery Truck 10 tonne capacity hour 2.000 219.95 439.90 P&M-057 c) Overhead charges

@ 08 % on (a+b)

49.62


@ 10 % on (a+b+c)

66.99

Cost for10 tonnes = a+b+c+d

736.84

Rate per tonnes =

(a+b+c+d)/10

73.68

say 74.00 Cost of Haulage

Excluding Loading and

Unloading

Haulage of materials by

tipper excluding cost of

loading, unloading and


CEPT, Ahmedabad 8


Ref. to MoRTH Spec.


stacking.

Unit = t.km

Taking output 10 tonnes

load and lead 10 km =

100 t.km

(i) Surfaced Road Speed with load : 25 km /

hour.

Speed while Returning

empty :35 km / hour.

a) Machinery. Tipper 10 tonne

capacity

Time taken for onward

haulage with load

hour 0.400 231.53 92.61 P&M-048

Time taken for empty

return trip.

hour 0.290 231.53 67.14 P&M-048

b) Overhead charges

@ 08 % on (a)

12.78


@ 10 % on (a+b)

17.25

cost for 100 t km = a+b+c 189.79 Rate per t.km =

(a+b+c)/100

1.90

Say 1.9

(ii) Unsurfaced Graveled

Road

Speed with load: 20 km /

hour

Speed for empty return

trip :30 km / hour

a) Machinery

Tipper 10 tonnes

capacity


haulage with load

hour 0.500 231.53 115.77 P&M-048


return trip

hour 0.330 231.53 76.40 P&M-048

b) Overhead charges

@ 08 % on (a)

15.37


@ 10 % on (a+b)

20.75

Cost for 100 t .km = a+b+c

228.30


CEPT, Ahmedabad 9


Ref. to MoRTH Spec.


Rate per t.Km = (a+b+c)/100

2.28

say 2.30

(iii) Kacha Track and Track

in River Bed/Nallah Bed

Speed with load :10 km /

hour

Speed while returning

empty:15 km / hour

a) Machinery

Tipper 10 tonnes

capacity


haulage

hour 1.000 231.53 231.53 P&M-048


return trip

hour 0.670 231.53 155.13 P&M-048

b) Overhead charges

@ 08 % on (a)

30.93


@ 10 % on (a+b)

41.76

Cost for 100 t .km = a+b+c

459.35

Rate per t.Km =

(a+b+c)/100

4.59

say 4.60

Hand Broken Stone

Aggregates 63 mm

Nominal Size

Supply of quarried stone,

hand breaking into coarse

aggregate 63 mm nominal

size (passing 80 mm and

retained on 50 mm sieve)

and stacking as directed

Unit = cum

Taking output = 1 cum

a) Labour

Mate day 0.060 86.70 5.20 L-12

Mazdoor day 1.500 86.70 130.05 L-13

b) Material

Supply of quarried stone

150 - 200 mm size

cum 1.100 370.00 407.00 M-002

c) Overhead charges 43.38


CEPT, Ahmedabad 10


Ref. to MoRTH Spec.


@ 08 % on (a+b)


@ 10 % on (a+b+c)

58.56

Rate per cum =

a+b+c+d

644.20

say 644.00

Crushing of Stone

Aggregates 13.2 mm

Nominal Size.

Crushing of stone boulders

of 150 mm size in an

integrated stone crushing

unit of 200 tonnes per hour

capacity comprising of

primary and secondary

crushing units, belt

conveyor and vibrating

screens to obtain stone

aggregates of 13.2 mm

nominal size.

Unit = cum

Taking Output = 600

cum at crusher location.

a) Labour

Mate day 0.760 86.70 65.89 L-12

Mazdoor Skilled day 2.000 100.00 200.00 L-14

Mazdoor including breaking

of any oversize boulder.

day 17.000 86.70 1473.90 L-13

b) Material

Stone Boulder of size 150

mm and below

cum 800.000 360.00 288000.00 M-001

c) Machinery

Integrated stone crusher of

200 TPH including belt


screens

Hour 6.000 13613.67 81682.02 P&M-028

Front end loader 1 cum

bucket capacity

Hour 20.000 601.97 12039.40 P&M-017

Tipper 5.5 cum capacity Hour 20.000 231.53 4630.60 P&M-048

d) Overhead charges

@ 08 % on (a+b+c)

31047.34

e) Contractor's profit

@ 10 % on (a+b+c+d)

41913.92


CEPT, Ahmedabad 11


Ref. to MoRTH Spec.


Cost for 600 cum = a+b+c+d+e

461053.07

Rate per cum =

(a+b+c+d+e)*0.95/600

730.00

say 730.00

Note 1. 800 cum of stone

boulders are needed to get

600 cum of stone chips of

size 13.2 mm.

2. 95 per cent of above

cost will be attributed to

the production of 600 cum

of stone chips of 13.2 mm

size and balance 5 per cent

to the production of stone

dust which comes out as a

by-product.

3. The integrated stone

crusher includes primary

and secondary crushing

units.

Crushing of Stone

Aggregates 20 mm

Nominal Size










aggregates of 20 mm

nominal size.

Unit = cum

Taking Output = 670


a) Labour

Mate day 0.760 86.70 65.89 L-12


Mazdoor including breaking

of any size boulder.

day 17.000 86.70 1473.90 L-13

b) Material


CEPT, Ahmedabad 12


Ref. to MoRTH Spec.



mm and below

cum 800.000 360.00 288000.00 M-001

c) Machinery




screens

Hour 6.000 13613.67 81682.02 P&M-028


bucket capacity

Hour 20.000 601.97 12039.40 P&M-017


d) Overhead charges

@ 08 % on (a+b+c)

31047.34


@ 10 % on (a+b+c+d)

41913.92

Cost for 670 cum = a+b+c+d+e

461053.07

Rate per cum =

(a+b+c+d+e)*0.90/670

619.33

say 619.00




size 20 and 40 mm.




of stone aggregates of

20mm size and balance 10

per cent will be for smaller

size aggregates and stone


by-product.




units.

Crushing of Stone

Aggregates 40 mm

Nominal Size








CEPT, Ahmedabad 13


Ref. to MoRTH Spec.





aggregates of 40 mm

nominal size.

Unit = cum

Taking Output = 750


a) Labour

Mate day 0.760 86.70 65.89 L-12


Mazdoor day 17.000 86.70 1473.90 L-13

b) Material


mm and below

cum 800.000 360.00 288000.00 M-001

c) Machinery




screens

Hour 6.000 13613.67 81682.02 P&M-028


bucket capacity

Hour 20.000 601.97 12039.40 P&M-017


d) Overhead charges

@ 08 % on (a+b+c)

31047.34


@ 10 % on (a+b+c+d)

41913.92

Cost for 750 cum =

(a+b+c+d+e)x0.85

391895.11

Rate per cum =

(a+b+c+d+e)x0.85/750

522.53

say 523.00




size 13.2 mm.




of stone aggregates of

40mm size and balance 15

per cent will be for smaller

size aggregates and stone



CEPT, Ahmedabad 14


Ref. to MoRTH Spec.


by-product.




units.

2.3 Consolidated Rates and Block Cost 2.3.1 Consolidated Rate for RCC Roads** (A) For 7 mt width

Width (m)

Length (m)

Depth (m) Qty (cum)

Rate (Rs.) Total Cost (Rs.)

R.C.C(1:2:4) 7 1 0.15 1.05 2500 2625 C.C(1:5:10) 7.6 1 0.2 1.52 1057 1606.64 Sand 8.2 1 0.3 2.46 230 565.8 Steel 35 25 875 Excavation 8.2 1 0.75 6.15 40 246 Miscellaneous for joint etc, 50 Footpath Pre-cast Kerbing 1 2 1 2 200 400 Pre-cast slab 3 1 1 3 600 1800 Sand spreading 3 1 0.15 0.45 230 103.5 8272 Rmt (B) For 5 mt width

Width (m)

Length (m)

Depth (m) Qty (cum)


R.C.C(1:2:4) 5 1 0.15 0.75 2500 1875 C.C(1:5:10) 5.6 1 0.2 1.12 1057 1183.84

Sand 6.2 1 0.3 1.86 230 427.8 Steel 35 25 875

Excavation 6.2 1 0.75 4.65 40 186 Miscellaneous for joint etc, 50

Footpath Pre-cast Kerbing 1 2 1 2 200 400

Pre-cast slab 2 1 1 2 600 1200 Sand spreading 2 1 0.15 0.3 230 69

6267 Rmt (C) For 3.5 mt width

Width (m)

Length (m)

Depth (m) Qty (cum)


R.C.C(1:2:4) 3.75 1 0.15 0.5625 2500 1406.25


CEPT, Ahmedabad 15


C.C(1:5:10) 4.35 1 0.2 0.87 1057 919.59 Sand 4.95 1 0.3 1.485 230 341.55 Steel 35 25 875 Excavation 4.95 1 0.75 3.7125 40 148.5 Miscellaneous for joint etc, 50 Footpath Pre-cast Kerbing 1 2 1 1 200 200 Pre-cast slab 2 1 1 2 600 1200 Sand spreading 2 1 0.15 0.3 230 69 5210 Rmt

**It is important to note that the cost estimates shown above are indicative. It may vary from state to state depending on the prevailing SORs.

2.3.2 Summery of cost of road network**

Item Unit

Cost of 7.00mt wide c.c pavement road per metre length 8272 Rs.



Cost of 7.0mt wide c.c. pavement road (incl. both side footpath) per square metre 1182 Rs.

Cost of 5.00mt wide pavement road per square metre 1253 Rs.

Cost of 3.5mt wide pavement road per square metre 1489 Rs.

Average cost of c.c.pavement road per square metre 1308 Rs.

Cost of Open Drain per square metre 20 Rs.

up gradation of all the internal industrial estate roads is of CC


2.3.3 Consolidated Rate for Sewerage and Storm water Drainage**

A Proposed Sewerage Line

Description Qty Unit

Rate (Rs.)

Cost (Rs.)

Providing &Supplying New NP3 R.C.C 900mm Dia. Pipe 1 Rmt 1985 1985 Conveyance of Pipes@10% of cost of pipe 1 Rmt 198.5 198.5 Excavation in ordinary soil ( Qty 1.5x4.0x1) 6 cum 40 240 Lowering and laying and Jointing 1 Rmt 219 219 Total 2642.5 Add 10% for increase in cost of 2005-2006 SOR 264.25 Total 2906.75 For 1 km Length 2906750 B Cost for proposed Storm water RCC Open Drain (1m X 1m) Description Qty Unit Rate Cost (Rs.)

Excavation (Qty = 2.3 X 1.3 X 1.0 ) 2.99 cum 30 89.7 CC 1:4:8 (Qty = 1.3 X 0.15 X 1.0 ) 0.195 cum 960 187.2 CC 1:2:4 (Qty = 3.3 X 0.15 X 1.0 ) 0.495 cum 1804 892.98


CEPT, Ahmedabad 16


Steel (@ 1% of CC) 38.61 kg 35 1351.35 Total 2521.23 Add 10% for increase in cost of 2005-2006 SOR 252.123 Total 2773.35 For 1 km Length 2773353 C (I) Cost for Open Kachcha Drain ( 0.3 m X 0.45 m ) Description Qty Unit Rate Cost (Rs.)

Excavation (Qty = (0.3 +1.2)/2 X 0.45 X 1.0 ) 0.338 cum 30 10 Add 10% for increase in cost of 2005-2006 SOR 1.0125 Total 11 For 1 km Length 11138 (II) Cost for Open Kachcha Drain (0.45 m X 0.6 m ) Description Qty Unit Rate Cost (Rs.)

Excavation (Qty = (0.45 + 1.65)/2 X 0.6 X 1.0 ) 0.63 cum 30 19 Add 10% for increase in cost of 2005-2006 SOR 1.89 Total 21 For 1 km Length 20790 (II) Cost for Open Kachcha Drain (0.6 m X 0.75 m )

Description Qty Unit Rate Cost (Rs.)

Excavation (Qty = (0.6 + 2.1)/2 X 0.75 X 1.0 ) 1.013 cum 30 30 Add 10% for increase in cost of 2005-2006 SOR 3.0375 Total 33 For 1 km Length 33413 **It is important to note that the cost estimates shown above are indicative. It may vary from state to state depending on the prevailing SORs.

2.3.4 Block Cost for Water and Waste Water Treatment**

Unconventional WTP • Fixed cost up to and including 1 MLD Rs.1000000

• Add for capacity above 1 MLD up to 2 MLD Rs.900000

• Cost of 2 MLD treatment plant Rs.1900000

• Add for capacity above 2 MLD up to 4 MLD Rs. 775000




• Add for capacity beyond 10 MLD Rs.600000

Conventional WTP

• Fixed cost up to and including 1 MLD Rs.1100000









• Add for capacity beyond 25 MLD Rs.600000


CEPT, Ahmedabad 17


Chlorination Plant

Pressure feed chlorination plant incl. uniejector booster etc.

• Up to 500 Gms per hour capacity Rs.34000




Slow Sand Filter: Providing & erecting slow sand filter including sedimentation

tank including all civil structure and piping arrangement and filter media control

unit etc.

• Upto 2 MLD – Rs 15, 00,000

• Beyond 2 MLD – Rs 10, 00,000

Filter Sand: Providing filter sand and required F/S and U/C. – Rs. 1000 per Cum

Conventional Sewage Treatment Plant Providing & erecting at the site complete conventional sewage treatment plant

incl. civil as well as mechanical and electrical works such as screen and grit

chambers settling tanks, digesters, trickling filters, or activated sludge plant

sludge drying arrangements etc. complete incl. all pipe fittings, valves accessories

etc. complete as directed. Budgetary cost per Cu. M./Day for Sewage treatment

plant are presented in below

Flow in Cu.M./d Capacity Cost in Rs. Per Cu.M.

25 28000

26 to 50 18000

51 to 100 11500

101 to 150 9500

151 to 200 8500

201 to 600 7000 to 8000

600 to 1000 5000 to 6000

> 1000 3000 to 5000

For Sewage treatment plant of Municipal Corporation (Capacity in MLD),

Operation cost is between 1.25 to 2.0 Rs per Cu.M.

SOR Rate for construction of ESR Up to 25000 Litres 10 Rs. Per Litre

Cost of 25000 litres capacity 250000 Rs

Add for capacity above 25000 up to 50000 litres 8 Rs. Per Litre

Cost of 50000 capacity 450000 Rs

-Do- 50000 up to 100000capacity 5 Rs. Per Litre


CEPT, Ahmedabad 18



-do - 100000 to 200000 litres capacity 4 Rs. Per Litre


- 200000 litres up to 500000 litres 3.75 Rs. Per Litre


-do- 500000 litres up to 1000000 litres capacity 3.5 Rs. Per Litre

Costr of 1000000 litres capacity 3975000 Rs

-do- 1000000 to 1500000 litres capacity 3.25 Rs. Per Litre


Add for capacity above 1500000 capacity 3 Rs. Per Litre

SOR Rate for construction of Sump

Up to 50000 lt capacity 1.9 Rs. Per Litre

Cost of 50000 lt capacity 95000.0 Rs

Add for Capacity 50000 up to 100000 litre 1.65 Rs. Per Litre

Cost of 100000 litres capacity 1775000.0 Rs

-Do- 100000 upto 200000 1.50 Rs. Per Litre

Cost of 200000 litre capacity 327500.0 Rs


Cost of 500000 capacity 747500.0 Rs






Cost of 5000000 5422500.0 Rs

Add for Capacity above 5000000 litre 0.9 Rs. Per Litre


For Sewerage Network

• All connections are made in Man holes

• Flow velocity is considered as – 0.9 m/sec

• Manhole are spaced at 30 m interval

• Light poles are spaced at 30 m interval

• Estimated cost of one manhole is (Circular type depth up to 1.5 mt) - Rs.

5900/Manhole


CEPT, Ahmedabad 19


2.3.5 Cost Estimate for Solid Waste Management**

Category Description Rate

(Rs.) Household Waste Bins: 8 litre capacity

having over all dimensions (mm) 230 top dia X

180 bottom dia X 250 Ht.

80/-

Multi Bins with Closed Lid; 10 litre capacity

having overall dimensions (mm) 240 top dia X


145/-

Multi Bins with Closed Lid; 20 litre capacity

having overall dimensions (mm) 320 top dia X


190/-

Primary Waste Collection (Indoors)

Multi Bins vertical with flap Lids; 20 litre

capacity having overall dimensions (mm) 325

top dia X 265 bottom dia X 480 Ht.

235/-

Pole Mounted Bins; 50 litre capacity, having

overall dimensions (mm) 600 W (bottom plate)

X 1524 Ht.

3,900/- Primary Waste Collection

(Outdoors)

Waste Bins with holes at Top; 80 litre

capacity, having overall dimensions (mm)

475to dia X 370 bottom dia X 770 Ht.

521/-

Secondary Waste Collection

(Storage)

Supertuff Wheeled Waste Bins; 240 Litre

capacity having overall dimensions (mm) 610 X

680 to X 475 X 325 bottom X 1070 Ht.

3,325/-

Tricycles; having overall dimension (mm) of

frame 1540 L X 735 W X 255 H with 8 nos.

multi bins with closed lid

16,945/-

Hand Cart; having overall dimension (mm) of

frame 1540 L X 735 W X 820 H with multi bins

7,570/-

Heavy Duty Wheel Barrow; 110 Litre

capacity having overall dimensions (mm) 750 X

730 top X 450 X 430 bottom X 660 Ht.

5,850/-

Secondary Waste Collection

(Transportation)

Door to Door collection Equipment; 500

litre capacity having overall dimensions of

frame (mm) 1520 L X 1010 W X 680 Ht.

25,000/-


CEPT, Ahmedabad 20


Category Description Rate (Rs.)

Integrated

Waste

Management

(Community

Bins)

Community wheeled Waste Bins; 1100 litre

capacity having overall dimensions of frame

(mm) 1455 X 1020 top X 1330 X 870 bottom X

1250 Ht.

34,320/-

Septic Tank; vertical type made from moulded

polyethylene with inlet, outlet and septic

chamber, filter chamber and filter media

having 2,000 litre capacity

31,200/-

Moulded Nestable type of Toilet Seat, size of

900 X 900 mm

1,560/-

Liquid Waste

Prefabricated SMC Toilet Block having

overall dimensions 3 ft. X 3 ft. X 7 ft. each

module consisting of SMC wall, door, roofing

and Indian Style WC and base of Polytheylene.

21,160/-

Biogas Plant; having overall dimensions (mm)

of 1600 dia X 1100, 0.5 Cum Volumen suitable

for 01 animal

11,550/- Others

Home Compositing Bin; suitable for one

family ( 05 persons) for one months having

overall dimensions (mm) 640 X 440 top X 515

X 325 bottom X 370 Ht.

1,170/-


3.0 Bill of Quantity (BOQ) Bill of Quantity comprise a list of items of work which are briefly described. The

Bills also provide a measure of the extent of work and this allows the work to be

priced. The work included in the item is defined in detail by the rules in the

Method of Measurement. The item descriptions are therefore shorthand to allow

the relevant rules of the Method to be identified. The measure may be a single

item or number, dimension (linear metre, square metre, cubic metre), time (hrs,

weeks) or weight.

Function of Bills • The Bills of Quantities may serve a number of functions as:

• A breakdown of the tendered price, with no contractual status, but providing

information for the selection from tenderers;

• An estimate measure of the work for the tendered price, to be used to arrive

at a revised contract price once the actual quantities of work carried out are

measured. This is the re-measure form of contract.


CEPT, Ahmedabad 21


• A schedule of rates as the contract basis for valuing variations in the work.

• A basis for measure of the value of work completed for interim payments

A Sample Bill of Quantity for Providing, lowering, laying, jointing and testing work for collection system along with house connection system of underground sewerage project, is given below in table 3.1

Table3.1 Sample BOQs

Item

No.

Qty Item Rate Per Amount

1.0 Excavation for sewer line trenches,

manholes incl. All safety provisions

using site rails etc. including refilling the

trenches & stacking the excavated stuff

up to a lead of 90mt as directed.

1.1 UP TO 1.50mt depth

1.1.1 118993 In all sorts of soil and soft murrum,

hard murrum, boulders, and macadam

road.

39.50 M3 47,00,223/-

1.1.2 11855 In hard rock and soft rock 135.00 M3 16,00,425/-

1.2 1.50mt to 3.00mt

1.2.1 6156 In all sorts of soil and soft murrum,

hard murrum, boulders, and macadam

road.

47.50 M3 2,92,410/-

1.2.2 8032 In hard rock and soft rock 166.50 M3 13,37,328/-

1.3 3.00mt to 4.50mt

1.3.1 205 In hard rock and soft rock 199.50 M3 40,897/-

1.4 4.50mt to 6.00mt

1.4.1 In hard rock and soft rock 252.50 M3

2.0 7274.00 Providing C.C. bedding in 1:3:6 (M 100)

using 12 to 20mm machine crushed

metal incl. Consolidation curing etc.

complete.

(C-type bedding as per type design)

1170.00 M3 85,10,580/-

3.0 Providing, supplying, lowering, laying

and jointing Stoneware pipes in C.M.

1:1 of following diameters in proper

position grade and alignment as

directed by Engineer-in-charge including

labour, giving necessary testing etc.,

complete including cost of jointing

materials including all the taxes, duties,

freight, insurance etc. complete.


CEPT, Ahmedabad 22


Item

No.


3.1 57490 For 100mm dia Stoneware pipes 85.00 RMT 48,86,650/-


3.3 2360 For 200mm dia Stoneware pipes 190.00 RMT 4,484400/-



4.0 Providing and constructing house

connection chambers as per type design

in brick masonry in C.M. 1:4 and inside

plastering in C.M. 1:3 necessary coping

in C.C. M-200 and fixing of RCC frame

and cover (But excluding supply of

frame and covers) over house

connection chambers etc., complete

(excluding excavation) as per stipulation

in the type design complete.

4.1 1126.00 House connection chamber as per type

design (Depth upto 0.60 mt.)

770.00 Nos. 8.67.020/-

4.2 8390.00 House connection chamber as per type

design (Depth above 0.60 mt and upto

1.0 mt.)

1000.00 Nos. 83,90,000/-

5.0 Providing and constructing Sewer

manholes, scraper manholes as per the

type design in brick masonry in C.M.

1:4 and inside and outside plastering in

C.M. 1:3 necessary coping in C.C. M-

200 fixing C.I./ reinforced plastic Steps

and fixing manhole frame and covers

(But excluding supply of manhole frame

and covers) over manholes/ scraper

manhole etc. complete, as per the

stipulation in the type design

complete.(Excluding excavation)

5.1 Manhole type "A-1" Circular type having

inside diameter of 900 mm for depth

upto 1.00 mt.

5.1.1 256 Manhole type "A-1" as above but upto

1.00 mt. depth.

1550.00 No.s 3,96,800/-

5.2 Manhole type “A” circular type having

inside diameter of 1200mm for depth up

to 1.5m depth.

5.2.1. 1026 Manhole type “A” as above but up to 1.0

M depth

2640.00 Nos. 27,08,640/-

5.2.2 103 Extra depth beyond 1.0 M but up to

1.5M depth for “A” type manhole above

1632.00 RMT 1,68,096/-


CEPT, Ahmedabad 23


Item

No.


5.3 Manhole type “B” circular type having

inside diameter of minimum 1500mm

and for depth from 1.5M to 4.0 M.

5.3.1. 646.00 Manhole type “B” as above but up to 1.5

M depth.

4960.00 Nos. 32,04,160/-

5.3.2 462.00 Extra depth beyond 1.5M but up to 4.0

M depth for type “B” manhole above.

2604.00 RMT 12,03,048/-

5.4 Manhole type “C” circular type having

inside diameter of minimum 1500 mm

and for depth 4.0 M to 6.0M

5.4.1 5.00 Manhole type “C” as above but up to

4.0 M depth.

15456.00 Nos. 77,280/-

5.4.2 5 Extra depth beyond 4.0 M and up to

6.0M depth for type “C” manhole above.

4068.00 RMT 20,340/-

6.0 Providing constructing vertical drop

arrangement of 0.6 m and more height

as required including providing and

jointing special such as double T.Bend

required Stoneware pipe fixed in M-100

C.C. at required level as type design

cutting jointing and filleting as per

specification etc. complete.

6.1 102 Vertical drop arrangement as above up

to 0.6 M height.

708.00 Nos. 72,216/-

6.2 102 Extra over Item No.6.1 above for

additional drop beyond 0.6 M.

552.00 RMT 56,304/-

7.0 47311 Removing the surplus earth after

refilling the trenches as directed with in

the Municipal Corporation limits

including transportation, loading,

unloading, spreading etc. complete

33.00 M3 15,61,263/-

8.0 9515 Providing, supplying RCC pre-cast

manhole frame and covers 5 T.M.D. as

per specifications

600.00 1 Pair 57,09,000/-

9.0 1282 Providing, supplying R.C.C. Pre-cast

manhole frame & covers 10 T.MD. as

per specifications.

690.00 One pair 8,84,580/-

10.0 556 Providing, supplying R.C.C. Pre-cast

manhole frame & covers 20 T.MD. as

per specifications.

900.00 One pair 5,00,400/-

11.0 Breaking of pavement surface

11.1 49248.00 Conventional asphalt surface

18.00 Sq. Mt 8,86,464/-


CEPT, Ahmedabad 24


Item

No.


11.2 5130.00 Paver asphalt surface

26.00 Sq. Mt 1,33,380/-

12.0 7797.00 Making holes in manhole with repairing

complete

20.00 Nos. 1,55,940/-

Total Rs.5,99,99,124/- Say Rs.6,00,00,000/- (Rupees Six crores only)

4.0 Financial Analysis of Infrastructure Projects To judge a infrastructure project from the financial angle, an engineer needs

information about the following two most important aspects:

• Cost of project

• Projected cash flow

4.1 Cost of Project Project cost estimating is usually performed by summing estimates for individual

project elements into a project total. The pieces can vary in size and number from

a few large chunks of a project with known costs to hundreds or thousands of

discrete tasks or individual work packages.

Conceptually, the cost of project represents the total of all items of outlay

associated with a project which are supported by long-term funds. It is the sum

of the outlay on the following;

• Land and site development

• Buildings and civil works

• Plant and machinery

• Technical know-how and engineering fees

• Miscellaneous fixed assets

• Preliminary and capital issue expenses

• Pre-operative expenses

• Provision for contingencies

• Margin money for working capital

• Initial cash losses

4.1.1 Technical Know-how and Engineering Fees Often it is necessary to engage technical consultants or collaborators from

India/or abroad for advice and help in various technical matters like preparation

of project report, choice of technology, selection of plant and machinery, detailed

engineering, and so on. While the amount payable for obtaining technical know-


CEPT, Ahmedabad 25


how and engineering services for setting up the project is a component of project

cost, the royalty payable annually, which is typically a percentage of sales, is an

operating expense taken into account in the preparation of the projected

profitability statements.

4.1.2 Miscellaneous Fixed Assets Fixed assets and machinery which are not part of the direct manufacturing

process may be referred to as miscellaneous fixed assets. They include items like

furniture, office machinery and equipment, tools, vehicles, railway siding, diesel

generating sets, transformers, boilers, piping systems, laboratory equipments,

workshop equipments, effluent treatment plants, fire fighting equipments, and so

on. Expenses incurred for procurement or use of patents, licenses, trade marks,

copyrights, etc., and deposits made with the electricity board may also be

included here.

4.1.3 Preliminary and Capital Issue Expenses Expenses incurred for identifying the project, conducting the market survey,

preparing the feasibility report, drafting the memorandum and articles of

association and incorporating the company are referred to as preliminary

expenses.

Expenses borne in connection with the raising of capital from the public are

referred to as capital issue expenses. The major components of capital issue

expenses are : under writing commission, brokerage, fees to managers and

registrars, printing and postage expenses, advertising and publicity expenses,

listing fees and stamp duty.

4.1.4 Pre-operative Expenses Expenses of the following types incurred till the commencement of commercial

production are referred to as pre-operative expenses: (i) Establishment expenses,

(ii) rent, rates and taxes (iii) travelling expenses, (iv) interest and commitment

charges on borrowings, (v) insurance charges, (vi) mortgage expenses, (vii)

interest on deferred payments, (viii) start-up expenses, and (ix) miscellaneous

expenses.

Pre-operative expenses are directly related to the project implementation

schedule. So, delays in project implementation, which are fairly common, tend to

push up these expenses. Appreciative of this, financial institutions allow for some

delay (20 to 25%) in the project implementation schedule and accordingly permit

a cushion in the estimate for pre-operative expenses.


CEPT, Ahmedabad 26


Pre-operative expenses incurred up to the point of time the plant and machinery

are set up may be capitalized by apportioning them to fixed assets on some

acceptable basis. Pre-operative expenses incurred from the point of time the

plant and machinery are set up are treated as revenue expenditure. The firm

may, however, treat them as deferred revenue expenditure and write them off

over a period of time.

4.1.5 Provision of Contingencies A provision for contingencies is made to provide for certain unforeseen expenses

and price increase over and above the normal inflation rate which is already

incorporated in cost estimates.

To estimate the provision for contingencies the following procedure may be

followed: (i) Divide the project cost items into two categories, viz, ‘firm’ cost

items and ‘non-firm’ cost items (firm cost items are those which have already

seen acquired or for which definite arrangements have been made). (ii) Set the

provision for contingencies at 5 to 10 percent of the estimated cost of non-firm

items. Alternatively, make a provision of 10 percent for all items (including the

margin money for working capital) if the implementation period is one year or

less. For every additional one year, make an additional provision of 5 percent.

4.1.6 Margin Money for Working Capital The principal support for working capital is provided by commercial banks and

trade creditors. However, a certain part of working capital requirement has to

come from long-term sources of finance. Referred to as the ‘margin money for

working capital’, this is an important element of the project cost.

The margin money for working capital is sometimes utilized for meeting over-runs

in capital cost. This leads to a working capital problem (and sometimes a crisis0

when the project is commissioned. To mitigate this problem, financial institutions

stipulate that a portion of the loan amount, equal to the margin money for

working capital, be blocked initially so that it can be released when the project is

completed.

4.1.7 Initial Cash Losses Most of the projects incur cash losses in the initial years. Yet, promoters typically

do not disclose the initial cash losses because they want the project to appear

attractive to the financial institutions and the investing public. Failure to make

provision for such cash losses in the project cost generally affects the liquidity

position and impairs the operations. Hence prudence calls for making a provision,

overt or convert for the estimated initial cash losses.


CEPT, Ahmedabad 27


4.1.8 Sample Cost Estimate for Head Works For treatment, storage and distribution of 45 MLD of water for desired population

at head work following works are proposed:

A. Cost Estimate for Raiyadhar Headworks

1 Providing and constructing water treatment plant of capacity 50

MLD LS

350.00 lacs

2 Construction of pure water RCC GSR having water depth 3.5 mt

capacity 20.6 Mt L.S.

236.70 lacs

3 Construction of pump house having size 37 x 20 at the rate of

Rs.4000/m2 L S

29.60 lacs

4 Construction of ESR having capacity 3.0 ML and stage height 20

mt LS

150.00 lacs

5 Providing and erecting pumping machinery having capacity 825

m3/hr against head 40 mt (3+1) for ward-23 and capacity 735

m3/hr against head 40 mt (4+2) for Ring road. Total KW 1250 at

Rs.25000/KW L.S.

312.50 lacs

6 Providing, lowering, laying and jointing M S pipeline for various

sizes including excavation, refilling, bedding etc.

1200 mm 200 mt.for inlet to sump L.S. (Gravity)

1000 mm dia 210 mt. for rising main L.S. (Gravity)

700 mm dia 1200 mt. for ward no.21 L.S. (Gravity)

750 mm dia 1200 mt. for ward-22 L.S. (Gravity)

600 mm dia 2000 mt. for ward-22 L.S. (Gravity)

35.80 lacs

27.09 lacs

108.30 lacs

116.10 lacs

154.80 lacs

7 Cost of valves and job work 40.00 lacs

8 Area development L.S.

Compound wall and internal roads and area lighting LS

GEB connection L.S.

Staff quarter LS

Approach road L.S.

20.00 lacs

15.00 lacs

55.00 lacs

15.00 lacs

15.00 lacs

Total

Say

1680.09 lacs

1680.00 lacs

Thus, total cost of project:

Intake work Rs.1290.00 lacs

Filtration, storage, distribution etc. Rs.1680.00 lacs

-------------------------------------------------------------------- Total Rs.2970.00 lacs

Add 5% physical contingency Rs. 149.00 lacs

Total Rs.3119.00 lacs Say Rs.3120.00 lacs


CEPT, Ahmedabad 28


4.2 Project Cash Flow In engineering many times an engineer comes across many alternatives.

Sometimes they have a proposal to replace the old machine by new advanced

machine. But before doing that they must evaluate the proposal’s worth.

Similarly, engineers may some time need to take decision on investing in new

projects. They may need to evaluate the investment in different infrastructure

projects. For all this, some economic indicator must be there so that the task will

be easier.

The investment decision rules may be referred to as capital budgeting techniques,

or investment criteria. A sound appraisal technique should be used to measure

the economic worth of an investment project. The essential property of sound

techniques is that it should maximize the shareholders’ wealth. The following

other characteristics should also be possessed by sound investment evaluation

criteria:

• It should consider all cash flows to determine the true profitability of the

project.

• It should provide for an objective and an unambiguous way of separating

good projects from bad projects.

• It should help ranking of projects according to their true profitability.

• It should recognize the fact that bigger cash flows are preferable to smaller

ones and early cash flows are preferable to later ones

• It should help to choose among mutually exclusive projects that project

which maximizes the shareholders’ wealth.

• It should be a criterion which is applicable to any conceivable investment

project independent of others.

These conditions will be clarified as we discuss the features of various investment

criteria herein:

A number of capital budgeting techniques are in use in practice. They may be

grouped in the following two categories.

Discounted Cash Flow (DCF) Criteria

• Net present Value (NPV)

• Internal rate of Return (IRR)

• Profitability Index (PI)

• Discounted payback period

Non-discounted Cash Flow Criteria

• Payback Period (PB)

• Accounting Rate of Return (ARR).


CEPT, Ahmedabad 29


We will show in the following the net present valued criterion is the most valid

technique of evaluating an investment project. It is generally consistent with the

objective of maximizing the shareholders’ wealth.

4.2.1 Net Present Value Method The net present value (NPV) method is the classic economic method of evaluating

the investment proposals. It is one of the discounted cash flows (DCF) techniques

explicitly recognizing the time value of money. It correctly postulates that cash

flows arising at different time periods differ in value and are comparable only

when their equivalents – present values – are found out. The following steps are

involved in the calculation of NPV:

• Cash flows of the investment project should be forecasted based on realistic

assumptions.

• Appropriate discounts should be identified to discount the forecasted cash

flows. The appropriate discount rate is the firm’s opportunity cost of capital

which is equal to the required rate of return expected by investors on

investments of equivalent risk.

• Present value of cash flows should be calculated using opportunity cost of

capital as the discount rate.

• Net present value should be found out by subtracting present value of cash

outflows from present value of cash inflows. The project should be accepted

if NPV is positive (i.e. NPV>0).

Example: Assume that project X costs Rs. 2,500 now and is expected to

generate year-end cash inflows of Rs. 900, Rs. 800, Rs. 700, Rs. 600 and Rs. 500

in years. 1 through 5. The opportunity cost of the capital may be assumed to be

10 per cent.

The net present value for Project X can be calculated by referring to the present

value table.

Rs. 900 Rs. 800 Rs. 700 Rs. 600 Rs. 500

NPV = ( (1+

0.10)

+ (1+

0.10)2

+ (1+

0.10)3

+ (1+

0.10)4

+ (1+

0.10)5

) - Rs.

2,500

NPV = [Rs. 900 (PVF1,0.10) + Rs. 800 (PVF2,0.10) + Rs. 700 (PVF3,0.10)

+ Rs. 600 (PVF4,0.10) + Rs. 500 (PVF5,0.10)] – Rs. 2,500

=

[Rs. 900 X 0.909 + Rs. 800 X 0.826 + Rs. 700 X 0.751 + Rs. 600 X 0.683

+ Rs. 500 X 0.620]– Rs. 2,500

= Rs. 2,725 – Rs. 2,500

= + Rs. 225


CEPT, Ahmedabad 30


Project X’s present value of cash inflows (Rs. 2,725) is greater than that of cash

outflow (Rs. 2,500). Thus, it generates a positive net present value (NPV = + Rs.

225). Project X adds to the wealth of owners; therefore, it should be accepted.

The Formula For the net present value can be written as follows:

C1 C2 C3 CnNPV = [

(1+ k) +

(1+ k)2 +(1+ k)3 + ……… +

(1+ k)n ] - C0

or

n

CtNPV = ∑

(1+ k)t - C

0

t=1

Where C1, C2 ………represent net cash inflows in year 1,2….., k is the opportunity

cost of capital, C0 is the initial cost of the investment and n is the expected life of

the investment. It should be noted that the cost of capital, k is assumed to be

known and is constant.

4.2.2 Internal Rate of Return Method (IRR) The internal rate of return (IRR) method is another, discounted cash flow

technique which takes account of the magnitude and timing of cash flows. Other

terms used to describe the IRR method are yield on an investment, marginal

efficiency of capital, rate of return over cost, time-adjusted rate internal return

and so on. The concept of internal rate of return is quite simple to understand in

the case of a one-period project. Assume that you deposit Rs. 10,000 with a bank

and would get back the cash of a one-period project. The true rate of return on

your investment would be:

10,800 -

10,000 108,000 Rate of

Return =

10,000

=

10,000

- 10,000 = 1.08 -

1 =

0.08 or

8%

The amount which you would obtain in future (Rs. 10,800) would consist of your

investment (Rs. 10,000) plus return on your investment (0.08 X Rs. 10,000):

10,800 10000 (1.08) = 10,800 or 10,000 =

(1.08)

You may observe that the rate of return of your investment (8 percent) makes

the discounted (present) value of your cash inflow (Rs. 10,800) equal to your

investment (Rs. 10,000).

We can now develop a formula for the rate of return (r) on an investment (C0)

that generates a single cash flow after one period (C1) as follows:

C1- C0 C1r =

C0=

C0- 1


CEPT, Ahmedabad 31


Equation can be rewritten as follows:

C1

C0= 1+r

C1C0 =

(1 + r)

From above equation the rate of return can be defined as that rate which equates

investment outlay with the present value of inflow received after one period. This

also implies that the rate of return is the discount rate which makes NPV = 0. this

rate may be referred to as the internal rate of return. There is no satisfactory way

of defining true rate of return of a long-term asset. The internal rate of return

(RR) is the best available concept; although it is a very frequently used concept in

finance, yet at times it can be a misleading measure of investment worth.

Internal rate of return is called so because it depends solely on the outlay and

proceed associated with the investment and not on any rate determined outside

the investment. It can be determined by solving the following equation for r:

C1 C2 C3 Cn

C0 = (1+

r)

+

(1+ r)2

+

(1+ r)3

+ ……… +

(1+ r)n

] - C

0

n

CtC0 = ∑

(1+ r)t - C0 = 0

t=1

It can be noticed that the IRR equation is the same as the one used for the NPV

methods with the difference that in the NPV method the required rate of return k,

is assumed to be known and the net present value is found, while in the IRR

method the value of r has to be determined at which the net present value is

zero.

Uneven Cash Flows: Calculating IRR by Trial and Error The value of r in equation can be found out by trial and error. The approach is to

select any discount rate to compute the present value of cash inflows. If the

calculated present value of the expected cash inflow is lower than the present

value of cash outflows, a lower rate should be tried. On the other hand, a higher

value should be tried if the present value of inflows is higher than the present

value of outflows. This process will be repeated unless the net present value

becomes zero. The following illustration explains the procedure to calculate the

internal rate of return.


CEPT, Ahmedabad 32


Illustration:

A Project costs Rs. 16,000 and is expected to generate cash inflows of Rs. 8,000,

Rs. 7,000 and Rs. 6,000 at the end of each year for next 3 years. we know that

IRR is the rate at which project will have a zero NPV. As a first step, we try

(arbitrarily) a 20 percent discount rate. The project’s NPV at 20 percent is:

NPV = -Rs. 16,000 + Rs. 8,000 (1/1.2) + Rs. 7,000 (1/2.2)

+ Rs. 6,000 (1/3.2)

= -Rs. 16,000 + Rs. 8,000 X 0.833 + Rs. 7,000 X 0.694

+ Rs.6,000 X 0.579

= -Rs. 16,000 + Rs. 14,996

= -Rs. 1,004

A negative NPV of Rs. 1,004 at 20 percent indicates that the project’s true rate of

return is lower than 20 percent. Let us try 16 percent as the discount rate. At 16

percent, the project’s NPV is:

NPV = -Rs. 16,000 + Rs. 8,000 (1/1.16) + Rs. 7,000 (1/2.16)

+Rs. 6,000 (3/3.16)

= -Rs. 16,000 + Rs. 8,000 X 0.862 + Rs. 7,000 X 0.743

+ Rs.6,000 X 0.641

= -Rs. 16,000 + Rs. 15,943

= -Rs. 57

Since the project’s NPV is still negative at 16 percent, a rate lower than 16

percent should be tried. When we select 15 percent as the trial rate, we find that

the project’s NPV is Rs. 200:

NPV = -Rs. 16,000 + Rs. 8,000 (1/1.15) + Rs. 7,000 (1/2.15)

+ Rs. 6,000 (3/3.15)

= -Rs. 16,000 + Rs. 8,000 X 0.870 + Rs. 7,000 X 0.756

+ Rs. 6,000 X 0.658

= -Rs. 16,000 + Rs. 16,200

= -Rs. 200

The true rate return should lie between 15 to 16 percent. We can find out a close

approximation of the rate of return by the method of linear interpolation as

follows: Difference

PV required Rs. 16,000

PV ar lower rate, 15% Rs. 16,200 200

PV ar higher rate, 16% Rs. 15,943 257

r = 15% + (16% -15%)

= 15% + 0.8%= 15.8%


CEPT, Ahmedabad 33


4.2.3 Discount Cash Flow Method (Present Value Return on Investment Method) The pay-back period and return on investment (ROI) methods do not consider the

time value of money. Projects with differing cash inflows, as follows, are treated

at par although present value return is higher in the second case. Cash flows

received in different years should not be treated to have a uniform value. Today’s

rupee is more valuable than a rupee to be received a year later. For proper and

sound financial analysis cash flows should be related to time scale.

Project I Project II

1 Year Cash inflows 8,000 Rs. 12,000 Rs.

2 year Cash inflows 12,000 Rs. 8,000 Rs.

Discounting Principle:

Let us consider that Rs. 100 is invested with 15% compound interest/annum. The

table shows earning. It shows that future value of Rs. 100 after 5 years is Rs.

201.14. The discounting principal views the whole exercise from the other end. It

puts the thing in reverse order that Rs. 201.14 to be available at the end of 5th

year is today worth Rs. 100. Therefore, the present value of the future sum of Rs.

201.14 is Rs. 100.

Year 0 1 2 3 4 5

Interest - 15 17.25 19.84 22.81 26.24

Cumulative 100 115 132.25 152.09 174.9 201.14

Discounting the future cash flows is very important in capital expenditure

appraisal. In capital investment, cash outflows take place in first year and also

spread over 2 or more years but cash inflows will start generating after the

project is commissioned and will continue during the lifetime of the project. To

arrive at a decision whether to invest funds or not, it is necessary to make a

comparison between the present value of cash outflows and cash inflows. If the

present value of cash inflows is more than that of the cash outflows, at a given

rate of discount, the capital expenditure proposal merits consideration and

approval. The trial and error method seeks to find out that particular discount

rate at which both cash outflows and inflows become equal in terms of their

present values. A number of trial calculations are made to establish the exact rate

of discount.

Merits of Discount Cash Flow Method: It considers time pattern of such flows and the present value system.

Drawbacks of Discount Cash Flow Method:

It is important that life of the asset is objectively estimated, otherwise

profitability calculations will go wrong, leading to wrong decision being taken.


CEPT, Ahmedabad 34


Depending upon money supply, interest rate may be varying-high rate during

dear money situation an low rate during easy availability of funds. The single

discounting rate ignores the fluctuating trend of future interest rates.

Illustrative Example: there are 2 investment

proposals A & B. the proposal A requires an

investment of Rs. 60,000 and B Rs. 1,00,000 (1st

year Rs. 75,000 and 2nd year Rs. 25,000). The net

cash inflows from the investments are as shown in

table. Through trial calculations the discount rate is

determined as follows.

Year A Rs. B Rs.

1 10,000 10,000

2 15,000 20,000

3 20,000 40,000

4 25,000 40,000

5 30,000 40,000

Cash Flow- Investment Proposal A Year Cash

Inflows Trail no. 1 Discount 15% p.a.

Trail no.2 Discount 16% p.a.

Trail no.3 Discount 17% p.a.

Present Value (Rs.) Rs. Per Rs. Amount Per Rs. Amount Per Rs. Amount 1 10,000 0.8696 8,696 0.8621 8,621 0.8547 8,547

2 15,000 0.7561 11,341 0.7432 11,148 0.7305 10,957

3 20,000 0.6575 13,150 0.6407 12,814 0.6244 12,488

4 25,000 0.5718 14,295 0.5523 13,807 0.5337 13,342

5 30,000 0.4972 14,916 0.4761 14,283 0.4561 13,683

Total 1,00,000 62,398 60,673 59,017

Less Investment Outflow 60,000 60,000 60,000

Net difference in present value (+)2,398 (+) 673 (-) 983

Cash Flow- Investment Proposal B Year Cash Inflows Trail no. 1 Discount 15%

p.a. Trail no.2 Discount 16% p.a.

Present Value (Rs.) Rs. Per Rs. Amount Per Rs. Amount 1 10,000 0.8333 8,333 0.8265 8,265

2 20,000 0.6944 13,888 0.6830 13,660

3 40,000 0.5787 23,148 0.5645 22,580

4 40,000 0.4823 19,292 0.4665 18,660

5 40,000 0.4019 16,076 0.3855 15,420

Total 150,000 80,737 78,585

Less Outflows

1 75,000 0.8333 62,498 0.8265 61,987

2 25,000 0.6944 17,360 0.6830 17,075

Total 100,000 79,858 79,062

Net difference (+)879 (-)477

For a change in rate of interest of 1! (from 16% to 17%) the change in present

value is Rs. 1,656 = (60,673 – 59,017)

The rate of interest which equalizes investment cash outflows with cash inflows is

determined as:16% + {(673 X1) /1656} =16.40%

So the proposal A yield a discounted or internal rate of return is 16.40%


CEPT, Ahmedabad 35


Similar for proposal B- actual rate of discount

= 20% + {(879 X1) /1356} =20.6482%

Thus proposal B is preferable to A as the internal rate of return is higher for B

that of A.

4.2.4 Pay Back or Pay Off Period Method Pay-back period is the time required for the net cash inflows to equal the amount

of investment i.e. the periods over which the cash inflows pay-off the investment;

the shorter the period, the better is the investment. As capital projects have a

long gestation period, during which many uncertainties may come up, the degree

of risk assumed by a company when planning capital expenditure is directly

linked to the length of time required to recover the investment from the cash

inflow generated by the project. The pay-back period takes care of this important

aspect of risk inherent in investment decisions. If there is two or more competing

project, the one having the shortest pay-back period is selected because the risk

element is the least.

Illustrative Example:

Project A Project B Investment 20,000 Rs. 20,000 Rs. Net Cash Inflows Cumulative Cumulative

1 Year 5,000 5,000 5,000 5,000

2 Year 7,000 12,000 5,000 10,000

3 Year 8,000 20,000 5,000 15,000

4 Year 5,000 25,000 5,000 20,000

5 Year 5,000 30,000 5,000 25,000

Pay-Back Period 3 year 4 year Project A is preferable to project B.

Merits of Pay off Period Method:

It is easy to calculate and can be understood easily by even non-financial people.

In time when dear money conditions are prevailing, the pay-back period method

is very suitable, because of its emphases on quick recovery of the investment

through cash inflows.

The risk element is taken care off in the pay-back period method, as it prefers a

project, which recoups the investment in the shortest possible time period.

It is most useful when the investment is not high and the capital of the project is

recovered in a short period.

The guesswork and uncertainties are less in calculations because it is not

necessary to forecast cash inflows throughout the life of the project.


CEPT, Ahmedabad 36


Drawbacks of Pay off Period Method:

This method does not measure the true profitability of the project as it does not

consider the cash inflows generated throughout the life of the project. It limits

itself to the pay-back period and ignores the cash inflows which arise after the

pay-back period. This method may, therefore, be used only as a supplementary

index along with some other method.

Another serious drawback is that time value of money is ignored. It is proper that

the cash inflows received in earlier periods should be given more value than the

cash inflows received in later periods. Without this important aspect being

considered, evaluation will not be complete and will be therefore misleading.

4.2.5 Rate of Return on Investment Method (R & I) This is an age-old technique used for evaluating capital projects. This measures

the relationship between the return after-tax and expressed as a percentage on

investment.

The rate of return is calculated as:

Average Yearly Undiscounted net cash inflow after tax X 100 CFavROI =

Total undiscounted investment cash outflows =

OF

Total undiscounted net cash flows after

tax Where CFav

=Economic life of the project

Illustrative Example: Project A Project B Total Investment 1,00,000 1,50,000

Net Cash inflows after tax during the life of the project 1,00,000 2,70,000

Life of the Project 10 years 15 years

Annual return 10,000 18,000

Return on investment 10 % 12%

Project B is preferable to Project A

Merits of Rate of Return on Investment Method:

It is a very simple and easy method which can be understood by all managers. It

is this simplicity which accounts for its wide popularity.

Unlike pay-back period method, the entire serviceable life of the project is taken

into consideration. Therefore, the project is considered in its totality.

Drawbacks Rate of Return on Investment Method:

Difficulties and uncertainties associated with the estimation of future sales and

anticipated cost over a long period are influenced by a large number of factors.

The life of an asset, for instance, would depend upon factors such as, its make,


CEPT, Ahmedabad 37


quality, the extent of its working, the state of maintenance and the manner of

handling during work.

For this method, usually profits (return) are calculated by conventional

accounting practice of taking into account accruals.

Cash flows are relevant in the context of capital investment evaluation, which

consider the time pattern of earnings. Cash generation for different projects may

be start at different points of time and hence, time pattern of cash generation is

important and relevant. Because of these limitations, the ROI technique is not

very useful to make sophisticated analysis in capital investment decisions.

4.2.6 Profitability Index Yet another time-adjusted method of evaluating the investment proposal is the

benefit-cost (B/S) ratio or profitability index (PI). It is the ratio of the present

value of cash inflows, at the required rate of return, to the initial cash outflow of

investment. It may be gross or net; net being simply gross minus one. The

formula to calculate benefit-cost ratio or profitability index is as follows :

n

PV of cash inflows PV (Ct)

Ct∑

PI =

Initial cash outlay

=

C0

=

t=1

(1+K)t

÷ C0

ILLUSTRATION

The initial cash outlay of a project is Rs. 100,000 and it can generate cash inflow

of Rs.40,000, Rs.30,000, Rs.50,000 and Rs.20,000 in year 1 through 4. assume a

10 percent rate of discount. The PV of cash inflows at 10 percent discount rate is:

PV = Rs. 40,000 (1/1.1) + Rs. 30,000 (1/2.1)

+ Rs.50,000 (1/3.1) + Rs. 20,000 (1/4.1)

= Rs 40,000 X 0.909 + Rs 30,000 X 0.826 + Rs 50,000 X 0.751

+ Rs. 20,000 X 0.683

NPV = Rs 112,350 – Rs 100,000 = Rs 12,350

PI = Rs 1,12,350 = 1.1235

Rs 1,00,000

Acceptance Rule The following are the acceptable PI are :

Accept if PI > 1

Reject if PI < 1


CEPT, Ahmedabad 38


May accept if PI =1

When PI is greater than one, then the project will have

positive net present value

Evaluation of PI Method

Like the NPV and IRR rules, PI is a conceptually sound method of appraising

investment projects. It recognizes the time value of money. It is a variation of the

NPV method, and requires the same computations as the NPV method. In the PI

method, since the present value of cash inflows is divided by the initial cash

outflow, it is a relative measure of a project’s profitability.

Financial vs. Economic Analysis Financial and economic analyses have similar features. Both estimate the net benefits

of an investment project based on the difference between the with-project and the

without-project situations. However, the concept of financial net benefit is not the

same as economic net benefit. While financial net benefit provides a measure of the

commercial (financial) viability of the project on the project-operating entity, economic

net benefit indicates the real worth of a project to the country. For a project to be

economically viable, it must be financially sustainable. If a project is not financially

sustainable, there will be no adequate funds to properly operate, maintain and replace

assets; thus the quality of the water service will deteriorate, eventually affecting

demand and the realization of financial revenues and economic benefits.

It has sometimes been suggested that financial viability not be made a concern

because as long as a project is economically sound, it can be supported through

government subsidies. However, in most cases, governments face severe budgetary

constraints and consequently, the affected project entity may run into severe liquidity

problems, thereby jeopardizing even its economic viability.

The basic difference between the financial and economic benefit-cost analyses of the

project is that the former compares benefits and costs to the enterprise in constant

financial prices, while the latter compares the benefits and costs to the whole economy

measured in constant economic prices. Financial prices are market prices of goods and

services that include the effects of government intervention and distortions in the

market structure. In financial analysis, the taxes and subsidies included in the price of

goods and services are integral parts of financial prices, but they are treated differently

in economic analysis.


CEPT, Ahmedabad 39


5.0 Financial and Economic Analysis: Case of Jammu Sewerage Project In Jammu City, there was no hygienic system for domestic excreta collection,

treatment or disposal in the city. In the older section of Jammu the obnoxious

practice of conservancy (service latrines) still continues and in other areas, the

un-treated sewage and sullage is discharged into storm water drains causing a

grave risk to health of sanitation workers and the citizens alike. Newer houses in

relatively more planned and organized colonies have septic tanks but most lack

soak ways and the partially treated effluent is usually discharged into open road

drains which flow into the natural drainage channels that pass through the city.

The components under sewerage sub projects identified are

• Completion of the ongoing construction/Laying of lateral and secondary

sewers in Division A, Phase II;

• Construction/Laying of trunk main sewers in Division A, Phase II;

C

B

Figure 4.1ammu Sewerage Divisions

Construction of sewage treatment plant of 30 MLD STP capacity to serve

Division A, Phase II;

• Combined sewer comprising Construction/Laying of secondary, lateral,

outfall and house connection for the Division A, Phase I;

• Construction of sewage treatment plant of required capacity to serve

Division A, Phase I;

• Sewage / storm drainage separation structures in Division A, Phase I, before

the pumping stations or STP;

• Providing house connections in both Phase I and Phase II.


CEPT, Ahmedabad 40


Subsequent Sub project Phase I:

For these sewerage catchments separate collection systems may not be feasible

due to space constraints, congested area and narrow roads. It is therefore

proposed to provide combined sewerage system to this sewerage zone.

The component would include:

• Intercepting of sewage flowing into the Nallahs and open drains;

• Construction of trunk mains sewers, secondary sewers, laterals and house

connections;

• Provision for diversion of sewerage and storm water before entering to

treatment facility;

• Extension of treatment plant (Planned under the sample subproject) to cater

the additional requirement of 30 MLD.

5.1 Cost Estimates The cost estimates for the subproject is summarized in Table5.1 Table 5.1: Sewerage Subproject Preliminary Cost Estimate S.NO Su-Project Description Amount US

$ million 1 Subproject 1

Division A, Phase II plus part of Division B

Construction / Laying of sewerage system to carry sewage in dry weather flow & storm water during rains for Phase II of Division A and part of Division B

25.26

Construction of STP for Phase 1 of capacity 30 MLD

2 Subproject 2 Division A, Phase I

Combined system to carry sewage in dry weather flow & storm water during rains for Phase I

31.7

Construction of STP for Phase I of 24 MLD including sewage pumping stations

Total 56.96


CEPT, Ahmedabad 41


Economic Analysis 1 Main Evaluation: Table 5.2 presents the results of the main economic evaluation.

The table indicates that the EIRR of the environmental sanitation component is

estimated to be 32.65%. The EIRR value exceeds the economic opportunity cost

of capital of 12% and all subprojects are economically viable. Avoided health

care costs comprise the largest proportion of economic benefits (63%) followed

by time savings in sewage disposal cost (25%) and improved property value

(11%).

Table 5.2: Economic Cost-Benefit Analysis for Sewerage Component,

Jammu

Details Present Value (Rs. million) a/

Costs

Capital costs

Sewerage & Sanitation 859.06

O&M costs

Sewerage & Sanitation 251.08

1 Economic Analysis of Sample Subprojects Economic Cost: The economic costs of capital works and annual operation and maintenance are

calculated from the financial cost estimates on the following basis:

(i) Price contingencies are excluded but physical contingencies are included because they represent real consumption of resources;

(ii) Import duties and taxes are excluded because they represent transfer payments;1

(iii) The existence of unemployment and under-employment for unskilled workers within the Indian economy means that the opportunity cost of unskilled labour can be considered to be lower than its wage rate – a conversion factor of 0.75 of the market wage rate is used to estimate the shadow wage rate;1

(iv) The market wage rate for skilled labour and the acquisition cost of land are considered to represent opportunity costs, as both factors are in demand;

All costs are valued using the domestic price numeraire, to enable an easier comparison with the information used to measure benefits (e.g. a significant component of benefit is the savings in resources, which would be used in the without project situation).


CEPT, Ahmedabad 42


Details Present Value (Rs. million) a/

Total costs 1110.14

Benefits

Increased property value 186.95

Avoided costs of

-sewage disposal 415.27

-health care 1044.97

-flood damage & earning lost

10.81

Total benefits 1657.99

Economic Return Measures

Net present value (Rs. million) 547.85

EIRR (%) 32.65%

a/ In 2006 prices. Discounted to 2006 at 12% real discount rate.

Sensitivity Analysis. Sensitivity analysis was undertaken in order to test the

robustness of the economic results.

The following changes in parameters and assumptions were analyzed:

• A capital cost overrun of 20 percent;

• Increase in O&M cost by 20 percent;

• Decrease in all project benefits by 20 percent;

• One year delay in implementation; and

• Worst case scenario of combined effect with cost (capital and O&M)

increase by 20 percent; all benefit decrease by 20 percent and one year

delay in implementation.

Table 5.3 indicates that (i) all the subprojects remain economically viable in each

individual sensitivity test; and (ii) when the combination of changes is tested, the

verall component and the sample subproject for Jammu remain economically

viable with12 percent EIRR.

Table 5.3: Sensitivity Analysis for Sewerage Component (EIRR)

Details EIRR

Main Evaluation (Base Case) a/ 32.65%

Capital Cost Overrun b/ 21.87%

Switching Value c/ 63.00%

O&M Cost Overrun d/ 30.79%

Switching Valuec/ 218.00%

Decrease in Project Benefits e/ 18.66%

Switching Valuec/ 33.00%

One Year Delay in Implementation 32.63%

All Four Tests Combined 11.69%


CEPT, Ahmedabad 43


• a/ 20% increase in capital cost estimates.

• b/ Calculated as the percentage change in a variable required for EIRR to

reduce to 12%. For example the capital cost can increase by 63% or project

benefits can reduce by 33% to get the minimum required level of EIRR of

12%

• c/ 20% increase in O&M cost.

• d/ 20% decrease in project benefits

Details of Economic Cost Calculations

Capital Cost

Financial Cost (Capital) Resource Cost (Capital)

Details Rs Million Rs Million S P Factor Base Cost 1,136.70

Allowances 15% 170.33

Foreign Cost

- Base cost & allowance 34% 444.39 488.83 1.10

- Taxes & Duties 6% 26.66 - -

471.06 488.83

Local Cost -

- Unskilled labour 12% 103.52 77.64 0.75

- Skilled labour & Others 88% 759.13 759.13 1.00

- Taxes & Duties 15% 129.40 - -

992.04 836.76

Total 1,463.09 1,325.59

O&M Cost

Financial Cost (O&M) Resource Cost (Capital)

Details Rs Million Rs Million S P Factor O&M Cost 4% 57.82

-

Foreign Cost

- Base cost 0% - - 1.10

- -

Local Cost -

- Unskilled labour 50% 28.91 21.68 0.75

- Skilled labour & Others 50% 28.91 28.91 1.00

57.82 50.59

Total 57.82 50.59


CEPT, Ahmedabad 44


Economic Cost-Benefit Analysis

Base Case (Rs.in Million)

Economic Capital Cost Economic O&M Cost Economic Project Benefits

Year Sewerage & Sanitation

Total

Sewerage & Sanitation

Total

Improved property value

On-site Sewage Disposal

Health care

Flood damage & earnings lost

Total

Net Benefit

2006-07 - - - - - - - - - -

2007-08 132.56 132.56 - - - 64.08 18.62 - 82.70 (49.86)

2008-09 397.68 397.68 5.06 5.06 - 192.24 74.50 - 266.73 (136.00)

2009-10 397.68 397.68 20.24 20.24 - 192.24 130.37 - 322.61 (95.31)

2010-11 265.12 265.12 35.41 35.41 - 128.16 167.62 - 295.77 (4.76)

2011-12 132.56 132.56 45.53 45.53 - 64.08 186.24 - 250.32 72.23

2012-13 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2013-14 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2014-15 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2015-16 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2016-17 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2017-18 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2018-19 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2019-20 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2020-21 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2021-22 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2022-23 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2023-24 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2024-25 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2025-26 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2026-27 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2027-28 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2028-29 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2029-30 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2030-31 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

2031-32 - - 50.59 50.59 49.40 - 186.24 2.86 238.50 187.90

Total 1325.59 1325.59 1118.10 1118.10 988.03 640.79 4302.14 57.12 5988.09 3544.39

-

NPV @12% (Rs. Million)

859.06 859.06 251.08 251.08 186.95 415.27 1044.97 10.81 1657.99 547.85

EIRR (%) 32.65%


CEPT, Ahmedabad 45


5.2 Financial Analysis The financial analysis of the sample subprojects is on an approach governed by

the fact that, firstly, user charges are not very widespread in the state and the

system of property tax does not exist. For the delivery of public services, the

departments and ULBs primarily depend on government subsidies. In this regard,

any upward tariff revision would mean resistance from the users. Secondly, the

Government of Jammu and Kashmir will receive 90% of ADB’s assistance as a

grant and 10% as a loan. Therefore, the weighted cost of capital will not be of

relevance for cost recovery/ remunerative projects. In this regard, cost recovery/

revenue generating subprojects need to be financially viable against a benchmark

cost of capital. Currently, there exists no comparative rate/ tenor combination as

offered by ADB, and the closest market rate for medium tenor funds (10-15

years) is around 9%. The current rate of inflation is in the region of 5%, implying

a required benchmark FIRR of 4% for such projects. In principle, each sub-

project is expected to aim for a FIRR of 4%. The financial analysis for Jammu

Sewer has been carried out on the cash flow. Jammu Sewer is a green field

project

The lessons from the sub project analysis forms the basic principles of financial

appraisal of using balance sheet based financial analysis for service projects with

no cash streams and for cost recovery/ remunerative on the financial returns at

a rate not les than benchmark IRR of 4%. The general principles of engagement

on a sub project are that:

• It should be part of the Sector Master Plan/ Town Development Plan;

• Commitment to conduct an audit of existing situation;

• Development of a business plan by the service provider, addressing costs,

revenues, assets, demand assessment, investment needs and tariff

adjustments over a Seven-year time horizon. The business plan should

• include measurable indicators of performance to be updated and approved

• by the ULB council annually;


CEPT, Ahmedabad 46


• Improvements in financial management, particularly billing and collection,

and

• Tariffs set at a level sufficient to cover O&M costs during the implementation

period.

• Based on the above assumption of a minimum return of 4%, of Alternative

non-volumetric user charges and property based taxes2 have been worked

out for the sample subprojects. These alternative scenarios have been

compared with the current charges, and the most reasonable structure from

The property tax assumptions are as follows:

Jammu

Population 2001 559000

Households 111800

Households < ARV of 500 30 % 33540

Taxable Household 78260

Taxable Commercial as % of Residential Properties 25

Total Taxable Properties 97825

2 For each sub project three basic charging options were considered.

User charge based recovery of O&M

A combination of upfront connection deposit and a monthly user charge

A combination of a water/ drainage tax as part of property tax and a monthly user charge

Option 3 has been recommended as this is the most doable option.

Base Cost Connection Fees/ Tax Rate/ Month in Rs.

Jammu Dom. N.Dom. Dom. N.Dom.

1 1287 180 450

2 1287 5000 12500 150 375

3 1287 Drainage Tax @ 8% of

Property Tax

110 330


CEPT, Ahmedabad 47


various alternatives is proposed. The proposed structure also incorporates

reasonable revisions in user charges, fees etc. over the projects’

implementation period.

• Currently the local bodies do not levy property based taxes and the user

charge is the only source for supporting operation and maintenance. In the

absence of database on properties in the city, the average (Annual) rental

value (ARV) of cities of comparable size and economic characteristics has

been used. The user charges have been frozen at a level when the rate of

return is around 4 %, and the most possible option has been selected based

on the reasonableness of the levy. The assumption common for all options

are:

• a 10% increase in capital cost;

• the revision of tax base and user charges at least every five years;

• collection performance for property tax at 80% of current demand

and 50% against arrear demand, and

• that 30% of the household will not be part of the property tax net

due to possible lower rental values.

Based on the analysis as outlined above, the proposed rates are as given in table

5.4

Table 5.4 : Summary of Financial Analysis

Sample

Sub

Projects

Nature of

the

Project

Scope of

Analysis

Target

parameter

Recommendations Remarks

Sewerage-

Jammu

Cost

Recovery

Cash-flow FIRR of 4% Monthly charge of

Rs.110 for domestic

consumers and

Rs.330 for non-

domestic consumers.

In addition drainage

tax of 8 % of Annual

Rental Value.

At present

there are no

charges.

However, even if these charges and taxes are proposed to be implemented in

2010-11, FIRR will not be 4% unless:

• The collection efficiency touches over 80%;

• revisions undertaken every five years if not annually to charges, and

• increasing the consumer coverage substantially

Other actions required will also be in the form of generating public awareness,

enumeration of consumers, creation of a property registry, computerization etc.

The proposed user charges/ taxes based on the required rate of return may

appear to be not feasible at this juncture as the concept of levy of user charges is

recent. GoJ&K may decide to impose lower charges and taxes initially but in such

a situation incremental revisions ought to be steeper than as assumed to ensure

a 4% FIRR over the life of the project. In such a situation, the practical strategy


CEPT, Ahmedabad 48


is in terms of incremental improvement in recovery of O&M cost by improving

coverage of households, appropriate increases in current user charges, improving

billing and collections and reduction of physical losses. The target should be to

cover 100% of O&M cost by the end of the project implementation period. A

proposal for feasible user charges and taxes for two sample subprojects that

could be imposed to cover 50% and 60% of O& M costs in 2010-11 is presented

in (Table 5.5).

Table 5.5: User Charges/ Taxes in 2010-11 under 70% Coverage of Users

50% Cost Recovery 60% Cost Recovery

Sewerage-

Jammu

Fixed monthly charge of Rs.15 for

domestic consumers and Rs. 45 for

non-domestic consumers. In addition

drainage tax of 5 % of Annual Rental

Value.

Fixed monthly charge of Rs. 20 for

domestic consumers and Rs. 60 for

non-domestic consumers. In

addition a drainage tax of 5 % of

Annual Rental Value.

Various scenarios developed in this regard reflect the possibility of improving

performance through basic management measures both on supply and revenue

side.3 However, as with the improvements in electricity supply service in the

State, concentrated awareness and systemic improvements to be supported by

the proposed project would be necessary. Table 5.6: Results of the analysis

Scenario

Scenario 1:

Improved collection against current demand sufficient to improve costs of operation and

maintenance.

Scenario 2:

increase in connections at current rates,

improved collections

production efficiency increases and

additional connections at current rates

3 With a collection efficiency of 40%, the proposed revisions in user charges will cover 48% of O&M

cost for Srinagar water supply and 83% of the O&M cost for Jammu sewerage system in 2010-11.


CEPT, Ahmedabad 49

sd5

Will it be S&D


Scenario 3:

Shift to Volumetric Rates

Demand equivalent to costs

Variable collection levels

1 With a collection efficiency of 40%, the proposed revisions in user charges will

cover 48% of O&M cost for Srinagar water supply and 83% of the O&M cost for

Jammu sewerage system in 2010-11.

The table below presents the key assumptions for the Water Supply and Sewer

Sub Projects, and the indicative rates for each option.

Based on this decision the revenue enhancement plans have been developed for

the city as detailed below in table 5.7 a, b & c

Table 5.7(a): Sewer Cash Flows

Option 1: Project Jammu Sewerage Alternative Base 1BASIC DATA Project DetailsName of the Town Jammu Population to be covered 233000Population 2006 771000 Proposed Connections 44808Population Growth rate % 3.676 Base CostsAverage Houshold Size 5.2 Project Cost Million 1287Houesholds 148269 Increase in cost % 10ASSUMPTION Project implementation Period Yrs 4Connections % % Actuals Year %Domestic 75 33606 1 10 128.7Non Domestic 25 11202 2 30 386.1User Contribution Rs 0 3 30 386.1Domestic 0 0.0 4 20 257.4Non Domestic 0 0.0 5 10 128.7Monthly Connection Charges Rs/ Month Rs.in MillWeighted rate 248Domestic 180 6.0Non Domestic 450 5.0Collection % 100 %Increase after 5 Years Annual O&M Cost 51.48 million% 25 Project Cost PhasingInflation rate 0 Total Connection Fees 0.0 MillionO&M % to base cost 4 in US$ 0.0Ratio : Domestic/ ND Rates 2.5 Instalments 4Year Capital Cost O&M Revenues Status

Deposits Annual Charges Total2007 128.7 0 0.0 0.0 -128.72008 386.1 0.00 0.0 0.0 -386.12009 386.1 0.00 0.0 0.0 -386.12010 257.4 0.00 0.0 0.0 -257.42011 128.7 51.48 133.1 133.1 133.1 -47.12012 51.48 133.1 133.1 133.1 81.62013 51.48 133.1 133.1 133.1 81.62014 51.48 133.1 133.1 133.1 81.62015 51.48 133.1 133.1 133.1 81.62016 51.48 166.3 166.3 166.3 114.92017 51.48 166.3 166.3 166.3 114.92018 51.48 166.3 166.3 166.3 114.92019 51.48 166.3 166.3 166.3 114.92020 51.48 166.3 166.3 166.3 114.92021 51.48 207.9 207.9 207.9 156.52022 51.48 207.9 207.9 207.9 156.52023 51.48 207.9 207.9 207.9 156.52024 51.48 207.9 207.9 207.9 156.52025 51.48 207.9 207.9 207.9 156.52026 51.48 259.9 259.9 259.9 208.4

IRR 4.2%NPV 9 (17.14)


CEPT, Ahmedabad 50


Table 5.7(b): Sewer Cash Flows Option 2: Project Jammu Sewerage Alternative Deposit 2BASIC DATA Project DetailsName of the Town Jammu Population to be covered 233000Population 2006 771000 Proposed Connections 44808Population Growth rate % 3.676 Base CostsAverage Houshold Size 5.2 Project Cost Million 1287Houesholds 148269 Increase in cost % 10ASSUMPTION Project implementation Period Yrs 4Connections % % Actuals Year %Domestic 75 33606 1 10 128.7Non Domestic 25 11202 2 30 386.1User Contribution Rs 6875 3 30 386.1Domestic 5000 168.0 4 20 257.4Non Domestic 12500 140.0 5 10 128.7Monthly Connection Charges Rs/ Month Rs.in MillWeighted rate 206Domestic 150 5.0Non Domestic 375 4.2Collection % 100 %Increase after 5 Years Annual O&M Cost 51.48 million% 25 Project Cost PhasingInflation rate 0 Total Connection Fees 308.1 MillionO&M % to base cost 4 in US$ 6.8Ratio : Domestic/ ND Rates 2.5 Instalments 4Year Capital Cost O&M Revenues Status

Deposits Annual Charges Total2007 128.7 0 77.0 77.0 -51.72008 386.1 0.00 77.0 77.0 -309.12009 386.1 0.00 77.0 77.0 -309.12010 257.4 0.00 77.0 77.0 -180.42011 128.7 51.48 110.9 110.9 110.9 -69.32012 51.48 110.9 110.9 110.9 59.42013 51.48 110.9 110.9 110.9 59.42014 51.48 110.9 110.9 110.9 59.42015 51.48 110.9 110.9 110.9 59.42016 51.48 138.6 138.6 138.6 87.12017 51.48 138.6 138.6 138.6 87.12018 51.48 138.6 138.6 138.6 87.12019 51.48 138.6 138.6 138.6 87.12020 51.48 138.6 138.6 138.6 87.12021 51.48 173.3 173.3 173.3 121.82022 51.48 173.3 173.3 173.3 121.82023 51.48 173.3 173.3 173.3 121.82024 51.48 173.3 173.3 173.3 121.82025 51.48 173.3 173.3 173.3 121.82026 51.48 216.6 216.6 216.6 165.1

IRR 4.2%NPV 9 (8.59)


CEPT, Ahmedabad 51


Table 5.7(c): Sewer Cash FlowsOption :3

Project Jammu Sewerage Alternative Tax Opion 3BASIC DATA Project DetailsName of the Town Jammu Population to be covered 233000Population 2006 771000 Proposed Connections 44808Population Growth rate % 3.676 Base CostsAverage Houshold Size 5.2 Project Cost 1287 MillionHouesholds 148269 Increase in cost % 10ASSUMPTION Project implementation Period 4 yearsConnections % % Actuals Year %Domestic 75 33606 1 10 128.7No Domestic 25 11202 2 30 386.1User Contribution Rs 0 3 30 386.1Domestic 0 0.0 4 20 257.4Non Domestic 0 0.0 5 10 128.7Monthly Connection Charges Rs/ Month Rs.in MillWeighted rate 165 Annual O&M Cost 51.48 millionDomestic 110 3.7 Project Cost PhasingNon Domestic 330 3.7 Total Connection Fees 0.0 MillionCollection % 100 % in US$ 0.0Increase after 5 Years Instalments 5% 25 Drainage Tax rate (% of ARV) 8 %Inflation rate 0O&M % to base cost 4 Rs in MillionRatio : Domestic/ ND Rates 3Year Capital Cost O&M Revenues Status

Taxes Annual ChaCollectionsTotal

2007 128.7 0.0 -128.72008 386.1 0.00 0.0 -386.12009 386.1 0.00 15.0 15.0 -371.12010 257.4 0.00 17.1 17.1 -240.32011 51.48 18.16 88.7 88.7 106.9 55.42012 51.48 18.82 88.7 88.7 107.5 56.12013 51.48 19.24 88.7 88.7 108.0 56.52014 51.48 24.76 88.7 88.7 113.5 62.02015 51.48 25.72 88.7 88.7 114.4 63.02016 51.48 26.33 110.9 110.9 137.2 85.72017 51.48 26.77 110.9 110.9 137.7 86.22018 51.48 34.34 110.9 110.9 145.2 93.82019 51.48 35.63 110.9 110.9 146.5 95.02020 51.48 36.46 110.9 110.9 147.4 95.92021 51.48 37.06 138.6 138.6 175.7 124.22022 51.48 37.55 138.6 138.6 176.2 124.72023 51.48 48.06 138.6 138.6 186.7 135.22024 51.48 63.38 138.6 138.6 202.0 150.52025 51.48 84.54 138.6 138.6 223.2 171.72026 51.48 113.27 173.3 173.3 286.6 235.1

IRR 0 4%NPV 9% (372.78)NPV 4% 0.02


CEPT, Ahmedabad 52


Table 5.8

Jammu Connections 92128128979

JammuProperty Tax at 5 % of ARVCollection Levels against cost 4 OptionsMultipliers against domestic forCommercial 3Industrial 4Weighted rates/ monthDomestic Rs in millionNon Domestic 0Options 1 2 3Scenario 1 Base CaseImproved collection against current demandExpenditure Rs.in Million 500.0 500.0 500.0 500.0 500.0Demand Rs.in Million 66 66 66 66 66Demand as % to Expenditure 13 13 13 13 13Collection % against Demand 30 50 70 80 100Collection Rs.in Million 20 33 46 53 66Collection as % to Exp. 4.0 6.6 9.3 10.6 13.3Subsidy Per year Rs in million 480.1 466.8 453.6 446.9 433.7Weighted monthly rate at Rs 60 (Domestic Rs. 30 and Non domestic at an average of Rs 180/month)

Scenario 2Increase in connections At current ratesProduction efficiency increasesIncluding Additional Connections at current ratesExpenditure Rs.in Million 500.0 500.0 500.0 500.0 500.0Demand Rs.in Million 93 93 93 93 93Demand as % to Expenditure 19 50 60 80 100Collection Rs in Million Rs.in Million 17.2 46.4 55.7 74.3 92.9Collection as % to Exp. 3 9 11 15 19Subsidy Per year Rs in million 454 444 426 407Weighted monthly rate at Rs 60 (Domestic Rs. 30 and Non domestic at an average of Rs 180/month)

Scenario 3Volumetric RatesDemand equivalent to costsVariable collection levelsCollection Levels % against Cost 30 60 80 100Cost-2009 in Million 578.8 578.8 578.8 578.8 578.8Water Availability Net MLD 135.0 Rate/KL Rs,Domestic 126 11.25 517.4Commercial 4.86 33.75 59.9Industrial 0.18 45 3.0Standpost 4.85Sub Total 580.2Demand Rs in million 578.8 578.8 578.8 578.8Collections Rs in million 173.6 347.3 463.1 578.8Collection as % to Exp. 30 60 80 100Subsidy Per year Rs in million 405.2 231.5 115.8 0.0

Rs 250/ Month for domestic users and Non Domestic at Rs.750/ monthPlus a property tax of Rs 25 per month/ househol

4

d


CEPT, Ahmedabad 53


CEPT, Ahmedabad 54


Table 5.9 :Financial Operating Plans- Jammu Municipal Corporation- Option 1 General Data Population 2001 559000 Average Household Size 5.00 Households 111800 Households < ARV of 500 % 30.00 33540 Taxable Household 78260 Taxable Commercial as % of households 25 Total Taxable Properties 97825 Salem Average ARV, Population 6 Lakhs 2400 Property Tax Tax Rate % 23.00 Purpose Tax Rate % General Purpose Tax 7 Water Tax 4 Drainage 8 Conservancy Tax 4 Sub Total 23.00 Note : The Rates as in Salem - Popn. 6 Lakhs ARV per Property- Existing Rs. 2400 Annual Growth in Assessments % 1.00 ARV Revision Year 2014 ARV Revision % 33.00 Impact Purpose Annual Monthly General Purpose Tax 168 14 Water Tax 96 8 Drainage 192 16 Conservancy Tax 96 8 Sub Total 552 46


JAMMU MUNICIPAL CORPORATIONFINANCIAL FORECASTRUN DATE 07/17/06AssumptionProperty Tax Options -1 Inclusive of Tax, 2 Do Nothing 1

2002-2003 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Property Tax 281.74 319.77 340.58 352.79HealthSanitation charges 29.79 18 41.7 45 36.6 38.5 40.4 42.4 44.5 46.8 49.1License Fee Health 13.74 8.35 9.03 10 9.6 10.1 10.6 11.1 11.6 12.2 12.8Cost of Forms 5.36 0.25 0.26 0.5 0.4 0.4 0.4 0.4 0.4 0.5 0.5Others 9.73 14.57 16.23 20.2 17.9 18.7 19.7 20.7 21.7 22.8 23.9Sub Total 58.62 41.17 67.22 75.7 64.4 67.7 71.0 74.6 78.3 82.2 86.3RevenueLand and Building Fee 20.26 26.04 36.26 50 39.3 41.3 43.3 45.5 47.8 50.2 52.7Auction of Shops 37.07 80 16 15 38.9 40.8 42.8 45.0 47.2 49.6 52.1Hoarding Fee 30.5 24 32 36 32.2 33.8 35.5 37.3 39.1 41.1 43.2Community Hall Fee 21.96 19.59 15.97 16 18.0 18.9 19.9 20.9 21.9 23.0 24.2Others 23.1 34.51 53.22 71.8 55.8 58.6 61.6 64.6 67.9 71.3 74.8Sub Total 132.89 184.14 153.45 188.8 184.2 193.4 203.1 213.3 223.9 235.1 246.9Builidng SectionBuilding Regulation Fee 52.25 42.63 57.66 65 57.9 60.7 63.8 67.0 70.3 73.8 77.5Betterment Charges 16.22 16.34 12.9 15 15.5 16.3 17.1 17.9 18.8 19.8 20.8Cost of Forms 0.65 0.24 0.5 0.5 0.4 0.5 0.5 0.5 0.5 0.6 0.6Copy Fee and Other Fee 16.54 6.19 6.3 6.5 6.6 7.0 7.3 7.7 8.1 8.5 8.9Sub Total 85.66 65.4 77.36 87 80.4 84.4 88.7 93.1 97.7 102.6 107.8Others 28.72 30.97 40.91 44.5 40.7 42.8 44.9 47.2 49.5 52.0 54.6Grand in Aid 10% Taxes to be diverted w.e.f. 01-402k5 1301.14 1371.33 1579.38 2900 2047.7 2150.1 2257.6 2370.5 2489.1 2613.5 2744.2Total 1607.03 1693.01 1918.32 3296 2417.6 2538.4 2665.4 3080.4 3258.3 3426.1 3592.6ExpenditureEstablishment 1325.64 1347.96 1363.25 1691 1820.2 1911.2 2006.8 2107.1 2212.5 2323.1 2439.2POL 78.06 80.8 102.5 132 135.3 142.1 159.2 178.3 199.7 223.6 250.5Repair / Machinery 30.17 29.91 26.61 30 32.5 34.1 35.8 37.6 39.5 41.5 43.6Purchase Electric items for Extended Areas 0 0 0 50 16.7 17.5 18.4 19.3 20.3 21.3 22.3Sanitation Charges 33 34.48 32.5 45 51.7 54.3 57.0 59.8 62.8 66.0 69.3Nallah clearance 36.2 29.91 32.48 40 42.0 44.1 46.3 48.7 51.1 53.6 56.3Deployment of Casual Safaikaramcharies through N.G.O's 11.04 9.5 19.5 100 105.0 110.3 115.8 121.6 127.6 134.0 140.7Implementation of Municipal Social Reforms(ex gratia 0 0 0 20 6.7 7.0 7.4 7.7 8.1 8.5 8.9Others 36.55 65.92 69.96 129.85 93.0 97.7 102.5 107.7 113.0 118.7 124.6O&m Land Fill 107.1 228.1 364.4Total 1550.7 1598.5 1646.8 2237.9 2303.1 2418.3 2549.1 2687.7 2941.7 3218.4 3519.9Status 56.37 94.53 271.52 1058.15 114.5 120.2 116.2 392.6 316.7 207.7 72.7

Rs in LakhsActuals Estimates


CEPT, Ahmedabad 55



2002-2003 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Property Tax 281.74 319.77 340.58 352.79HealthSanitation charges 29.79 18 41.7 45 36.6 38.5 40.4 42.4 44.5 46.8 49.1License Fee Health 13.74 8.35 9.03 10 9.6 10.1 10.6 11.1 11.6 12.2 12.8Cost of Forms 5.36 0.25 0.26 0.5 0.4 0.4 0.4 0.4 0.4 0.5 0.5Others 9.73 14.57 16.23 20.2 17.9 18.7 19.7 20.7 21.7 22.8 23.9Sub Total 58.62 41.17 67.22 75.7 64.4 67.7 71.0 74.6 78.3 82.2 86.3RevenueLand and Building Fee 20.26 26.04 36.26 50 39.3 41.3 43.3 45.5 47.8 50.2 52.7Auction of Shops 37.07 80 16 15 38.9 40.8 42.8 45.0 47.2 49.6 52.1Hoarding Fee 30.5 24 32 36 32.2 33.8 35.5 37.3 39.1 41.1 43.2Community Hall Fee 21.96 19.59 15.97 16 18.0 18.9 19.9 20.9 21.9 23.0 24.2Others 23.1 34.51 53.22 71.8 55.8 58.6 61.6 64.6 67.9 71.3 74.8Sub Total 132.89 184.14 153.45 188.8 184.2 193.4 203.1 213.3 223.9 235.1 246.9Builidng SectionBuilding Regulation Fee 52.25 42.63 57.66 65 57.9 60.7 63.8 67.0 70.3 73.8 77.5Betterment Charges 16.22 16.34 12.9 15 15.5 16.3 17.1 17.9 18.8 19.8 20.8Cost of Forms 0.65 0.24 0.5 0.5 0.4 0.5 0.5 0.5 0.5 0.6 0.6Copy Fee and Other Fee 16.54 6.19 6.3 6.5 6.6 7.0 7.3 7.7 8.1 8.5 8.9Sub Total 85.66 65.4 77.36 87 80.4 84.4 88.7 93.1 97.7 102.6 107.8Others 28.72 30.97 40.91 44.5 40.7 42.8 44.9 47.2 49.5 52.0 54.6Grand in Aid 10% Taxes to be diverted w.e.f. 01-402k5 1301.14 1371.33 1579.38 2900 2047.7 2150.1 2257.6 2370.5 2489.1 2613.5 2744.2Total 1607.03 1693.01 1918.32 3296 2417.6 2538.4 2665.4 3080.4 3258.3 3426.1 3592.6ExpenditureEstablishment 1325.64 1347.96 1363.25 1691 1820.2 1911.2 2006.8 2107.1 2212.5 2323.1 2439.2POL 78.06 80.8 102.5 132 135.3 142.1 159.2 178.3 199.7 223.6 250.5Repair / Machinery 30.17 29.91 26.61 30 32.5 34.1 35.8 37.6 39.5 41.5 43.6Purchase Electric items for Extended Areas 0 0 0 50 16.7 17.5 18.4 19.3 20.3 21.3 22.3Sanitation Charges 33 34.48 32.5 45 51.7 54.3 57.0 59.8 62.8 66.0 69.3Nallah clearance 36.2 29.91 32.48 40 42.0 44.1 46.3 48.7 51.1 53.6 56.3Deployment of Casual Safaikaramcharies through N.G.O's 11.04 9.5 19.5 100 105.0 110.3 115.8 121.6 127.6 134.0 140.7Implementation of Municipal Social Reforms(ex gratia 0 0 0 20 6.7 7.0 7.4 7.7 8.1 8.5 8.9Others 36.55 65.92 69.96 129.85 93.0 97.7 102.5 107.7 113.0 118.7 124.6O&m Land Fill 107.1 228.1 364.4Total 1550.7 1598.5 1646.8 2237.9 2303.1 2418.3 2549.1 2687.7 2941.7 3218.4 3519.9Status 56.37 94.53 271.52 1058.15 114.5 120.2 116.2 392.6 316.7 207.7 72.7



CEPT, Ahmedabad 56


Table 5.11 Financial Operating Plans- Jammu Municipal Corporation- Option 2


2002-2003 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Property Tax 0.00 0.00 0.00 0.00HealthSanitation charges 29.79 18 41.7 45 36.6 38.5 40.4 42.4 44.5 46.8 49.1License Fee Health 13.74 8.35 9.03 10 9.6 10.1 10.6 11.1 11.6 12.2 12.8Cost of Forms 5.36 0.25 0.26 0.5 0.4 0.4 0.4 0.4 0.4 0.5 0.5Others 9.73 14.57 16.23 20.2 17.9 18.7 19.7 20.7 21.7 22.8 23.9Sub Total 58.62 41.17 67.22 75.7 64.4 67.7 71.0 74.6 78.3 82.2 86.3RevenueLand and Building Fee 20.26 26.04 36.26 50 39.3 41.3 43.3 45.5 47.8 50.2 52.7Auction of Shops 37.07 80 16 15 38.9 40.8 42.8 45.0 47.2 49.6 52.1Hoarding Fee 30.5 24 32 36 32.2 33.8 35.5 37.3 39.1 41.1 43.2Community Hall Fee 21.96 19.59 15.97 16 18.0 18.9 19.9 20.9 21.9 23.0 24.2Others 23.1 34.51 53.22 71.8 55.8 58.6 61.6 64.6 67.9 71.3 74.8Sub Total 132.89 184.14 153.45 188.8 184.2 193.4 203.1 213.3 223.9 235.1 246.9Builidng SectionBuilding Regulation Fee 52.25 42.63 57.66 65 57.9 60.7 63.8 67.0 70.3 73.8 77.5Betterment Charges 16.22 16.34 12.9 15 15.5 16.3 17.1 17.9 18.8 19.8 20.8Cost of Forms 0.65 0.24 0.5 0.5 0.4 0.5 0.5 0.5 0.5 0.6 0.6Copy Fee and Other Fee 16.54 6.19 6.3 6.5 6.6 7.0 7.3 7.7 8.1 8.5 8.9Sub Total 85.66 65.4 77.36 87 80.4 84.4 88.7 93.1 97.7 102.6 107.8Others 28.72 30.97 40.91 44.5 40.7 42.8 44.9 47.2 49.5 52.0 54.6Grand in Aid 10% Taxes to be diverted w.e.f. 01-402k5 1301.14 1371.33 1579.38 2900 2047.7 2150.1 2257.6 2370.5 2489.1 2613.5 2744.2Total 1607.03 1693.01 1918.32 3296 2417.6 2538.4 2665.4 2798.6 2938.6 3085.5 3239.8ExpenditureEstablishment 1325.64 1347.96 1363.25 1691 1820.2 1911.2 2006.8 2107.1 2212.5 2323.1 2439.2POL 78.06 80.8 102.5 132 135.3 142.1 159.2 178.3 199.7 223.6 250.5Repair / Machinery 30.17 29.91 26.61 30 32.5 34.1 35.8 37.6 39.5 41.5 43.6Purchase Electric items for Extended Areas 0 0 0 50 16.7 17.5 18.4 19.3 20.3 21.3 22.3Sanitation Charges 33 34.48 32.5 45 51.7 54.3 57.0 59.8 62.8 66.0 69.3Nallah clearance 36.2 29.91 32.48 40 42.0 44.1 46.3 48.7 51.1 53.6 56.3Deployment of Casual Safaikaramcharies through N.G.O's 11.04 9.5 19.5 100 105.0 110.3 115.8 121.6 127.6 134.0 140.7Implementation of Municipal Social Reforms(ex gratia 0 0 0 20 6.7 7.0 7.4 7.7 8.1 8.5 8.9Others 36.55 65.92 69.96 129.85 93.0 97.7 102.5 107.7 113.0 118.7 124.6O&m Land Fill 107.1 228.1 364.4Total 1550.7 1598.5 1646.8 2237.9 2303.1 2418.3 2549.1 2687.7 2941.7 3218.4 3519.9Status 56.37 94.53 271.52 1058.15 114.5 120.2 116.2 110.9 -3.1 -132.9 -280.1



CEPT, Ahmedabad 57


CEPT, Ahmedabad 58


Capital PLAN Contribution from other SchemesCapital City Development Programme 150 125 633.7 240 349.5 367.0 385.4 404.6 424.9 446.1 468.4National Slum Development Programme 40 90 135 160 134.8 141.5 148.6 156.0 163.8 172.0 180.6E.I.U.S. 2.5 30 0 50 28.0 29.4 30.9 32.4 34.0 35.7 37.5Plan Distt.(Additionality) 103.2 100 0 100 70.0 73.5 77.2 81.0 85.1 89.3 93.8Low Cost Sanitation 8 4.5 4.5 50 20.7 21.7 22.8 23.9 25.1 26.4 27.7URIF 0 0 65 100 57.8 60.6 63.7 66.9 70.2 73.7 77.4I.D.M.T 0 0 0 100 35.0 36.8 38.6 40.5 42.5 44.7 46.9Consituency Development Funds 4 7.46 26.32 50 29.3 30.8 32.3 33.9 35.6 37.4 39.311th Finance Commission 0 262.5 0 47.5 108.5 113.9 119.6 125.6 131.9 138.5 145.4PWD/T&T Road Cuttings 42.95 60.86 12.8 15 31.0 32.6 34.2 35.9 37.7 39.6 41.6Total of Part-I 350.65 680.32 877.32 912.5 864.5 907.8 953.2 1000.8 1050.9 1103.4 1158.6PART-IIIReceipts from other organisation(Election) etc. 18.15 47.1 2 3 18.2 19.1 20.1 21.1 22.2 23.3 24.4Receipts from Relief 20 20 25 25 24.5 25.7 27.0 28.4 29.8 31.3 32.8Receipts from UEED 5 0 10.6 0 3.7 3.9 4.1 4.3 4.5 4.7 5.0Total of Part III 43.15 67.1 37.6 28 46.4 48.8 51.2 53.8 56.5 59.3 62.2Part IV (remittences) 0 0 68.83 115 64.3 86.9 93.2 85.5 92.9 95.1 95.7Total 393.8 747.42 983.75 1055.5 114.5 139.5 148.5 143.6 153.9 159.1 163.0

787.6 1494.8 1967.5 2111.0 1089.8 1182.9 1246.0 1283.7 1354.2 1416.8 1479.5Capital ExpensesConstruction of Building Block-B for Mayor & Dy.Mayor,Councillors 65.3 70.5 73.14 50 67.8 71.2 74.7 78.5 82.4 86.5 90.8Plan Expenditures 340.65 578.7 812 179.45 549.6 577.0 605.9 636.2 668.0 701.4 736.5Total 405.95 649.2 885.14 229.45 617.3 648.2 680.6 714.6 750.4 787.9 827.3Status capital Account -12.15 98.22 98.61 826.05 472.5 534.7 565.4 569.1 603.8 629.0 652.2

Overall Status 44.22 192.75 370.13 1884.2 587.0 654.9 681.6 680.0 600.7 496.1 372.1

Please refer to DPR case study of road projects given in CD, for financial and economic analysis of road projects.

References: Pandey, I. M, (2000), Financial Management, Eighth Edition, Vikash Publishing House Private Limited, New Delhi Agarwal Prakashan, (1999), Engineering Management-II, Shivaji University, Agarwal Prakashan, Kolhapur, Maharashtra Mik Green, KV Dinesh, K Mukundan, M.Bhoominathan, ( ) Jammu Sewer: A Case Study, Based on sub project prepared for ABD’s and J&KUIDP project

ADB, (1999), Handbook for The Economic Analysis of Water Supply Projects, Asian Development Bank, http://www.adb.org/documents/handbooks/water_supply_projects/default.asp

59


Annex : I Sample Block Cost of Material and Labour in Water Supply Projects 1. D. I. PIPE K-9 (With Excise duty) Sr. No.

Size Unit Material Rate

(Rs) L,L & J* of Labour Rate (Rs.)

1 100 mm RMT 694.00 13.00 2 150 mm " 1049.00 20.00 3 200 mm " 1341.00 28.00 4 250 mm " 1757.00 34.00 5 300 mm " 2226.00 40.00 6 350 mm " 2775.00 53.00 7 400 mm " 3350.00 61.00 8 450 mm " 4011.00 73.00 9 500 mm " 4666.00 88.00 10 600 mm " 6151.00 109.00 11 700 mm " 7975.00 136.00 12 750 mm " 8947.00 149.00 13 800 mm " 9868.00 163.00 14 900 mm " 12045.00 193.00 15 1000 mm " 14262.00 226.00

Lowering and laying and Jointing* D. I. PIPE K-7 (New Item) (With Excise duty): Sr. No.



1 100 mm RMT 587 13

2 150 mm " 849 20

3 200 " 1180 28 mm

4 250 mm " 1587 34

5 300 mm " 2044 40

6 350 mm " 2575 53

7 400 mm " 3132 61

8 450 mm " 3778 73

9 500 mm " 4510 88

10 600 mm " 6007 109

Lowering and laying and Jointing*

2. C. I. PIPE (Class LA Test Pressure 12 Kg/sq.cm):


CEPT, Ahmedabad 60



CEPT, Ahmedabad 61

Sr. No.



1 80 mm RMT 616.00 12.00

2 100 mm " 746.00 13.00

3 125 mm " 935.00 18.00

4 150 mm " 1123.00 20.00

5 200 mm " 1639.00 28.00

6 250 mm " 2209.00 34.00

7 300 mm " 2849.00 40.00

8 350 mm " 3589.00 53.00

9 400 mm " 4369.00 61.00

10 450 mm " 5291.00 73.00

11 500 mm " 6275.00 88.00

12 600 mm " 8282.00 109.00

13 700 mm " 10960.00 136.00

14 750 mm " 12275.00 149.00

15 800 mm " 13741.00 163.00

16 900 mm " 16746.00 193.00

17 1000 mm " 20118.00 226.00

3. M. S. PIPE: (A) Bare pipe (I) With Excise duty - Pipe dia. in OD

Sr. No.



1 711.0 6 mm " 4566.00 273

2 711.0 7 mm " 5307.00 273

3 711.0 8 mm " 6045.00 305

4 762.0 6 mm " 4896.00 292

5 762.0 7 mm " 5691.00 292

6 762.0 8 mm " 6484.00 327

7 813.0 6 mm " 5227.00 312

8 813.0 7 mm " 6075.00 312

9 813.0 8 mm " 6922.00 352

10 864.0 6 mm " 5557.00 331

11 864.0 7 mm " 6460.00 331

12 864.0 8 mm " 7360.00 379

13 914.0 6 mm " 5881.00 350

14 914.0 7 mm " 6837.00 350

15 914.0 8 mm " 7790.00 401

16 965.0 7 mm " 7221.00 370



CEPT, Ahmedabad 62

Sr. No.



17 965.0 8 mm " 8229.00 370

18 965.0 9 mm " 9234.00 424

19 1016.0 7 mm " 7605.00 389

20 1016.0 8 mm " 8667.00 389

21 1016.0 9 mm " 9727.00 446

(B) Pipe with outside tape coating & inside cement mortar lining or epoxy coating

(NEW ITEM) (With Excise Duty):

Sr. No.



1 406.4 5 mm " 2554 154

2 406.4 6 mm " 2977 154

3 406.4 7 mm " 3399 154

4 457.0 5 mm " 2875 175

5 457.0 6 mm " 3354 175

6 457.0 7 mm " 3830 175

7 508.0 5 mm " 3200 192

8 508.0 6 mm " 3733 192

9 508.0 7 mm " 4264 192

10 559.0 5 mm " 3487 214

11 559.0 6 mm " 4067 214

12 559.0 7 mm " 4645 214

4. R. C. C. PIPE

Class NP2 Test Pressure 0.7 Kg/sq. cm Class NP3

Sr. No. Size Unit

Material Rate (Rs)

Labour Rate (Rs.)

Material Rate (Rs)

Labour (Rs.)

1 80 mm RMT 16 16

2 100 mm " 21 21

3 150 mm " 100 29 108 29

4 200 mm " 124 42 156 42

5 225 mm " 133 57 176 57

6 250 mm " 148 64 193 64

7 300 mm " 206 66 296 66

8 350 mm " 243 86 501 86

9 400 mm " 284 107 559 107

10 450 mm " 333 110 620 110

11 500 mm " 396 114 709 114

12 600 mm " 535 118 991 118



CEPT, Ahmedabad 63

Class NP2 Test Pressure 0.7 Kg/sq. cm Class NP3

Sr. No. Size Unit

Material Rate (Rs)

Labour Rate (Rs.)

Material Rate (Rs)

Labour (Rs.)

13 700 mm " 699 133 1248 133

14 750 mm " 788 144 1484 144

15 800 mm " 874 155 1641 155

16 900 mm " 1055 219 1985 219

17 1000 mm " 1268 241 2437 241

18 1100 mm " 1501 227 2839 227

19 1200 mm " 1774 245 3329 245

20 1400 mm " 2280 267 4717 267

21 1600 mm " 2813 289 6007 289

22 1800 mm " 3547 312 7845 312

5. P. V. C. Pipes: A) Test Pressure 4 Kg/cm2. -With Excise Duty

Sr. No.


(Rs) L,L & J of Labour Rate (Rs.)

1 63 mm dia RMT 32 2.25

2 75 mm dia " 45 3.00

3 90 mm dia " 63 3.50

4 110 mm dia " 90 4.00

5 125 mm dia " 117 4.50

6 140 mm dia " 146 6.50

7 160 mm dia " 191 7.00

8 180 mm dia " 244 8.00

9 200 mm dia " 294 9.00

10 225 mm dia " 375 10.00

11 250 mm dia " 453 12.40

12 280 mm dia " 574 14.10

13 315 mm dia " 726 15.80

B) Test Pressure 6 Kg/cm2. - With Excise Duty Sr.

No. Size Unit

Material Rate


1 63 mm dia RMT 46 2.25

2 75 mm dia " 63 3.00

3 90 mm dia " 90 3.50

4 110 mm dia " 130 4.00

5 125 mm dia " 171 4.50

6 140 mm dia " 212 6.50



CEPT, Ahmedabad 64

Sr.

No. Size Unit

Material Rate


7 160 mm dia " 273 7.00

8 180 mm dia " 349 8.00

9 200 mm dia " 432 9.00

10 225 mm dia " 542 10.00

11 250 mm dia " 672 12.40

12 280 mm dia " 842 14.10

13 315 mm dia " 1068 15.80

6. H.D.P.E. Pipes PE-80 Basic Rate Rs.53730 per MT - 10.0 Kg/cm2

Sr. No. Size Unit Material

Rate (Rs) L,L & J of Labour Rate (Rs.)

1 50 mm dia RMT 61 3

2 63 mm dia " 97 4

3 75 mm dia " 137 5

4 90 mm dia " 165 5

5 110 mm dia " 290 7

6 125 mm dia " 376 29

7 140 mm dia " 471 33

8 160 mm dia " 614 37

9 180 mm dia " 776 42

10 200 mm dia " 957 46

11 225 mm dia " 1211 52

12 250 mm dia " 1494 58

13 280 mm dia " 1872 65

14 315 mm dia " 2369 73

15 355 mm dia " 3005 82

16 400 mm dia " 3894 92

17 450 mm dia " 4933 104

18 500 mm dia " 6083 115

19 560 mm dia " 7632 138

20 630 mm dia " 9643 145

It is important to note that the block costs given above may vary from state to state depending upon prevailing SOR rates.

Engineering Economics

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