Engineering Economics

Module 2.
6: Engineering Economics
Contents
1.0 Introduction .......................................................................................1 2.0 Schedule of Rate (SOR) & Rate Analysis ............................................1 2.1 Need for SOR...................................................................................2 2.2 Rate analysis ...................................................................................2 2.2.1 Excavation................................................................................3 2.2.2 Brick Masonry ...........................................................................3 2.2.3 Stone Masonry ..........................................................................4 2.2.4 Steel Work................................................................................5 2.2.5 Concrete Work ..........................................................................5 2.2.6. Sample Rate Analysis for Material Carriage for a Road Project .........7 2.3 Consolidated Rates and Block Cost.................................................... 15 2.3.1 Consolidated Rate for RCC Roads ............................................... 15 2.3.2 Summery of cost of road network .............................................. 16 2.3.3 Consolidated Rate for Sewerage and Storm water Drainage ........... 16 2.3.4 Block Cost for Water and Waste Water Treatment ........................ 17 2.3.5 Cost Estimate for Solid Waste Management ................................. 20 3.0 Bill of Quantity (BOQ) ..................................................................... 21 4.0 Financial Analysis of Infrastructure Projects................................... 25 4.1 Cost of Project ............................................................................... 25 4.1.1 Technical Know-how and Engineering Fees .................................. 25 4.1.2 Miscellaneous Fixed Assets........................................................ 26 4.1.3 Preliminary and Capital Issue Expenses ...................................... 26 4.1.4 Pre-operative Expenses ............................................................ 26 4.1.5 Provision of Contingencies ........................................................ 27 4.1.6 Margin Money for Working Capital .............................................. 27 4.1.7 Initial Cash Losses ................................................................... 27 4.1.8 Sample Cost Estimate for Head Works ........................................ 28 4.2 Project Cash Flow ........................................................................... 29 4.2.1 Net Present Value Method ......................................................... 30 4.2.2 Internal Rate of Return Method (IRR) ........................................ 31 4.2.3 Discount Cash Flow Method (Present Value Return on Investment Method) ......................................................................................... 34 4.2.4 Pay Back or Pay Off Period Method ............................................ 36 4.2.5 Rate of Return on Investment Method (R & I) .............................. 37 4.2.6 Profitability Index .................................................................... 38 5.0 Financial and Economic Analysis: Case of Jammu Sewerage Project 40 5.1 Cost Estimates ............................................................................... 41 5.2 Financial Analysis ........................................................................... 46 Annex I: Sample Block Cost of Material and Labour in Water Supply Projects
1.0 Introduction
All municipal engineers and managers involved in urban infrastructure projects, frequently face problems in terms of cost estimates, economic and financial analysis, rate analysis, project benefit cost analysis etc. The question is how to tackle these aspects to predict or assess cost, how to minimize the risk and impact of overspends against budgets, and how to ensure that there is an appropriate balance between technical aspects and the related costs. Therefore this module has been structured to include the following components Overview of SOR and Rate analysis Sample infrastructure project cost estimates Key concepts of project viability Project financial and economic analysis
2.0 Schedule of Rate (SOR) & Rate Analysis

Estimation of the project cost is necessary for evaluation of the required investments in any project. The construction industry is an ocean of activities and details, too many items descriptions and tiny technical differences but even these apparently tiny and miniscule detail differences change and affect the analysis, application of these activities. The item when is translated into a monetary value through a technical analysis of the composition of its constituent activities is termed as analysis of Rates. This is to arrive at a rate based on unit which can subsequently be multiplied with the quantity of units is called as the item-rate. A composition of the body made with all the item description, specifications and rates is commonly termed as the Schedule of Rates. Since the subject of Schedule of Rates has been raised it is important to understand that whenever term SOR is applied it indirectly or directly is inferred that one is talking about an activity or a set of activities pertaining to construction. Therefore, to understand and interpret a Schedule of Rates (herein after referred to as the SOR) means working at the various aspects of the item description, specifications and Rate analysis template. The SOR forms the basis for most of the developmental works carried out by the Government. All Government projects use SOR either specific to a particular department or developed by some other department. The SOR is taken as the datum for estimation, selection of most competitive bidder, extra item settlement, cost escalations, dispute redressed, arbitration and award of work.
Module 2.6: Engineering Economics
Like all other states in the country, various state departments all use SORs for diverse developmental activities. Although, the Schedule of Rates (SOR) prepared by The Public Works Department (R&B) forms the basis for all other SORs, many of the departments and organizations have developed their own SORs, at various time intervals and for divergent needs.
2.1 Need for SOR

The SOR is the single most important factor in the preparation of the tenders and estimates of various developmental works carried out under various departments. The entire estimates and the projections, awards and arbitrations are based on these rates that are applied to the items under the development. The costs and estimates of the various projects and developmental works such as roads, buildings, bridges, culverts, irrigation, water supply and sewerage projects, maintenance works depends mainly on the quality and accuracy of the SOR.
2.2 Rate analysis

Rate analysis for different activities / items under a project is one of the most important steps towards estimation of project cost. Comprehensive approach to rate analysis is given in the table2.1 below. Chart 2.1 Comprehensive Approach to Rate Analysis
Basic
Rates
of
Wastage
Machinery
materials
Conveyance
Material Cost T&P Lump sum Cost
Labour Input
Rate Analysis
Lead & Lift
Sundries
Overhead W .C Contractors Profit Charges
CEPT, Ahmedabad
JnNURM - Rapid Training Programme Preparation of DPRs
The following section include some typical samples of Rate Analysis for items such as excavation, brick masonry, stone masonry, steel work and concrete work.
2.2.1 Excavation
Rate Item Description Unit cum Excavation for foundation up to 1.5m depth including sorting out and stacking of useful materials and disposing of the excavated stuff up to 50 meter lead for Loose or soft soil (Rs.) 38.44
Sample Rate Analysis

Description DETAILS OFCOST OF10.00 Cum LABOURS Mazdoor (male) Mazdoor (female) Cost of 10.00 Cum Add 1% for W.C.& O.H. Add 15% for Contractor's profit Cost of 10.00 Cum. Cost of 1.00 Cum Each Each 2.0000 1.6700 90.30 90.30 180.60 150.80 331.40 3.31 49.71 384.43 38.44 Unit Quantity Rate (Rs.) Amount (Rs.)
W.C. Water Charges O.H. Over Head
2.2.2 Brick Masonry

Item Description Unit Cum Brick Work using common burnt clay building bricks having crushing strength not less than 35 Kg/Sq cm in Foundation and plinth in cement mortar 1:5 ( 1 Cement : 5 Fine Sand) For Conventional Bricks Rate (Rs.) 1356.06
CEPT, Ahmedabad

Description Detail of cost of 1.0000 Materials First class bricks Labour Mason Ist Class Mason IInd Class Mazdoor (female) Bhisti Carriage of Bricks Scaffolding For Cement mortar (1:5) Cost of 1.00 Cum Add 1% for W.C. & O.H. Add 15% for Contractor's profit Cost of 1.00 Cum Each. Each. Each. Each. 1000No. L.S. Cum 0.2400 0.2100 0.2100 0.6000 0.1000 0.4750 100.00 94.20 90.30 91.60 231.08 0.50 1418.58 21.00 19.78 54.18 9.16 109.76 0.50 214.38 340.46 1169.02 11.69 175.35 1356.06 1000No. 0.4750 1293.00 614.18 614.18 Cum Unit Quantity Rate (Rs.) Amount (Rs.)
2.2.3 Stone Masonry

Item Description (I) Uncoursed rubble masonry with hard stone of approved quality in foundations and plinth in cement mortar 1:6 (1 cement: 6 course sand) including levelling etc. complete Unit Cum Rate (Rs.) 1254.64

Description DETAILS OF COST OF 1.0000 CU.M MATERIALS Rubble Through & bond stone Cement Mortar 1:6 Cum Each. Cum 1.0000 7.0000 0.3300 98.00 13.00 98.00 91.00 Unit Quantity Rate (Rs.) Amount (Rs.)
L.S.
1214.51 2.00
400.79 2.00
591.79
Cement Concrete 1:6:12

Labour Mason IInd Class Mazdoor (male) No. Each. Each. Each. Cum L.S. 0.6300 0.6300 0.4700 0.0700 1.1600 94.20 90.30 90.30 91.60 279.49 0.50
59.35 56.89 42.44 6.41 324.21
Mazdoor (female) Bhisti Carriage of stone Sundries
0.50
CEPT, Ahmedabad
Description
Unit
Quantity
Rate (Rs.)
Amount (Rs.) 489.80
Cost of 1.00 Cum Add 1% for W.C. & O.H. Add 15% for contractor profit Cost of 1.00 Cum
1081.58 10.82 162.24

1254.64
2.2.4 Steel Work

Item Description Providing HYSD bar reinforcement for RCC work including bending , binding , and placing in position up to floor two level Unit MT Rate (Rs.) 32917.59

Description Details Cost of 1 MT MATERIALS (a) Steel (b)Sundries & Binding wire. LABOURS (a) Unskilled Mazdoor. (b) Blacksmith I st. class. Each Each 10.00 10.00 90.30 100.00 Total CARRIAGE OF MATERIALS M.T. 1.025 242.67 Total Add 1% for W.C. Add 15% C.P & O.H. charges Total cost for 1 MT 903.00 1000.00 1903.00 248.74 248.74 28377.24 283.77 4256.59 32917.59 M.T.1.025 L.S.1.000 1.025 1.000 25500.00 88.00 Total 26137.50 88.00 26225.50 Unit Quantity Rate (Rs.) Amount (Rs.)
2.2.5 Concrete Work

Item Description providing and laying controlled cement concrete m200 and curing complete excluding cost of formwork and reinforcement for reinforced concrete work in slabs, landings, shelves, balconies, lintels, beams, girders and cantilever up to floor two level Unit Cum Rate (Rs.) 2755.98
CEPT, Ahmedabad

Description DETAILS OF COST OF 0.9091 Materials Cement Crushed stone Aggregate 20mm size Crushed stone Aggregate 10mm size Coarse Sand Labour Mazdoor (male) Mazdoor (female) Bhisti Mason Ist class Mason IInd Class Mate Carriage of stone aggregate 20mm size Carriage of Coarse sand Carriage of cement Equipments Hire and Running charges of mechanical mixer Sundries Scaffolding Cost of 0.9091 Cum Add 1% for W.C. & O.H. Add 15% for Contractor's profit Cost of 0.9091 Cum Cost of 1.00 Cum L.S. L.S. L.S. 1.0000 1.0000 1.0000 5.50 0.95 1.10 5.50 0.95 1.10 7.55 2159.88 21.60 323.98 2505.46 2755.98 Each. Each. Each. No. No. Each. Cum Cum Tonne 1.0500 0.6800 0.4700 0.0900 0.0900 0.0800 0.8500 0.4250 0.4000 90.30 90.30 91.60 100.00 94.20 90.30 257.84 195.44 101.27 94.82 61.40 43.05 9.00 8.48 7.22 219.16 83.06 40.51 566.71 Tonne Cum Cum Cum 0.4000 0.5700 0.2800 0.4250 3300.00 281.00 281.00 63.00 1320.00 160.17 78.68 26.78 1585.63 Cum Unit Quantity Rate (Rs.) Amount (Rs.)
CEPT, Ahmedabad
2.2.6. Sample Rate Analysis for Material Carriage for a Road Project
Ref. to MoRTH Spec. Remarks/ Input ref.
Description
Unit
Quantity
Rate Rs
Cost Rs
Loading and Unloading of Stone Boulder/Stone aggregates/Sand/ Kanker/ Moorum. Placing tipper at loading point, loading with front end turning loader, for dumping, return trip,
cum
excluding time for haulage and return trip Unit = cum Taking output = 5.5 cum Time required for i) ii) loader hour iii) reversing, iv) unforeseen etc Total Machinery Tipper 5.5 capacity Front end-loader a) bucket b) c) capacity cum/hour Overhead charges Contractor's profit 22.00 29.71 326.77 59.41 say 59.00 @ 08 % on (a) @ 10 % on (a+b) Cost for 5.5 cum = a+b+c Rate per cum = (a+b+c)/ 5.5 Unloading will be by tipping. Loading and Unloading of Boulders by Manual 20 Min tonnes 1 @ cum 25 hour hour 0.330 0.330 231.53 601.97 76.40 198.65 P&M-048 P&M-017 Maneuvering, dumping Waiting and time, 4 Min 2 Min Positioning of tipper at Loading by front end 1 cum bucket 1 Min 13 Min loading point
capacity @ 25 cum per
turning for return contingencies
Note
CEPT, Ahmedabad
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
Means Unit = cum Taking output = 5.5 cum a) Labour Mate Mazdoor for loading and unloading b) Machinery Tipper 5.5 tonne capacity c) Overhead charges @ 08 % on (a+b) d) Contractor's profit @ 10 % on (a+b+c) Cost for5.5 cum a+b+c+d Rate per cum (a+b+c+d)/5.5 Unloading will be by tipping. Loading and Unloading of Cement or Steel by Manual Means and Stacking. Unit = tonne Taking output = 10 tonnes Labour Mate Mazdoor for loading and unloading b) Machinery Truck 10 tonne capacity c) Overhead charges @ 08 % on (a+b) d) Contractor's profit = 66.99 736.84 73.68 say Cost of Haulage Excluding Loading and Unloading Haulage of materials by tipper loading, excluding cost of and unloading 74.00 @ 10 % on (a+b+c) Cost for10 tonnes a+b+c+d Rate per tonnes = (a+b+c+d)/10 a) day day 0.080 2.000 86.70 86.70 6.94 173.40 L-12 L-13 = = say 294.87 53.61 54.00
day day
0.110 0.750
86.70 86.70
9.54 65.03
L-12 L-13
hour
0.750
231.53
173.65 19.86 26.81
P&M-048
Note
hour
2.000
219.95
439.90 49.62
P&M-057
CEPT, Ahmedabad
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
stacking. Unit = t.km Taking output 10 tonnes load and lead 10 km = 100 t.km (i) Surfaced Road Speed with load : 25 km / hour. Speed while Returning empty :35 km / hour. a) Machinery. Tipper 10 tonne capacity Time Time b) c) taken taken for for onward empty hour hour 0.400 0.290 231.53 231.53 92.61 67.14 12.78 17.25 189.79 1.90 Say (ii) Unsurfaced Graveled Road Speed with load: 20 km / hour Speed a) for empty return trip :30 km / hour Machinery Tipper 10 tonnes capacity Time Time b) c) taken taken for for onward empty hour hour 0.500 0.330 231.53 231.53 115.77 76.40 15.37 20.75 228.30 P&M-048 P&M-048 haulage with load return trip Overhead charges Contractor's profit 100 t .km = @ 08 % on (a) @ 10 % on (a+b) Cost for a+b+c 1.9 P&M-048 P&M-048 haulage with load return trip. Overhead charges Contractor's profit @ 08 % on (a) @ 10 % on (a+b) cost for 100 t km = a+b+c Rate per t.km = (a+b+c)/100
CEPT, Ahmedabad
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
Rate per (a+b+c)/100 (iii)
t.Km
= say
2.28 2.30
Kacha Track and Track in River Bed/Nallah Bed Speed with load :10 km / hour Speed a) while returning empty:15 km / hour Machinery Tipper 10 tonnes capacity Time Time b) c) taken taken for for onward empty hour hour 1.000 0.670 231.53 231.53 231.53 155.13 30.93 41.76 459.35 4.59 say Hand Broken Stone Aggregates 63 mm Nominal Size Supply of quarried stone, hand breaking into coarse aggregate 63 mm nominal size (passing 80 mm and retained on 50 mm sieve) and stacking as directed Unit = cum Taking output = 1 cum a) Labour Mate Mazdoor b) Material cum 1.100 370.00 407.00 43.38 M-002 Supply of quarried stone 150 - 200 mm size c) Overhead charges day day 0.060 1.500 86.70 86.70 5.20 130.05 L-12 L-13 4.60 P&M-048 P&M-048 haulage return trip Overhead charges Contractor's profit .km = @ 08 % on (a) @ 10 % on (a+b) Cost for 100 t a+b+c Rate per t.Km = (a+b+c)/100
CEPT, Ahmedabad
10
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
@ 08 % on (a+b) d) Contractor's profit 58.56 644.20 say Crushing of Stone Aggregates 13.2 mm Nominal Size. Crushing of stone boulders of 150 mm size in an integrated stone crushing unit of 200 tonnes per hour capacity primary crushing conveyor screens to aggregates nominal size. Unit = cum Taking Output = 600 cum at crusher location. a) Labour Mate Mazdoor Skilled Mazdoor including breaking of any oversize boulder. b) Material cum 800.000 360.00 288000.00 M-001 Stone Boulder of size 150 mm and below c) 200 Machinery Hour 6.000 13613.67 81682.02 P&M-028 TPH including and belt Integrated stone crusher of conveyor screens Front end loader 1 cum bucket capacity Tipper 5.5 cum capacity d) e) Overhead charges Contractor's profit @ 08 % on (a+b+c) 41913.92 @ 10 % on (a+b+c+d) Hour 20.000 231.53 4630.60 31047.34 P&M-048 Hour 20.000 601.97 12039.40 P&M-017 vibrating day day day 0.760 2.000 17.000 86.70 100.00 86.70 65.89 200.00 1473.90 L-12 L-14 L-13 comprising and and of units, obtain 13.2 of belt stone mm secondary vibrating 644.00 @ 10 % on (a+b+c) Rate per cum = a+b+c+d
CEPT, Ahmedabad
11
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
Cost for 600 cum a+b+c+d+e Rate per cum =
461053.07 730.00 say 730.00
(a+b+c+d+e)*0.95/600 Note 1. 800 cum of stone
boulders are needed to get 600 cum of stone chips of size 13.2 mm. 2. 95 per cent of above cost will be attributed to the production of 600 cum of stone chips of 13.2 mm size and balance 5 per cent to the production of stone dust which comes out as a by-product. 3. and units. Crushing of Stone Aggregates 20 mm Nominal Size Crushing of stone boulders of 150 mm size in an integrated stone crushing unit of 200 tonnes per hour capacity primary crushing conveyor screens to aggregates nominal size. Unit = cum Taking Output = 670 cum at crusher location. a) Labour Mate Mazdoor Skilled Mazdoor including breaking of any size boulder. b) Material day day day 0.760 2.000 17.000 86.70 100.00 86.70 65.89 200.00 1473.90 L-12 L-14 L-13 comprising and and of units, obtain 20 of belt stone mm secondary vibrating The integrated includes stone crusher primary crushing
secondary
CEPT, Ahmedabad
12
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
Stone Boulder of size 150 mm and below c) 200 Machinery Integrated stone crusher of TPH including and belt conveyor screens Front end loader 1 cum bucket capacity Tipper 5.5 cum capacity d) e) Overhead charges Contractor's profit = @ 08 % on (a+b+c) vibrating
cum
800.000
360.00
288000.00
M-001
Hour
6.000
13613.67
81682.02
P&M-028
Hour Hour
20.000 20.000
601.97 231.53
12039.40 4630.60 31047.34 41913.92 461053.07 619.33
P&M-017 P&M-048
@ 10 % on (a+b+c+d) Cost for 670 cum a+b+c+d+e Rate per cum =
(a+b+c+d+e)*0.90/670 say Note 1. 800 cum of stone boulders are needed to get 600 cum of stone chips of size 20 and 40 mm. 2. 90 per cent of above cost will be attributed to the production of 670 cum of stone aggregates of 20mm size and balance 10 per cent will be for smaller size aggregates and stone dust which comes out as a by-product. 3. and units. Crushing of Stone Aggregates 40 mm Nominal Size Crushing of stone boulders of 150 mm size in an integrated stone crushing unit of 200 tonnes per hour capacity primary comprising and of secondary The integrated includes stone crusher primary crushing 619.00
secondary
CEPT, Ahmedabad
13
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
crushing conveyor screens to aggregates nominal size. Unit = cum
units, and of obtain 40
belt stone mm
vibrating
Taking Output = 750 cum at crusher location. a) Mate Mazdoor Skilled Mazdoor b) Material cum 800.000 360.00 288000.00 M-001 Stone Boulder of size 150 mm and below c) 200 Machinery Hour 6.000 13613.67 81682.02 P&M-028 TPH including and belt Integrated stone crusher of conveyor screens Front end loader 1 cum bucket capacity Tipper 5.5 cum capacity d) e) Cost Overhead charges Contractor's profit for 750 cum = @ 08 % on (a+b+c) 41913.92 391895.11 522.53 say Note 1. 800 cum of stone boulders are needed to get 600 cum of stone chips of size 13.2 mm. 2. 85 per cent of above cost will be attributed to the production of 750 cum of stone aggregates of 40mm size and balance 15 per cent will be for smaller size aggregates and stone dust which comes out as a 523.00 @ 10 % on (a+b+c+d) (a+b+c+d+e)x0.85 Rate per cum = (a+b+c+d+e)x0.85/750 Hour 20.000 231.53 4630.60 31047.34 P&M-048 Hour 20.000 601.97 12039.40 P&M-017 vibrating Labour day day day 0.760 2.000 17.000 86.70 100.00 86.70 65.89 200.00 1473.90 L-12 L-14 L-13
CEPT, Ahmedabad
14
Ref. to MoRTH Spec.
Description
Unit
Quantity
Rate Rs
Cost Rs
Remarks/ Input ref.
by-product.
3. and
The
integrated includes
stone
crusher units.
primary crushing
secondary
2.3 Consolidated Rates and Block Cost

2.3.1 Consolidated Rate for RCC Roads**
(A) For 7 mt width Width (m) 7 7.6 8.2 Length (m) 1 1 1 1 Depth (m) 0.15 0.2 0.3 0.75 Qty (cum) 1.05 1.52 2.46 35 6.15 Rate (Rs.) 2500 1057 230 25 40 Total Cost (Rs.) 2625 1606.64 565.8 875 246 50 400 1800 103.5 8272
R.C.C(1:2:4) C.C(1:5:10) Sand Steel Excavation 8.2 Miscellaneous for joint etc, Footpath Pre-cast Kerbing 1 Pre-cast slab 3 Sand spreading 3
2 1 1
1 1 0.15
2 3 0.45
200 600 230
Rmt
(B) For 5 mt width Width (m) 5 5.6 6.2 Length (m) 1 1 1 1 Depth (m) 0.15 0.2 0.3 0.75 Qty (cum) 0.75 1.12 1.86 35 4.65 Rate (Rs.) 2500 1057 230 25 40 Total Cost (Rs.) 1875 1183.84 427.8 875 186 50 400 1200 69 6267 Rmt
R.C.C(1:2:4) C.C(1:5:10) Sand Steel Excavation 6.2 Miscellaneous for joint etc, Footpath Pre-cast Kerbing 1 Pre-cast slab 2 Sand spreading
2 1 1
1 1 0.15
2 2 0.3
200 600 230
(C) For 3.5 mt width Width (m) 3.75 Length (m) 1 Depth (m) 0.15 Qty (cum) 0.5625 Rate (Rs.) 2500 Total Cost (Rs.) 1406.25
R.C.C(1:2:4)
CEPT, Ahmedabad
15
C.C(1:5:10) 4.35 Sand 4.95 Steel Excavation 4.95 Miscellaneous for joint etc, Footpath Pre-cast Kerbing 1 Pre-cast slab 2 Sand spreading 2
1 1 1
0.2 0.3 0.75
0.87 1.485 35 3.7125
1057 230 25 40
919.59 341.55 875 148.5 50 200 1200 69 5210 Rmt
2 1 1
1 1 0.15
1 2 0.3
200 600 230
**It is important to note that the cost estimates shown above are indicative. It may vary from state to state depending on the prevailing SORs.
2.3.2 Summery of cost of road network**

Item Cost of 7.00mt wide c.c pavement road per metre length Cost of 5.00mt wide c.c pavement road per metre length Cost of 3.5mt wide c.c pavement road per metre length Cost of 7.0mt wide c.c. pavement road (incl. both side footpath) per square metre Cost of 5.00mt wide pavement road per square metre Cost of 3.5mt wide pavement road per square metre Average cost of c.c.pavement road per square metre Cost of Open Drain per square metre up gradation of all the internal industrial estate roads is of CC 8272 6267 5210 1182 1253 1489 1308 20 Unit Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
2.3.3 Consolidated Rate for Sewerage and Storm water Drainage**

A Proposed Sewerage Line Description Providing &Supplying New NP3 R.C.C 900mm Dia. Pipe Conveyance of Pipes@10% of cost of pipe Excavation in ordinary soil ( Qty 1.5x4.0x1) Lowering and laying and Jointing Total Add 10% for increase in cost of 2005-2006 SOR Total For 1 km Length Qty 1 1 6 1 Unit Rmt Rmt cum Rmt Rate (Rs.) 1985 198.5 40 219 Cost (Rs.) 1985 198.5 240 219 2642.5 264.25 2906.75 2906750
Cost for proposed Storm water RCC Open Drain (1m X 1m) Description Excavation (Qty = 2.3 X 1.3 X 1.0 ) CC 1:4:8 (Qty = 1.3 X 0.15 X 1.0 ) CC 1:2:4 (Qty = 3.3 X 0.15 X 1.0 )
Qty 2.99 0.195 0.495
Unit cum cum cum
Rate 30 960 1804
Cost (Rs.) 89.7 187.2 892.98
CEPT, Ahmedabad
16
Steel (@ 1% of CC) Total Add 10% for increase in cost of 2005-2006 SOR Total For 1 km Length C (I) Cost for Open Kachcha Drain ( 0.3 m X 0.45 m ) Description Excavation (Qty = (0.3 +1.2)/2 X 0.45 X 1.0 ) Add 10% for increase in cost of 2005-2006 SOR Total For 1 km Length (II) Cost for Open Kachcha Drain (0.45 m X 0.6 m ) Description Excavation (Qty = (0.45 + 1.65)/2 X 0.6 X 1.0 ) Add 10% for increase in cost of 2005-2006 SOR Total For 1 km Length (II) Cost for Open Kachcha Drain (0.6 m X 0.75 m ) Description Excavation (Qty = (0.6 + 2.1)/2 X 0.75 X 1.0 ) Add 10% for increase in cost of 2005-2006 SOR Total For 1 km Length
38.61
kg
35
1351.35 2521.23 252.123 2773.35 2773353
Qty 0.338
Unit cum
Rate 30
Cost (Rs.) 10 1.0125 11 11138 Cost (Rs.) 19 1.89 21 20790 Cost (Rs.) 30 3.0375 33 33413
Qty 0.63
Unit cum
Rate 30
Qty 1.013
Unit cum
Rate 30
2.3.4 Block Cost for Water and Waste Water Treatment**

Unconventional WTP
Fixed cost up to and including 1 MLD Add for capacity above 1 MLD up to 2 MLD Cost of 2 MLD treatment plant Add for capacity above 2 MLD up to 4 MLD Cost of 4 MLD treatment plant Add for capacity above 4 MLD up to 10 MLD Cost of 10 MLD treatment plant Add for capacity beyond 10 MLD Rs.1000000 Rs.900000 Rs.1900000 Rs. 775000 Rs.3450000 Rs.725000 Rs.7800000 Rs.600000
Conventional WTP
Fixed cost up to and including 1 MLD Add for capacity above 1 MLD up to 2 MLD Cost of 2 MLD treatment plant Add for capacity above 2 MLD up to 4 MLD Cost of 4 MLD treatment plant Add for capacity above 4 MLD up to 10 MLD Cost of 10 MLD treatment plant Add for capacity above 10 MLD up to 25 MLD Cost of 25 MLD treatment plant Add for capacity beyond 25 MLD Rs.1100000 Rs.900000 Rs.2000000 Rs.825000 Rs.3650000 Rs.750000 Rs.8150000 Rs.625000 Rs.17525000 Rs.600000
CEPT, Ahmedabad
17
Chlorination Plant
Pressure feed chlorination plant incl. uniejector booster etc. Up to 500 Gms per hour capacity Up to 1000 Gms per hour capacity Up to 2000 Gms per hour capacity Rs.34000 Rs.38000 Rs.46000
**It is important to note that the cost estimates shown above are indicative. It may vary from state to state depending on the prevailing SORs. Slow Sand Filter: Providing & erecting slow sand filter including sedimentation tank including all civil structure and piping arrangement and filter media control unit etc. Upto 2 MLD Rs 15, 00,000 Beyond 2 MLD Rs 10, 00,000 Filter Sand: Providing filter sand and required F/S and U/C. Rs. 1000 per Cum
Conventional Sewage Treatment Plant

Providing & erecting at the site complete conventional sewage treatment plant incl. civil as well as mechanical and electrical works such as screen and grit chambers settling tanks, digesters, trickling filters, or activated sludge plant sludge drying arrangements etc. complete incl. all pipe fittings, valves accessories etc. complete as directed. Budgetary cost per Cu. M./Day for Sewage treatment plant are presented in below
Flow in Cu.M./d 25 26 to 50 51 to 100 101 to 150 151 to 200 201 to 600 600 to 1000 > 1000 Capacity Cost in Rs. Per Cu.M. 28000 18000 11500 9500 8500 7000 to 8000 5000 to 6000 3000 to 5000
For Sewage treatment plant of Municipal Corporation (Capacity in MLD), Operation cost is between 1.25 to 2.0 Rs per Cu.M. SOR Rate for construction of ESR
Up to 25000 Litres Cost of 25000 litres capacity Add for capacity above 25000 up to 50000 litres Cost of 50000 capacity -Do- 50000 up to 100000capacity 10 250000 8 450000 5 Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre
CEPT, Ahmedabad
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Cost of 100000 litres capacity -do - 100000 to 200000 litres capacity Cost of 200000 litres capacity - 200000 litres up to 500000 litres Cost of 500000 litres capacity -do- 500000 litres up to 1000000 litres capacity Costr of 1000000 litres capacity -do- 1000000 to 1500000 litres capacity Cost of 1500000 litres capacity Add for capacity above 1500000 capacity
700000 4 1100000 3.75 2225000 3.5 3975000 3.25 5600000 3
Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre
SOR Rate for construction of Sump

Up to 50000 lt capacity Cost of 50000 lt capacity Add for Capacity 50000 up to 100000 litre Cost of 100000 litres capacity -Do- 100000 upto 200000 Cost of 200000 litre capacity -Do- 200000 upto 500000 Cost of 500000 capacity -Do- 500000 upto 1000000 Cost of 1000000 capacity -Do- 1000000 upto 15000000 Cost of 1500000 capacity -Do- 1500000 upto 50000000 Cost of 5000000 Add for Capacity above 5000000 litre 1.9 95000.0 1.65 1775000.0 1.50 327500.0 1.40 747500.0 1.25 1372500.0 1.1 1922500.0 1.0 5422500.0 0.9 Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre Rs Rs. Per Litre
For Sewerage Network All connections are made in Man holes Flow velocity is considered as 0.9 m/sec Manhole are spaced at 30 m interval Light poles are spaced at 30 m interval Estimated cost of one manhole is (Circular type depth up to 1.5 mt) - Rs. 5900/Manhole
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2.3.5 Cost Estimate for Solid Waste Management**

Category Primary Waste Collection (Indoors) Household Description Waste Bins: 8 litre capacity Rate (Rs.) 80/-
having over all dimensions (mm) 230 top dia X 180 bottom dia X 250 Ht. Multi Bins with Closed Lid; 10 litre capacity having overall dimensions (mm) 240 top dia X 212 bottom dia X 340 Ht. Multi Bins with Closed Lid; 20 litre capacity having overall dimensions (mm) 320 top dia X 265 bottom dia X 420 Ht. Multi Bins vertical with flap Lids; 20 litre capacity having overall dimensions (mm) 325 top dia X 265 bottom dia X 480 Ht. Primary (Outdoors) Waste Collection Pole Mounted Bins; 50 litre capacity, having overall dimensions (mm) 600 W (bottom plate) X 1524 Ht. Waste Bins with holes at Top; 80 litre capacity, having overall dimensions (mm) 475to dia X 370 bottom dia X 770 Ht. Secondary (Storage) Waste Collection Supertuff Wheeled Waste Bins; 240 Litre capacity having overall dimensions (mm) 610 X 680 to X 475 X 325 bottom X 1070 Ht. 3,325/521/3,900/235/190/145/-
Secondary
Waste
Collection
Tricycles; having overall dimension (mm) of frame 1540 L X 735 W X 255 H with 8 nos. multi bins with closed lid Hand Cart; having overall dimension (mm) of frame 1540 L X 735 W X 820 H with multi bins Heavy Duty Wheel Barrow; 110 Litre
16,945/-
(Transportation)
7,570/-
5,850/-
capacity having overall dimensions (mm) 750 X 730 top X 450 X 430 bottom X 660 Ht. Door to Door collection Equipment; 500 litre capacity having overall dimensions of frame (mm) 1520 L X 1010 W X 680 Ht. 25,000/-
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Category Integrated Waste Management (Community Bins)
Description Community wheeled Waste Bins; 1100 litre capacity having overall dimensions of frame (mm) 1455 X 1020 top X 1330 X 870 bottom X 1250 Ht.
Rate (Rs.) 34,320/-
Liquid Waste
Septic Tank; vertical type made from moulded polyethylene chamber, with inlet, outlet and and filter septic media filter chamber
31,200/-
having 2,000 litre capacity Moulded Nestable type of Toilet Seat, size of 900 X 900 mm Prefabricated SMC Toilet Block having 21,160/overall dimensions 3 ft. X 3 ft. X 7 ft. each module consisting of SMC wall, door, roofing and Indian Style WC and base of Polytheylene. Others Biogas Plant; having overall dimensions (mm) of 1600 dia X 1100, 0.5 Cum Volumen suitable for 01 animal Home Compositing Bin; suitable for one family ( 05 persons) for one months having overall dimensions (mm) 640 X 440 top X 515 X 325 bottom X 370 Ht. 1,170/11,550/1,560/-
3.0 Bill of Quantity (BOQ)

Bill of Quantity comprise a list of items of work which are briefly described. The Bills also provide a measure of the extent of work and this allows the work to be priced. The work included in the item is defined in detail by the rules in the Method of Measurement. The item descriptions are therefore shorthand to allow the relevant rules of the Method to be identified. The measure may be a single item or number, dimension (linear metre, square metre, cubic metre), time (hrs, weeks) or weight.
Function of Bills
The Bills of Quantities may serve a number of functions as: A breakdown of the tendered price, with no contractual status, but providing information for the selection from tenderers; An estimate measure of the work for the tendered price, to be used to arrive at a revised contract price once the actual quantities of work carried out are measured. This is the re-measure form of contract.
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A schedule of rates as the contract basis for valuing variations in the work. A basis for measure of the value of work completed for interim payments A Sample Bill of Quantity for Providing, lowering, laying, jointing and testing work for collection system along with house connection system of underground sewerage project, is given below in table 3.1
Table3.1 Sample BOQs Item No. 1.0 Excavation manholes for incl. sewer All line trenches, provisions Qty Item Rate Per Amount
safety
using site rails etc. including refilling the trenches & stacking the excavated stuff up to a lead of 90mt as directed. 1.1 1.1.1 118993 UP TO 1.50mt depth In all sorts of soil and soft murrum, hard murrum, boulders, and macadam road. 1.1.2 1.2 1.2.1 6156 11855 In hard rock and soft rock 1.50mt to 3.00mt In all sorts of soil and soft murrum, hard murrum, boulders, and macadam road. 1.2.2 1.3 1.3.1 1.4 1.4.1 2.0 7274.00 205 8032 In hard rock and soft rock 3.00mt to 4.50mt In hard rock and soft rock 4.50mt to 6.00mt In hard rock and soft rock Providing C.C. bedding in 1:3:6 (M 100) using 12 to 20mm machine crushed metal incl. Consolidation curing etc. complete. (C-type bedding as per type design) 3.0 Providing, supplying, lowering, laying and jointing Stoneware pipes in C.M. 1:1 of following diameters in proper position grade and alignment as directed by Engineer-in-charge including labour, giving necessary testing etc., complete including cost of jointing materials including all the taxes, duties, freight, insurance etc. complete. 252.50 1170.00 M3 M3 85,10,580/199.50 M3 40,897/166.50 M3 13,37,328/47.50 M3 2,92,410/135.00 M3 16,00,425/39.50 M3 47,00,223/-
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Item No. 3.1 3.2 3.3 3.4 3.5 4.0
Qty
Item
Rate
Per
Amount
57490 51300 2360 1026 500
For 100mm dia Stoneware pipes For 150mm dia Stoneware pipes For 200mm dia Stoneware pipes For 250mm dia Stoneware pipes For 300mm dia Stoneware pipes Providing and constructing house connection chambers as per type design in brick masonry in C.M. 1:4 and inside plastering in C.M. 1:3 necessary coping in C.C. M-200 and fixing of RCC frame and cover (But excluding supply of frame and covers) chambers over etc., house complete connection
85.00 130.00 190.00 280.00 390.00
RMT RMT RMT RMT RMT
48,86,650/66,69,000/4,484400/2,87,280/1,95,000/-
(excluding excavation) as per stipulation in the type design complete. 4.1 1126.00 House connection chamber as per type design (Depth upto 0.60 mt.) 4.2 8390.00 House connection chamber as per type design (Depth above 0.60 mt and upto 1.0 mt.) 5.0 Providing and constructing Sewer manholes, scraper manholes as per the type design in brick masonry in C.M. 1:4 and inside and outside plastering in C.M. 1:3 necessary coping in C.C. M200 fixing C.I./ reinforced plastic Steps and fixing manhole frame and covers (But excluding supply of manhole frame and covers) over manholes/ scraper manhole etc. complete, as per stipulation 5.1 in the type complete.(Excluding excavation) Manhole type "A-1" Circular type having inside diameter of 900 mm for depth upto 1.00 mt. 5.1.1 5.2 256 Manhole type "A-1" as above but upto 1.00 mt. depth. Manhole type A circular type having inside diameter of 1200mm for depth up to 1.5m depth. 5.2.1. 5.2.2 1026 103 Manhole type A as above but up to 1.0 M depth Extra depth beyond 1.0 M but up to 1.5M depth for A type manhole above 1632.00 RMT 1,68,096/2640.00 Nos. 27,08,640/1550.00 No.s 3,96,800/the design 1000.00 Nos. 83,90,000/770.00 Nos. 8.67.020/-
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Item No. 5.3
Qty
Item
Rate
Per
Amount
Manhole type B circular type having inside diameter of minimum 1500mm and for depth from 1.5M to 4.0 M.
5.3.1.
646.00
Manhole type B as above but up to 1.5 M depth.
4960.00
Nos.
32,04,160/-
5.3.2
462.00
Extra depth beyond 1.5M but up to 4.0 M depth for type B manhole above.
2604.00
RMT
12,03,048/-
5.4
Manhole type C circular type having inside diameter of minimum 1500 mm and for depth 4.0 M to 6.0M
5.4.1 5.4.2 6.0
5.00 5
Manhole type C as above but up to 4.0 M depth. Extra depth beyond 4.0 M and up to 6.0M depth for type C manhole above. Providing as constructing including vertical providing drop and arrangement of 0.6 m and more height required jointing special such as double T.Bend required Stoneware pipe fixed in M-100 C.C. at required level as type design cutting jointing and filleting as per specification etc. complete.
15456.00 4068.00
Nos. RMT
77,280/20,340/-
6.1 6.2 7.0
102 102 47311
Vertical drop arrangement as above up to 0.6 M height. Extra over Item the No.6.1 above earth for after limits loading, pre-cast
708.00 552.00 33.00
Nos. RMT M3
72,216/56,304/15,61,263/-
additional drop beyond 0.6 M. Removing the surplus refilling the trenches as directed with in Municipal Corporation including 8.0 9515 Providing, transportation, supplying RCC
unloading, spreading etc. complete 600.00 1 Pair 57,09,000/manhole frame and covers 5 T.M.D. as per specifications 9.0 1282 Providing, supplying R.C.C. Pre-cast 690.00 One pair 8,84,580/manhole frame & covers 10 T.MD. as per specifications. 10.0 556 Providing, supplying R.C.C. Pre-cast 900.00 One pair 5,00,400/manhole frame & covers 20 T.MD. as per specifications. 11.0 11.1 49248.00 Breaking of pavement surface Conventional asphalt surface 18.00 Sq. Mt 8,86,464/-
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Item No. 11.2 12.0
Qty
Item
Rate
Per
Amount
5130.00 7797.00
Paver asphalt surface Making holes in manhole with repairing complete
26.00 20.00
Sq. Mt Nos.
1,33,380/1,55,940/-
Total Rs.5,99,99,124/Say Rs.6,00,00,000/(Rupees Six crores only)
4.0 Financial Analysis of Infrastructure Projects

To judge a infrastructure project from the financial angle, an engineer needs information about the following two most important aspects: Cost of project Projected cash flow
4.1 Cost of Project

Project cost estimating is usually performed by summing estimates for individual project elements into a project total. The pieces can vary in size and number from a few large chunks of a project with known costs to hundreds or thousands of discrete tasks or individual work packages. Conceptually, the cost of project represents the total of all items of outlay associated with a project which are supported by long-term funds. It is the sum of the outlay on the following; Land and site development Buildings and civil works Plant and machinery Technical know-how and engineering fees Miscellaneous fixed assets Preliminary and capital issue expenses Pre-operative expenses Provision for contingencies Margin money for working capital Initial cash losses
4.1.1 Technical Know-how and Engineering Fees

Often it is necessary to engage technical consultants or collaborators from India/or abroad for advice and help in various technical matters like preparation of project report, choice of technology, selection of plant and machinery, detailed engineering, and so on. While the amount payable for obtaining technical know-
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how and engineering services for setting up the project is a component of project cost, the royalty payable annually, which is typically a percentage of sales, is an operating expense taken into account in the preparation of the projected profitability statements.
4.1.2 Miscellaneous Fixed Assets

Fixed assets and machinery which are not part of the direct manufacturing process may be referred to as miscellaneous fixed assets. They include items like furniture, office machinery and equipment, tools, vehicles, railway siding, diesel generating sets, transformers, boilers, piping systems, laboratory equipments, workshop equipments, effluent treatment plants, fire fighting equipments, and so on. Expenses incurred for procurement or use of patents, licenses, trade marks, copyrights, etc., and deposits made with the electricity board may also be included here.
4.1.3 Preliminary and Capital Issue Expenses

Expenses incurred for identifying the project, conducting the market survey, preparing the feasibility report, drafting the memorandum and articles of association and incorporating the company are referred to as preliminary expenses. Expenses borne in connection with the raising of capital from the public are referred to as capital issue expenses. The major components of capital issue expenses are : under writing commission, brokerage, fees to managers and registrars, printing and postage expenses, advertising and publicity expenses, listing fees and stamp duty.
4.1.4 Pre-operative Expenses

Expenses of the following types incurred till the commencement of commercial production are referred to as pre-operative expenses: (i) Establishment expenses, (ii) rent, rates and taxes (iii) travelling expenses, (iv) interest and commitment charges on borrowings, (v) insurance charges, (vi) mortgage expenses, (vii) interest on deferred payments, (viii) start-up expenses, and (ix) miscellaneous expenses. Pre-operative expenses are directly related to the project implementation schedule. So, delays in project implementation, which are fairly common, tend to push up these expenses. Appreciative of this, financial institutions allow for some delay (20 to 25%) in the project implementation schedule and accordingly permit a cushion in the estimate for pre-operative expenses.
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Pre-operative expenses incurred up to the point of time the plant and machinery are set up may be capitalized by apportioning them to fixed assets on some acceptable basis. Pre-operative expenses incurred from the point of time the plant and machinery are set up are treated as revenue expenditure. The firm may, however, treat them as deferred revenue expenditure and write them off over a period of time.
4.1.5 Provision of Contingencies

A provision for contingencies is made to provide for certain unforeseen expenses and price increase over and above the normal inflation rate which is already incorporated in cost estimates. To estimate the provision for contingencies the following procedure may be followed: (i) Divide the project cost items into two categories, viz, firm cost items and non-firm cost items (firm cost items are those which have already seen acquired or for which definite arrangements have been made). (ii) Set the provision for contingencies at 5 to 10 percent of the estimated cost of non-firm items. Alternatively, make a provision of 10 percent for all items (including the margin money for working capital) if the implementation period is one year or less. For every additional one year, make an additional provision of 5 percent.
4.1.6 Margin Money for Working Capital

The principal support for working capital is provided by commercial banks and trade creditors. However, a certain part of working capital requirement has to come from long-term sources of finance. Referred to as the margin money for working capital, this is an important element of the project cost. The margin money for working capital is sometimes utilized for meeting over-runs in capital cost. This leads to a working capital problem (and sometimes a crisis0 when the project is commissioned. To mitigate this problem, financial institutions stipulate that a portion of the loan amount, equal to the margin money for working capital, be blocked initially so that it can be released when the project is completed.
4.1.7 Initial Cash Losses

Most of the projects incur cash losses in the initial years. Yet, promoters typically do not disclose the initial cash losses because they want the project to appear attractive to the financial institutions and the investing public. Failure to make provision for such cash losses in the project cost generally affects the liquidity position and impairs the operations. Hence prudence calls for making a provision, overt or convert for the estimated initial cash losses.
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4.1.8 Sample Cost Estimate for Head Works

For treatment, storage and distribution of 45 MLD of water for desired population at head work following works are proposed:
A. Cost Estimate for Raiyadhar Headworks 1 2 3 4 5 Providing and constructing water treatment plant of capacity 50 MLD LS Construction of pure water RCC GSR having water depth 3.5 mt capacity 20.6 Mt Rs.4000/m mt LS Providing and erecting pumping machinery having capacity 825 m /hr against head 40 mt (3+1) for ward-23 and capacity 735 m3/hr against head 40 mt (4+2) for Ring road. Total KW 1250 at Rs.25000/KW 6 L.S. Providing, lowering, laying and jointing M S pipeline for various sizes including excavation, refilling, bedding etc. 1200 mm 200 mt.for inlet to sump L.S. (Gravity) 1000 mm dia 210 mt. for rising main L.S. (Gravity) 700 mm dia 1200 mt. for ward no.21 L.S. (Gravity) 750 mm dia 1200 mt. for ward-22 L.S. (Gravity) 600 mm dia 2000 mt. for ward-22 L.S. (Gravity) 7 8 Cost of valves and job work Area development L.S. Compound wall and internal roads and area lighting LS GEB connection L.S. Staff quarter LS Approach road L.S. Total Say 35.80 lacs 27.09 lacs 108.30 lacs 116.10 lacs 154.80 lacs 40.00 lacs 20.00 lacs 15.00 lacs 55.00 lacs 15.00 lacs 15.00 lacs 1680.09 lacs 1680.00 lacs
3 2
350.00 lacs 236.70 lacs 29.60 lacs 150.00 lacs 312.50 lacs
L.S.
Construction of pump house having size 37 x 20 at the rate of LS Construction of ESR having capacity 3.0 ML and stage height 20
Thus, total cost of project: Intake work Filtration, storage, distribution etc. Rs.1290.00 lacs Rs.1680.00 lacs
-------------------------------------------------------------------Total Add 5% physical contingency Total Say Rs.2970.00 lacs Rs. 149.00 lacs Rs.3119.00 lacs Rs.3120.00 lacs
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4.2 Project Cash Flow

In engineering many times an engineer comes across many alternatives. Sometimes they have a proposal to replace the old machine by new advanced machine. But before doing that they must evaluate the proposals worth. Similarly, engineers may some time need to take decision on investing in new projects. They may need to evaluate the investment in different infrastructure projects. For all this, some economic indicator must be there so that the task will be easier. The investment decision rules may be referred to as capital budgeting techniques, or investment criteria. A sound appraisal technique should be used to measure the economic worth of an investment project. The essential property of sound techniques is that it should maximize the shareholders wealth. The following other characteristics should also be possessed by sound investment evaluation criteria: It should consider all cash flows to determine the true profitability of the project. It should provide for an objective and an unambiguous way of separating good projects from bad projects. It should help ranking of projects according to their true profitability. It should recognize the fact that bigger cash flows are preferable to smaller ones and early cash flows are preferable to later ones It should help to choose among mutually exclusive projects that project which maximizes the shareholders wealth. It should be a criterion which is applicable to any conceivable investment project independent of others. These conditions will be clarified as we discuss the features of various investment criteria herein: A number of capital budgeting techniques are in use in practice. They may be grouped in the following two categories.
Discounted Cash Flow (DCF) Criteria

Net present Value (NPV) Internal rate of Return (IRR) Profitability Index (PI) Discounted payback period
Non-discounted Cash Flow Criteria

Payback Period (PB) Accounting Rate of Return (ARR).
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We will show in the following the net present valued criterion is the most valid technique of evaluating an investment project. It is generally consistent with the objective of maximizing the shareholders wealth.
4.2.1 Net Present Value Method

The net present value (NPV) method is the classic economic method of evaluating the investment proposals. It is one of the discounted cash flows (DCF) techniques explicitly recognizing the time value of money. It correctly postulates that cash flows arising at different time periods differ in value and are comparable only when their equivalents present values are found out. The following steps are involved in the calculation of NPV: Cash flows of the investment project should be forecasted based on realistic assumptions. Appropriate discounts should be identified to discount the forecasted cash flows. The appropriate discount rate is the firms opportunity cost of capital which is equal to the required rate of return expected by investors on investments of equivalent risk. Present value of cash flows should be calculated using opportunity cost of capital as the discount rate. Net present value should be found out by subtracting present value of cash outflows from present value of cash inflows. The project should be accepted if NPV is positive (i.e. NPV>0). Example: Assume that project X costs Rs. 2,500 now and is expected to generate year-end cash inflows of Rs. 900, Rs. 800, Rs. 700, Rs. 600 and Rs. 500 in years. 1 through 5. The opportunity cost of the capital may be assumed to be 10 per cent. The net present value for Project X can be calculated by referring to the present value table. Rs. 900 NPV = ( (1+ 0.10) NPV = = = = Rs. 800 + (1+ 0.10)2 Rs. 700 + (1+ 0.10)3 Rs. 600 + (1+ 0.10)4 Rs. 500 + (1+ 0.10)5 ) Rs. 2,500
[Rs. 900 (PVF1,0.10) + Rs. 800 (PVF2,0.10) + Rs. 700 (PVF3,0.10) + Rs. 600 (PVF4,0.10) + Rs. 500 (PVF5,0.10)] Rs. 2,500 [Rs. 900 X 0.909 + Rs. 800 X 0.826 + Rs. 700 X 0.751 + Rs. 600 X 0.683 + Rs. 500 X 0.620] Rs. 2,500 Rs. 2,725 Rs. 2,500 + Rs. 225
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Project Xs present value of cash inflows (Rs. 2,725) is greater than that of cash outflow (Rs. 2,500). Thus, it generates a positive net present value (NPV = + Rs. 225). Project X adds to the wealth of owners; therefore, it should be accepted. The Formula For the net present value can be written as follows: NPV or n NPV = = [ C1 (1+ k) + C2 (1+ k)
2
C3 (1+ k)
3
Cn (1+ k)n
] - C0
t=1
Ct (1+ k)
t
C
0
Where C1, C2 represent net cash inflows in year 1,2.., k is the opportunity cost of capital, C0 is the initial cost of the investment and n is the expected life of the investment. It should be noted that the cost of capital, k is assumed to be known and is constant.
4.2.2 Internal Rate of Return Method (IRR)

The internal rate of return (IRR) method is another, discounted cash flow technique which takes account of the magnitude and timing of cash flows. Other terms used to describe the IRR method are yield on an investment, marginal efficiency of capital, rate of return over cost, time-adjusted rate internal return and so on. The concept of internal rate of return is quite simple to understand in the case of a one-period project. Assume that you deposit Rs. 10,000 with a bank and would get back the cash of a one-period project. The true rate of return on your investment would be: Rate Return of 10,800 = 10,000 10,000 = 108,000 10,000 - 10,000 = 1.08 1 = 0.08 8% or
The amount which you would obtain in future (Rs. 10,800) would consist of your investment (Rs. 10,000) plus return on your investment (0.08 X Rs. 10,000): 10000 (1.08) = 10,800 or 10,000 = 10,800 (1.08)
You may observe that the rate of return of your investment (8 percent) makes the discounted (present) value of your cash inflow (Rs. 10,800) equal to your investment (Rs. 10,000). We can now develop a formula for the rate of return (r) on an investment (C0) that generates a single cash flow after one period (C1) as follows: r = C1- C0 C0 = C1 C0 1
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Equation can be rewritten as follows: C1 C0 = 1+r C0 = C1 (1 + r)
From above equation the rate of return can be defined as that rate which equates investment outlay with the present value of inflow received after one period. This also implies that the rate of return is the discount rate which makes NPV = 0. this rate may be referred to as the internal rate of return. There is no satisfactory way of defining true rate of return of a long-term asset. The internal rate of return (RR) is the best available concept; although it is a very frequently used concept in finance, yet at times it can be a misleading measure of investment worth. Internal rate of return is called so because it depends solely on the outlay and proceed associated with the investment and not on any rate determined outside the investment. It can be determined by solving the following equation for r: C1 C0 = (1+ r) n C0 = + (1+ r)2 C2 + (1+ r)3 C3 + + (1+ r)n Cn ] C
0
t=1
Ct (1+ r)t
- C0 = 0
It can be noticed that the IRR equation is the same as the one used for the NPV methods with the difference that in the NPV method the required rate of return k, is assumed to be known and the net present value is found, while in the IRR method the value of r has to be determined at which the net present value is zero.
Uneven Cash Flows: Calculating IRR by Trial and Error

The value of r in equation can be found out by trial and error. The approach is to select any discount rate to compute the present value of cash inflows. If the calculated present value of the expected cash inflow is lower than the present value of cash outflows, a lower rate should be tried. On the other hand, a higher value should be tried if the present value of inflows is higher than the present value of outflows. This process will be repeated unless the net present value becomes zero. The following illustration explains the procedure to calculate the internal rate of return.
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Illustration:
A Project costs Rs. 16,000 and is expected to generate cash inflows of Rs. 8,000, Rs. 7,000 and Rs. 6,000 at the end of each year for next 3 years. we know that IRR is the rate at which project will have a zero NPV. As a first step, we try (arbitrarily) a 20 percent discount rate. The projects NPV at 20 percent is: NPV = -Rs. 16,000 + Rs. 8,000 (1/1.2) + Rs. 7,000 (1/2.2) + Rs. 6,000 (1/3.2) = -Rs. 16,000 + Rs. 8,000 X 0.833 + Rs. 7,000 X 0.694 + Rs.6,000 X 0.579 = -Rs. 16,000 + Rs. 14,996 = -Rs. 1,004 A negative NPV of Rs. 1,004 at 20 percent indicates that the projects true rate of return is lower than 20 percent. Let us try 16 percent as the discount rate. At 16 percent, the projects NPV is: NPV = -Rs. 16,000 + Rs. 8,000 (1/1.16) + Rs. 7,000 (1/2.16) +Rs. 6,000 (3/3.16) = -Rs. 16,000 + Rs. 8,000 X 0.862 + Rs. 7,000 X 0.743 + Rs.6,000 X 0.641 = -Rs. 16,000 + Rs. 15,943 = -Rs. 57 Since the projects NPV is still negative at 16 percent, a rate lower than 16 percent should be tried. When we select 15 percent as the trial rate, we find that the projects NPV is Rs. 200: NPV = -Rs. 16,000 + Rs. 8,000 (1/1.15) + Rs. 7,000 (1/2.15) + Rs. 6,000 (3/3.15) = -Rs. 16,000 + Rs. 8,000 X 0.870 + Rs. 7,000 X 0.756 + Rs. 6,000 X 0.658 = -Rs. 16,000 + Rs. 16,200 = -Rs. 200 The true rate return should lie between 15 to 16 percent. We can find out a close approximation of the rate of return by the method of linear interpolation as follows:
Difference PV required PV ar lower rate, 15% PV ar higher rate, 16% r = 15% + (16% -15%) = 15% + 0.8%= 15.8% Rs. 16,000 Rs. 16,200 Rs. 15,943 200 257
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4.2.3 Discount Cash Flow Method (Present Value Return on Investment Method)
The pay-back period and return on investment (ROI) methods do not consider the time value of money. Projects with differing cash inflows, as follows, are treated at par although present value return is higher in the second case. Cash flows received in different years should not be treated to have a uniform value. Todays rupee is more valuable than a rupee to be received a year later. For proper and sound financial analysis cash flows should be related to time scale.
Project I 1 Year Cash inflows 2 year Cash inflows 8,000 Rs. 12,000 Rs. Project II 12,000 Rs. 8,000 Rs.
Discounting Principle:
Let us consider that Rs. 100 is invested with 15% compound interest/annum. The table shows earning. It shows that future value of Rs. 100 after 5 years is Rs. 201.14. The discounting principal views the whole exercise from the other end. It puts the thing in reverse order that Rs. 201.14 to be available at the end of 5th year is today worth Rs. 100. Therefore, the present value of the future sum of Rs. 201.14 is Rs. 100.
Year Interest Cumulative 0 100 1 15 115 2 17.25 132.25 3 19.84 152.09 4 22.81 174.9 5 26.24 201.14
Discounting the future cash flows is very important in capital expenditure appraisal. In capital investment, cash outflows take place in first year and also spread over 2 or more years but cash inflows will start generating after the project is commissioned and will continue during the lifetime of the project. To arrive at a decision whether to invest funds or not, it is necessary to make a comparison between the present value of cash outflows and cash inflows. If the present value of cash inflows is more than that of the cash outflows, at a given rate of discount, the capital expenditure proposal merits consideration and approval. The trial and error method seeks to find out that particular discount rate at which both cash outflows and inflows become equal in terms of their present values. A number of trial calculations are made to establish the exact rate of discount.
Merits of Discount Cash Flow Method: It considers time pattern of such

flows and the present value system.
Drawbacks of Discount Cash Flow Method:

It is important that life of the asset is objectively estimated, otherwise profitability calculations will go wrong, leading to wrong decision being taken.
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Depending upon money supply, interest rate may be varying-high rate during dear money situation an low rate during easy availability of funds. The single discounting rate ignores the fluctuating trend of future interest rates.
Illustrative Example: there are 2 investment

proposals A & B. the proposal A requires an investment of Rs. 60,000 and B Rs. 1,00,000 (1st year Rs. 75,000 and 2nd year Rs. 25,000). The net cash inflows from the investments are as shown in table. Through trial calculations the discount rate is determined as follows.
Year 1 2 3 4 5
A Rs. 10,000 15,000 20,000 25,000 30,000
B Rs. 10,000 20,000 40,000 40,000 40,000
Cash Flow- Investment Proposal A

Year Cash Inflows Rs. 10,000 15,000 20,000 25,000 30,000 1,00,000 Trail no. 1 Discount 15% p.a. Present Value (Rs.) Per Rs. Amount 0.8696 8,696 0.7561 0.6575 0.5718 0.4972 11,341 13,150 14,295 14,916 62,398 60,000 (+)2,398 Trail no.2 Discount 16% p.a. Per Rs. 0.8621 0.7432 0.6407 0.5523 0.4761 Amount 8,621 11,148 12,814 13,807 14,283 60,673 60,000 (+) 673 Trail no.3 Discount 17% p.a. Per Rs. 0.8547 0.7305 0.6244 0.5337 0.4561 Amount 8,547 10,957 12,488 13,342 13,683 59,017 60,000 (-) 983
1 2 3 4 5 Total
Less Investment Outflow Net difference in present value
Cash Flow- Investment Proposal B

Year Cash Inflows Rs. 10,000 20,000 40,000 40,000 40,000 150,000 75,000 25,000 100,000 0.8333 0.6944 Trail no. 1 Discount 15% p.a. Present Value (Rs.) Per Rs. Amount 0.8333 8,333 0.6944 0.5787 0.4823 0.4019 13,888 23,148 19,292 16,076 80,737 62,498 17,360 79,858 (+)879 0.8265 0.6830 Trail no.2 Discount 16% p.a. Per Rs. 0.8265 0.6830 0.5645 0.4665 0.3855 Amount 8,265 13,660 22,580 18,660 15,420 78,585 61,987 17,075 79,062 (-)477
1 2 3 4 5 Total 1 2 Total
Less Outflows
Net difference
For a change in rate of interest of 1! (from 16% to 17%) the change in present value is Rs. 1,656 = (60,673 59,017) The rate of interest which equalizes investment cash outflows with cash inflows is determined as:16% + {(673 X1) /1656} =16.40% So the proposal A yield a discounted or internal rate of return is 16.40%
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Similar for proposal B- actual rate of discount = 20% + {(879 X1) /1356} =20.6482% Thus proposal B is preferable to A as the internal rate of return is higher for B that of A.
4.2.4 Pay Back or Pay Off Period Method

Pay-back period is the time required for the net cash inflows to equal the amount of investment i.e. the periods over which the cash inflows pay-off the investment; the shorter the period, the better is the investment. As capital projects have a long gestation period, during which many uncertainties may come up, the degree of risk assumed by a company when planning capital expenditure is directly linked to the length of time required to recover the investment from the cash inflow generated by the project. The pay-back period takes care of this important aspect of risk inherent in investment decisions. If there is two or more competing project, the one having the shortest pay-back period is selected because the risk element is the least.
Illustrative Example:
Project A Investment Net Cash Inflows 1 Year 2 Year 3 Year 4 Year 5 Year Pay-Back Period 5,000 7,000 8,000 5,000 5,000 3 year 20,000 Rs. Cumulative 5,000 12,000 20,000 25,000 30,000 5,000 5,000 5,000 5,000 5,000 4 year Project B 20,000 Rs. Cumulative 5,000 10,000 15,000 20,000 25,000
Project A is preferable to project B.
Merits of Pay off Period Method:

It is easy to calculate and can be understood easily by even non-financial people. In time when dear money conditions are prevailing, the pay-back period method is very suitable, because of its emphases on quick recovery of the investment through cash inflows. The risk element is taken care off in the pay-back period method, as it prefers a project, which recoups the investment in the shortest possible time period. It is most useful when the investment is not high and the capital of the project is recovered in a short period. The guesswork and uncertainties are less in calculations because it is not necessary to forecast cash inflows throughout the life of the project.
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Drawbacks of Pay off Period Method:

This method does not measure the true profitability of the project as it does not consider the cash inflows generated throughout the life of the project. It limits itself to the pay-back period and ignores the cash inflows which arise after the pay-back period. This method may, therefore, be used only as a supplementary index along with some other method. Another serious drawback is that time value of money is ignored. It is proper that the cash inflows received in earlier periods should be given more value than the cash inflows received in later periods. Without this important aspect being considered, evaluation will not be complete and will be therefore misleading.
4.2.5 Rate of Return on Investment Method (R & I)

This is an age-old technique used for evaluating capital projects. This measures the relationship between the return after-tax and expressed as a percentage on investment. The rate of return is calculated as: ROI = Average Yearly Undiscounted net cash inflow after tax X 100 Total undiscounted investment cash outflows CFav Total undiscounted net cash flows after tax Economic life of the project = CFav OF
Where
=
Illustrative Example:
Total Investment Net Cash inflows after tax during the life of the project Life of the Project Annual return Return on investment Project B is preferable to Project A Project A 1,00,000 1,00,000 10 years 10,000 10 % Project B 1,50,000 2,70,000 15 years 18,000 12%
Merits of Rate of Return on Investment Method:

It is a very simple and easy method which can be understood by all managers. It is this simplicity which accounts for its wide popularity. Unlike pay-back period method, the entire serviceable life of the project is taken into consideration. Therefore, the project is considered in its totality.
Drawbacks Rate of Return on Investment Method:

Difficulties and uncertainties associated with the estimation of future sales and anticipated cost over a long period are influenced by a large number of factors. The life of an asset, for instance, would depend upon factors such as, its make,
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quality, the extent of its working, the state of maintenance and the manner of handling during work. For this method, usually profits (return) are calculated by conventional accounting practice of taking into account accruals. Cash flows are relevant in the context of capital investment evaluation, which consider the time pattern of earnings. Cash generation for different projects may be start at different points of time and hence, time pattern of cash generation is important and relevant. Because of these limitations, the ROI technique is not very useful to make sophisticated analysis in capital investment decisions.
4.2.6 Profitability Index

Yet another time-adjusted method of evaluating the investment proposal is the benefit-cost (B/S) ratio or profitability index (PI). It is the ratio of the present value of cash inflows, at the required rate of return, to the initial cash outflow of investment. It may be gross or net; net being simply gross minus one. The formula to calculate benefit-cost ratio or profitability index is as follows : PV of cash inflows Initial cash outlay PV (Ct) C0 t=1 n Ct (1+K)t
PI =
C0
ILLUSTRATION
The initial cash outlay of a project is Rs. 100,000 and it can generate cash inflow of Rs.40,000, Rs.30,000, Rs.50,000 and Rs.20,000 in year 1 through 4. assume a 10 percent rate of discount. The PV of cash inflows at 10 percent discount rate is: PV = Rs. 40,000 (1/1.1) + Rs. 30,000 (1/2.1) + Rs.50,000 (1/3.1) + Rs. 20,000 (1/4.1) = Rs 40,000 X 0.909 + Rs 30,000 X 0.826 + Rs 50,000 X 0.751 + Rs. 20,000 X 0.683 NPV = Rs 112,350 Rs 100,000 = Rs 12,350
PI = Rs 1,12,350
Rs 1,00,000
= 1.1235
Acceptance Rule
Accept if PI > 1 Reject if PI < 1
The following are the acceptable PI are :
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May accept if PI =1 When PI is greater than one, then the project will have positive net present value
Evaluation of PI Method
Like the NPV and IRR rules, PI is a conceptually sound method of appraising investment projects. It recognizes the time value of money. It is a variation of the NPV method, and requires the same computations as the NPV method. In the PI method, since the present value of cash inflows is divided by the initial cash outflow, it is a relative measure of a projects profitability.
Financial vs. Economic Analysis

Financial and economic analyses have similar features. Both estimate the net benefits of an investment project based on the difference between the with-project and the without-project situations. However, the concept of financial net benefit is not the same as economic net benefit. While financial net benefit provides a measure of the commercial (financial) viability of the project on the project-operating entity, economic net benefit indicates the real worth of a project to the country. For a project to be economically viable, it must be financially sustainable. If a project is not financially sustainable, there will be no adequate funds to properly operate, maintain and replace assets; thus the quality of the water service will deteriorate, eventually affecting demand and the realization of financial revenues and economic benefits. It has sometimes been suggested that financial viability not be made a concern because as long as a project is economically sound, it can be supported through government subsidies. However, in most cases, governments face severe budgetary constraints and consequently, the affected project entity may run into severe liquidity problems, thereby jeopardizing even its economic viability. The basic difference between the financial and economic benefit-cost analyses of the project is that the former compares benefits and costs to the enterprise in constant financial prices, while the latter compares the benefits and costs to the whole economy measured in constant economic prices. Financial prices are market prices of goods and services that include the effects of government intervention and distortions in the market structure. In financial analysis, the taxes and subsidies included in the price of goods and services are integral parts of financial prices, but they are treated differently in economic analysis.
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5.0 Financial and Economic Analysis: Case of Jammu Sewerage Project

In Jammu City, there was no hygienic system for domestic excreta collection, treatment or disposal in the city. In the older section of Jammu the obnoxious practice of conservancy (service latrines) still continues and in other areas, the un-treated sewage and sullage is discharged into storm water drains causing a grave risk to health of sanitation workers and the citizens alike. Newer houses in relatively more planned and organized colonies have septic tanks but most lack soak ways and the partially treated effluent is usually discharged into open road drains which flow into the natural drainage channels that pass through the city. The components under sewerage sub projects identified are Completion of the ongoing construction/Laying of lateral and secondary sewers in Division A, Phase II; Construction/Laying of trunk main sewers in Division A, Phase II;
Figure 4.1ammu Sewerage Divisions
Construction of sewage treatment plant of 30 MLD STP capacity to serve Division A, Phase II; Combined sewer comprising Construction/Laying of secondary, lateral, outfall and house connection for the Division A, Phase I; Construction of sewage treatment plant of required capacity to serve Division A, Phase I; Sewage / storm drainage separation structures in Division A, Phase I, before the pumping stations or STP; Providing house connections in both Phase I and Phase II.
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Subsequent Sub project Phase I:

For these sewerage catchments separate collection systems may not be feasible due to space constraints, congested area and narrow roads. The component would include: Intercepting of sewage flowing into the Nallahs and open drains; Construction of trunk mains sewers, secondary sewers, laterals and house connections; Provision for diversion of sewerage and storm water before entering to treatment facility; Extension of treatment plant (Planned under the sample subproject) to cater the additional requirement of 30 MLD. It is therefore proposed to provide combined sewerage system to this sewerage zone.
5.1 Cost Estimates

The cost estimates for the subproject is summarized in Table5.1
Table 5.1: Sewerage Subproject Preliminary Cost Estimate S.NO 1 Su-Project Subproject 1 Division A, Phase II plus part of Division B Description Construction / Laying of sewerage system to carry sewage in dry weather flow & storm water during rains for Phase II of Division A and part of Division B Construction of STP for Phase 1 of capacity 30 MLD 2 Subproject 2 Division A, Phase I Combined system to carry sewage in dry weather flow & storm water during rains for Phase I Construction of STP for Phase I of 24 MLD including sewage pumping stations Total 56.96 31.7 Amount US $ million 25.26
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Economic Analysis 1
Main Evaluation: Table 5.2 presents the results of the main economic evaluation. The table indicates that the EIRR of the environmental sanitation component is estimated to be 32.65%. The EIRR value exceeds the economic opportunity cost of capital of 12% and all subprojects are economically viable. Avoided health care costs comprise the largest proportion of economic benefits (63%) followed by time savings in sewage disposal cost (25%) and improved property value (11%). Table 5.2: Economic Cost-Benefit Analysis for Sewerage Component, Jammu
Details Costs Capital costs Sewerage & Sanitation O&M costs Sewerage & Sanitation 251.08 859.06 Present Value (Rs. million) a/
Economic Analysis of Sample Subprojects
Economic Cost: The economic costs of capital works and annual operation and maintenance are calculated from the financial cost estimates on the following basis: (i) (ii) (iii) Price contingencies are excluded but physical contingencies are included because they represent real consumption of resources; Import duties and taxes are excluded because they represent transfer payments;1 The existence of unemployment and under-employment for unskilled workers within the Indian economy means that the opportunity cost of unskilled labour can be considered to be lower than its wage rate a conversion factor of 0.75 of the market wage rate is used to estimate the shadow wage rate;1 The market wage rate for skilled labour and the acquisition cost of land are considered to represent opportunity costs, as both factors are in demand;
(iv)
All costs are valued using the domestic price numeraire, to enable an easier comparison with the information used to measure benefits (e.g. a significant component of benefit is the savings in resources, which would be used in the without project situation).
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Details Total costs Benefits Increased property value Avoided costs of -sewage disposal -health care -flood damage & earning lost
Present Value (Rs. million) a/ 1110.14 186.95 415.27 1044.97
10.81 Total benefits Economic Return Measures Net present value (Rs. million) EIRR (%) 547.85 32.65% 1657.99
a/ In 2006 prices. Discounted to 2006 at 12% real discount rate. Sensitivity Analysis. Sensitivity analysis was undertaken in order to test the robustness of the economic results. The following changes in parameters and assumptions were analyzed: A capital cost overrun of 20 percent; Increase in O&M cost by 20 percent; Decrease in all project benefits by 20 percent; One year delay in implementation; and Worst case scenario of combined effect with cost (capital and O&M) increase by 20 percent; all benefit decrease by 20 percent and one year delay in implementation. Table 5.3 indicates that (i) all the subprojects remain economically viable in each individual sensitivity test; and (ii) when the combination of changes is tested, the verall component and the sample subproject for Jammu remain economically viable with12 percent EIRR.
Table 5.3: Sensitivity Analysis for Sewerage Component (EIRR) Details Main Evaluation (Base Case) Capital Cost Overrun Switching Value
c/ d/ b/ a/
EIRR 32.65% 21.87% 63.00% 30.79% 218.00%

e/
O&M Cost Overrun Switching Valuec/
Decrease in Project Benefits Switching Value

c/
18.66% 33.00% 32.63% 11.69%
One Year Delay in Implementation All Four Tests Combined
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a/ 20% increase in capital cost estimates. b/ Calculated as the percentage change in a variable required for EIRR to reduce to 12%. For example the capital cost can increase by 63% or project benefits can reduce by 33% to get the minimum required level of EIRR of 12% c/ 20% increase in O&M cost. d/ 20% decrease in project benefits
Details of Economic Cost Calculations

Capital Cost Financial (Capital) Details Base Cost Allowances Foreign Cost - Base cost & allowance - Taxes & Duties Local Cost - Unskilled labour - Skilled labour & Others - Taxes & Duties 12% 88% 15% 103.52 759.13 129.40 992.04 Total 1,463.09 34% 6% 444.39 26.66 471.06 488.83 488.83 77.64 759.13 836.76 1,325.59 0.75 1.00 1.10 15% Cost Resource Cost (Capital) Rs Million S P Factor
Rs Million 1,136.70 170.33
O&M Cost
Financial (O&M) Details O&M Cost 4% Cost Resource Cost (Capital) Rs Million S P Factor
Rs Million 57.82 -
Foreign Cost - Base cost Local Cost - Unskilled labour - Skilled labour & Others 50% 50% 28.91 28.91 57.82 Total 57.82 0% 21.68 28.91 50.59 50.59 0.75 1.00 1.10
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Economic Cost-Benefit Analysis

Base Case Economic Capital Cost Year Sewerage & Sanitatio n 132.56 397.68 397.68 265.12 132.56 1325.59 Economic O&M Cost Sewerag e & Sanitatio n 5.06 20.24 35.41 45.53 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 1118.10 Economic Project Benefits Improve d property value 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 49.40 988.03 Flood dama ge & earnin gs lost 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 2.86 57.12 (Rs.in Million)
Total
Total
On-site Sewage Disposal 64.08 192.24 192.24 128.16 64.08 640.79
Health care 18.62 74.50 130.37 167.62 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 186.24 4302.14
Total
Net Benefit
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 Total NPV @12% (Rs. Million) EIRR (%)
132.56 397.68 397.68 265.12 132.56 1325.59 -
5.06 20.24 35.41 45.53 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 50.59 1118.10
82.70 266.73 322.61 295.77 250.32 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 238.50 5988.09
(49.86) (136.00) (95.31) (4.76) 72.23 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90 187.90
187.90 187.90 187.90 3544.39
859.06
859.06
251.08
251.08
186.95
415.27
1044.97
10.81
1657.99
547.85
32.65%
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5.2 Financial Analysis

The financial analysis of the sample subprojects is on an approach governed by the fact that, firstly, user charges are not very widespread in the state and the system of property tax does not exist. For the delivery of public services, the departments and ULBs primarily depend on government subsidies. In this regard, any upward tariff revision would mean resistance from the users. Secondly, the Government of Jammu and Kashmir will receive 90% of ADBs assistance as a grant and 10% as a loan. Therefore, the weighted cost of capital will not be of relevance for cost recovery/ remunerative projects. In this regard, cost recovery/ revenue generating subprojects need to be financially viable against a benchmark cost of capital. Currently, there exists no comparative rate/ tenor combination as offered by ADB, and the closest market rate for medium tenor funds (10-15 years) is around 9%. The current rate of inflation is in the region of 5%, implying a required benchmark FIRR of 4% for such projects. In principle, each subproject is expected to aim for a FIRR of 4%. The financial analysis for Jammu Sewer has been carried out on the cash flow. Jammu Sewer is a green field project The lessons from the sub project analysis forms the basic principles of financial appraisal of using balance sheet based financial analysis for service projects with no cash streams and for cost recovery/ remunerative on the financial returns at a rate not les than benchmark IRR of 4%. The general principles of engagement on a sub project are that: It should be part of the Sector Master Plan/ Town Development Plan; Commitment to conduct an audit of existing situation; Development of a business plan by the service provider, addressing costs, revenues, assets, demand assessment, investment needs and tariff adjustments over a Seven-year time horizon. The business plan should include measurable indicators of performance to be updated and approved by the ULB council annually;
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Improvements in financial management, particularly billing and collection, and Tariffs set at a level sufficient to cover O&M costs during the implementation period. Based on the above assumption of a minimum return of 4%, of Alternative non-volumetric user charges and property based taxes2 have been worked out for the sample subprojects. These alternative scenarios have been compared with the current charges, and the most reasonable structure from
The property tax assumptions are as follows:

Jammu Population 2001 Households Households < ARV of 500 30 % Taxable Household Taxable Commercial as % of Residential Properties Total Taxable Properties
2
559000 111800 33540 78260 25 97825
For each sub project three basic charging options were considered.
User charge based recovery of O&M A combination of upfront connection deposit and a monthly user charge A combination of a water/ drainage tax as part of property tax and a monthly user charge Option 3 has been recommended as this is the most doable option. Base Cost Jammu 1 2 3 1287 1287 1287 5000 Drainage Property Tax 12500 Tax @ 8% of Connection Fees/ Tax Dom. N.Dom. Rate/ Month in Rs. Dom. 180 150 110 N.Dom. 450 375 330
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various alternatives is proposed. The proposed structure also incorporates reasonable revisions in user charges, fees etc. over the projects implementation period. Currently the local bodies do not levy property based taxes and the user charge is the only source for supporting operation and maintenance. In the absence of database on properties in the city, the average (Annual) rental value (ARV) of cities of comparable size and economic characteristics has been used. The user charges have been frozen at a level when the rate of return is around 4 %, and the most possible option has been selected based on the reasonableness of the levy. The assumption common for all options are: a 10% increase in capital cost; the revision of tax base and user charges at least every five years; collection performance for property tax at 80% of current demand and 50% against arrear demand, and that 30% of the household will not be part of the property tax net due to possible lower rental values. Based on the analysis as outlined above, the proposed rates are as given in table 5.4
Table 5.4 : Summary of Financial Analysis Sample Sub Projects SewerageJammu Nature of the Project Cost Recovery Cash-flow FIRR of 4% Monthly charge of and nonAt present Rs.110 for domestic consumers Rs.330 for there are no charges. Scope of Target parameter Recommendations Remarks Analysis
domestic consumers. In addition drainage tax of 8 % of Annual Rental Value.
However, even if these charges and taxes are proposed to be implemented in 2010-11, FIRR will not be 4% unless: The collection efficiency touches over 80%; revisions undertaken every five years if not annually to charges, and increasing the consumer coverage substantially Other actions required will also be in the form of generating public awareness, enumeration of consumers, creation of a property registry, computerization etc. The proposed user charges/ taxes based on the required rate of return may appear to be not feasible at this juncture as the concept of levy of user charges is recent. GoJ&K may decide to impose lower charges and taxes initially but in such a situation incremental revisions ought to be steeper than as assumed to ensure a 4% FIRR over the life of the project. In such a situation, the practical strategy
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is in terms of incremental improvement in recovery of O&M cost by improving coverage of households, appropriate increases in current user charges, improving billing and collections and reduction of physical losses. The target should be to cover 100% of O&M cost by the end of the project implementation period. A proposal for feasible user charges and taxes for two sample subprojects that could be imposed to cover 50% and 60% of O& M costs in 2010-11 is presented in (Table 5.5).
Table 5.5: User Charges/ Taxes in 2010-11 under 70% Coverage of Users 50% Cost Recovery SewerageJammu Fixed monthly charge of Rs.15 for domestic consumers and Rs. 45 for non-domestic consumers. In addition drainage tax of 5 % of Annual Rental Value. 60% Cost Recovery Fixed monthly charge of Rs. 20 for domestic consumers and Rs. 60 for non-domestic consumers. In addition a drainage tax of 5 % of Annual Rental Value.
Various scenarios developed in this regard reflect the possibility of improving performance through basic management measures both on supply and revenue side.3 However, as with the improvements in electricity supply service in the State, concentrated awareness and systemic improvements to be supported by the proposed project would be necessary.
Table 5.6: Results of the analysis
Scenario Scenario 1: Improved collection against current demand sufficient to improve costs of operation and maintenance. Scenario 2: increase in connections at current rates, improved collections production efficiency increases and additional connections at current rates
With a collection efficiency of 40%, the proposed revisions in user charges will cover 48% of O&M
cost for Srinagar water supply and 83% of the O&M cost for Jammu sewerage system in 2010-11.
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Scenario 3: Shift to Volumetric Rates Demand equivalent to costs Variable collection levels
With a collection efficiency of 40%, the proposed revisions in user charges will
cover 48% of O&M cost for Srinagar water supply and 83% of the O&M cost for Jammu sewerage system in 2010-11. The table below presents the key assumptions for the Water Supply and Sewer Sub Projects, and the indicative rates for each option. Based on this decision the revenue enhancement plans have been developed for the city as detailed below in table 5.7 a, b & c
Table 5.7(a): Sewer Cash Flows Option 1:
Project BASIC DATA Name of the Town Population 2006 Population Growth rate % Average Houshold Size Houesholds ASSUMPTION Connections % Domestic Non Domestic User Contribution Rs Domestic Non Domestic Monthly Connection Charges Weighted rate Domestic Non Domestic Collection % Increase after % Inflation rate O&M % to base cost Ratio : Domestic/ ND Rates Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Jammu Sewerage Jammu 771000 3.676 5.2 148269 % 75 25 0 0 0 Rs/ Month Actuals 33606 11202 0.0 0.0 Base Alternative Project Details Population to be covered Proposed Connections Base Costs Project Cost Million Increase in cost % Project implementation Period Yrs Year % 1 10 2 30 3 30 4 20 5 10 1 233000 44808 1287 10 4 128.7 386.1 386.1 257.4 128.7
Rs.in Mill 248 180 6.0 450 5.0 100 % 5 Years 25 0 4 2.5 Capital Cost O&M 128.7 386.1 386.1 257.4 128.7 0 0.00 0.00 0.00 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48
Annual O&M Cost Project Cost Phasing Total Connection Fees in US$ Instalments Revenues Deposits Annual Charges 0.0 0.0 0.0 0.0 133.1 133.1 133.1 133.1 133.1 166.3 166.3 166.3 166.3 166.3 207.9 207.9 207.9 207.9 207.9 259.9 IRR NPV
51.48 million 0.0 Million 0.0 4 Status Total 0.0 0.0 0.0 0.0 133.1 133.1 133.1 133.1 133.1 166.3 166.3 166.3 166.3 166.3 207.9 207.9 207.9 207.9 207.9 259.9 9 -128.7 -386.1 -386.1 -257.4 -47.1 81.6 81.6 81.6 81.6 114.9 114.9 114.9 114.9 114.9 156.5 156.5 156.5 156.5 156.5 208.4 4.2% (17.14)
133.1 133.1 133.1 133.1 133.1 166.3 166.3 166.3 166.3 166.3 207.9 207.9 207.9 207.9 207.9 259.9
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Table 5.7(b): Sewer Cash Flows Option 2:

Project BASIC DATA Name of the Town Population 2006 Population Growth rate % Average Houshold Size Houesholds ASSUMPTION Connections % Domestic Non Domestic User Contribution Rs Domestic Non Domestic Monthly Connection Charges Weighted rate Domestic Non Domestic Collection % Increase after % Inflation rate O&M % to base cost Ratio : Domestic/ ND Rates Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Jammu Sewerage Jammu 771000 3.676 5.2 148269 % 75 25 6875 5000 12500 Rs/ Month 206 150 375 100 5 25 0 4 2.5 Capital Cost 128.7 386.1 386.1 257.4 128.7 Actuals 33606 11202 168.0 140.0 Rs.in Mill 5.0 4.2 % Years Annual O&M Cost Project Cost Phasing Total Connection Fees in US$ Instalments Revenues Deposits Annual Charges 77.0 77.0 77.0 77.0 110.9 110.9 110.9 110.9 110.9 138.6 138.6 138.6 138.6 138.6 173.3 173.3 173.3 173.3 173.3 216.6 IRR NPV 51.48 million 308.1 Million 6.8 4 Status Total 77.0 77.0 77.0 77.0 110.9 110.9 110.9 110.9 110.9 138.6 138.6 138.6 138.6 138.6 173.3 173.3 173.3 173.3 173.3 216.6 9 -51.7 -309.1 -309.1 -180.4 -69.3 59.4 59.4 59.4 59.4 87.1 87.1 87.1 87.1 87.1 121.8 121.8 121.8 121.8 121.8 165.1 4.2% (8.59) Deposit Alternative Project Details Population to be covered Proposed Connections Base Costs Project Cost Million Increase in cost % Project implementation Period Yrs Year % 1 10 2 30 3 30 4 20 5 10 2 233000 44808 1287 10 4 128.7 386.1 386.1 257.4 128.7
O&M 0 0.00 0.00 0.00 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48
110.9 110.9 110.9 110.9 110.9 138.6 138.6 138.6 138.6 138.6 173.3 173.3 173.3 173.3 173.3 216.6
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51
Table 5.7(c): Sewer Cash Flows Option :3

Project BASIC DATA Name of the Town Population 2006 Population Growth rate % Average Houshold Size Houesholds ASSUMPTION Connections % Domestic No Domestic User Contribution Rs Domestic Non Domestic Monthly Connection Charges Weighted rate Domestic Non Domestic Collection % Increase after % Inflation rate O&M % to base cost Ratio : Domestic/ ND Rates Year Jammu Sewerage Jammu 771000 3.676 5.2 148269 % 75 25 0 0 0 Rs/ Month Actuals 33606 11202 0.0 0.0 Alternative Tax Opion Project Details Population to be covered Proposed Connections Base Costs Project Cost Increase in cost % Project implementation Period Year % 1 10 2 30 3 30 4 20 5 10 Annual O&M Cost Project Cost Phasing Total Connection Fees in US$ Instalments Drainage Tax rate (% of ARV) Rs in Million Revenues Taxes Annual ChaCollections Total Status 3 233000 44808 1287 Million 10 4 years 128.7 386.1 386.1 257.4 128.7 51.48 million 0.0 Million 0.0 5 8 %
Rs.in Mill 165 110 3.7 330 3.7 100 % 5 Years 25 0 4 3 Capital Cost O&M
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
128.7 386.1 386.1 257.4
0.00 0.00 0.00 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48 51.48
15.0 17.1 18.16 18.82 19.24 24.76 25.72 26.33 26.77 34.34 35.63 36.46 37.06 37.55 48.06 63.38 84.54 113.27 IRR NPV NPV
88.7 88.7 88.7 88.7 88.7 110.9 110.9 110.9 110.9 110.9 138.6 138.6 138.6 138.6 138.6 173.3
88.7 88.7 88.7 88.7 88.7 110.9 110.9 110.9 110.9 110.9 138.6 138.6 138.6 138.6 138.6 173.3
0.0 0.0 15.0 17.1 106.9 107.5 108.0 113.5 114.4 137.2 137.7 145.2 146.5 147.4 175.7 176.2 186.7 202.0 223.2 286.6 0 9% 4%
-128.7 -386.1 -371.1 -240.3 55.4 56.1 56.5 62.0 63.0 85.7 86.2 93.8 95.0 95.9 124.2 124.7 135.2 150.5 171.7 235.1 4% (372.78) 0.02
CEPT, Ahmedabad
52
Table 5.8
Jammu Connections 92128 128979
Jammu Property Tax at 5 % of ARV Collection Levels against cost 4 Options Multipliers against domestic for Commercial 3 Industrial 4 Weighted rates/ month Domestic Rs in million Non Domestic 0 Options 1 Scenario 1 Base Case Improved collection against current demand Expenditure Rs.in Million 500.0 500.0 Demand Rs.in Million 66 66 Demand as % to Expenditure 13 13 Collection % against Demand 30 50 Collection Rs.in Million 20 33 Collection as % to Exp. 4.0 6.6 Subsidy Per year Rs in million 480.1 466.8 Weighted monthly rate at Rs 60 (Domestic Rs. 30 and Non domestic at an average of Rs 180/month) Scenario 2 Increase in connections At current rates Production efficiency increases Including Additional Connections at current rates Expenditure Rs.in Million 500.0 500.0 Demand Rs.in Million 93 93 Demand as % to Expenditure 19 50 Collection Rs in Million Rs.in Million 17.2 46.4 Collection as % to Exp. 3 9 Subsidy Per year Rs in million 454 Weighted monthly rate at Rs 60 (Domestic Rs. 30 and Non domestic at an average of Rs 180/month) Scenario 3 Volumetric Rates Demand equivalent to costs Variable collection levels Collection Levels % against Cost Cost-2009 in Million MLD Water Availability Net Domestic Commercial Industrial Standpost Sub Total Demand Rs in million Collections Rs in million Collection as % to Exp. Subsidy Per year Rs in million
500.0 66 13 70 46 9.3 453.6
500.0 66 13 80 53 10.6 446.9
500.0 66 13 100 66 13.3 433.7
500.0 93 60 55.7 11 444
500.0 93 80 74.3 15 426
500.0 93 100 92.9 19 407
578.8 135.0 Rate/KL Rs, 126 11.25 4.86 33.75 0.18 45 4.85
30 578.8 517.4 59.9 3.0 580.2 578.8 173.6 30 405.2
60 578.8
80 578.8
100 578.8
578.8 347.3 60 231.5
578.8 463.1 80 115.8
578.8 578.8 100 0.0
Rs 250/ Month for domestic users and Non Domestic at Rs.750/ month Plus a property tax of Rs 25 per month/ household
CEPT, Ahmedabad
53
Table 5.9 :Financial Operating Plans- Jammu Municipal Corporation- Option 1 General Data Population 2001 Average Household Size Households Households < ARV of 500 % Taxable Household Taxable Commercial as % of households Total Taxable Properties Salem Average ARV, Population 6 Lakhs Property Tax Tax Rate % Purpose General Purpose Tax Water Tax Drainage Conservancy Tax Sub Total Note : The Rates as in Salem - Popn. 6 Lakhs ARV per Property- Existing Rs. Annual Growth in Assessments % ARV Revision Year ARV Revision % Impact Purpose General Purpose Tax Water Tax Drainage Conservancy Tax Sub Total
559000 5.00 30.00 111800 33540 78260 25 97825 2400 23.00 Tax Rate % 7 4 8 4 23.00 2400 1.00 2014 33.00 Annual 168 96 192 96 552 Monthly 14 8 16 8 46
CEPT, Ahmedabad
54
JAMMU MUNICIPAL CORPORATION FINANCIAL FORECAST RUN DATE Assumption Property Tax Options -1 Inclusive of Tax, 2 Do Nothing
07/17/06 1
2002-2003
2003-04 2004-05 Actuals
2005-06
2006-07
2007-08
2008-09 Rs in Lakhs
2009-10
2010-11 Estimates
319.77 44.5 11.6 0.4 21.7 78.3 47.8 47.2 39.1 21.9 67.9 223.9 70.3 18.8 0.5 8.1 97.7 49.5 2489.1 3258.3 2212.5 199.7 39.5 20.3 62.8 51.1 127.6 8.1 113.0 107.1 2941.7 316.7
2011-12
2012-13
Property Tax Health Sanitation charges License Fee Health Cost of Forms Others Sub Total Revenue Land and Building Fee Auction of Shops Hoarding Fee Community Hall Fee Others Sub Total Builidng Section Building Regulation Fee Betterment Charges Cost of Forms Copy Fee and Other Fee Sub Total Others Grand in Aid 10% Taxes to be diverted w.e.f. 01-402k5 Total Expenditure Establishment POL Repair / Machinery Purchase Electric items for Extended Areas Sanitation Charges Nallah clearance Deployment of Casual Safaikaramcharies through N.G.O's Implementation of Municipal Social Reforms(ex gratia Others O&m Land Fill Total Status
281.74 29.79 13.74 5.36 9.73 58.62 20.26 37.07 30.5 21.96 23.1 132.89 52.25 16.22 0.65 16.54 85.66 28.72 1301.14 1607.03 1325.64 78.06 30.17 0 33 36.2 11.04 0 36.55 1550.7 56.37 18 8.35 0.25 14.57 41.17 26.04 80 24 19.59 34.51 184.14 42.63 16.34 0.24 6.19 65.4 30.97 1371.33 1693.01 1347.96 80.8 29.91 0 34.48 29.91 9.5 0 65.92 1598.5 94.53 41.7 9.03 0.26 16.23 67.22 36.26 16 32 15.97 53.22 153.45 57.66 12.9 0.5 6.3 77.36 40.91 1579.38 1918.32 1363.25 102.5 26.61 0 32.5 32.48 19.5 0 69.96 1646.8 271.52 45 10 0.5 20.2 75.7 50 15 36 16 71.8 188.8 65 15 0.5 6.5 87 44.5 2900 3296 1691 132 30 50 45 40 100 20 129.85 2237.9 1058.15 36.6 9.6 0.4 17.9 64.4 39.3 38.9 32.2 18.0 55.8 184.2 57.9 15.5 0.4 6.6 80.4 40.7 2047.7 2417.6 1820.2 135.3 32.5 16.7 51.7 42.0 105.0 6.7 93.0 2303.1 114.5 38.5 10.1 0.4 18.7 67.7 41.3 40.8 33.8 18.9 58.6 193.4 60.7 16.3 0.5 7.0 84.4 42.8 2150.1 2538.4 1911.2 142.1 34.1 17.5 54.3 44.1 110.3 7.0 97.7 2418.3 120.2 40.4 10.6 0.4 19.7 71.0 43.3 42.8 35.5 19.9 61.6 203.1 63.8 17.1 0.5 7.3 88.7 44.9 2257.6 2665.4 2006.8 159.2 35.8 18.4 57.0 46.3 115.8 7.4 102.5 2549.1 116.2 42.4 11.1 0.4 20.7 74.6 45.5 45.0 37.3 20.9 64.6 213.3 67.0 17.9 0.5 7.7 93.1 47.2 2370.5 3080.4 2107.1 178.3 37.6 19.3 59.8 48.7 121.6 7.7 107.7 2687.7 392.6
340.58 46.8 12.2 0.5 22.8 82.2 50.2 49.6 41.1 23.0 71.3 235.1 73.8 19.8 0.6 8.5 102.6 52.0 2613.5 3426.1 2323.1 223.6 41.5 21.3 66.0 53.6 134.0 8.5 118.7 228.1 3218.4 207.7
352.79 49.1 12.8 0.5 23.9 86.3 52.7 52.1 43.2 24.2 74.8 246.9 77.5 20.8 0.6 8.9 107.8 54.6 2744.2 3592.6 2439.2 250.5 43.6 22.3 69.3 56.3 140.7 8.9 124.6 364.4 3519.9 72.7
CEPT, Ahmedabad
55
07/17/06 1
2002-2003
2003-04 2004-05 Actuals
2005-06
2006-07
2007-08
2008-09 Rs in Lakhs
2009-10
2010-11 Estimates
319.77 44.5 11.6 0.4 21.7 78.3 47.8 47.2 39.1 21.9 67.9 223.9 70.3 18.8 0.5 8.1 97.7 49.5 2489.1 3258.3 2212.5 199.7 39.5 20.3 62.8 51.1 127.6 8.1 113.0 107.1 2941.7 316.7
2011-12
2012-13
281.74 29.79 13.74 5.36 9.73 58.62 20.26 37.07 30.5 21.96 23.1 132.89 52.25 16.22 0.65 16.54 85.66 28.72 1301.14 1607.03 1325.64 78.06 30.17 0 33 36.2 11.04 0 36.55 1550.7 56.37 18 8.35 0.25 14.57 41.17 26.04 80 24 19.59 34.51 184.14 42.63 16.34 0.24 6.19 65.4 30.97 1371.33 1693.01 1347.96 80.8 29.91 0 34.48 29.91 9.5 0 65.92 1598.5 94.53 41.7 9.03 0.26 16.23 67.22 36.26 16 32 15.97 53.22 153.45 57.66 12.9 0.5 6.3 77.36 40.91 1579.38 1918.32 1363.25 102.5 26.61 0 32.5 32.48 19.5 0 69.96 1646.8 271.52 45 10 0.5 20.2 75.7 50 15 36 16 71.8 188.8 65 15 0.5 6.5 87 44.5 2900 3296 1691 132 30 50 45 40 100 20 129.85 2237.9 1058.15 36.6 9.6 0.4 17.9 64.4 39.3 38.9 32.2 18.0 55.8 184.2 57.9 15.5 0.4 6.6 80.4 40.7 2047.7 2417.6 1820.2 135.3 32.5 16.7 51.7 42.0 105.0 6.7 93.0 2303.1 114.5 38.5 10.1 0.4 18.7 67.7 41.3 40.8 33.8 18.9 58.6 193.4 60.7 16.3 0.5 7.0 84.4 42.8 2150.1 2538.4 1911.2 142.1 34.1 17.5 54.3 44.1 110.3 7.0 97.7 2418.3 120.2 40.4 10.6 0.4 19.7 71.0 43.3 42.8 35.5 19.9 61.6 203.1 63.8 17.1 0.5 7.3 88.7 44.9 2257.6 2665.4 2006.8 159.2 35.8 18.4 57.0 46.3 115.8 7.4 102.5 2549.1 116.2 42.4 11.1 0.4 20.7 74.6 45.5 45.0 37.3 20.9 64.6 213.3 67.0 17.9 0.5 7.7 93.1 47.2 2370.5 3080.4 2107.1 178.3 37.6 19.3 59.8 48.7 121.6 7.7 107.7 2687.7 392.6
340.58 46.8 12.2 0.5 22.8 82.2 50.2 49.6 41.1 23.0 71.3 235.1 73.8 19.8 0.6 8.5 102.6 52.0 2613.5 3426.1 2323.1 223.6 41.5 21.3 66.0 53.6 134.0 8.5 118.7 228.1 3218.4 207.7
352.79 49.1 12.8 0.5 23.9 86.3 52.7 52.1 43.2 24.2 74.8 246.9 77.5 20.8 0.6 8.9 107.8 54.6 2744.2 3592.6 2439.2 250.5 43.6 22.3 69.3 56.3 140.7 8.9 124.6 364.4 3519.9 72.7
CEPT, Ahmedabad
56
Table 5.11 Financial Operating Plans- Jammu Municipal Corporation- Option 2
07/17/06 2
2002-2003
2003-04 2004-05 Actuals
2005-06
2006-07
2007-08
2008-09 Rs in Lakhs
2009-10
2010-11 Estimates
0.00 44.5 11.6 0.4 21.7 78.3 47.8 47.2 39.1 21.9 67.9 223.9 70.3 18.8 0.5 8.1 97.7 49.5 2489.1 2938.6 2212.5 199.7 39.5 20.3 62.8 51.1 127.6 8.1 113.0 107.1 2941.7 -3.1
2011-12
2012-13
0.00 29.79 13.74 5.36 9.73 58.62 20.26 37.07 30.5 21.96 23.1 132.89 52.25 16.22 0.65 16.54 85.66 28.72 1301.14 1607.03 1325.64 78.06 30.17 0 33 36.2 11.04 0 36.55 1550.7 56.37 18 8.35 0.25 14.57 41.17 26.04 80 24 19.59 34.51 184.14 42.63 16.34 0.24 6.19 65.4 30.97 1371.33 1693.01 1347.96 80.8 29.91 0 34.48 29.91 9.5 0 65.92 1598.5 94.53 41.7 9.03 0.26 16.23 67.22 36.26 16 32 15.97 53.22 153.45 57.66 12.9 0.5 6.3 77.36 40.91 1579.38 1918.32 1363.25 102.5 26.61 0 32.5 32.48 19.5 0 69.96 1646.8 271.52 45 10 0.5 20.2 75.7 50 15 36 16 71.8 188.8 65 15 0.5 6.5 87 44.5 2900 3296 1691 132 30 50 45 40 100 20 129.85 2237.9 1058.15 36.6 9.6 0.4 17.9 64.4 39.3 38.9 32.2 18.0 55.8 184.2 57.9 15.5 0.4 6.6 80.4 40.7 2047.7 2417.6 1820.2 135.3 32.5 16.7 51.7 42.0 105.0 6.7 93.0 2303.1 114.5 38.5 10.1 0.4 18.7 67.7 41.3 40.8 33.8 18.9 58.6 193.4 60.7 16.3 0.5 7.0 84.4 42.8 2150.1 2538.4 1911.2 142.1 34.1 17.5 54.3 44.1 110.3 7.0 97.7 2418.3 120.2 40.4 10.6 0.4 19.7 71.0 43.3 42.8 35.5 19.9 61.6 203.1 63.8 17.1 0.5 7.3 88.7 44.9 2257.6 2665.4 2006.8 159.2 35.8 18.4 57.0 46.3 115.8 7.4 102.5 2549.1 116.2 42.4 11.1 0.4 20.7 74.6 45.5 45.0 37.3 20.9 64.6 213.3 67.0 17.9 0.5 7.7 93.1 47.2 2370.5 2798.6 2107.1 178.3 37.6 19.3 59.8 48.7 121.6 7.7 107.7 2687.7 110.9
0.00 46.8 12.2 0.5 22.8 82.2 50.2 49.6 41.1 23.0 71.3 235.1 73.8 19.8 0.6 8.5 102.6 52.0 2613.5 3085.5 2323.1 223.6 41.5 21.3 66.0 53.6 134.0 8.5 118.7 228.1 3218.4 -132.9
0.00 49.1 12.8 0.5 23.9 86.3 52.7 52.1 43.2 24.2 74.8 246.9 77.5 20.8 0.6 8.9 107.8 54.6 2744.2 3239.8 2439.2 250.5 43.6 22.3 69.3 56.3 140.7 8.9 124.6 364.4 3519.9 -280.1
CEPT, Ahmedabad
57
Capital PLAN Contribution from other Schemes Capital City Development Programme National Slum Development Programme E.I.U.S. Plan Distt.(Additionality) Low Cost Sanitation URIF I.D.M.T Consituency Development Funds 11th Finance Commission PWD/T&T Road Cuttings Total of Part-I PART-III Receipts from other organisation(Election) etc. Receipts from Relief Receipts from UEED Total of Part III Part IV (remittences) Total Capital Expenses Construction of Building Block-B for Mayor & Dy.Mayor,Councillors Plan Expenditures Total Status capital Account Overall Status
150 40 2.5 103.2 8 0 0 4 0 42.95 350.65 18.15 20 5 43.15 0 393.8 787.6 65.3 340.65 405.95 -12.15 44.22
125 90 30 100 4.5 0 0 7.46 262.5 60.86 680.32 47.1 20 0 67.1 0 747.42 1494.8 70.5 578.7 649.2 98.22 192.75
633.7 135 0 0 4.5 65 0 26.32 0 12.8 877.32 2 25 10.6 37.6 68.83 983.75 1967.5 73.14 812 885.14 98.61 370.13
240 160 50 100 50 100 100 50 47.5 15 912.5 3 25 0 28 115 1055.5 2111.0 50 179.45 229.45 826.05 1884.2
349.5 134.8 28.0 70.0 20.7 57.8 35.0 29.3 108.5 31.0 864.5 18.2 24.5 3.7 46.4 64.3 114.5 1089.8 67.8 549.6 617.3 472.5 587.0
367.0 141.5 29.4 73.5 21.7 60.6 36.8 30.8 113.9 32.6 907.8 19.1 25.7 3.9 48.8 86.9 139.5 1182.9 71.2 577.0 648.2 534.7 654.9
385.4 148.6 30.9 77.2 22.8 63.7 38.6 32.3 119.6 34.2 953.2 20.1 27.0 4.1 51.2 93.2 148.5 1246.0 74.7 605.9 680.6 565.4 681.6
404.6 156.0 32.4 81.0 23.9 66.9 40.5 33.9 125.6 35.9 1000.8 21.1 28.4 4.3 53.8 85.5 143.6 1283.7 78.5 636.2 714.6 569.1 680.0
424.9 163.8 34.0 85.1 25.1 70.2 42.5 35.6 131.9 37.7 1050.9 22.2 29.8 4.5 56.5 92.9 153.9 1354.2 82.4 668.0 750.4 603.8 600.7
446.1 172.0 35.7 89.3 26.4 73.7 44.7 37.4 138.5 39.6 1103.4 23.3 31.3 4.7 59.3 95.1 159.1 1416.8 86.5 701.4 787.9 629.0 496.1
468.4 180.6 37.5 93.8 27.7 77.4 46.9 39.3 145.4 41.6 1158.6 24.4 32.8 5.0 62.2 95.7 163.0 1479.5 90.8 736.5 827.3 652.2 372.1
Please refer to DPR case study of road projects given in CD, for financial and economic analysis of road projects.
CEPT, Ahmedabad
58
References:
Pandey, I. M, (2000), Financial Management, Eighth Edition, Vikash Publishing House Private Limited, New Delhi Agarwal Prakashan, (1999), Engineering Management-II, Shivaji University, Agarwal Prakashan, Kolhapur, Maharashtra Mik Green, KV Dinesh, K Mukundan, M.Bhoominathan, ( ) Jammu Sewer: Case Study, Based on sub project prepared for ABDs and J&KUIDP project ADB, (1999), Handbook for The Economic Analysis of Water Supply Projects, Asian Development Bank, http://www.adb.org/documents/handbooks/water_supply_projects/default.asp A
59
Annex : I
Sample Block Cost of Material and Labour in Water Supply Projects
1. D. I. PIPE K-9 (With Excise duty)
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Size 100 150 200 250 300 350 400 450 500 600 700 750 800 900 1000 mm mm mm mm mm mm mm mm mm mm mm mm mm mm mm Unit RMT " " " " " " " " " " " " " " Material Rate (Rs) 694.00 1049.00 1341.00 1757.00 2226.00 2775.00 3350.00 4011.00 4666.00 6151.00 7975.00 8947.00 9868.00 12045.00 14262.00 L,L & J* of Labour Rate (Rs.) 13.00 20.00 28.00 34.00 40.00 53.00 61.00 73.00 88.00 109.00 136.00 149.00 163.00 193.00 226.00
Lowering and laying and Jointing*
D. I. PIPE K-7 (New Item) (With Excise duty):

Sr. No. 1 2 3 4 5 6 7 8 9 10 Size 100 150 200 250 300 350 400 450 500 600 mm mm mm mm mm mm mm mm mm mm Unit RMT " " " " " " " " " Material Rate (Rs) 587 849 1180 1587 2044 2575 3132 3778 4510 6007 L,L & J* of Labour Rate (Rs.) 13 20 28 34 40 53 61 73 88 109
Lowering and laying and Jointing*
2. C. I. PIPE (Class LA Test Pressure 12 Kg/sq.cm):
CEPT, Ahmedabad
60
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Size 80 100 125 150 200 250 300 350 400 450 500 600 700 750 800 900 1000 mm mm mm mm mm mm mm mm mm mm mm mm mm mm mm mm mm
Unit RMT " " " " " " " " " " " " " " " "
Material Rate (Rs) 616.00 746.00 935.00 1123.00 1639.00 2209.00 2849.00 3589.00 4369.00 5291.00 6275.00 8282.00 10960.00 12275.00 13741.00 16746.00 20118.00
L,L & J* of Labour Rate (Rs.) 12.00 13.00 18.00 20.00 28.00 34.00 40.00 53.00 61.00 73.00 88.00 109.00 136.00 149.00 163.00 193.00 226.00
3. M. S. PIPE: (A) Bare pipe

(I) With Excise duty - Pipe dia. in OD Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Size 711.0 711.0 711.0 762.0 762.0 762.0 813.0 813.0 813.0 864.0 864.0 864.0 914.0 914.0 914.0 965.0 6 mm 7 mm 8 mm 6 mm 7 mm 8 mm 6 mm 7 mm 8 mm 6 mm 7 mm 8 mm 6 mm 7 mm 8 mm 7 mm " " " " " " " " " " " " " " " " Unit Material Rate (Rs) 4566.00 5307.00 6045.00 4896.00 5691.00 6484.00 5227.00 6075.00 6922.00 5557.00 6460.00 7360.00 5881.00 6837.00 7790.00 7221.00 L,L & J* of Labour Rate (Rs.) 273 273 305 292 292 327 312 312 352 331 331 379 350 350 401 370
CEPT, Ahmedabad
61
Sr. No. 17 18 19 20 21
Size 965.0 965.0 1016.0 1016.0 1016.0 8 mm 9 mm 7 mm 8 mm 9 mm " " " " "
Unit
Material Rate (Rs) 8229.00 9234.00 7605.00 8667.00 9727.00
L,L & J* of Labour Rate (Rs.) 370 424 389 389 446
(B) Pipe with outside tape coating & inside cement mortar lining or epoxy coating (NEW ITEM) (With Excise Duty): Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Size 406.4 406.4 406.4 457.0 457.0 457.0 508.0 508.0 508.0 559.0 559.0 559.0 5 mm 6 mm 7 mm 5 mm 6 mm 7 mm 5 mm 6 mm 7 mm 5 mm 6 mm 7 mm Unit " " " " " " " " " " " " Material Rate (Rs) 2554 2977 3399 2875 3354 3830 3200 3733 4264 3487 4067 4645 L,L & J* of Labour Rate (Rs.) 154 154 154 175 175 175 192 192 192 214 214 214
4. R. C. C. PIPE
Class NP2 Test Pressure 0.7 Kg/sq. cm Sr. No. Size Unit Material Rate (Rs) 1 2 3 4 5 6 7 8 9 10 11 12 80 100 150 200 225 250 300 350 400 450 500 600 mm mm mm mm mm mm mm mm mm mm mm mm RMT " " " " " " " " " " " 100 124 133 148 206 243 284 333 396 535 Labour Rate (Rs.) 16 21 29 42 57 64 66 86 107 110 114 118 108 156 176 193 296 501 559 620 709 991 Material Rate (Rs) Labour (Rs.) 16 21 29 42 57 64 66 86 107 110 114 118
Class NP3
CEPT, Ahmedabad
62
Class NP2 Test Pressure 0.7 Kg/sq. cm Sr. No. Size Unit Material Rate (Rs) 13 14 15 16 17 18 19 20 21 22 700 750 800 900 1000 1100 1200 1400 1600 1800 mm mm mm mm mm mm mm mm mm mm " " " " " " " " " " 699 788 874 1055 1268 1501 1774 2280 2813 3547 Labour Rate (Rs.) 133 144 155 219 241 227 245 267 289 312
Class NP3 Material Rate (Rs) 1248 1484 1641 1985 2437 2839 3329 4717 6007 7845
Labour (Rs.) 133 144 155 219 241 227 245 267 289 312
5. P. V. C. Pipes:
A) Test Pressure 4 Kg/cm2. -With Excise Duty Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 Size 63 75 90 110 125 140 160 180 200 225 250 280 315 mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia Unit RMT " " " " " " " " " " " " Material Rate (Rs) 32 45 63 90 117 146 191 244 294 375 453 574 726 L,L & J of Labour Rate (Rs.) 2.25 3.00 3.50 4.00 4.50 6.50 7.00 8.00 9.00 10.00 12.40 14.10 15.80
B) Test Pressure 6 Kg/cm2. - With Excise Duty

Sr. No. 1 2 3 4 5 6 Size 63 75 90 110 125 140 mm dia mm dia mm dia mm dia mm dia mm dia Unit RMT " " " " " Material (Rs) 46 63 90 130 171 212 Rate L,L & J of Labour Rate (Rs.) 2.25 3.00 3.50 4.00 4.50 6.50
CEPT, Ahmedabad
63
Sr. No. 7 8 9 10 11 12 13
Size 160 180 200 225 250 280 315 mm dia mm dia mm dia mm dia mm dia mm dia mm dia
Unit " " " " " " "
Material (Rs) 273 349 432 542 672 842 1068
Rate
L,L & J of Labour Rate (Rs.) 7.00 8.00 9.00 10.00 12.40 14.10 15.80
6. H.D.P.E. Pipes
PE-80 Basic Rate Rs.53730 per MT - 10.0 Kg/cm2 Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Size 50 63 75 90 110 125 140 160 180 200 225 250 280 315 355 400 450 500 560 630 mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia mm dia Unit RMT " " " " " " " " " " " " " " " " " " " Material Rate (Rs) 61 97 137 165 290 376 471 614 776 957 1211 1494 1872 2369 3005 3894 4933 6083 7632 9643 L,L & J of Labour Rate (Rs.) 3 4 5 5 7 29 33 37 42 46 52 58 65 73 82 92 104 115 138 145
It is important to note that the block costs given above may vary from state to state depending upon prevailing SOR rates.
CEPT, Ahmedabad
64

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Module 2.

2.0 Schedule of Rate (SOR) & Rate Analysis

Module 2.6: Engineering Economics

2.1 Need for SOR

2.2 Rate analysis

Material Cost T&P Lump sum Cost

Lead & Lift

Overhead W .C Contractors Profit Charges

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Sample Rate Analysis

W.C. Water Charges O.H. Over Head

2.2.2 Brick Masonry

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Sample Rate Analysis

2.2.3 Stone Masonry

Sample Rate Analysis

Cement Concrete 1:6:12

59.35 56.89 42.44 6.41 324.21

Mazdoor (female) Bhisti Carriage of stone Sundries

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Amount (Rs.) 489.80

1081.58 10.82 162.24

2.2.4 Steel Work

Sample Rate Analysis

2.2.5 Concrete Work

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Sample Rate Analysis

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

capacity @ 25 cum per

turning for return contingencies

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Ref. to MoRTH Spec.

Remarks/ Input ref.

173.65 19.86 26.81

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Ref. to MoRTH Spec.

Remarks/ Input ref.

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Ref. to MoRTH Spec.

Remarks/ Input ref.

Rate per (a+b+c)/100 (iii)

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Ref. to MoRTH Spec.

Remarks/ Input ref.

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Ref. to MoRTH Spec.

Remarks/ Input ref.

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

461053.07 730.00 say 730.00

(a+b+c+d+e)*0.95/600 Note 1. 800 cum of stone

JnNURM - Rapid Training Programme Preparation of DPRs

Module 2.6: Engineering Economics

Ref. to MoRTH Spec.

Remarks/ Input ref.