GENERALISED COST BENEFIT ANALYSIS FOR LARGE INFRASTRUCTURE PROJECTS: THE CASE OF THE CHANNEL TUNNEL RAIL LINK A thesis submitted in fulfilment of the requirements for the degree of DOCTOR OF PHILOSOPHY by MOHAMMAD HOSSEIN NAGHASHIAN School of Mechanical Engineering University of Birmingham December 2014 University of Birmingham Research Archive e-theses repository This unpublished thesis/dissertation is copyright of the author and/or third parties. The intellectual property rights of the author or third parties in respect of this work are as defined by The Copyright Designs and Patents Act 1988 or as modified by any successor legislation. Any use made of information contained in this thesis/dissertation must be in accordance with that legislation and must be properly acknowledged. Further distribution or reproduction in any format is prohibited without the permission of the copyright holder. I hereby declare that I am the sole author of this thesis. I authorize the University of Birmingham to lend this thesis to other institutions or individuals for the purpose of scholarly research. Mohammad Hossein Naghashian Signature I further authorize the University of Birmingham to reproduce this thesis by photocopying or by other means, in total or in part, at the request of other institutions or individuals for the purpose of scholarly research. Mohammad Hossein Naghashian Signature I This thesis is dedicated to my parents, Fatemeh Javaherian and Hamid Reza Naghashian for their continual support throughout the years. III Acknowledgements Writing a thesis is not something one does on one‘s own, as evidenced by the long list of people here. There are a myriad of others involved in the process and my thanks are due to all of them. This research was undertaken by the University of Birmingham, School of Mechanical Engineering. I would like to thank everyone in the department who have helped me to do what I wanted to do. I apologise if I have missed anyone out. First and foremost I want to thank my supervisor, Dr. Andrew Tobias, who has encouraged me through the process, rekindled my enthusiasm for the project when I was flagging and without whom this thesis could not have been completed. I would like to show my appreciation to my co supervisor, Dr. Michael Burrow and my reviewers Dr. Harry Evdorides and Professor Kyle Jiang for their supportive comments and helping me to find suitable answers to my questions. I would also like to thank Dr. Paul Drake for the suggestions that he made in the light of examining this thesis ahead of printing the final version. I am very grateful to Mr. Ahmad Reza Hamouni Haghighat for encouraging me to continue my study for PhD with his insightful comments and motivating discussions. IV I would like to thank Mrs. Janet Hingley of ‘Janet’s Proofreading Service’ for proofreading my thesis for conventions of language, spelling and grammar. I am also grateful to my friends Hamid Rakhodaei, Shokoufeh Sardarian, Kaveh Vosoughi, Farzad Farahmand, Amin Khosravi, Taher Oliya and Ali Zohouri for supporting me with everything they could throughout my entire time doing research. Most of all I would like to express my gratitude to my father who supported me financially and emotionally during the time of my research. I am appreciative of my family who have supported me unconditionally and forgiven me for neglecting them all too often. V Abstract Even in the absence of specific evidence it is surely unthinkable to imagine Napolean Bonaparte himself, when considering the potential benefits of invading England, failing to weigh against them the costs of building a tunnel under La Manche. In the light of the considerable literature of cost benefit analysis (CBA) and by gathering together several analyses that have been performed on the Channel Tunnel in more recent times, this thesis demonstrates that a comprehensive ‘big picture’ CBA framework is missing, and then provides one: a new methodology, represented in Data Flow Diagram (DFD) form, for the generalised cost benefit analysis of large infrastructure projects. Now, almost two hundred years after Napoleon’s death, the world spends nearly $40 trillion (almost £24 trillion) on constructing and upgrading roads, railways, power plants and other infrastructures so as to keep up with demand. Such huge investments require realistic plans, clear deadlines and tight budgets for the best allocation of resources but cost overruns and delays are all too frequent. What exactly causes the cost overruns or delay is difficult to identify, but better planning and focus on the accuracy of the appraisal is one way to reduce the problems. The new model presented herein should prove useful in assisting decision-makers for all large infrastructure projects, and as a foundation for developing an appropriate decision making tool for different categories of projects too, based upon the experience of the VI Channel Tunnel. This, after all, was a project that the Government had financed through the private sector with high investment risks and significant degrees of uncertainty and had then put out for construction and operation in two different tenders. In spite of never being viable for the private sector, the Eurotunnel Company looks in a better shape now and the tunnel is working properly, but the construction cost and deadlines were clearly exceeded. VII Table of Contents 1 INTRODUCTION ......................................................................................................... - 2 - 1.1 Background ............................................................................................................. - 2 - 1.2 Aims and Objectives ............................................................................................... - 7 - 1.3 Research Methodology ........................................................................................... - 7 - 1.4 Layout of the Thesis ............................................................................................. - 10 - 2 LITERATURE SURVEY............................................................................................ - 14 - 2.1 Introduction ........................................................................................................... - 14 - 2.2 Cost Benefit Analysis ........................................................................................... - 14 - 2.3 Types of CBA ....................................................................................................... - 16 - 2.4 Why Decisions Go Wrong .................................................................................... - 19 - 2.5 Approach to Cost Benefit Analysis ...................................................................... - 22 - 2.6 Surplus .................................................................................................................. - 24 - 2.7 Discounting ........................................................................................................... - 25 - 2.7.1 NPV .......................................................................................................... - 25 - 2.7.2 IRR ........................................................................................................... - 26 - 2.7.3 BCR .......................................................................................................... - 27 - 2.8 CBA Tools ............................................................................................................ - 28 - 2.9 Period of Analysis ................................................................................................. - 29 - 2.10 Short Comings of CBA ......................................................................................... - 29 - 2.11 CBA Framework ................................................................................................... - 30 - 2.12 Selected Approaches to CBA ............................................................................... - 31 - 2.13 Conclusion ............................................................................................................ - 33 - 3 THE CHANNEL TUNNEL ........................................................................................ - 35 - 3.1 Introduction ........................................................................................................... - 35 - 3.2 History of the Channel Tunnel Rail Link (CTRL) ............................................... - 36 - 3.3 Past Appraisals of the Channel Tunnel ................................................................. - 45 - 3.3.1 Proposals for a Fixed Channel Link (Ministry of Transport, 1963) ......... - 45 - 3.3.2 The Channel Tunnel: A United Kingdom Transport Cost Benefit Study (Coopers & Lybrand Associates Ltd., 1973) .......................................................... - 46 - VIII 3.3.3 The Channel Tunnel and Alternative Cross-Channel Services (Channel Tunnel Advisory Group, 1975) .............................................................................. - 47 - 3.3.4 Fixed Channel Link Report (UK/French Study Group, 1982) ................. - 47 - 3.3.5 The Channel Tunnel; an Ex-Post Economic Evaluation (Anguera, 2006) - 49 - 3.4 Comparison ........................................................................................................... - 50 - 3.5 Eurotunnel ............................................................................................................. - 52 - 3.6 Construction .........................................................................................................