CP
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Cost-benefit analysis of
high speed rail
Henri Dijkman, Carl Koopmans and
Martin Vromans*
Abstract
The Dutch government is considering the construc-
tion of a High-Speed Railway (HSR) between Schiphol
Amsterdam Airport and the German Ruhrgebiet (HSL-
East). This note presents a cost-benefit analysis of
the construction of the railway section.
The economic effects of this project appear to be
rather small. This is due mainly to the limited savings
in travel time of a mere ten to 15 minutes. As a result,
a new railway seems to be unprofitable in all scenar-
ios.
Since the HSL-East may be regarded as a pilot of
the project evaluation guideline, a number of method-
ological issues were raised during the analysis. In par-
ticular, the assessment of the macroeconomic impact
of large projects as well as the evaluation of project
risks need a more thorough treatment in future cost-
benefit analyses.
Introduction
The Dutch government is considering the construction of
a High Speed Rail (HSR) section, the “HSL-East”, between
Utrecht and the German border, as a part of the HSR-link
connecting Schiphol Amsterdam Airport with the German
Ruhrgebiet. In preparing the investment decision, the
Ministry ofTransport asked CPB to assess the desirability
of the investment.The cost-benefit analysis (CBA) closely
followed the guidelines for project evaluation that have
been worked out by a number of economic research insti-
tutes within the OEEI project (see Eijgenraam et al., 2000a).
The goals of the HSL-East project are manifold:The pro-
ject should accommodate sustainable growth of national
and international mobility, and it should divert traffic from
road and air to rail. Furthermore, it should improve acces-
sibility of the economically important western part of
the Netherlands (the ‘Randstad’). From an economic point
of view, however, these are intermediary goals that should
contribute to Dutch welfare in a broad sense, taking into
account also environmental effects.
The Project
The geographical location of the HSL-East is depicted in
figure 1. The project, indicated by the bold line, consists
* For more information, contact Henri Dijkman (tel: +31-70-3383349;
e-mail: hdm@cpb.nl)
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of only a minor part of the total section: only about 75 kilo-
metres of the total link of 480 kilometres between
Amsterdam and Frankfurt. The Dutch government has
already decided to invest some E 0.75 billion in upgrad-
ing the section Amsterdam-Utrecht, whereas in Germany
a 300 km/h link between Cologne and Frankfurt will
be constructed, an investment amounting to some
E 4 billion.
On both sides of the German border – from Utrecht to
the border, and from the border to Cologne – a final deci- 39
sion on investing in infrastructure still has to be made.
However, the Dutch and German authorities have set-
tled on gearing their decisions to one another in order to
achieve a comparable level of service on both sides of the
border (Warnemünde Agreement).
Alternatives
The cost-benefit analysis (CBA) considered two project
alternatives, which were then compared with the base
case. In the base case, no dedicated infrastructure will be
built; nonetheless, HSR-rolling stock will be in service
on the existing section.The two project alternatives assume
construction of dedicated HSR infrastructure, suitable for
a maximum speed of either 200 km/h or 300 km/h.
Estimated investment and maintenance costs range from
E 1.8 to 3.4 billion in present-value terms.
Even though the base case limits the speed to 140 km/h,
a considerable improvement in speed and service level
over the current situation is achieved, since using high-
speed rolling stock allows for a direct connection between
Schiphol Amsterdam Airport and Frankfurt. In this way,
the full potential of the investments on both the Amster-
dam-Utrecht and, especially, the Cologne-Frankfurt sec-
tions can be used, resulting in the base-case in travel time
savings of 1 hour 45 min (about one-third of the current
value).The dedicated infrastructure suitable for 200 km/h
results in an additional time saving of 17 minutes.The 300
km/h alternative offers a gain of three additional minutes.
Economic scenarios
The profitability of the two alternatives has been analysed
using as reference the three CPB background scenarios
Divided Europe, European Coordination and Global
Competition (Burk and Suijker, 1996).These scenarios pro-
vide a sufficient band-width to test for the robustness of
the project.
Aspects of the cost-benefit analysis
Following the project evaluation guideline, the main ele-
ments of the cost-benefit analysis are as follows:
– market and competition analysis;
– investment and maintenance cost assessment;
– business analysis;
– direct economic effects;
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R E P O R T Figure 1 The HSL-East as part of the Amsterdam-Frankfurt HSR
00/2 link (bold line indicates the HSL-East section).
40
200 Kmh Amsterdam
Schiphol
Arnhem
Utrecht
Duisburg
200 Kmh
Düsseldorf
Köln
300 Kmh
Frankfurt
– indirect effects and macroeconomic analysis;
– external effects, including environmental issues.
Each topic will be briefly discussed below.
The market and competition analysis was carried out by
the German consultancy firm Intraplan.To assess the future
demand for the HSL-East, Intraplan used a fairly detailed,
integrated modal-split/distribution model.This model pro-
vided estimates of changes in modal-split and generation
of new traffic, broken down by different trip purposes. In
this way, network effects form an integral part of the traf-
fic analysis. Different timetables were tested by compar-
ing the number of passengers with minimal required load-
factors for rolling stock, thereby ruling out unfeasible com-
binations (from a business point of view). It turned out
that only in the Global Competition scenario would demand
be high enough for two trains per hour. In both of the other
scenarios, one train per hour seems to be preferable.
The total expected number of international passengers
travelling by HSL ranges from 3.0 to 5.2 million in 2020 in
both the 200 km/h and 300 km/h alternatives. Only half of
this volume represents additional train traffic, either sub-
stituted from other modes or newly generated traffic. Most
of the substitution stems from car users; the number of
passengers switching from air travel is fairly small.
Despite its importance for the final outcome of the CBA,
the costs involved are only roughly known. Initial calcu-
lations of investment costs, dating from 1996, were judged
as having become obsolete
and were corrected upward
to a range of E 1.4 to 2.6 bil-
lion. Including yearly main-
tenance costs, the net present
value (NPV) of the investment
plus maintenance costs varies
from E 1.8 to 3.4 billion, using
a 4% discount rate.
The business analysis,
which confronts operational
revenues with operational
costs, shows that no sufficient
positive margin is left to pay
for the infrastructure invest-
ment costs or even mainte-
nance costs alone. The NPV
of operational revenues is
only E 100 to 170 million, with
operational costs between E
70 and 110 million.
Besides the operational
revenues, the direct economic
effects consist mainly of the
benefits that accrue to trav-
ellers. The benefits for trav-
ellers consist of travel cost differences and travel time sav-
ings. In many cases, a rise in travel costs is offset by a
reduction of travel time. Besides cost- and time differen-
tials, another gain is associated with the increased com-
fort of HSL as compared with conventional trains.The cur-
rent study assumes that these benefits will not exceed
those resulting from changes in travel-times and costs.
The travel time savings have been valued with value-
of-time estimates obtained from stated-preference sur-
veys. The NPV of the sum of travel-time and travel-costs
differences is estimated at 80 to 210 million. Due to ben-
efits related to comfort, this figure might rise to E 160 to
300 million.
The indirect economic effects do not accrue to the users
or operator of the HSL, but may follow from efficiency
gains due to, for instance, a more efficient spatial con-
centration of economic activities. In the case of the HSL-
East project, these effects were surveyed by Buck
Consultants International (BCI, 2000), who focussed espe-
cially on the attractiveness of the HSL-stations for inter-
national office relocations. Extrapolation of current trends
lead BCI to conclude that the impact of the project would
be limited to some 50 to 80 extra jobs in 2010. This rela-
tively low figure is, again, mainly explained by the limited
travel time savings that result from carrying out the pro-
ject. Besides business relocations, it is argued that the gen-
eration of additional international business trips is con-
nected with an increase in trade volumes. A slight increase
of imports and exports will result, of E 7 to 14 million in
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Summary table of CBA HSL-East 00/2

Amounts in net present value (E)

2010. The total NPV of the indirect

economic effects, as estimated by Benefits Financial Related to
BCI, totals E 30 to 70 million. Direct effects
A part of the environmental – Operating revenues E 0.1 to 0.2 bln
impact of the project can be given
– Benefits to travellers E 0.2 to 0.3 bln changes in travel time and
a monetary value. The HSL-East
leads to a modest reduction of travel costs
emissions of gases like CO2 and Indirect economic effects
NOx.This is due not only to the lim- – (Re)location of international
ited reduction of passenger car-kilo- 41
offices, international trade E 0 to 0.1 bln
metres, but also to the fact that high
speed rail uses far more energy – Macroeconomic impact
than conventional rolling stock. In exploitation E -0 to -0.1 bln
the end, this results in only a small
positive balance that is valued at
Environment: emissions
less than NPV E 10 million.
On the local level, the project prevented E 0 bln CO2 and NOx
requires the demolition of some 30 Total benefits E 0.3 to 0.5 bln
to 60 houses and will affect 200 to
250 ha of scenic and agricultural
Costs
areas. Valuing these issues is con-
sidered to be problematic, because Investment E 1.4 to 2.6 bln
cutting through a scenic area might Maintenance E 0.4 to 0.7 bln
have significantly larger impacts Operation E 0.1 bln
than the affected area itself, for
Total costs E 1.9 to 3.5 bln
instance by damaging the natural
habitat of rare flora or fauna. In the
analysis, these were left as PM items Benefits minus costs (financial) E – 1.5 to – 3.2 bln
without an attempt of valuation. IRR *
Most of the topics discussed until
now serve as input for the macro-
economic analysis, to assess higher PM items
order effects of the direct and indi- Distribution effects
rect economic effects. The macro- (between regions) PM1 Some firms will move to the
economic analysis has been carried
HSL corridor
out with CPB’s multi-sector model,
Athena (Vromans, 1998).Travel cost Landscape and nuisance – PM2 200 to 250 hectares, demoli-
differences are modelled as cost dif- tion of 30 to 60 houses
ferences in the transport sector, * Of no significance here, since costs exceed benefits in all years under consideration.
whereas travel time saving of busi-
ness passengers is considered to
raise productivity. Travel time sav- Conclusion: the project is unprofitable
ings of passengers with other
motives, such as commuting or
leisure, are not included in the macroeconomic analysis: counting to some degree, since a fraction of the indirect
these non-pecuniary direct effects are, of course, welfare effects of the BCI estimation will coincide with effects
effects accruing to these user groups; they are, however, within Athena. However, since both effects seem to be
of no significance in the macroeconomic calculations. very limited, it was expected that a detailed analysis would
The indirect economic effects, as estimated by BCI, are not yield a significantly different picture as far as the pro-
modelled as macroeconomic impulses.The effect of addi- ject evaluation as a whole is concerned. However, in future
tional jobs is translated in an increase of export of ser- CBA’s it might be worthwhile to go into more detail here,
vices, the additional import and export are added to the since the double counting obviously results in some over-
balance of payments. estimation of the benefits of the project.
The way in which the indirect effects are included in Besides analysing the macroeconomic effects of the
the macroeconomic analysis might easily lead to double- project during operation, the analysis also took into account
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the macroeconomic impact of the construction phase.
Here the results appeared to be very sensitive to the way
the project will be financed. If it is assumed that the pro-
ject replaces some other public investment or govern-
ment consumption, the macroeconomic effects are almost
negligible. If the project would be financed by increased
taxation, positive macro-economic effects would be partly
offset by the excess burden. A sensitivity analysis has
shown that the net result will be considerably smaller than
42 0.9 billion.
Integrating the results in the CBA
All of the above-mentioned results are brought together
to assess the profitability of the HSL-East project. As can
be seen from the summary table, the project appears to
be unprofitable in all cases. The financial benefits minus
costs amount to E –1.5 to –3.2 billion. Calculation of an
internal rate of return seems to be of no practical rele-
vance, since in all cases yearly costs exceed yearly ben-
efits over the period considered.
The role of risks has been analysed in this project in a
superficial way only. A sensitivity analysis with a discount
rate of 8%, including a 4% risk-premium, only resulted
in lowering the benefits, and reinforced the result that the
project is unprofitable.
Conclusions
The HSL-East project turns out to be unprofitable in the
circumstances analysed.The base-case, or no-build option,
is preferable. In the base-case, many benefits can be reaped
when high-speed rolling stock is used on conventional
track.
Although of minor relevance in the case of the HSL-
East, a number of issues need a more thorough treatment
in future projects. It seems that narrowing the bandwidth
of costs would be desirable. Furthermore, a more thor-
ough treatment of the risks (see also van Ewijk and Tang
in this issue) and of the macroeconomic impact during
the construction phase can contribute to the robustness
of the analysis of future projects. A more unified approach
is desirable – not only for evaluation on a project-by-
project basis, as is the case here, but also to enable a more
consistent comparison between projects.
References
BCI (2000), Indirecte ruimtelijk-economische effecten van de Hoge Snelheids
Lijn Oost (HSL-Oost) (in Dutch), Buck Consultants International, Nijmegen.
Eijgenraam, C.J.J., C.C. Koopmans, P.J. Tang and A.G.P. Verster (2000a),
Evaluation of transport infrastructure, CPB Report 2000/1.
Eijgenraam, C.J.J., C.C. Koopmans, P.J. Tang and A.G.P. Verster (2000b),
Evaluatie van infrastructuurprojecten - Leidraad voor kosten-batenananalyse
(in Dutch), CPB, NEI, Den Haag.
Burk, K., and F. Suijker (1996), A long-term scenario study for the Dutch econ-
omy, CPB Report 1996/3.
Vromans, M. (1998), ATHENA, The multi-sector model, CPB Report,
1998/3.
The accuracy of interna-
tional CPB forecasts
Gerard van Welzenis*
Abstract
The accuracy of CPB’s short-term projections for domes-
tic variables was analysed in CPB Report 1999/2. An
inadequate assessment of international economic
developments proved to be a major source of forecast
errors. This study examines the accuracy of CPB fore-
casts for ten international variables over the period
1984-1998. The outcome is compared to the forecast
accuracy of the OECD and the European Commission1.
The various forecasts appear, on average, to be of com-
parable quality, if due account is given to the different
timing of the projections. However, CPB forecasts of
variables that are particularly relevant for the Dutch
economy seem to be more accurate.
Introduction
Initially, CPB’s assessment of the world economy is based
on available forecasts made by international and national
organisations. Recent developments are taken into account,
as well as our own judgment on the future development
of some key variables, such as exchange rates, crude oil
prices and economic policy measures. Given this proce-
dure, it is interesting to compare the quality of CPB fore-
casts with other forecasts available at the same time, to
establish whether the additional CPB effort really improves
the existing forecasts of the world economy.
The comparative analysis in this study is restricted to
the annual forecasts, published twice a year, for the period
1984-1998. The relevant CPB publications are the Central
Economic Plan, published in March, and the Macro-
economic Outlook, published in September. The OECD
and EC forecasts are published in December and June,
i.e. just in-between the CPB forecasts. We analyse six suc-
cessive bi-annual forecasts for a particular year. The last
of these ”forecasts” are published in the second half of
the year following the projection year; they are consid-
ered realisations.
The following international variables have been exam-
ined:
– GDP volume of the industrial world (1) and that of the
European Union (2)
– Consumer prices in the industrial world (3) and in the
European Union (4)
* For more information, contact Gerard van Welzenis (tel: +31-70-3383316;
e-mail: gevw@cpb.nl)