Road Project for Economic Development: Yazd-Abarkouh-Sourmagh Road Project Feasibility Study

ABSTRACT: In recent decades, importance of roads in economic development of countries has been confirmed by many studies. Roads affect countries in terms of social and economical development. The traffic statistics have shown that the traffic growth rate of Iran is rising up rapidly. In order to meet this rising demand and to improve the traffic condition in Iran, the government is attempting to construct new roads. This thesis is about integrated investment appraisal of Yazd-Abarkouh-Sourmagh road project with the objective of determining whether the project is feasible or not to be undertaken. The road has 93 km length and is located in Yazd, one of the biggest and important provinces of Iran. It will expand the connection between Yazd, Esfahan, Shiraz and Tehran. Using the data and information from the project owners directly, this thesis appraised the feasibility of a road project under two scenarios. Scenario one is based on the project owner’s assumption where the project is fully financed by the government; without any loan and or toll. The result of this scenario showed that, this project will have negative financial NPV of 29 million USD but positive economic and externalities NPV of 17 and 47 million USD, respectively. The results are as expected for road projects. The second scenario, which is expected to be the contribution of this thesis, is a Special Purpose Vehicle (SPV) case where private sector will be undertaking the project with support from the government. In this scenario, private sector will finance 50 percent of the project investment cost with and will have toll. The results of the second scenario indicate that both financial as well as economic NPVs are positive; first being 2 and latter being 29 million USD. The analysis also shows that especially users (consumers) will benefit a lot from this project outweighing the benefits of the other stakeholders i.e. owners, labour. This study in general indicates that with the introduction of SPV’s where private sector is also motivated, such big public project can be undertaken without creating too much financial burden to governments. Keywords: Road project, time saving, net present value, feasibility, integrated investment appraisal. ……………………………………………………………………………………………………………………………………………………………………………………………………………………