CHAPTER 2: TRANSPORTATION PLANNING

2.1 Introduction
The transport plan should be integrated in the countries overall economic plan since transport in
its own sake has no meaning. It assumes importance only in as far as its serves the ultimate goal
of development i.e. transport plans must translate overall development objectives and potentials
into transport requirements [Kadiyali, 2006].
Notably, Development Banks like World Bank and the Asian Development Bank are increasingly
getting involved in strategic planning of road networks in developing countries. Hence, the
alignment of a country’s Transport Plan with a Development Bank’s country strategy is necessary.
According to TRRL (1998), in planning main road investment, economic/engineering
implications are usually paramount in the decisions to upgrade existing road surfaces. Foster
(2000) observes that the financial aspects of the project appraisal receive more systematic
treatment than non-financial aspects.
2.2 Characteristics of a good transportation plan
The goals and objectives of the transport plan should be clearly identified and expressed so as to
facilitate formulation of a realistic plan. Therefore, a good transport plan should;
 Not conflict with the broad goals and objectives of the national plan for development.
 Aim at coordinated development of all modes of transport without prompting unhealthy
competition.
 Aim at conserving scarce resources such as oil fuels, coal and electricity.
 Generate employment potential and favour labour-intensive technologies to the extent
feasible and desirable.
 Aim at a balanced development of the country, keeping in view the special needs of
inaccessible areas and backward classes of society.
 The transport plan should aim at a balanced development of rural and urban settlements.
Although urbanization is an inevitable result of and a pre-requisite for economic
development, growth of cities beyond manageable limits leads to undesirable effects.
 Be used as a tool for dispersal of activities to result in overall health of the economy.
 Recognize the need to exploit the natural resources of the country and provide for quick
exports to earn valuable foreign exchange to developing countries.
 Facilitate the growth of new industries, agricultural production and processing of raw
materials. Functional linkages between industry and hinterland should be established.
 Environmental impact of transport plans should be established.
2.3 Road Appraisal in Developing Countries
In developing countries like Uganda, feasibility studies of road schemes are undertaken in the
following steps:
1. Define objectives
2. Determine alternative ways of meeting objectives
3. Make preliminary considerations
4. Asses traffic demand
 5. Design and cost different options
6. Determine benefits of each alternative
7. Economic analysis and comparison of alternatives
8. Recommendations
The steps are not necessarily sequential and involve iteration.
2.3.1 Define Objectives
A road project is wherever possible set against the background of a national or regional transport
plan or at least a road plan. Depending on the objectives of the investment, the project is appraised
against different sets of criteria. The following can be the objectives of providing a new road i.e.
 To support some other developmental activity;
 To provide fundamental links in the national or a district road network;
 To meet a strategic need;
 To increase the structural capacity or traffickability of an existing road to cope with higher
traffic flows;
 To provide an alternative to an existing transport link or service;
 To address a major safety hazard, environmental or social problem;
 To rectify damage or failure that has caused sudden deterioration of the existing road.
2.3.2 Determining alternative ways of meeting Objectives
This may involve making a modal choice say between rail, road, air and water transport to solve a
transport problem or deciding between different technical solutions to highway problems. The
possible technical solutions to a certain road transportation challenge are:
a) Upgrading and new construction – Upgrading projects aim at providing addition capacity for
a road towards the end of its design life or because of a change in route function. Examples are
paving of gravel roads and providing overlays on paved roads;
b) Reconstruction and rehabilitation - Major repair on an existing road;
c) Stage construction – Planned improvements are made to the pavement standards of a road at
fixed stages through the project life. Although stage construction may be appropriate in achieving
an optimal economic balance, practice has shown that budgetary constraints have often prevented
later upgrading phases of stage construction projects leading to lower rates of return.
d) Maintenance projects – These consist of either building up the institutional capability of the
maintenance organisation to improve its efficiency or overcoming a short term problem through
project specific interventions like surface dressing, supply of maintenance equipment and technical
assistance. The later type of project could be a component of the former.
Community involvement in the early stages of development of projects in developing countries is
now recognised as fundamental for project success because of the local wealth of knowledge
possessed by the community concerning the solution to a problem in the context of an area’s
physical and socio economic constraints.
2.3.3 Preliminary considerations
The underlying issues are taken into account during the feasibility study include:
a) Analysis period and design life – Most road projects are analysed on a 15 year time horizon.
The analysis period may be partly dictated by the nature of the investigation. For example, long
periods are useful when comparing mutually exclusive projects, whereas short periods may be
appropriate for small projects (such as regravelling of rural access roads), where the life of the
investment is expected to be limited to a few years.
b) Uncertainty and risk – Projects in developing countries are always set against a background
of economic, social and political uncertainty to some degree. The steps taken to reduce uncertainty
include risk analysis using probabilistic techniques for well-defined projects and scenario analysis
in explanatory projects.
c) Choice of technology – According to the Transport and Road Research Laboratory
(TRRL, 1998), engineers have to decide between mechanised and labour based techniques in
preparing designs and specifications of works.
d) Institutional issues – The major institutional issues to be considered include:
 The institutional framework in which the roads are set including the aspects of organising,
staffing, training, procedures, planning, maintenance, funding and controls;
 Strengthening the institutions responsible for implementing the project; and
 The funding and maintenance capability of road maintenance organisations.
e) Socio-economic considerations – The major issues that are assessed in terms of the impact of
the project on the target community are social changes, construction consequences, road accidents,
severance, minorities like gender issues and availability of local expertise and resources.
f) Environmental Conditions – The impact of the road project on the surrounding environment
is taken into consideration. The impact is more significant for new projects penetrating an
undisturbed country tan for upgrading projects because the latter usually follow an existing
alignment.
2.3.4 Assess Traffic Demand
For the purpose of geometric design and evaluation of economic benefits, the volume and
composition of current and future traffic needs to be known. For structural design purposes of
paved roads, the axle loading of only heavy goods vehicles is relevant thus for this purpose traffic
appraisal considers volumes of Heavy Goods Vehicles (HGVs). The Road Maintenance Initiative
(RMI) (World Bank, 1998) observes that far too few countries in Africa have permanent road data
banks, locally managed and regularly updated, based on objective technical data.
2.3.5 Design and Cost different Options
Cost estimates should encompass analytical techniques and rigorous procedures of risk
management to produce realistic estimates. The major activities undertaken in this step include:
Route location, pavement design, geometric design and design of drainage structures. In this stage
an optimal balance between cost of provision and user cost is important.
2.3.6 Determine Benefits of each Alternative
Estimates are made of both the costs associated with the project and the benefits expected to occur.
The benefits normally considered are:
 Direct savings in the cost of operating vehicles
 Economies in road maintenance
 Time savings by travelers and freight
 Reduction in road accidents
 Wider effects on the economic development of the region
2.3.7 Economic Analysis and comparison of alternatives
The best option representing the option with the minimum level of maintenance is carefully chosen
and used as a basis against which other options are compared. A cost benefit analysis procedure is
then used to assess the net contribution the road investment makes to the country as a whole. The
cost benefit analysis uses either Net Present Value (NPV) or Internal Rate of Return (IRR) rules.
A positive NPV means a project is justified at the given discount rate. Results of financial, social
and environmental appraisals are also considered in deciding the best project. The IRR acts as a
guide to the profitability of the investment but gives no indication of the costs or benefits of the
project. A difficult approach is normally required for rural access projects so that the cost of the
appraisal is justified in terms of project costs. All investment decisions have political, social and
environmental consequences besides economic effects.
2.3.8 Recommendations
The feasibility study report marks the end of the appraisal process and recommends whether the
project should go ahead and the standards to which it should be built. The depth and detail to which
the report covers certain aspects depends on who the report is being for. An analysis carried out
for a development bank covers financial aspects very thoroughly. However, projects prepared for
aid agencies normally dwell heavily on the socio-economic factors.

2.4 A Typical Road Project Appraisal Process in Uganda

This section will be based upon the process that was followed for the feasibility study of the
Kampala-Fort Portal Road.

Figure 2.1: Typical Road Project Appraisal in Uganda

Source: MoWH&C, 1998
Step 1: Objectives
The study objectives were derived from two major sources namely:
a) The 10 year road sector development programme (RSDP);
b) The strategy related to the Trans-African Highway.
Step 2: Problem identification
Past feasibility studies from 1972 to 1995 were used as a basis for establishing the existing
problems on the Kampala to Fortportal road.
Step 3: Determine alternatives
The pre-appraisal study by GIBB consultants on behalf of Danida brought together information
from steps 1 and 2 above and challenged the assumptions made in previous studies. Arising out of
this study were five options for further evaluation.
Step 4: Project strategy
Arising out of the results the pre-appraisal study in step 3 above, a draft project strategy was
prepared consisting of a two stage construction strategy.
Step 5: Engineering, Economic and Environmental analysis
Danida as the financier commissioned COWI-DRD to carry out further engineering, economic and
environmental analysis on the project strategy and compare different upgrading options under the
strategy with the existing route under optimal and prevailing maintenance respectively over 16
study sections. Traffic studies were part of the economic evaluation.
Step 6: Draft recommendations on preferred solution
Resulting from the analyses in step 5, recommendations were made on the feasibility of options
along an environmentally preferred route alignment in terms of Economic Internal Rate of Return
(EIRR).
Step 7: Review by Ministry of Works, Housing and Communications
In Uganda, step 1 to 6 usually lead to the production of a draft detailed engineering report three
(3) months from the start of the study. The report is reviewed by the Ministry of Works, Housing
and Communications on behalf of Government as the client leading to comments that are taken
into account in preparing the final detailed engineering report (Ministry of Works, Housing and
Communications, Gauff Ingenieure, 1993).
Step 8: Finalising recommendations
Adjustments are made to the draft report in accordance with the recommendations of the client.
The consultant then concludes the final report 30days from the receipt of information from the
(MoWH&C and Gauff Ingenieure, 1993).
Step 9: Submission for funding
On conclusion of recommendations, the Ministry of Works, Housing and Communications would
submit the feasibility study report to the financier as was the case in the 1993 study by Scott
Wilson Kirkpatrick. The consultants would then submit the reports to the financier as their
employer.
Step 10: Detailed design, Tender and Construction
If the financier approved the study, funds would be released for detailed design, tender and
construction of the road.
Step 11: Post implementation review
External financiers like the World Bank usually evaluate a project when it is handed over to the
client to assess success and compliance with objectives. Such reviews provide valuable lessons as
inputs into subsequent projects to improve on project success.
Interestingly, the study period for the Kampala-Fort portal road took 26years (1972-1998). Yet the
process would ordinarily take three years.

2.5 Economic Evaluation

2.5.1 Role of Economic Evaluation
A developing country like Uganda has serious shortages of resources needed for economic
development. The outlay for various sectors of economic activity is decided by planning at the
national level, keeping in view the national goals and policies. Within the allocation earmarked for
the highway sector, a number of schemes can be taken up, each enjoying its own urgency and
attractiveness. It thus becomes necessary to screen and evaluate the various alternatives so that a
wise decision can be reached on the most appropriate choice. This is achieved by modern
techniques of economic evaluation of projects [Kadiyali, 2006].
Economic evaluation is a rational approach at quantifying the future benefits and costs of proposed
highway improvements with a view to determine the extent to which the projects will contribute
to the goal of raising the living standard of the people and their general welfare. It provides for a
systematic and unbiased procedure for selection of schemes for implementation under the Ten
Year Road Sector Development Plans. It ensures that the most worthwhile projects are given the
highest priority.
Economic evaluation of highway projects can also be carried out to weigh other alternative
transport projects, such as railway projects, pipe-lines or inland water transport projects, in order
to select the most beneficial scheme.
The following are some of the specific objectives in carrying out an economic evaluation:
 To decide whether the scheme under consideration is worth investment at all;
 To rank schemes competing for scarce resources in order of priority;
 To compare various alternative schemes and select the one most economical;
 To assist in phasing the programme (stage construction) depending upon the availability of
resources.
2.5.2 Basic Principles of Economic Evaluation
Economic evaluation involves a number of basic principles discussed below:
a) Economic evaluation makes it possible to choose the best of the various alternatives. The
question before the analyst is to suggest the most attractive of them. Often the choice is
between ‘do-nothing’, and other improvement schemes.
b) In economic evaluation, all past actions are irrelevant. What is of prime importance is the
future flow of costs and benefits.
c) In highway projects, the appraisal is carried out from the view-point of the nation as a
whole, and is not restricted to any sub-set like the highway agency, truckers, private
motorists and bus operators.
d) Economic analysis should not be misunderstood with financial analysis.
e) Economic evaluation should take place within a set of established criteria such as minimum
attractive rate of return, interest rate etc.
f) Opportunity cost of capital and resources should be considered wherever they are
important.
g) The period of analysis need not be too long in view of the uncertainties associated with the
future traffic and benefits. In any case, the discounted cash flows of a distant future period
are insignificant. For highway projects, it is enough if the analysis covers a period 15-25
years after opening to traffic.
2.5.3 Time Value for Money
The fundamental premise on which all methods of economic evaluation rests is that money earns
income over a period of time. For example, US$ 100 today will be worth US$ 672.75 at the end
of 20 years, if invested at 10 per cent compound rate of interest. So also, a sum of US$ 672.75
which might become due to an individual after 20years from today is worth only US$ 100 at the
present, assuming the same rate of interest. These facts point to the need for devaluing the future
benefits and costs to the present time to determine their present worth. The process of calculating
the present worth of a future payment is known as ‘discounting’ and the interest rate used is called
the ‘discount’ rate.
The following formulae are very useful in dealing with the problems in economic evaluation:
a) The amount A to which 1 USD will increase in n years with a compound interest rate of r
will be given by;
𝐴 = (1 + 𝑟)𝑛 …2.1
b) The present value P of 1 USD, n years before when discounted at a rate r will be given by;
1
𝑃= 𝑛
= (1 + 𝑟)−𝑛 …2.2
(1+𝑟)
Costs and Benefits
In economic evaluation, the main objective is to compare the costs and benefits of various
alternative schemes and select the one, most advantageous. The first step is, therefore to determine
the costs and benefits. There is a great deal of confusion in the designation of what constitutes
‘costs’ and what constitutes ‘benefits’. The simplest description is that the negative effects of a
scheme constitute the costs. They indicate the cash out-flows. On the other hand, the positive
effects are called benefits and they represent cash in-flows. As long as sufficient care is taken to
see that the signs are assigned properly, it is immaterial whether the economic consequence is
labelled as ‘costs’ or ‘benefits’.
Costs and benefits can be traced to the provider of the facility (highway department), the highway
users and non-users. In economic analysis, since all consequences are to be considered, the costs
and benefits to all parties are to be reckoned.
Some consequences can be quantified into monetary terms whereas some cannot. The aim of the
analyst should be to quantify as many elements as can be monetarily quantified. Those which
cannot be ultimately quantified into monetary terms are kept separately apart and a judgement
value can be accorded to them before a final decision is taken.
The economic evaluation of highway projects is generally done by computing the total transport
cost which consists of the following components:
 Cost of construction of the facility
 Cost of maintenance of the facility
 Road user cost
 Cost to the society
The Government, which is often the agency providing the facility, incurs expenditure on
constructing a road. This includes land acquisition, earthwork, road pavement and structures. The
government also invests money on maintenance and up keep annually. The road user cost, which
is borne by the actual user of the highway facility (passenger, crew of vehicles, operator, consignor
of goods, pedestrian, cyclist etc.) is composed of:
a) Vehicle operating costs
 Fuel;
 Lubricants;
  Tyre;
 Spare parts;
 Maintenance labour;
 Depreciation;
 Crew costs; and
 Fixed costs such as:
 Interest on capital
 Insurance
 Taxes
 Registration fee
 Grading charges
 Fines, tolls, etc
 Permit charges
 Loading and unloading charges
 Commission on booking
 Overhead charges such as rent, salary, electricity, postal, telephone,
stationery
b) Travel Time Cost
 Time value of vehicle occupants
 Time value of goods in transit
 Time value of vehicles in transit
c) Accident Costs
 Cost of fatality
 Cost of injuries
 Cost of damages to property
d) Cost to Society
 Impact on the environment (noise pollution, air pollution, vibration).
 Loss of aesthetics
 Changes in land values
 Land severance
 Discomfort and inconvenience.
Benefits from highway projects in effect represent the difference in costs with the new facility
and the old facility. Benefits can be grouped under the following:
a) Benefits to the existing traffic, by way of reduced road user costs.
b) Benefits to the generated traffic
c) Benefits to traffic diverted from other routes and modes
d) Benefits to traffic operating on other routes and modes where reduction in traffic has
been caused by the opening of the facility.
Factors that affect Vehicle operating costs
Vehicle operating costs are affected by a number of factors such as:
a) Vehicle Factors
 Age
 Make
 Horse-power, engine capacity
  Load carried
 Condition of Vehicle
 Level of maintenance input
 Type of fuel used
 Type of tyres (rayon, nylon, radial ply, cross ply etc.)
b) Roadway Factors
 Roughness of the surface
 Type of the surface
 Horizontal curvature
 Vertical profile
 Pavement width
 Type and condition of shoulder
 Urban and rural location
 Number of junctions per km
c) Traffic Factors
 Speed of travel
 Traffic volume and composition.
d) Environmental Factors
 Altitude
 Rainfall
 Temperature
Research has shown that the vehicle operating cost components are closely governed by
(i) Roadway factors such as roughness, pavement width, rise and fall and horizontal
curvature,
(ii) Vehicle factors such as age and load carried and
(iii) Traffic factors such as speed and volume of traffic. It follows therefore, that good roads
result in lower vehicle operating costs.
Highway improvements result in speedier travel, Savings in travel time are enjoyed by occupants
of vehicles, goods in transit and the vehicles in transit. Road accident rates are governed to a certain
extent by the condition of the road. Highway improvements can thus bring about a reduction in
road accidents. The cost of road accidents, which have been eliminated by highway improvements,
represents a benefit.
When carrying out economic analysis, costs and benefits are considered exclusive of taxes. Taxes
do not represent an economic cost and represent only a transfer within the community. Insurance
premiums are also excluded from economic analysis since the savings in accidents already account
for this element.
In a developing country, there are certain resources which are scarcer than the others. The
prevailing market prices, therefore, do not reflect the true economic value of the resources. In order
to correct such distortions and imperfections, ‘shadow pricing’ is done. A case in example is the
cost of imported fuel in Uganda. Since foreign exchange reserves are very precious, such imported
items are shadow priced at a higher value than the market price when carrying out the economic
evaluation. Similarly, unskilled labour is surplus in Uganda and the prevailing wage rate (which
is statutorily fixed) may not truly reflect this situation. A shadow-pricing of such
labour at a slightly lower level would be appropriate.
Inflation is disregarded in economic analysis, as it is generally assumed that all prices increase in
the same proportion, but relative prices remain constant. But if differential inflation is expected to
occur among commodities, necessary adjustments need to be made.
2.5.5 Economic Evaluation Techniques
The methods commonly adopted for economic evaluation are:
a) Net present value (NPV);
b) Benefit/cost Ratio (B/C Ratio);
c) Internal Rate of Return (IRR);
d) First Year Rate of Return (FYRR).

Net present value (NPV) Method

The NPV method is based on the discounted cash flow (DCF) technique. In this method, the stream
of costs and benefits associated with the project over its time horizon is calculated and is
discounted at a selected discount rate to give the present value. Benefits are treated as positive and
costs are treated as negative. Any project with a positive NPV is treated as acceptable. In
comparing more than one project, a project with the highest NPV is selected.
The NPV is algebraically expressed as:

Benefit-cost (B/C) Ratio Method

There are a number of variations of this method, but a simple procedure is to discount all costs and
benefits to their present worth and calculate the ratio of the benefits to costs. Negative flows are
considered costs, and positive flows as benefits. Thus the savings in the transport costs are
considered as benefits. If the B/C ratio is more than one, the project is worth undertaking.

In the AASHTO practice of road –user analysis the B/C ratio expresses the ratio of the net annual
benefits to the net annual costs. The benefits are determined for a simple reference year, which for
convenience can be the first year of operation after construction or the median year of the analysis
period [Kadiyali, 2006].
Internal Rate of Return (IRR) Method
The internal rate of return is the discount rate which makes the discounted future benefits equal to
the initial outlay. In other words, it is the discount rate at which the present values of costs and
benefits are equal i.e. NPV = 0. Calculation of the IRR is not as straight forward as for NPV and
is found by solving the following equation for r;

Solutions are normally found graphically or by iteration. However, with a computer program, the
work is rendered simple. The IRR gives no indication of the sizes of the costs or the benefits of a
project, but acts as a guide to the profitably of the investment [Thagesen, 1996].
If the internal rate of return calculated from the above formula is greater than the rate of interest
obtained by investing the capital in the open market, the scheme is considered acceptable.
First Year Rate of Return (FYRR) Method
The FYRR is simply the present value of the total costs expressed as a percentage of the sum of
benefits in the first year of trafficking after project completion. Thus FYRR is given by;

Comparison of the Various Methods of Economic Evaluation

The three methods of economic evaluation described above have their own advantages and short
comings. The B/C ratio method is very widely used by the highway engineers. It, however, suffers
from the following drawbacks:
a. It requires an assumption of a discount rate, which should bear relation to the opportunity
cost of capital. It is however, rather difficult to know the opportunity cost of capital
accurately.
b. The significance of the B/C ratio is ambiguous, and its relative value is difficult to
understand and interpret. For instance, if there are two proposals, one with a B/C ratio of
b) 1.05 and the other with a ratio of 1.10, the difference is very difficult to appreciate.
c) It is somewhat confusing and difficult to decide which items should be termed as costs and
placed in the denominator and which as benefits and placed in the numerator.
The IRR method is popular with international lending agencies like the World Bank. It lends itself
admiringly well for use in a computer-aided design model. It avoids the need for selecting a
discount rate initially. The rate derived from computations can be easily compared with the market
rate of interest, with which economists, financial experts and bankers are familiar. Its disadvantage
is that the computations are tedious and a solution can only be obtained only by trial and error.
The NPV method suffers from the same disadvantage as in case of B/C ratio method in that a rate
of discount has to be assumed.
2.5.6 Selection of the Discount Rate
As seen from the discussions above, the selection of an appropriate discount rate (or interest rate)
is crucial in the B/C ratio and NPV methods. The choice of the discount rate is governed by a
number of complex factors, and is dependent on the future availability of finance and the various
opportunities for its use. The attitude of the society towards present consumption as against savings
for future is an important factor. Will the present generation prefer to consume the resources now
or conserve it for future use by the current or future generation? The answer to this question will
give the ‘social time preference rate of interest’.
Another approach is to find out the social yield that the resources employed by a marginal public
project would have otherwise generated. This determines the ‘social opportunity cost rate of
interest’. In a truly competitive economy, the two rates of interest would be equal and investments
and consumption would then be ideally allocated. But such a situation is difficult to find, and more
so in a developing country where capital is very scarce. In such situations, some general guidelines
can be given for selecting an appropriate discount rate. Such a rate should not be less than the rate
of borrowing or lending by the government or the market rate of interest. A rate of 12 per cent is
generally being adopted.