March 2011 | Frontier Economics, Atkins, ITS 1
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
10.1 Introduction
10.1.1 Project overview
Location The M0 motorway acts as an orbital road around Budapest. To date the northern, eastern and southern sections of the orbital motorway have been constructed. There are also proposals for a western section and the southern section is currently being upgraded. Part of the eastern section and a link road (the M31) between it and the M3 is the focus of this study. Budapest sits at an important junction for international traffic. This can be seen in Figure 1. It is also evident from the fact that three land-based Pan-European corridors pass through Budapest. These are corridors IV (from the north-west to the south-east), V (from the west to the east) and X (to the south along the route of corridor IV initially). As can be seen from Figure 1, in terms of traffic volumes, corridor IV from the Austrian and Slovakian borders to Budapest is the most important. The importance of the M0 Eastern sector to international and long distance traffic is illustrated in Figure 2 – which shows the passage of trucks (both national and international) in Hungary.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
2 Frontier Economics, Atkins, ITS | March 2011
Figure 1. Foreign vehicle traffic in Hungary (2006)
Budapest
Source: http://www.kti.hu/uploads/images/Trendek6/Masodik/2-360.jpg [accessed 23rd August 2010]
Figure 2. Traffic of trucks in Hungary (2008 volumes)
M0 Eastern Sector Lots 2, 3 and 4) M31 not constructed in 2008
Source: http://www.kti.hu/uploads/images/ocf/modell/7-raterheles_tgk.jpg [accessed 23rd August 2010]
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 3
Figure 3. M0 Eastern Sector
Lot 4 Lot 5
Lot 3
Lot 2
Source: Jacobs Consultancy (2004) Eastern Section of M0 Budapest Ring Road Between National Road 4 and M3 Motorway. Economic and Financial Appraisal. Final Report. Report dated June 2004.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
4 Frontier Economics, Atkins, ITS | March 2011
Description The M0 Eastern Sector comprises of four sections, one of which has been funded solely by the Hungarian government. The remaining three sections and the M31 spur (between the M0 and the M3) have been part-funded by the EU. The different sections of the M0 and the M31 are illustrated in Figure 3. Initially, only the three sections of the M0 Eastern Sector (Lots 2, 3 and 4) were to be part-funded by the EU1. The M31, whilst part of the original funding application in 2004, was excluded from the funding due to financing constraints. However, as the tendered costs for the M0 East sections were well below those estimated, an amendment to the application to include the M31 (Lot 5) was made in 2006. Each of the four sections co-funded by the EU was subject to a separate tendering exercise – hence the reason they are referred to as ‘Lots’. As can be seen from Table 1 the EU has co-funded 38.7 km of motorway of which 25.5 km is on the M0 and 12.2 km comprises the M31. This motorway is Dual 2 lanes throughout, though the southern section of it (Lots 2 and 3a) has been constructed with provision for upgrading to Dual 3 lanes at a later date. In accordance with Hungarian law, no vignette or toll charges are payable on the M0 or M31. This is because they form part of an orbital motorway around an urban area. The total cost of constructing the co-funded sections of the M0 Eastern Sector and the M31 is estimated at €367m2 of which the EU has contributed €271m2 (which is 85% of the costs excluding sunk costs and other ineligible costs). The Hungarian Authorities also invested €6.0m into an electronic communication system on the motorway. The M0 Eastern Sector opened to traffic on September 16th 2008, whilst the M31 Gödöllő Connection only opened in the summer of 2010.
10.1.2 Context
Socio-economic context Table 2 presents some summary data for Hungary and Budapest, with averages for the EU also presented for comparison. As can be seen from this table, GDP per capita in Hungary is about two thirds of the EU average. Budapest, as the largest city (1.8 million people) and the capital of Hungary, performs more strongly, economically, than the rest of the country. This can be seen as output and income per head is higher in Budapest than in the rest of the country. As
1 Lot 1 (M0 between M5 motorway and Trunk road 4) was funded in its entirety by the Hungarian government. 2 It is an estimate as not all costs have been invoiced yet by the contractor.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 5
such GDP per capita in Budapest is just under 90% of the EU average for 2007 (the last year that such regional data is available for). Hungary experienced strong economic growth up to the beginning of the recent recession. Between 2000 and 2006 its economy outperformed that of the EU as a whole, however, since 2007 this trend has been reversed. 2009 saw a severe drop in output with a 6.3% reduction in real GDP per capita. For 2010 the economy is forecast to stabilise with moderate growth in 2011. Unemployment data mimics the previous two observations. Firstly, unemployment is lower in Budapest than in other parts of the country. Secondly, unemployment in Hungary used to be below the EU average until the recent economic problems became apparent. Now it is higher than the EU average.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
6 Frontier Economics, Atkins, ITS | March 2011
Table 1. Description of M0 Eastern Sector and M31
Length Design Standard Construction period (excludes Cost planning and land purchase period)
Start End (road Total cost1 Funding by opens) EC (€M)
Sunk costs n/a n/a €35.648M n/a
Original funded project
M0 between Trunk road 4 and Dual 2 lanes with provision for expansion to 6.7km ------Trunk road 31 (Lot 2) dual 3 lanes
M0 between Trunk road 31 and Part A (from Trunk road 31 to Gödöllő Trunk road 3 (Lot 3) Connection): Dual 2 lanes with provision for 10.9km expansion to dual 3 lanes ------Part B (from Gödöllő Connection to Trunk road 3): Dual 2 lanes
M0 between Trunk road 3 and 8.9km Dual 2 lanes ------M3 Motorway (Lot 4)
Sub-total 26.5km 13th Dec 2005 16th Sept 2008 ------
Amendment
M31 Gödöllő Connection (Lot 5) 12.2km Dual 2 lanes 22nd Sept 2008 26th July 2010 ------
Total 38.7km Mixture of Dual 2 and Dual 3 motorway 13th Dec 2005 26th July 2010 €367.1m €271.0M
Note 1: Costs are ex ante as actual costs have not been finalised Source: Funding application, funding decisions, financing memorandi and construction progress reports
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 7
Table 2. Socio-economic data for Hungary and Budapest
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GDP/capita (market prices, €)
European Union (27 countries) 19100 19800 20500 20700 21700 22500 23700 25000 25100 23600
Hungary 10500 11600 12600 13000 13700 14200 15000 15600 16100 14900
Budapest 9900 11900 14800 15000 16900 18800 19800 21900 ------
Real GDP/capita growth (% p.a.)
European Union (27 countries) 3.9 2 1.3 1.3 2.5 2 3.2 3 0.5 -4.2
Hungary 4.9 4.1 4.4 4.3 4.9 3.5 4 1 0.6 -6.3
Budapest ------
Unemployment (%)
European Union (27 countries) ------9.1 9.2 8.9 8.2 7.2 7.0 ---
Hungary 6.4 5.7 5.8 5.9 6.1 7.2 7.5 7.4 7.8 ---
Budapest 5.3 4.2 3.8 3.6 4.4 4.7 4.8 4.9 4.3 ---
Notes: --- data not available
Source: Eurostat http://epp.Eurostat.ec.Europa.eu/portal/page/portal/Eurostat/home [accessed September 2nd 2010]
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
8 Frontier Economics, Atkins, ITS | March 2011
In a transport context there is significant congestion in central Budapest reflecting both the fact that it is the economic centre of the city but also the fact that there are only a handful of bridges over the Danube. The high traffic volumes and levels of congestion are a major contributor to poor air quality. As shown in Figure 4, the centre of Budapest is classified as ‘heavily polluted’ (red square). Aside from a polluted sector (amber square) in the north of the city the remainder of the city is classified as having acceptable air quality (yellow square) or good (green) or excellent (blue).
Figure 4. 2009 Air quality in Budapest (NO2)
Source: Országos Meteorológiai Szolgálat (2010 p59) 2009. évi összesítı értékelés hazánk levegıminıségérıl a manuális mérıhálózat adatai alapján. http://www.kvvm.hu/olm/results.php [accessed 2nd September 2010]
Strong economic growth in Hungary earlier in the decade has contributed to increasing car ownership, freight traffic and distances travelled. As a result, passenger traffic has increased by 24% and truck traffic by 18%3 from 2003 to 2008. Between 2007 and 2008 truck traffic decreased by 0.4%. This reflects
3 http://internet.kozut.hu/szakmai/orszagos_kozutak_adatai/eredmenyek/Lapok/default.aspx [accessed 1st Sept 2010]
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 9
both the start of the recession and the fact that obligatory toll payments were introduced. National traffic data for 2009 is yet to be released, but the count data obtained as part of this study sourced from the OKA (the National Highway database) via Közlekedés Ltd indicates that traffic growth between 2007 and 2009 has been mixed in the Budapest region. While traffic levels in Budapest have fallen significantly, those on rural roads (extra-urban) have either experienced no growth or only a small increase/fall in traffic levels.
Strategic policy context The M0 Eastern Sector (and the M31) form part of a coherent national transport strategy. The Ministry of National Development’s website4,5 lists its main objectives.
The creation of an economically efficient, up to date, safe transportation system that meets the demands of the society and less harms the environment. Specifically: improvement of the quality of the life, conservation of health, reduction of the territorial differences, increasing the traffic safety, protection of the built and natural environment; helping successful integration into the European Union; improvement of the conditions of the contacts with the neighbouring countries and their enlargement; aiding the implementation of the land use development objectives; and, creation of the conditions of the efficient operation and maintenance with the aid of the regulated competition.
The priorities of the transport policy are as follows: development of the missing infrastructure with special attention to the Pan-European transport corridors; complete adoption of the transport regulations of the EU, bearing in mind Hungarian peculiarities and possibilities, of which the
4 Ministry of Economic Affairs and Transport (2004) Hungarian Transport Policy 2003-2015. Source: http://nfm.gov.hu/en/en_archiv/infrastructure/transportaccessibility/hungarian_transport_policy.html?qu ery=transport [accessed 31st August 2010] 5 Ministry of Economy and Transport (2006) Transport Infrastructure Development in Hungary. Source: http://nfm.gov.hu/en/feladat_en/Infrastructure/archiv/transport.html?query=transport [accessed 31st August 2010]
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
10 Frontier Economics, Atkins, ITS | March 2011
cornerstones are reform of the railways, public transport and regulated competition; and, building of an environment-friendly transport system. At a strategic level, the M0 Eastern Sector forms part of the first transport investment priority stipulated in the National Transport Policy – that of completing missing infrastructure of the motorway network, particularly in Pan- European transport corridors. At a more local level the purpose of the M0 was to remove, from central Budapest, the transit traffic travelling along corridors IV/X and V. This traffic caused traffic congestion, environmental and safety problems. The M0 Eastern Sector was also aimed at providing improved connectivity between the eastern suburbs of Budapest and the rest of Budapest. Benefits are therefore expected to accrue to intra-Budapest traffic, traffic entering/leaving Budapest and transit traffic to/from the east. Furthermore the residents of Budapest both road users and non-road users are expected to benefit as the environment (noise and air pollution) would improve. At the national level the M0 Eastern Sector complements the construction of other sections of the M0 and motorway network in general. At the more local level the construction of the M0 Eastern Sector complements the local Budapest transport strategy which includes the temporary closure for rehabilitation of the Danube bridges in the city centre, the construction of Metro Line 4 and the construction of new tramlines (with associated temporary road closures) – all of which have commenced since the M0 Eastern Sector opened. Looking to the future it also complements proposed investments and policy instruments including proposals for a toll cordon in Central Budapest. The specific detailed objectives of the M0 Eastern Sector are: facilitate the efficient movement of goods and people therefore ensuring and increasing the competitiveness of Budapest and the surrounding region; reduce travel times; reduce transport costs; reduce accident rates on the existing road network and lower risk on a new modern purpose built section with improved safety features; reduce vehicle / pedestrian / cyclist conflicts; accommodate projected future traffic growth; reduce noise pollution and emissions from the Budapest network; assist international transit traffic along pan-European corridors IV, V and V; and,
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 11
provide a consistent standard of road on this section of pan- European corridor V.
10.1.3 Sources
Stakeholders To carry out the analysis, we have relied on a variety of different sources, provided by various stakeholders in Hungary and by DG REGIO. We consulted the following stakeholders.
Nemzeti Fejlesztési Ügynökség (NFU) (National Development Agency). This institution is the managing authority for EU co-financing. It therefore manages the preparation and implementation of National Development Plans (including operative programs containing individual projects). Its predecessor6 was named as the ‘authority responsible for application’ in the application for EC funds.
KIKSZ Közlekedésfejlesztési Zrt. (KIKSZ) (Transport Development Ltd). The KIKSZ is an intermediate body between the NFU and the NIF (see below). It used to form part of the Közlekedésfejlesztési Koordinációs Központ (KKK) (Co-ordination Centre for Transport Development). It is responsible for the transportation program that is co-financed by the EU. Amongst other things it performs quality assurance on the application forms for EU co-financing. However in the case of the M0 Eastern Sector this quality assurance was undertaken by COWI – a professional private consultancy with an international presence.
Nemzeti Infrastruktúra Fejlesztő Zrt. (NIF) (National Infrastructure Development Ltd). The NIF (or more precisely its predecessor7) is named as the organisation responsible for implementation in the application for funds. As well as being responsible for managing implementation/construction, the NIF also has responsibility for feasibility studies for transport infrastructure projects included in the National Development Plans (and therefore eligible for EU support). These feasibility studies (including CBA studies) are contracted out by the NIF to professional private consultancy firms. Prior to the election of the new Hungarian government the NIF formed part of the Ministry of Transport sitting under the KKK in the bureaucratic hierarchy. The new government has proposed that along with the KIKSZ (see above) it will form part of the
6 The NFU’s predecessor was Nemzeti Fejlesztési Hivatal (NFH) (the National Development Office) 7 The NIF’s predecessor was Nemzeti Autópálya Zrt (National Motorway Ltd).
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
12 Frontier Economics, Atkins, ITS | March 2011
Hungarian Development Bank. In the government reforms the Ministry of Transport has also been subsumed into the new Ministry of National Development.
Csömör Municipality. Csömör is a small settlement outside Budapest and the M0. It has a population of 9,000. It is typical of many of the settlements situated on the periphery of Budapest. The M0 passes along the edge of the settlement and has had a big impact on accessibility for its residents.
Közlekedés Fővárosi Tervező Iroda Kft (Közlekedés Ltd) (Transport Municipal Planning Bureau Ltd) is a privately owned professional Budapest based transport consultancy. The information we received included project applications (and supporting documentations) as well as project final reports, where available. We also received supplementary information, such as more recent traffic counts, from Közlekedés Ltd and from the Állami Autópálya Kezelő Zrt (AAK) (State Motorway Management Co. Ltd) via the NIF. The AAK manages and operates the M0. Table 3 provides the list of the documents we have used for this evaluation. We also provide a list of the sources for primary and secondary data in Table 4.
Surveys Most of the ex post analysis has relied on data provided by Közlekedés Ltd. Közlekedés Ltd is a transport consultancy but has access to several traffic count databases maintained and developed by public authorities as well as the regional transport model for Budapest. Közlekedés Ltd also undertook the journey time surveys commissioned as part of this analysis.
Interviews In addition to obtaining the relevant documentation and data, we had meetings on July 8th 2010 with stakeholders in Budapest. The meetings had three key objectives: discuss the role and usefulness of the ex ante CBA in the decision- making process that led to the development of the project under evaluations; identify missing data needed for the ex post analysis and make agreements relative to the provision or sourcing of this information; and, discuss the project’s wider economic, social and environmental impacts which are not captured by the standard core CBA.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 13
Table 3. Summary of project-related documentation – M0 Eastern Sector, Budapest
Documents Obtained from
Funding Applications 2004 HU 16 C PT 002 (original) DG REGIO 2004 HU 16 C PT 002 (amendment) Funding Decisions and Financing Memorandi DG REGIO Original and amendment Ex ante CBA Jacobs (2004) Eastern Section of M0 Budapest Ring Nemzeti Infrastruktúra Road Between National Road 4 and the M3 Motorway. Fejlesztő (NIF) Report dated June 2004. Additional reports Halcrow Group Ltd (2004) Summary EIAs of the M0 Eastern Ring Road and the M31 Gödöllő Connection. Nemzeti Infrastruktúra Final Report. Report to National Motorway Company Fejlesztő (NIF) (NA Rt.). Report dated June 2004. Incomplete set of construction progress reports dated from 7th August 2006 to 14th January 2010
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
14 Frontier Economics, Atkins, ITS | March 2011
Table 4. Summary of Primary & Secondary Data sources – M0 Eastern Sector, Budapest
Data Source Issues
Traffic count data (i) Országos Közúti Adatbank Budget limitations for Budapest city (Nationwide Road Databank) council has meant that traffic which is the property of Magyar monitoring has ceased. Ex post traffic Közút Nonprofit Kft. (Hungarian count data in Budapest is therefore Roads Management Company). limited. (ii) Before and after study of Megyeri Bridge opening. (iii) Internal traffic counts in Budapest Provided by Közlekedés Ltd.
Travel demand data Budapest city transport model The travel demand data in the model is a mixture of synthesised and Provided by Közlekedés Ltd. observed data, with the overall model calibrated to traffic counts.
Journey distance Budapest city transport model As above – the model is based on a data mixture of observed and synthesised Provided by Közlekedés Ltd. data.
Journey time data (i) Budapest city transport model (i) As above– the model is based on a mixture of observed, synthesised and
simulated data. (ii) Observed data for AM peak (ii) No ‘before’ journey time surveys along 2 routes previously used by exist to compare with the ‘after’ transit traffic through Budapest city surveys commissioned. centre. Surveys commissioned as part of this study and undertaken in September 2010. Provided by Közlekedés Ltd.
Accidents Ex ante CBA Ex post accident data could not be provided.
Investment costs NIF, Ex post investment cost data has not been finalised. Application for EC funds (DG REGIO, 2004 Table 6.2 p.13), Amendment to application (DG REGIO, 2006, Table 4 and Table 5 pp7-8)
10.1.4 Challenges with the evaluation There have been a number of technical challenges for this study. The definition of the counterfactual has been extremely problematic. Aside from the generic problem of identifying the impact of the transport investment against a background of economic and social change brought about by accession to the EU and the 2007/8/9 recession, the impact of the M0 Eastern Sector is confounded with that of several other transport initiatives. These include:
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 15
the opening of the M0 Northern Section including the Megyeri Bridge (a new crossing of the Danube) occurred 2 weeks after the M0 Eastern sector opened; the Margit Bridge in central Budapest was closed for rehabilitation works (it re-opened on November 15th 2010). These bridge rehabilitation works are extensive and were timed to occur once the Megyeri Bridge had opened; and, road closures for the construction of public transport projects including Metro Line 4 and two new tramlines; The closure of the Margit Bridge and roads associated with the construction of the public transport projects has been so severe that traffic volumes across the Danube have fallen by an estimated 18% between 2007 and 2009 (see Table 5). This is in despite the opening of the M0 Eastern Section and the M0 Northern Section including the provision of a new crossing of the Danube.
Table 5. Daily traffic flows across the Danube before and after the opening of the M0 Eastern Section (2-way ADT pcus)
Count site 2007 2009 Difference
Absolute %age
Budapest Árpád Bridge 149,960 124,370 -25,590 -17% City bridges Margit Bridge 81,934 Closed N/A N/A
Lánchíd Bridge 34,481 33,691 -790 -2%
1 Erzsébet Bridge 120,000 104,891 -15,109 -13%
1 Szabadság Bridge 16,141 12,000 -4,141 -26%
Petőfi Bridge 96,687 74,040 -22,647 -23%
Lágymányosi Bridge 117,028 99,936 -17,092 -15%
M0 M0 South Bridge 98,535 96,957 -1,578 -2% Bridges M0 Megyeri Bridge Not open 41,483 N/A N/A
Total flows crossing Danube 714,766 560,752 -127,398 -18%
Note 1: Estimated traffic flow due to unreliable count data Source: OKA (National Highway Database) and M0 Megyeri híd vizsgálat via Közlekedés Ltd
An additional challenge is that whilst the M0 Eastern Sector opened two years ago, the M31 has only just opened (July 2010). The impact of the M31 has yet to
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
16 Frontier Economics, Atkins, ITS | March 2011
be fully realised. The M31 has also been co-financed by the EU as part of the same funding package Another technical challenge occurs because the M0 Eastern Sector provides de- congestion benefits to intra-Budapest traffic. Due to the complex nature of the road network in Budapest the benefits felt in Budapest are spread over a large number of routes and therefore trip movements. These benefits are also non- trivial – 50% of the travel time benefits of the M0 Eastern Sector accrue to intra- Budapest traffic (that is traffic with both an origin and destination inside both the city limits and the M0). The method chosen to address these separate and varied technical challenges was to undertake the ex post analysis using what could be described as an ex ante methodology. The Budapest regional transport model which has a base year after the M0 Eastern Sector opened has been used to ‘back-cast’ the artificial counterfactual of the existing road network but without the M0 Eastern Sector (i.e. including the M0 Northern and the road closures, but not the M0 Eastern Sector). In many ways it is unfortunate that a modelling/back-casting solution had to be chosen, but it does clearly identify the difficulty in undertaking an ex post analysis when benefits are spread over a large area, there are many transport users, the network is complex and several transport initiatives occur at the same time.
10.2 Ex post cost-benefit analysis As mentioned above, the Budapest regional transport model owned and operated by Közlekedés Ltd was utilised to provide traffic and travel time information for the ex post CBA. This model provides traffic forecasts for weekdays for representative hours in the morning peak, the afternoon, the afternoon peak and the night. It is calibrated to 2009 (the year after the M0 Eastern Sector opened) to the latest available traffic count data. The model is used in a ‘back-casting’ mode to produce traffic volume, travel time and distance estimates for the counterfactual of no M0 Eastern Sector and no M31. It also provides estimates of traffic demands, travel time and distances in the existing situation. This is because the Budapest regional transport network is too complex to be able to survey enough ex post traffic impacts to form a sufficiently complete picture of the impacts of the M0 Eastern Sector and M31. Future year estimates of travel demands, travel times and trip distances (with and without the M0 Eastern Sector and the M31) are provided by the model using economic, demographic and transport planning assumptions consistent with the 2009 Budapest Transportation System Plan. The key economic assumption is a real growth in GDP/capita of 2.5%. Aside from both road and public transport infrastructure projects this plan also foresees a central toll cordon in Budapest and charging HGVs on the M0 (currently prohibited).
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 17
A weakness of the Budapest Regional Transport Model is that it takes the travel demands before and after the M0 and M31 as the same. That is the model does not predict the level of induced traffic brought about by the construction of the motorways. Ex ante data has also had to be used to fill in gaps in the ex post data. Ex ante data in its entirety has been used to estimate maintenance costs and accident benefits. A mixture of ex ante and ex post data has been used to estimate the construction costs as actual investment costs have not as yet been finalised. The ex post data is derived from the tendered construction costs submitted to the EC in the application amendment (to include the M31).
10.2.1 Headline results from the analysis: Table 6 summarises the headline results for the ex post economic analysis. The scenario reported is that corresponding to the economic, demographic and transport related plans for the Budapest region up until 2020. Taking a conservative approach traffic levels and travel times are then assumed to remain static until the end of the 25 year evaluation period. As can be seen from the headline economic results in this table, the project represents high value for money with a benefit cost ratio of 5.6 and an IRR of 24.8%. The detail underlying this estimate is explored more fully below.
Table 6. Summary of ex post economic analysis (2002 prices and values)
Central case
Net Present Value (€m) 974.1
Economic IRR (%) 24.8%
Benefit-cost ratio 5.6
Source: Own calculation Note: 25 year economic life Discount rate: 5.5%
The detailed results of the analysis are provided in Annexe 1. The project does not generate any operating revenues, however, for completeness we have carried out a financial analysis of the project. Table 7 presents both the return on investment and the return on capital (2002 prices, 5% discount rate, 25 year appraisal period). Clearly as no revenues are generated the FNPV indicators are negative. Furthermore, as no revenues are generated at any point in the lifetime of the project neither of the Financial IRR indicators can be calculated.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
18 Frontier Economics, Atkins, ITS | March 2011
Table 7. Summary of ex post financial analysis (2002 prices)
Central case
Financial Net Present Value – -219.9 Investment (€m)
Financial IRR – Investment (%) n.a.
Financial Net Present Value – -48.5 Capital (€m)
Financial IRR – Capital (%) n.a.
Source: Own calculation Notes: 5% discount rate, 25 year appraisal period
The detailed results of the analysis are provided in Annexe 1. The M0 Eastern Sector and M31 are youthful in terms of their age and their expected economic life. The M0 opened 2 years ago and the M31 a matter of weeks ago. As such their impacts on society and the economy are limited as it takes time for direct transport benefits to feed through into society and the economy. Additionally, the recession has affected the economy throughout the period the M0 has been open. Primarily as a consequence of their youthfulness direct quality of life benefits/costs are the benefits/costs most readily observable. Improvements in accessibility and an increase in leisure time (due to reductions in commuting time) were two effects cited to us. Noise disturbance and visual intrusion for households in the immediate vicinity of the M0 and the M31 form two of the cited costs the project has imposed on quality of life. There has been some economic development along the M0 corridor and it is expected that more will occur, as municipalities are zoning more land in the locality of the M0. As far as we are aware though there has been no obvious impact on the residential land market in the M0 corridor. We however attribute this finding primarily to the recession swamping any impact that the road is having and also to the relatively youthfulness of the road. In the long run we would expect land prices to adjust to reflect the improved accessibility the M0 and M31 provides.
10.2.2 Traffic volumes The M0 Eastern Section is well used by traffic. This is an important indicator as it shows that it is offering value to road users. As can be seen from Table 8 there are between 42,000 and 49,000 vehicles per day using the M0 East in 2009. The busiest section of the road is that just south of the M3. HGVs form about
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 19
20% of the vehicles on the M0 East reflecting its importance (relative to the streets of Budapest) for inter-urban traffic. Whilst there is a morning and evening peak hour on the M0 East it is not as pronounced as on city streets. The traffic in the peak hours represents about 8% of the vehicles using the motorway in an average day.
Table 8. M0 traffic flows (pcus)
ADT Flow
After M0 Per Subject of Eastern Before annum Location this ex Section M0 growth post study (but Eastern rate before Section M31 opened) East of M7 No 70,744 70,341 -0.3% South Bridge of No 98,535 96,957 -0.8% M0 Southern Danube Section between M5 and No 84,767 83,125 -1.0% National Road 5 M0/M5 No n.a. 88,035 n.a. between M5 and No 19,539 42,752 47.9% National Road 4 between National Road 4 and Yes - Lot 2 n.a. 44,836 n.a. M0 Eastern National Road 31 Section Between National Yes - Lot 3B n.a. 47,650 n.a. Road 31 and 3 between National Yes -Lot 4 n.a. 49,297 n.a. Road 3 and M3 between M3 and M2 No 30,800 47,810 55.2% M0 Northern between M2 and No n.a. 54,315 n.a. Section Megyeri Bridge Megyeri Bridge No n.a. 41483 n.a.
Source: OKA (National Highway Database) and M0 Megyeri híd vizsgálat via Közlekedés Ltd. Notes: M0 between M2 and M3 ‘before’ count surveyed in 2008, all other ‘before’ counts are 2007. All ‘after’ counts are 2009.
With respect to the M31, as this road has only just opened traffic demand patterns are still in an early stage of adjustment. However, early data from August 2010 indicates that on weekdays the traffic on the M31 is between 15 and 18,000 vehicles, of which 30% are heavy trucks. On weekends the traffic is about 10,000 vehicles. Traffic flows on the M0 Eastern sector between M31 and M3 has declined by 6 to 7,000 vehicles per day (which is 12 to 15 % drop), whilst traffic on the M3 between Gödöllő and Budapest has dropped by about 12,000 vehicles (which is about 20 percent reduction).
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
20 Frontier Economics, Atkins, ITS | March 2011
The opening of the M0 Eastern Section (and the almost simultaneous opening of the Megyeri Bridge) has had a big impact on traffic flows on two sections of the M0 – that between the M5 and National Road 4 (which comprises the southern part of the Eastern Section) and the section of the M0 linking the Eastern Section to the Megyeri Bridge. Clearly the M0 Eastern Section and the Megyeri Bridge are complementary to these route sections. In contrast there has been a small decline in traffic growth on the southern section of the M0 since 2007. The decline is not as great as that experienced on other motorways (the M1 and M7) in the vicinity of the M0 South. Counts on these routes indicate a decline of between 3% and 7% per annum. It therefore seems that the re-routeing of traffic along the M0 East has compensated for the decline in traffic volumes due to the recession on the southern section of the M0. Growth in traffic in the M0 South may also have been limited by congestion as this is the busiest section of the route and has very high demand flows. As already mentioned, traffic levels in Budapest have declined significantly since 2007 – much more significantly than on routes close to the city limits or on routes parallel with the M0. It is estimated that there has been an 18% decline in traffic movements across the Danube since 2007 due to a mixture of the recession and road closures in central Budapest. In terms of traffic growth, the demand origin-destination matrices for the regional transport model forecast an overall growth between 2009 and 2020 of nearly 19% for trips made in the region. This growth is however unevenly distributed with a reduction of trips within the centre of Budapest (due to the proposed toll cordon) and only a small growth in other intra-Budapest trips. The growth in traffic in the region is therefore driven by trips travelling to and from Budapest. Furthermore HGV traffic is forecast to grow more quickly than passenger traffic. This pattern is repeated for growth in vehicle kilometres, though as trip lengths are forecast to increase slightly by 2020 (vehicle kilometres are expected to grow by 27% over the region), absolute growth in vehicle kilometres is always higher than trip growth.
10.2.3 Costs Investment cost data has not been finalised as the project opened only recently and some invoices remain outstanding. Saying that the vast majority of costs have already been invoiced (approximately 97%) so the outturn cost data presented here is viewed as very representative of the figure once all invoices have been settled. As can be seen from Table 9 the final estimated cost of the M0 and M31 is €367m. In addition to these investment costs a further €6m was invested in an electronic communication system.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 21
Table 9. M0 and M31 Construction costs (nominal prices)
€000 (nominal prices) Sunk Costs 35,648 Preparatory works land acquisition 52,194 site preparation 4,474 Works cost Lot 2 37,301 M0 Lot 3 80,154 Lot 4 63,824 M31 Lot 5 87,741 Contingency of works ‘--- Supervision 5,139 Communication 623 Total 367,098
Source: NIF. Conversion from HUF to Euros uses the exchange rate at the time of the invoice
A number of ongoing costs are incurred to maintain and operate the asset. This includes both the maintenance and operation of the road surface, structures and drainage as well as the maintenance and operation of the Driver Information System (which monitors incidents, vehicles and their speeds and journey times). The operating cost for the M0 Eastern Sector and the M31 is taken from the ex ante study and is €1.72m per annum (2002 prices). This is assumed to remain constant in real terms throughout the project’s life. The NIF has however been able to supply unit cost data for some items based on the fixed priced tenders received for the four Lots tendered (Lots 2, 3, 4 and 5). This is detailed in Table 10.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
22 Frontier Economics, Atkins, ITS | March 2011
Table 10. M0 and M31 Unit costs
All sections Description Lot 2 Lot 3 Lot 4 Lot 5
M0 Rd 4 to M0 Rd 31 to M0 Rd 3 to M31 Rd 31 Rd 3 M3
Price base Nominal 2005 2005 2005 2008
Level 1 'All in' unit cost 9,485,736 (€/km) Level 2 Unit cost of land
(€/ha) Unit 'build' cost of pavement 970,761 941,005 1,023,823 724,737 work (€/km) Unit 'build' cost of bridges 892 (€/m2) Unit 'build' cost of tunnels
(€m/km) Level 3 Unit 'build' cost of pavement - two carriageway three lane 970,761 941,005 1,023,823 724,737 (€/km) Unit 'build' cost of beam bridges 1,162,466 1,954,259 662,374 1,174,098 (€/nr)
Source: NIF (in HUF) Notes: (i) Lots 2, 3 and 4 in 2005 prices (year of tender) ECB avg. exchange rate for year 248.05 HUF to 1 Euro (ii) Lot 5 in 2008 prices (year of tender) ; ECB avg. exchange rate for year for year 251.51 HUF to 1 Euro
10.2.4 Direct benefits
Time savings Observed average speeds (across all vehicle types) on the M0 Eastern section in between the morning and afternoon peaks are in excess of 100km/h8. This reflects the good operating conditions of the route at this time of the day. As the M31 has only just opened no equivalent journey speed data is available for it. These observed speeds are much higher than can be achieved on the streets of Budapest or other alternative routes, and time savings would therefore be expected to be an important contributor to the overall economic benefit of the project.
8 Data supplied by the NIF
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 23
This expectation is borne out as time savings are the dominant quantified benefit of the M0 Eastern Sector and the M31. With a Present Value of €1,195m (5.5% discount rate, 25 year appraisal period) they are almost 10 times larger in magnitude than the accident savings or the change in vehicle operating costs. Nonetheless, individual trip time savings are surprisingly not large. The largest time saving is for traffic travelling along the TEN-T corridor to/from the south (Serbia direction) to either North Pest or along the TEN-T corridor to the east (towards the Ukraine and East Slovakia). The modelled time saving is on average slightly larger than 10 minutes. Settlements outside of Budapest but along the M0 East corridor have also experienced significant reductions in travel time for orbital movements. Thus trips to/from the East Pest region (outside the M0), by being able to route along the M0, have experienced significant reductions in journey time to North Pest, North Buda and West Buda (all also outside the M0). These time savings are, on average across all time periods and zonal movements in these areas, between 5 and 10 minutes in size. Other than these origin-destination movements, travel time savings are on the whole small. This modelling result is consistent with the journey time surveys we commissioned (across Budapest city centre) from Közlekedés Ltd and observed data supplied to us (for the M0). If we take a journey along one of the TEN-T corridors from west of Budapest (e.g. Austria) to one north and east of Budapest (e.g. Ukraine) then we find that observed journey times through the city centre or around the M0 are broadly equal9. This feature occurs as our journey time survey for a route from the M1 west of the M0 through the city centre over the Erzsébet Bridge to the M3 east of the M0 gives a journey time of between 36 and 55 minutes in the morning peak. In contrast a route around the M0 during the middle of the day would be expected to take about 40 minutes. Given that journey times in the morning peak on the M0 will be slightly lower than those in the middle of the day, we can see that journey times along the M0 in the morning peak will be broadly comparable with those observed travelling through the city centre. This seems a counterintuitive result but it is in fact a consequence of the difference in length of the respective journeys. A trip through the city of Budapest would be approximately 30km depending on the route, whilst a trip around the M0 is about 73.5km10. The large variability in our observed journey times through Budapest also illustrate the
9 We would of course expect reliability effects to be very different between the two routes. Thus we would expect long distance traffic making this journey to favour the use of the M0. Reliability impacts have not been modelled. 10 These data refer to the situation before the M31 opens. Notwithstanding that the model predicts that even with the M31 open journey times from the west of the city to the north of the city will not experience big savings in journey time.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
24 Frontier Economics, Atkins, ITS | March 2011
travel time reliability benefits that can be obtained by traffic routeing around the M0 rather than through central Budapest. The dominant journey time savings occur to trips with their origins and destinations near the M0 East and the M31 (i.e. from North and East Pest) and for long distance traffic travelling to/from the north and east (e.g. Ukraine) – approximately 56% of the trips in the model. As a consequence trips with origins and destinations in North Pest (outside the M0), East Pest (outside the M0) and long distance trips with an origin towards the Ukraine accrue 43% of the time saving benefit. Trips to/from North and East Pest (but within the Budapest city limits) accrue a further 46% of the benefits. That is 89% of the benefit of the project accrues to an estimated 56% of the trips in the Budapest region. We have also estimated that 27% of the time saving benefit of the project accrues to traffic that uses the M0 directly to obtain a quicker journey11. This implies that the remaining 73% of the time saving occurs as a result of secondary de- congestion of city routes previously used by M0 traffic. This 27% is an average and in fact we estimate that 57% of the time saving benefits attributed to HGVs occurs through their direct use of the M0, whilst only 24% of the time savings attributed to cars and LGVs arises through their direct use of the M0. This difference in proportion reflects the importance of the M0 to HGVs, and also the relative absence of HGVs in the City of Budapest where most of the de- congestion benefits occur.
Vehicle operating costs Whilst the M0 East and the M31 increase journey speeds, they also make them longer. This is because, aside for specific movements, traffic re-routes further away from the ‘crow-fly’ route. It does so to benefit from the increased speeds the M0 East and the M31 offer. Across the whole region covered by the model, vehicle kilometres travelled are expected to increase by 0.9% as a consequence of the project. This gain is driven once again by the areas of Budapest and its surrounds that benefit the most from the M0 East and the M31 (North Pest, East Pest and origins and destinations along the TEN-T corridor towards Ukraine). The increase in distances travelled increases the cost of operating vehicles. As a result the present value for vehicle operating costs is negative at €-105m (5.5% discount rate, 25 year appraisal period). This is because longer distances imply increases in fuel consumption and vehicle depreciation.
11 This has been estimated by assuming that the observed number of vehicles using the M0 each obtain a 10 minute journey time saving in 2010. Journey time savings beyond 2010 are assumed to increase in proportion to those in the Central forecast.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 25
Other direct benefits The M0 East and the M31, by offering a ‘bypass’ alternative along a motorway standard road to what would otherwise by a trip through a large congested city centre, would clearly be expected to reduce unreliability in journey times for traffic that takes advantage of the M0. Reliability benefits can often be very large in congested environments, albeit not as large as time savings. In fact our surveys of routes through central Budapest show a large variability in journey times making this impact extremely likely in the case of the M0 Eastern Sector and the M31. However, modelling and valuing reliability of journey times is challenging. State of the art methods have only succeeded in valuing travel time variability on dual carriageway roads in any robust way. It is currently beyond the scope of the available methods to estimate the reliability benefits that would fall to traffic that no longer routes through the urban environment and uses the M0 instead. For these technical reasons, we have not estimated reliability impacts despite the potential large benefits that may arise to traffic using the M0 from an improvement in journey time reliability.
10.2.5 Externalities
Safety Motorways are, despite their high speed nature, safer roads relative to other road types. The number of accidents that occur on motorways is less than on other roads, ceteris paribus. Working against this is the fact that vehicle kilometres have increased as a consequence of the project so the average risk of an accident has also increased (per trip). Furthermore given their high speeds when an accident does occur on a motorway, it is often quite severe, with on average a higher number of fatalities than on other road types. It is not therefore clear a priori whether the project has delivered safety benefits or dis-benefits We have not been able to obtain sufficient accident data from the Hungarian authorities to ascertain if the number of accidents has changed since the M0 was constructed. Even if we had, the confounding of the impact of the M0 with other transport initiatives/changes as well as the recession would make it difficult to attribute the change in accidents in the region to the M0 and the M31. In the absence of sufficient ex post accident data we have used the ex ante estimate of accident savings. This indicates the project does generate safety benefits with a present value of €97M (5.5% discount rate, 25 year appraisal period).
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
26 Frontier Economics, Atkins, ITS | March 2011
Environmental impacts (noise, pollution, CO2) As discussed earlier, Budapest experiences air quality- and noise-related problems. Traffic is a large contributor to these problems. The construction of the M0 East and the M31 it was hoped would reduce traffic levels in Budapest thereby improving the environment there. However, the presence of traffic on the newly constructed M0 may in fact have just displaced the problem by having a negative impact on settlements adjacent to the M0. The Hungarian authorities have been monitoring noise and air quality in the vicinity of the M0 East as part of their evaluation of it12. This analysis indicates that in the main noise levels and air pollution levels in settlements adjacent to the M0 have increased as a consequence of the M0 Eastern Sector. Environmental limits however are rarely exceeded for noise and have never been exceeded at any of the monitoring stations for air quality. Where noise limits have been exceeded typically, though not always, it has been found, by comparing to pre-M0 monitoring, that background noise levels are the principal reason that the noise limits have been exceeded. Therefore, it would appear that that there have been some negative impacts environmental impacts on settlements local to the M0 Eastern Sector. Turning to Budapest now, Figure 5 shows how key air quality indicators have varied in Budapest between 1990 and 2009. The graph shows that since the early
2000s, SO2 levels have been low, whilst NO2 levels increased quite dramatically and have since fallen, with a further fall between 2008 and 2009 (the first year the M0 Eastern Sector was open). The M0 Eastern Sector has removed some traffic from the City of Budapest, but it would be erroneous to attribute the reduction in NO2 levels wholly to it. This is because traffic levels in Budapest have been affected by several effects simultaneously: the recession, the closure of the Margit Bridge, road closures for public transport works and the opening of the Megyeri Bridge on the M0 North.
12 NIF (2010) Report on the noise and air cleanness status of M0 ring road, Eastern Sector, road sections between Road No 4 and M3 Motorway.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 27
Figure 5. 2009 Air quality in Budapest (1990-2009)
Source: Országos Meteorológiai Szolgálat (2010 p52) 2009. évi összesítı értékelés hazánk levegıminıségérıl a manuális mérıhálózat adatai alapján. http://www.kvvm.hu/olm/results.php [accessed 2nd September 2010]
Focusing on greenhouse gases, the increase in vehicle kilometres brought about by the opening of the M0 Eastern Sector has increased carbon emissions. The traffic model indicates that vehicle kilometres have increased by almost 1% against the counterfactual. The improvement in journey speeds (and reduction in fuel inefficient driving in stop-start conditions) will mean that fuel consumption will not have increased at quite the same rate, but it would be fair to say that the M0 Eastern Sector could well have increased traffic related carbon emissions within the Budapest region by almost 1%. Because of the high number of contemporaneous events, we could not establish specific causal links between the M0 Eastern Sector, the M31 and these effects. The noise, air quality and carbon impacts have not been quantified or monetised as part of this ex post analysis. They therefore do not feature in the summary economic analysis table presented earlier.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
28 Frontier Economics, Atkins, ITS | March 2011
10.2.6 Wider impacts
Socio-economic impacts The M0 Eastern Sector has only been open for 2 years. The M31 only opened this summer. It takes time for direct transport benefits (e.g. savings in travel times) to fully impact on society and the economy. Initially the opening of the new infrastructure will lead to quality of life impacts. In the main these will be fairly quickly realised, but it will take time for accessibility improvements to feed into tangible economic benefits. For example, improved accessibility to jobs for local residents will not lead to an instantaneous increase in employment for residents local to the M0. Similarly, it takes time for businesses to construct new premises, re-locate in response to changes in accessibility – if only because the planning and construction process associated with such changes is not instantaneous. The fact that the opening of the M0 Eastern Sector coincided with several other large transport changes and the recession not only makes it difficult to identify impacts specific to the M0 East, but in the case of the recession may mean the time interval required for all wider economic impacts to be realised will increase. Primarily this additional lag in economic development is expected because during the recession it has been difficult for businesses to access capital to facilitate investment in new opportunities. Given the youthfulness of the M0 Eastern Sector and the M31 it is therefore hardly surprising that quality of life impacts were the ones most quoted to us by the stakeholders interviewed. The M0 (south, east and north sectors) has had a profound impact on accessibility for the residents of Budapest. With respect to the M0 East we were quoted an example that a constituent of Csömör, a small settlement on the periphery of Budapest, was receiving up to a 30 minute reduction in journey time on his journey to work. This has had a profound impact on his quality of life with up to five additional hours per week of ‘leisure’ time available to him. Clearly however, not all of these benefits can be attributed to the M0 East. The M0 North and the reduction in traffic volumes due to the recession all will have sped up this man’s journey to work. Furthermore we cannot assume from this example that everyone in the locality is receiving these kinds of benefits – the benefits quoted here relate to a particular destination, route and time of day, which are most likely unique. Saying that, the traffic model identifies strong benefits, with an average time saving of more than 5 minutes (across all trips in the suburb), for trips between East Pest and North Pest and between East Pest and North Buda (all origins and destinations outside of the M0). Other quality of life impacts cited have been the noise disturbance and visual intrusion from the motorway. As discussed earlier (see section 10.2.5) these have not been included in the CBA. For example, despite consultation with the
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 29
Csömör municipality and refinement of the alignment of the M0 (into a deeper cutting than was initially envisaged) noise disturbance and visual intrusion of the motorway has occurred for some residents of Csömör. Whilst statutory limits are not exceeded some inconvenience has been experienced. At this stage, it is hard to identify whether these ‘soft’ quality of life impacts will affect ‘harder’ economic impacts in the medium or longer term. For example, anecdotal evidence from stakeholders is that the increased accessibility of settlements like Csömör is making them more attractive to other residents of Budapest. This increased attractiveness should push up land prices and increase pressure for development of new houses in Csömör. Houses which have been impacted on through increased noise or through a visual impact would also see their prices deflate (relative to neighbours with no such impacts). Our discussions with the Csömör municipality suggested that no such effects have been experienced as yet. Possibly this is because the recession has depressed land price growth and housing development generally, or possibly because the transmission of transport benefits into the wider economy is blocked somehow. It is too early to tell. Similarly, whether the increased accessibility of settlements like Csömör to the wider job market in Budapest (it previously had good accessibility to central Budapest by public transport, but now has good accessibility to other suburbs of Budapest, for example North Pest and North Buda) will translate into an increase in employment and/or an increase in earnings for the residents of Csömör is uncertain. This is because it takes time for people to adapt to an accessibility shock and change jobs. The recession has also had a significant impact on the job market in Budapest and makes the ability to change jobs or move out of unemployment much more difficult than it normally is. The most visual economic impact of the M0 is that several retail parks (shopping centres) and distribution (logistic) centres have been developed close to some of the interchanges. In the view of the stakeholders this is in direct response to the construction of the M0. The presence of the new logistic centres reinforces the view that the M0 is important for inter-urban traffic. Furthermore, the new logistic centres would be expected to increase the efficiency of the transportation of goods in Hungary. This should in the longer term lead to lowering in real final (shop) prices and real endogenous growth of the economy. On the other hand it is hard to see that the retail centres represent anything but a re-distribution of economic activity. Some endogenous economic growth may occur if the vendors in the new retail centres are able to take advantage of some economies of scale, or can increase the competitiveness of the retail sector on the whole. However, given that the retail sector is generally regarded as competitive and the scope for economies of scale in the sector can be limited we view the new economic activity visible in the retail centres as displacement. Displaced economic activity can still be advantageous to the efficiency of an economy if say
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
30 Frontier Economics, Atkins, ITS | March 2011
the activity is displaced from a region of full employment to one of involuntary unemployment. None of the stakeholders however mentioned that the areas of Budapest made more accessible by the M0 were more deprived than other parts of Budapest. In fact some of the settlements (e.g. Csömör) have historically been quite desirable residences for the middle class – due to their rural location and good accessibility (relative to other rural locations) to central Budapest. A further point made is that the M0 supports existing economic activity in its locality and sustains its local presence. In Csömör for example there is a modern Proctor and Gamble manufacturing plant and adjoining that factory a separate retail park. Whilst it was not felt that either of these developments had occurred in the expectation that the M0 would be constructed, the M0 supports the businesses located in these zones. This is particularly relevant in the context of multi-national corporations such as Proctor and Gamble that can easily switch production away from a locality such as Csömör in response to an economic downturn, or as part of a growth strategy. Our discussions with the Csömör municipality indicated that partly as a consequence of the M0 they have proposed zoning some agricultural land within the municipality as an economic zone in the new plan. New economic development would be permitted in this zone. This follows the pattern adopted in neighbouring municipalities. It is too early to tell how much economic activity will locate to such zones. Furthermore it would be premature to discuss whether this potential economic development will be displaced activity or will lead to endogenous real economic growth in the national economy.
Utilisation Utilisation of roads is difficult to estimate as demand varies by time of day, day of the year and the presence of junctions. Furthermore capacity of a road is affected by the vehicle mix. On the positive side the impact of junctions on the capacity of the motorway is small (due to the presence of the merge) making it easier to estimate the capacity of a motorway in comparison with other road types. We have used the congestion reference threshold indicator from UK standards13 as a measure of the theoretical capacity of the M0 East. This formula utilises data on the traffic flow composition and how the traffic flow varies from one hour to another. This suggests a theoretical capacity of 75,000 vehicles or 97,500 pcus (2-way AADT flows). It should of course be noted that with a flow of 97,500 pcus/day significant congestion problems would be experienced during the peak hours due to over-capacity particularly at locations where traffic joins
13 DMRB (1997) Traffic Flow Ranges for the Use in the Assessment of New Rural Roads. TA 46/97. http://www.standardsforhighways.co.uk/dmrb/vol5/section1/ta4697.pdf [accessed 25th September 2010]
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 31
the motorway. A theoretical capacity of 97,500 pcus/day suggests that the M0 East has quite a high capacity relative to other motorways (e.g. UK ones). This primarily arises as the traffic flows in peak hours on the M0 East are not hugely different from the other hours of the day. If significant economic development occurs in the M0 east corridor in the future this balance between peak hour flows and other hourly flows may change. If it does change then the future theoretical capacity of the M0 will fall. The implication of the current flow balance on the M0 East is that the M0 East is currently operating at just under 50% utilisation. Traffic growth is expected to grow by 37% on average over the next ten years (see earlier discussion on growth in vehicle kilometres), though the growth on the M0 will be likely to exceed that due to congestion problems in Budapest limiting growth on routes in the city. The implication is that utilisation rates by 2020 will most likely exceed 70%. Bearing in mind that 2020 is only 10 years into an estimated 25 year economic life of this asset, this is considered a reasonable level of utilisation.
Meeting environmental requirements The planning process in Hungary for new road projects requires an in depth analysis of the environmental impacts of the proposals, before an environmental permit is issued. The process of obtaining an environmental permit is independent of all other processes. The institution that grants the environmental permit does not therefore trade environmental losses against economic gains. The environmental permitting of a motorway route is therefore geared towards selecting the most environmentally acceptable alignment. If no alignment is considered environmentally acceptable then no permit is issued. In the case of the M0 the environmental authority responsible for granting the permit was the Central Danube Valley District Environmental Authority. Our discussions with stakeholders indicated that comprehensive environmental impact reports were produced for the M0 East and the M31. The environmental impact was relatively uncontroversial as the alignment for the motorway could be designed to pass through predominantly agricultural land. As a consequence no internationally important sites (Natura 2000), nationally important sites or national monuments were impacted upon and environmental permits were issued for each of the Lots. Finding an alignment that does not pass through protected land can, for other road projects, be a challenge. This is because, as the stakeholders we interviewed informed us, 25% of Hungary is forested and another 30% has some form of protection against development. Whilst no internationally important or nationally important sites were impacted on some environmental mitigation measures were considered necessary. These relate to: human impacts – noise barriers, embankments and forest ‘belts’ were needed to mitigate for both noise and visual intrusion;
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
32 Frontier Economics, Atkins, ITS | March 2011
fauna impacts – game fencing, culverts and extended bridge structures in wetland areas to prevent severance and/or road kill/accident. Additionally an environmental barrier near a nature reserve was required to reduce the noise impact and the effect of car headlights on birds; and, flora impacts – re-planting of trees (in Hungary when an area of forestation is removed an area twice its size must be planted in its place). It was estimated, at the time of the application for Cohesion Funds, that 2% of the project costs (€9.2m) were intended to mitigate environmental impacts.
Accompanying actions As has been discussed at length the M0 Eastern Sector and the M31 are part of a co-ordinated national transport investment strategy. They contribute in two ways to this strategy. Firstly, they form part of the strategy that is aimed at developing a national Expressway network based on motorways. Secondly, in conjunction with M0 North they provide additional road capacity in the Budapest region to allow the closure and rehabilitation of each of the Danube bridges in Central Budapest. The Hungarian authorities have also installed a Driver Information System on the M0. This provides real time journey time information to drivers, informs drivers of incidents and allows the highway authorities to monitor the road network. Furthermore the system installed is compatible with that used elsewhere in Hungary for the electronic enforcement and charging of the vignette (though no vignette is payable on the M0 or the M31).
Unintended effects of the project None of the stakeholders interviewed identified any unintended effects of the project, aside from some complaints about noise and visual intrusion impacts in areas where mitigation measures should have prevented them (e.g. one location in the Csömör municipality). In the main therefore the consultation process during preparatory stage, where severance and traffic impacts on local communities were considered at length, must be considered a success. During the planning stage a number of objectors to the M0 suggested that two unintended consequences of the project on the Csömör municipality would be: an increase in crime and prostitution due to increased accessibility to other parts of Budapest; and, high speed tanker vehicles on the motorway crashing through motorway protective barriers, mounting any embankments and crashing into residences causing fires and other damage. These predictions however have not come to pass.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 33
10.2.7 Uncertainty and sensitivity analysis The nature of the M0 and the M31 means that there is likely to be more uncertainty in the ex post results presented above than for the other ex post studies we have conducted.
It is difficult to define the counterfactual due to the presence of several confounding effects (other transport interventions and the recession). We therefore used a transport model to ‘back-cast’ to the counterfactual.
2010 is very early in the project life – the M0 has been open for two years and the M31 has been open a matter of weeks at the time of writing. As a consequence the vast majority of the ex post benefits identified in the economic analysis presented earlier have yet to be realised. This creates some uncertainty in the summary economic results. We have therefore defined a sensitivity test whereby traffic levels are assumed to remain fixed at 2010 levels. This is a conservative assumption as it is extremely unlikely that no traffic growth would occur.
Most of benefits identified by the project arise as secondary ‘de-congestion’ benefits. In aggregate these benefits are large, but they do in fact comprise of a large number of very small benefits. There is a perennial debate regarding whether small benefits (most notably time savings) have any value. There are strong arguments that they do have value, and counter-arguments that they hold little value, if any. The appraisal consensus is that they do hold value, but it can be disconcerting if the majority of a project’s benefits comprise of small benefits aggregated up to a large number. This criticism can be levelled at the M0 and the M31. We have therefore defined another conservative sensitivity test where we have only attributed value to traffic that actually uses the M0 and M3114. In this test all non-M0 and non-M31 traffic is assumed to derive no secondary de-congestion benefits from the project.
Traffic induced by the M0 and M31 is not captured in the model. Classically, for an ex ante analysis of a project that impacts on an urban area, this can overstate the benefits as delays in the Do Minimum (without the M0 and M31) can be exaggerated and the high journey speeds predicted in the Do Something (with the M0 and M31) may never be realised. With regard to the latter error this should not be the case as the model has been
14 A time saving of 6 minutes has been attributed to each vehicle that uses the M0 East and M31. Furthermore, each vehicle that uses the M0 East is taken to travel its entire length. These assumptions are very conservative.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
34 Frontier Economics, Atkins, ITS | March 2011
calibrated to the Do Something situation15. The question then remains as to whether the journey times in the Do Minimum have been over exaggerated as a consequence of not modelling the suppression of traffic. On one hand it can be argued that they have, however, as the modelling software is strategic in nature it tends to underestimate journey times in severely congested conditions in urban areas. These two modelling errors work against each other. We have therefore not conducted a sensitivity test for induced traffic.
Reliability benefits as discussed earlier can be large if trips are able to route around a heavily congested urban area. This may well be the case for the M0 and M31, particularly as our journey time surveys identified a large variability in urban journey times. We have therefore specified a sensitivity test where travel time savings are marked up by 50%16 to capture reliability benefits. The three sensitivity tests are reported below in Table 11. As can be seen from this table the conservative sensitivity tests demonstrate the project still offers a positive economic return under the most conservative of assumptions (no traffic growth post-2010 and no secondary de-congestion benefits to traffic). The inclusion of a very rough proxy for reliability benefits demonstrates that in actual fact the economic value of the project may be well above those presented as our central case. We should stress that our best estimate of the ex post impact of the M0 Eastern Sector and the M31 is the central case scenario presented in Table 6. The sensitivity tests presented here whilst indicating a large range in potential values primarily demonstrate that a positive return can be expected even with conservative assumptions.
15 Modelling error can of course lead to divergences between real and observed journey speeds and times on any particular route. 16 50% is the mark-up used by the UK Department for Transport as part of its internal value for money assessments
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 35
Table 11. M0 and M31 Sensitivity Tests (2002 prices and values)
Sensitivity test Central case plus: Central case No traffic Benefits for Inclusion of growth post - M0 and M31 reliability 2010 traffic only benefits
Net Present Value 974.1 366.4 79.1 1,571.6 (€m)
Economic IRR (%) 24.8% 17.6% 8.2% 32.7%
Benefit-cost ratio 5.6 2.7 1.4 8.4
Source: Own calculation Note: 25 year economic life, Discount rate: 5.5%
10.3 Review of ex ante cost-benefit analysis
10.3.1 Quality of ex ante CBA The ex ante CBA detailed in the application form to the EC and reported in Jacobs (2004)17 was the latest in a whole series of feasibility studies prepared for the M0. The first comprehensive assessment of the M0 Eastern Sector was that undertaken by BUVÁTI in 1991. The 2004 Jacobs study focuses on the development of an up to date set of construction and other investment costs and the development of a financial and economic analysis of the preferred alignment. The preferred alignment had already been granted its building and environmental permits – though at the time of the application the permit for Lot 3 was being appealed against by one of the municipalities (this appeal was ultimately rejected by the courts). We have reviewed the methodology used to develop the economic and financial analysis and in our view it is consistent with good appraisal practice. It is systematic and objective. If there is one weakness to the method adopted it is that no account of the traffic induced by the project has been made. The economic and financial analysis was also audited and approved by COWI on behalf of the Hungarian authorities. The ex ante approach to the economic analysis can be summarised as follows.
17 Jacoobs Consultancy (2004) Eastern Section of M0 Budapest Ring Road Between National Road 4 and M3 Motorway. Economic and Financial Appraisal. Final Report. Report dated June 2004.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
36 Frontier Economics, Atkins, ITS | March 2011
The updating of the Budapest Regional Transport Model. New origin- destination data of motorway traffic and new traffic count data was used as part of this process.
The development of traffic demand forecasts for the ‘with’ and ‘without’ M0 East and M31 scenarios. The baseline traffic forecasts took account of projected changes in economic growth, car ownership and anticipated changes in the transport network (both locally and nationally).
The review of marginal values (e.g. value of travel time savings, value of a statistical life) including a comparison to international benchmarks
Undertake the economic analysis including the development of engineering cost estimates for the construction phase.
The sensitivity testing of the economic analysis to inputs to the process which hold some uncertainty.
10.3.2 Headline results from the analysis The most up to date ex ante economic analysis for the M0 East and the M31 is presented in Table 12. As can be seen the ex ante and ex post results are reasonably similar.
Table 12. Summary of ex ante economic analysis (2002 prices and values)
Ex ante Ex post
Net Present Value (€m) 1,177.5 974.1
Economic IRR (%) 16.1% 24.8%
Benefit-cost ratio 3.2 5.6
Source: Ex ante - Jacobs(2004 Table8-5 p.97); Ex post - own calculation Note: 25 year economic life (ex ante and ex post), Discount rate: 6% (ex ante), 5.5% (ex post)
No Financial NPV or Financial IRR (to investment costs of Hungarian capital) was estimated in the Jacobs report. Instead the financial analysis looked at anticipated vignette revenues across the entire motorway network against renewal costs for the said network. No Financial NPV or IRR was calculated, though cash flows were identified. The route selection process, which formed part of the earlier feasibility work, was not repeated for the final ex ante CBA – whose primary audience was the EC.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 37
This is because the environmental permits for the alignment, which are subject to a lot of negotiation, had already been granted. In the earlier feasibility studies detailed engineering and CBA analysis were used to inform the route selection process. The earlier feasibility studies had narrowed the route alignment options down to: M0 between Trunk road 4 and trunk road 31 (Lot 2) - 3 alignments; M0 between Trunk Road 31 and Trunk Road 3 (Lot 3) - 1 alignment; M0 Between Trunk Road 3 and M3 (Lot 4) - 2 alignments; and, M31 Gödöllő connection (Lot 5) - 4 alignments The choice of the final alignment was the outcome of a complex series of consultations and discussions with local municipalities local and the environmental authorities. Cost-benefit analysis plays some part in this, in that the NIF (or its predecessor) used it to help identify a preferred alignment to take into the consultation. However, each of the stakeholders in these consultations acts from their own interest, which does not necessarily align with the perspective of a CBA. Local municipalities wish to maximise their accessibility benefits whilst mitigating adverse impacts such as noise disturbance and increased traffic flow, by traffic accessing the motorway, on residential streets. The environmental authorities on the other hand wish to negate or at the very least minimise all impacts on the environment. As an environmental permit is a necessary condition before construction can begin, and the granting of that lies within the power of the environmental authorities, the environmental authorities have a very powerful influence on the choice of the preferred alignment. Our discussions with the stakeholders indicated that these consultations, as would be expected, could lead to the design departing from the most economically efficient solution as predicted by a CBA. For the M0 East this included: moving the location of intersections to mitigate some of the traffic flow impacts on residential streets; adjusting the alignment to mitigate for noise and visual intrusion; ensuring the provision of pedestrian or vehicle bridges across the M0 to prevent severance; the choice of a design that minimised environmental impact. It should also be noted that it is not necessarily the case that the environmental permit will only be issued for the alignment with the least environmental impact. In the case of the M31 an environmental permit was in fact issued for an alignment with slightly more adverse environmental impacts (alignment D) than an alternative (alignment C). Alignment C however had more adverse impacts on
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
38 Frontier Economics, Atkins, ITS | March 2011
farmland and rural dwellings. A trade off by the environmental authorities therefore had to be made in the choice of the preferred alignment.
10.3.3 Key aspects of the ex ante CBA
Costs A detailed engineering costing process was used by Jacobs (2004 Chapter 7) to develop ex ante construction costs based on local data from recent tenders in Hungary whilst cross referencing to international databases. The estimated cost including sunk costs was €492.0m (2002 prices) (see left hand column in Table 13). The profile of expenditure (excluding sunk costs) was taken to be 7.2% (in 2004), 21.7% (in 2005), 44.5% (in 2006) and 26.6% (in 2007).
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 39
Table 13. Ex ante investment costs (€m)
Ex ante (original Ex post application)
Sunk Costs
Planning 11.8 11.8
Land acquisition 17.5 17.5 site preparation 6.3 6.3
Sub-total 35.6 35.6
Preparatory works land acquisition 37.6 52.2 site preparation 4.7 4.5
Works cost
Lot 2 37.3
M0 Lot 3 80.2
Lot 4 63.8
M31 Lot 5 87.7
Sub-total 366.4 269.0
Contingency of works 35.2 ---
Supervision 10.6 5.1
Communication 1.8 0.6
Total 492.0 367.1
Source: Application for EC funds (DG REGIO, 2004 Table 6.1 and Table 6.2 p.13), NIF Notes: Ex ante costs are in 2002 prices; Ex post costs are nominal prices
Traffic Traffic flow forecasts on the M0 (see Table 14) were developed using the Budapest Regional Transport Model. As can be seen traffic flows in the M0 East were predicted to be between 36,000 pcus/day and 56,000 pcus/day in 2010. The traffic forecasts reflect both anticipated economic and demographic changes as well as planned changes to the highway network. Clearly there is some uncertainty associated with each of these inputs. We summarise some of the key assumptions and outcomes below.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
40 Frontier Economics, Atkins, ITS | March 2011
Economic growth was expected to grow at 4.0% per annum from until 2005, then decreasing gradually to 3.1% by 2010 (Jacobs, 2004 Table 5-1 p.45). From 2020 to 2030 growth was anticipated to be 3.0% per annum, then decreasing to 2.5% per annum by 2025. In total, 15 new transport road projects were included in the 2010 ‘base’ road network used to develop the traffic forecasts. These include three motorway projects, several road projects internal to Budapest and some bypass projects outside of Budapest. As a consequence vehicle kilometres were predicted to grow by between 47% and 51% by 2010 (from 2020) (Jacobs 2004 Table 5-3 p.46). Growth to 2018 was predicted to increase vehicle kilometres by a further 36% (from 2010) and then growth to 2025 would increase vehicle kilometres by another 17.6% (from 2018). The opening year of the M0 East and the M31 was anticipated to be 2007.
Table 14. Comparison of predicted and observed traffic flows on the M0 Eastern Sector
Ex post (2009 Location Ex ante (2010 ADT) observed Difference flows)
vehs/day pcus/day pcus/day
Lot 2 - between National Road 4 and National 27,800 36,140 44,836 -19.4% Road 31
Lot 3b - Between 31,600 41,080 47,650 -13.8% National Road 31 and 3
Lot 4 - between National 43,400 56,420 49,297 14.4% Road 3 and M3
Source: Source: Ex ante - Közlekedés (2003 Figure 15)18; Ex post OKA (National Highway Database) Note: HGV proportion 20%. HGV is 2.5 pcu
Direct benefits and externalities Travel time savings, vehicle operating cost savings and accident benefits were estimated using the same methodology as has been adopted in the ex post analysis reported above. In our view this approach was and is consistent with good practice. The only weakness with the approach is that the modelling
18 Közlekedés Ltd. (2003) Traffic study of M0 Motorway Eastern Sector (section between Main road 51 and M3 Motorway) including M31 Motorway (M0-M3 Connection). Report dated September 2003.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 41
framework could not capture induced traffic effects. To mitigate against this to a certain extent, a check was performed in the economic appraisal to ensure forecast speeds on links in the Budapest network were not too low. Where link speeds were found to be below a threshold value (which varied by road type) the speed was set to the threshold value.
10.3.4 Uncertainty and sensitivity analysis Four sensitivity tests were undertaken in the ex ante analysis.
A pessimistic GDP growth scenario, with year-on-year GDP growth reduced by 0.5%. This test did not take into account reductions in forecast demand (which would have required the construction of new traffic model matrices), merely the reduced escalation rates of values of time and casualty costs.
A reduced VoT against GDP per capita growth elasticity, down from 0.8 to 0.5, the lowest identified in any reputable research.
Construction costs overrun of 20%.
An increase of 100% in assumed casualty costs. The results of these sensitivity tests are detailed in Table 15 below. It should be noted that these sensitivity tests all relate to the costs used in the economic analysis and no sensitivity tests were undertaken to the demand flows.
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
42 Frontier Economics, Atkins, ITS | March 2011
Table 15. Ex ante sensitivity tests (2002 prices and values)
Sensitvity tests
Ex ante GDP/ growth Value of time Construction Accident on marginal growth cost uplift cost increase values reduced
Net Present €1,178M €1,066M €893M €1,069M €1,295M Value
Economic 16.1% 15.5% 14.5% 14.2% 16.8% IRR
Source: Jacobs(2004 Table 8-5 and Table 8-6 p.97) Notes: 25 year appraisal period, 6% discount rate
10.4 Differences between ex post and ex ante analysis A number of differences between the ex post and the ex ante predictions can be observed.
Traffic flows for 2010 on the M0 have been underestimated on the southern section of the route (by between 14 and 20%), and over estimated on the northern section of the route (by 14%) compared to observed 2009 flows.
Investment costs were overestimated by €125.0M (compared to the latest available costs).
The M0 East opened in 2008 and not 2007, and the M31 opened in 2010 and not 2007.
A discount rate of 6% was used in the ex ante and 5.5% in the ex post The impact of these differences result in an ex ante NPV of the project that is 27% higher than the ex post NPV. In contrast the BCR and the IRR of the ex post analysis is higher than the ex ante. These two different effects arise because whilst the benefits from the M0 and M31 are expected to be lower than forecast, as investment costs were much smaller than anticipated the M0 East and M31 provide a better return on their investment than was originally anticipated. The detailed reasons for these differences are elaborated below.
Economic growth. The current recession has meant that the economic growth forecasts from 2002 to 2010 have not been realised. Furthermore economic growth between 2010 and 2020 is now predicted to be lower than was envisaged in 2003. GDP/capita in the ex ante analysis was therefore
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 43
estimated to be 13% higher than it actually has turned out to be. For 2020 the difference between the ex ante and the ex post forecast is even larger at 21%.
Traffic forecasts. A number of competing effects are evident here. The scenarios developed in the ex ante analysis predict too much traffic. Traffic levels between 2002 and 2010 were expected to grow by between 47% and 51%. In reality observed traffic levels between 2003 and 2008 have grown by 24% with growth post 2008 minimal within the Budapest region. In broad terms this means benefits will be too high in the ex ante analysis. This is because in the ex ante analysis, with too much traffic, delays in the ‘without M0 East and M31’ scenario are too high and even if they weren’t too high the benefits of the M0 and M31 are summed over too many road users. The primary reason that traffic flows are too high in the ex ante is due to the economic growth predicted. We can for example see that the traffic on the M0 between National Road 3 and the M3 is 14% higher in the ex ante compared to what is observed today – which is broadly the difference in the economic growth forecast and the economic growth realised. Another reason why the ex ante benefits are higher than the ex post benefits is that in the ex post analysis we have assumed traffic volumes and travel times remain fixed after 2020 until the end of the appraisal period (2033). This is a conservative position that we have adopted. Working against the general over-prediction of traffic levels and therefore delays in the ‘without’ scenario, we have the fact that aside from the 2 of the anticipated motorway investments none of the other thirteen road transport investments that had been assumed to be in place by 2010 have been realised. One is currently under construction (M0 South Sector capacity enhancement) and two others are in the current investment programme. Of the projects that have not been completed of most relevance to the M0 is the proposed external eastern ring road between Soroksari bypass and Nagytarcsai Ut. In the ex ante analysis this was predicted to carry 40,000 vehs/day. As it competes directly with the M0 for traffic its absence is the primary reason why the ex ante analysis predicted demand flows between 15 and 20% lower than have been observed on the M0 Eastern Sector south of national road 3.
Growth in marginal valuations. The growth in the marginal values of time and other impacts are higher in the ex ante analysis than in the ex post analysis. This is due to the differences in the historic economic growth rates (pre-2010) and the assumed future growth rates. This also leads to the
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
44 Frontier Economics, Atkins, ITS | March 2011
benefits in the ex ante exceeding those in the ex post. Our estimate is that benefits in the ex post would have increased by €220m (25 year appraisal, discounted at 5.5%) if the ex ante growth rates in the marginal valuations had been used.
Discount rate. The 5.5% discount rate used in the ex post is lower than that used in the ex ante. Future year benefits in the ex ante are therefore treated as holding a slightly lower value than in the ex post. Analysis indicates that if a 6% discount rate had been used in the ex post analysis the ex post NPV would have been almost €100m lower.
Capital costs. Capital costs for the project were significantly overestimated in the ex ante (by an estimated €125m). The lower than expected costs arise as a consequence of the tendered works costs being substantially lower than anticipated. Discussions with the NIF indicated that best practice was observed in developing the ex ante cost estimates with cross referencing and checking against other tender costs in Hungary and against international databases. The lower than expected costs were attributed to the fact that at the time of the tenders Hungary had only recently joined the EU and many international construction firms were ‘fighting’ to get involved in the construction of new infrastructure in the country.
Opening year. The opening year of the M0 East and M31 was taken to be 2007 in the ex ante analysis, whilst in reality it was late 2008 for the M0 East and July 2010 for the M31. The delay in the M0 East occurred as the land acquisition process took longer than anticipated. The delay in the opening of the M31 occurred as initially the M31 was not going to be co-financed by the EC, but was eventually included in the financing package as a result of the realised low tendered works costs. As the above discussions illustrate, the differences in the ex ante and ex post work against each other in how they impact on the main indicators of the economic analysis. The two differences that have the largest impact are the overestimation of economic growth in the ex ante analysis (and its corresponding impact on traffic flows) and the overestimation of the works costs. As these two differences also work in opposite directions the result is that the ex post analysis suggests a slightly worse NPV but a better economic return and benefit cost ratio than the ex ante. Best practice was followed in the economic analysis and in the estimation of the construction works costs. Hence, the main areas of improvement would possibly be the demand modelling and the sensitivity testing of the economic output to changes in travel demand. Specifically we would suggest that the following is included in future CBAs: an explicit treatment of induced traffic;
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 45
sensitivity testing the economic analysis to differences in the economic growth underlying the travel demand forecasts; and, sensitivity testing the economic analysis to the successful implementation of other road and public transport projects.
10.5 Role of CBA in decision-making process Our discussions with central government stakeholders (the NFÜ, the KIKSZ and the NIF) indicated that CBA is very much an integral part of their decision- making process and has been for some time – though its use seems to be restricted to the promotion of the project once it has entered the investment programme. CBAs are undertaken for nationally financed projects as well as for EC co-financed projects. As a consequence there are a number of published guidelines regarding cost- benefit analysis and the nature of transport feasibility studies. The most recent have been published by the NFÜ (National Development Agency) in 200919,20. Guidelines also existed at the time the ex ante analysis. These include the 2003 METRD (Ministry of Economy and Transport Road Department) guide to transport forecasting/modelling and the METRD guide to cost benefit analysis for non-central area road network developments. CBAs are undertaken by private consultancies at the behest of organisations such as the NIF who are required to promote new infrastructure. The KIKSZ, an intermediate body that gets involved on EC co-financed projects, will amongst their other tasks undertake a quality assurance test on the CBA (for EC co- financed projects). The NFÜ does not itself get directly involved in the CBAs of EC co-financed projects, but has been responsible for issuing the recent CBA guidance. Our discussions indicated that CBA was and continues to be useful to the Hungarian authorities for not only providing a summary of impacts, but also within a particular strategy for selecting between projects and choosing between alignments. Thus, within the Expressway strategy (the development of the motorway network in Hungary), CBA helps prioritise which projects to promote first and then to help choose alignments for those projects. In our experience, the CBA of transport projects relies on good underlying traffic data. It is apparent that for the trunk road and motorway network this exists in
19 NFÜ (2009) Methodological guide to Cost-benefit analysis (in Hungarian). 20 NFÜ (2009) The Guide to preparing Feasibility Studies for the 2007 -2013 period (Transport Operational Programme) (in Hungarian). http://www.nfu.hu/download/22547/Utmutato%20Megvalosithatosagi%20Tanulmany%20keszitesehez_k ozuti%20projektek.pdf
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
46 Frontier Economics, Atkins, ITS | March 2011
Hungary – as evidenced by the existence of the OKA (the National Highway Databank). Furthermore the electronic charging and enforcement of the vignette system in Hungary provides a wealth of data that will assist current appraisals of motorway projects (subject to data confidentiality laws). It is this existence of good data that facilitates the successful use of CBA to transport projects. It is evident that in Hungary there is a tension between the economic efficiency analysis of a CBA and the environmental impacts of a project. The stakeholders we consulted informed us that the environmental stakeholders hold little or no regard for the CBA – their primary role is the safeguarding of the environment. As a result the process of obtaining an environmental permit for a new infrastructure project can involve protracted negotiations. They cited an example of the proposed M8 project in Central Hungary where after years of discussion an alignment has finally been agreed. They were keen to look for new and better ways to incorporate environmental impacts into the CBA. Audit reports by the State Audit Office of Hungary, including that of motorway developments21, indicate there remains a need to improve the planning process for motorway projects. The audit office cites a lack of unit cost data for estimating construction costs, a lack of indicators of utilisation for the infrastructure and the need for CBAs to be undertaken prior to the inclusion of the motorway project in the transport investment programme. They are also critical of the manner that the environmental permit is granted- as this process has little cognisance of other impacts (including the CBA) and can lead to complex negotiations with local government authorities and NGOs with associated delays and cost increases.
21 State Audit Office of Hungary (SAO) Summary of the Audit on Motorway Development Projects Completed in 2008. Report 0926. Available online at: http://www.asz.hu/ASZ/www.nsf/reports.html
Appendix 10 - Budapest Ring Road (eastern section) in Hungary
March 2011 | Frontier Economics, Atkins, ITS 47
Annexe 1: Detailed results
M0 Budapest Ring Road in Hungary
Figure 6. M0 Budapest Ring Road - Hungary. Economic analysis (€m, 2002 prices) – Central case
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
BENEFITS (Undiscounted)
Consumers Surplus
Time Benefits 0.0 0.0 0.0 0.0 0.0 8.0 42.1 52.4 62.6 72.8 83.1 93.3 103.5 113.7 124.0 134.2
Vehicle Operating Costs 0.0 0.0 0.0 0.0 0.0 -3.6 -14.1 -13.6 -13.1 -12.6 -12.1 -11.6 -11.1 -10.6 -10.1 -9.6
Externalities
Accident Reduction 0.0 0.0 0.0 0.0 0.0 0.8 3.7 4.3 5.0 5.7 6.5 7.2 8.0 8.9 9.8 10.7
Environment ------
TOTAL BENEFITS 0.0 0.0 0.0 0.0 0.0 5.1 31.7 43.1 54.5 66.0 77.4 88.9 100.5 112.1 123.7 135.3
COSTS (Undiscounted)
Investment Costs 0.0 0.0 11.3 60.2 56.1 47.1 43.7 47.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maintenance 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
TOTAL COSTS 0.0 0.0 11.3 60.2 56.1 47.6 45.4 49.1 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
NET BENEFITS (Undiscounted) 0.0 0.0 -11.3 -60.2 -56.1 -42.5 -13.7 -6.0 52.8 64.2 75.7 87.2 98.8 110.3 121.9 133.6
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Total
BENEFITS (Undiscounted)
Consumers Surplus
Time Benefits 144.4 154.7 158.6 162.6 166.6 170.5 174.5 178.5 182.4 186.4 190.4 194.3 198.3 202.3 154.7 3508.9
Vehicle Operating Costs -9.0 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -8.5 -6.4 -248.4
Externalities
Accident Reduction 11.2 11.8 12.4 13.1 13.7 14.3 15.0 15.3 15.6 15.9 16.2 16.5 16.9 17.2 13.2 288.6
Environment ------
TOTAL BENEFITS 146.6 158.0 162.5 167.1 171.7 176.3 180.9 185.2 189.5 193.7 198.0 202.3 206.6 210.9 161.4 3549.0
COSTS (Undiscounted)
Investment Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 265.8
Maintenance 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 43.0
TOTAL COSTS 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 308.8
NET BENEFITS (Undiscounted) 144.9 156.2 160.8 165.4 170.0 174.6 179.2 183.5 187.7 192.0 196.3 200.6 204.9 209.2 160.1 3240.2
Source: Own calculations
Annexe 1: Detailed results
48 Frontier Economics, Atkins, ITS | March 2011
Figure 7. M0 Budapest Ring Road - Hungary. Financial return on investment (€m, 2002 prices) – Central case
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
TOTAL REVENUES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL INVESTMENT COSTS 0.0 0.0 11.3 60.2 56.1 47.1 43.7 47.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maintenance 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 TOTAL OPERATING COSTS 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
TOTAL OUTFLOWS 0.0 0.0 11.3 60.2 56.1 47.6 45.4 49.1 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
CASH FLOW 0.0 0.0 -11.3 -60.2 -56.1 -47.6 -45.4 -49.1 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Total
TOTAL REVENUES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL INVESTMENT COSTS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 265.8
Maintenance 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 43.0 TOTAL OPERATING COSTS 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 43.0
TOTAL OUTFLOWS 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 308.8
CASH FLOW -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.3 -308.8
Source: Own calculations
Annexe 1: Detailed results
March 2011 | Frontier Economics, Atkins, ITS 49
Figure 8. M0 Budapest Ring Road - Hungary. Financial return on capital (€m, 2002 prices) – Central case
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Revenues 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual values ------TOTAL FINANCIAL INFLOWS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Local contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Regional contrintribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 National contribution 0.0 0.0 1.7 9.0 8.4 7.1 6.6 7.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total national public contribution 0.0 0.0 1.7 9.0 8.4 7.1 6.6 7.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maintenance 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Total Operating Costs 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
TOTAL FINANCIAL OUTFLOWS 0.0 0.0 1.7 9.0 8.4 7.5 8.3 8.8 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
NET CASH FLOW 0.0 0.0 -1.7 -9.0 -8.4 -7.5 -8.3 -8.8 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Total
Revenues 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual values ------0.0 0.0 TOTAL FINANCIAL INFLOWS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Local contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Regional contrintribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 National contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 39.9
Total national public contribution 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 144.9
Maintenance 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 43.0 Total Operating Costs 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 43.0
TOTAL FINANCIAL OUTFLOWS 1.7 2.7 3.7 4.7 5.7 6.7 7.7 8.7 9.7 10.7 11.7 12.7 13.7 14.7 15.3 187.9
NET CASH FLOW -1.7 -2.7 -3.7 -4.7 -5.7 -6.7 -7.7 -8.7 -9.7 -10.7 -11.7 -12.7 -13.7 -14.7 -15.3 -187.9
Source: Own calculations
Annexe 1: Detailed results
50 Frontier Economics, Atkins, ITS | March 2011
Figure 9. M0 Budapest Ring Road - Hungary. Financial sustainability (€m, 2002 prices) – Central case
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
EU Grant 0.0 0.0 9.6 51.2 47.7 40.1 37.2 40.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Local contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Regional contrintribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 National contribution 0.0 0.0 1.7 9.0 8.4 7.1 6.6 7.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total national public contribution 0.0 0.0 1.7 9.0 8.4 7.1 6.6 7.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating subsidies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 FINANCIAL RESOURCES 0.0 0.0 11.3 60.2 56.1 47.1 43.7 47.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Passenger vehicles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goods vehicles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL REVENUES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL INFLOWS 0.0 0.0 11.3 60.2 56.1 47.1 43.7 47.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL INVESTMENTS COSTS 0.0 0.0 11.3 60.2 56.1 47.1 43.7 47.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maintenance 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 TOTAL OPERATING COSTS 0.0 0.0 0.0 0.0 0.0 0.4 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 TOTAL OUTFLOWS 0.0 0.0 11.3 60.2 56.1 47.6 45.4 49.1 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7
NET CASH FLOW 0.0 0.0 0.0 0.0 0.0 -0.4 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 CUMULATED CASH FLOW 0.0 0.0 0.0 0.0 0.0 -0.4 -2.2 -3.9 -5.6 -7.3 -9.0 -10.8 -12.5 -14.2 -15.9 -17.6
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
EU Grant 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Local contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Regional contrintribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 National contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Total national public contribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating subsidies 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 FINANCIAL RESOURCES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Passenger vehicles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Goods vehicles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL REVENUES 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL INFLOWS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL INVESTMENTS COSTS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Maintenance 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 TOTAL OPERATING COSTS 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3 TOTAL OUTFLOWS 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.7 1.3
NET CASH FLOW -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.7 -1.3 CUMULATED CASH FLOW -19.4 -21.1 -22.8 -24.5 -26.2 -28.0 -29.7 -31.4 -33.1 -34.8 -36.6 -38.3 -40.0 -41.7 -43.0
Source: Own calculations
Annexe 1: Detailed results