Sri Lanka: Multimodal Transport Project

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 41249-022 June 2012

Sri Lanka: Multimodal Transport Project (Financed by the Japan Fund for Poverty Reduction)

Main Report Volume 2 – Costs, Revenue, Financial Analysis, Economic Appraisal

Prepared by Roughton International Ltd., in association with Nippon Koei Co., Ltd. and Engineering Consultants Ltd.

United Kingdom

For Ministry of Transport

The Asian Development Bank The Democratic Socialist

Republic of Sri Lanka

7600SRI: Multimodal Transport Project

Final Report – Main Report Volume 2

Costs, Revenue, Financial Analysis, Economic Appraisal

June 2012

TA 7600 SRI – Multimodal Transport Project Sri Lanka

Final Report 1

SRI LANKA MULTIMODAL TRANSPORT PROJECT

FINAL REPORT – VOLUME 2

CONTENTS

8 Project costs 148

8.1 Railway costs 148

8.2 Cost components of each project 152

8.3 Port railhead – 3 track and 4 track options 153

8.4 Sedwatta link 157

8.5 Veyangoda ICD site and Daraluwa Bemmulla Loop 158

8.6 Enderamulla ICD site 159

8.7 Peliyagoda/Telangapata ICD site 160

8.8 Ratmalana ICD site 161

8.9 Total project costs 162

9 Forecast gross revenue 167

9.1 Results 167

9.2 Key determinants 169

10 Applicable forms of Procurement Contracts 171

10.1 Responsibility for Procurement 171

10.2 Selecting a Delivery Model 172

10.3 Procurement under BOO/BOT, Concessions etc. 179

10.4 Packaging of Procurement and Bidding Strategy 179

11 Procurement Strategy under PPP and Public Finance 187

11.1 Introduction 187

11.2 Procurement Approach from Public Finance to Private Finance 188

11.3 Evaluation Approach of Public Finance and PPP Options 189

11.4 Identification of Procurement Options 190

11.5 Risk Assessment 196

11.6 Proposed Sensitivity Cases for Sensitivity Testing 203

12 Financial evaluation and recommendations 204

12.1 Basic Assumptions for the Financial Analysis 204

12.2 Revenue and Costs 205

12.3 Base Case Analysis for Public Financing 209

12.4 Base Case Analysis for PPP 210

12.5 Sensitivity Analysis for PPP Options 229

12.6 Further Sensitivity Analysis for PPP Options 231

12.7 Summary of Sensitivity Testing on PPP Options 233

12.8 Recommended Procurement Options and Implementation Plan 234

12.9 Summary and Recommendations 237

13 Summary of environmental, resettlement & social reports 241

13.1 Initial Environmental Examination (IEE) 241

13.2 Resettlement plans of ICD sites 242

13.3 Poverty and Social Assessment Report 250

14 Economic evaluation methodology 252

14.1 The “Without Project” Case 252

14.2 Opportunity Costs 252

14.3 Incremental Capital Costs 252

14.4 Shadow Pricing 255


Final Report 2

15 Economic appraisal 268

15.1 Land Values 268

15.2 Incremental Capital Costs 270

15.3 Recurrent Costs 276

15.4 Traffic Impacts and Decongestion Benefits 282

15.5 Results 283

15.6 Interpretation 290

15.7 Risk and Sensitivity 292

15.8 Poverty and Benefits Distribution 294

15.9 Reductions in Noxious Emissions 302

15.10 Other Benefits 304

16 Traffic modeling and decongestion benefits 305

16.1 Introduction 305

16.2 Types of transport model 305

16.3 Short term Do Nothing analysis 306

16.4 The University of Moratuwa traffic model 308

16.5 Future year scenarios 312

16.6 Traffic model output 313

16.7 Vehicle Categories and Unit Cost Savings 320

16.8 Decongestion benefits 331

17 Project impact monitoring 333

17.1 Project Impact Monitoring Framework 333

17.2 Baseline data and monitoring approach 335

18 Conclusions 337

Tables

Table 8.1 Cost of container transport by rail from the port each ICD

Table 8.2 Components of project costs

Table 8.3 Summary of costs at the port railhead (3 track version for one ICD site)

Table 8.4 Summary of costs at the port railhead (4 track version for two ICD sites)

Table 8.5 Summary of costs at the new Sedawatta link

Table 8.6 Summary of costs at Veyangoda ICD site and Daraluwa Bemmulla Loop

Table 8.7 Summary of costs at Enderamulla ICD site

Table 8.8 Summary of costs at Peliyagoda/Telangapata ICD site

Table 8.9 Summary of costs at Ratmalana ICD site

Table 9.1 Forecast gross revenue (Rs Million) between 2015 and 2034

Table 9.2 Calculation of transport & cranage revenue and stuffing/destuffing revenue

Table 10.1 Sample Procurement Plan, Procurement of Goods and Works by ICB/NCB

Table 10.2 Sample Procurement Plan, Procurement Services

Table 11.1 ICD Sites and Facility Requirements

Table 11.2 General Procurement Options from Preliminary Evaluation

Table 11.3 Risk Score Structure

Table 11.4 Evaluated Risks for ICD Service Project

Table 11.5 Sensitivity Testing Scenarios


Final Report 3

Table 12.1 Revenue Projection for the ICD and ICD Combinations (Rs m)

Table 12.2 Estimate of the Starting Project Costs (Rs m)

Table 12.3 CAPEX during Concession Period 2015-2034 (Rs m)

Table 12.4 Operation and maintenance Cost Summary (Rs m)

Table 12.5 Project IRR under Public Fundings

Table 12.6 The Weighted Average Costs of Capital for each ICD

Table 12.7 FIRR of Veyangoda ICD under different PPP options

Table 12.8 FIRR of Enderamulla ICD under different PPP options

Table 12.9 FIRR of Peliyagoda/Telangapata ICD under different PPP options

Table 12.10 FIRR of Ratmalana ICD under different PPP options

Table 12.11 FIRR of Veyangoda + Ratmalana ICDs under different PPP options

Table 12.12 FIRR of Enderamulla + Ratmalana ICD under different PPP options

Table 12.13 FIRR of Peliyagoda/Telangapata + Ratmalana ICDs under different PPP options

Table 12.14 ICD Base Case Summary

Table 12.15 ICD Base Case Cash Flow Summary (Rs m)

Table 12.16 Financial projections: FIRR sensitivities to revenue

Table 12.17 Financial projections: FIRR sensitivities to construction and M&E costs

Table 12.18 Financial projections: FIRR sensitivities to O&M costs

Table 12.19 Veyangoda ICD FIRR Sensitivities

Table 12.20 Enderamulla ICD FIRR Sensitivities

Table 12.21 Peliyagoda/Telangapata ICD FIRR Sensitivities

Table 12.22 Ratmalana ICD FIRR Sensitivities

Table 12.23 Veyangoda + Ratmalana ICD FIRR Sensitivities

Table 12.24 Enderamulla+ Ratmalana ICD FIRR Sensitivities

Table 12.25 Peliyagoda/Telangapata + Ratmalana ICD FIRR Sensitivities

Table 12.26 FIRR sensitivity Summary

Table 12.27 Recommended ICD PPP Equity Structure

Table 12.28 ICD PPP Implementation

Table 13.1 Summary of resettlement costs

Table 14.1 Container Tracking

Table 14.2 Government Tax Revenues, 2008 -2011 (Rs’000)

Table 14.3 Nominal Rate vs Tax Take, Cement, 2011

Table 14.4 Selected Tax Rates, 2011

Table 14.5 Calculation of Total Taxes on Imports, Excluding Fuels, 2011

Table 14.6 Taxes on Vehicle Imports (Rs. per 100 Rs. CIF value)

Table 14.7 International Fuel Prices, 2nd half of September 2011

Table 14.8 Taxes/Subsidies and Shadow Prices, September 2011 (Rs)

Table 14.9 Sri Lanka Trade Performance in Jan-Dec 2010

Table 14.10 Minimum Wages vs Average Earnings 2003 – 2009 (Rs/day)

Table 14.11 Import Shadow Prices

Table 14.12 Domestic Shadow Prices

Table 15.1 Opportunity Cost of Land


Final Report 4

Table 15.2 Economic Costs of Land and Civil Works (Rs million)

Table 15.3A Economic Capital Costs of Rolling Stock & Cargo Handling Equipment:

Veyangoda (Rs million)

Table 15.3B Economic Capital Costs of Rolling Stock & Cargo Handling Equipment:

Enderamulla (Rs million)

Table 15.3C Economic Capital Costs of Rolling Stock & Cargo Handling Equipment:

Peliyagoda/Telangapata (Rs million)

Table 15.3D Economic Capital Costs of Rolling Stock & Cargo Handling Equipment:

Ratmalana (Rs million)

Table 15.4 Veyangoda Railway Recurrent Costs Breakdown 2015

Table 15.5A Economic Recurrent Costs of Railways and ICD for Veyangoda (Rs million)

Table 15.5B Economic Recurrent Costs of Railways and ICD for Enderamulla (Rs million)

Table 15.5C Economic Recurrent Costs of Railways and ICD for Peliyagoda/Telangapata (Rs

million)

Table 15.5D Economic Recurrent Costs of Railways and ICD for Ratmalana (Rs million)

Table 15.6 Annual Transport and Congestion Savings (Rs. million/yr)

Table 15.7 Veyangoda: Economic Costs and Benefits (Rs. Million)

Table 15.8 Enderamulla: Economic Costs and Benefits (Rs. Million)

Table 15.9 Peliyagoda/Telangapata: Economic Costs and Benefits (Rs. Million)

Table 15.10 Ratmalana: Economic Costs and Benefits (Rs. Million)

Table 15.11 Veyangoda + Ratmalana: Economic Costs and Benefits (Rs. Million)

Table 15.12 Enderamulla + Ratmalana: Economic Costs and Benefits (Rs. Million)

Table 15.13 PelTel + Ratmalana: Economic Costs and Benefits (Rs. Million)

Table 15.14 Results Summary - 1


Table 15.16 Project Ranking

Table 15.17A Sensitivity Results for Veyangoda

Table 15.17B Sensitivity Results for Enderamulla

Table 15.17C Sensitivity Results for Peliyagoda/Telangapata

Table 15.18 Poverty Headcount Ratio by District

Table 15.19 Percentage of Poor Households Based on the Official Poverty Line by District

Table 15.20 Distribution of Benefits: Veyangoda (Rs million)

Table 15.21 Distribution of Benefits: Enderamulla (Rs million)

Table 15.22 Distribution of Benefits: Peliyagoda/Telangapata (Rs million)

Table 15.23 Fuel Balance for Enderamulla, 2015

Table 15.24 Emissions by Engine Type (g/l)

Table 16.1 Times of day of police control at Ingunkade junction

Table 16.2 Typical green times and cycle times when not under police control

Table 16.3 Incidence of no queue on the Port Access Road approach

Table 16.4 Transport and congestion savings 2015



Table 16.7 Principal highways for congestion savings

Table 16.8 Breakdown of veh-kms and veh-hrs savings by highway corridor

Table 16.9 ADT data vehicle classes

Table 16.10 HDM4 data vehicle classes


Final Report 5

Table 16.11 Vehicle distributions

Table 16.12 Expansion of TransPlan vehicle population

Table 16.13 Central road user costs (Rs/km)

Table 16.14 Weighted average values per truck km saved (Rs./km)

Table 16.15 Weighted average values per vehicle hour saved (Rs./hr)

Table 16.16 Daily transport and congestion savings (Rs. million)

Table 16.17 Annual transport and congestion savings (Rs. million)

Table 17.1: Project Impact Monitoring Framework

Figures

Figure 8.1 Annual expenditure profile for the Veyangoda project (SLR millions)

Figure 8.2 Annual expenditure profile for the Enderamulla project (SLR millions)

Figure 8.3 Annual expenditure profile for the PelTel project (SLR millions)

Figure 8.4 Annual expenditure profile for the Ratmalana project (SLR millions)

Figure 8.5 Annual expenditure profile for Veyangoda + Ratmalana (SLR millions)

Figure 8.6 Annual expenditure profile for Enderamulla + Ratmalana (SLR millions)

Figure 8.7 Annual expenditure profile for PelTel + Ratmalana (SLR millions)

Figure 9.1 Forecast gross revenue at Veyangoda ICD site

Figure 9.2 Forecast gross revenue at Enderamulla ICD site

Figure 9.3 Forecast gross revenue at Peliyagoda/Telangapata ICD site

Figure 9.4 Forecast gross revenue at Ratmalana ICD site

Figure 11.1 Overview of Procurement Approaches

Figure 11.2 Evaluation Process Chart

Figure 11.3 Public Finance Model

Figure 11.4 PPP Basic Option

Figure 11.5 PPP Alternative Option

Figure 11.6 The ICD Risk Assessment Procedure

Figure 11.7 Major Risk Constituents for ICD Projects

Figure 12.1 Veyangoda ICD - Project Revenue and Costs

Figure 12.2 Relationship between Government Grant and FIRR for Veyangoda ICD

Figure 12.3 Veyangoda ICD - Cash Flow from PPP Option 5

Figure 12.4 2020 Expansion Costs being Redistributed for Four Years

Figure 12.5 Enderamulla ICD: Project Revenue and Costs

Figure 12.6 Enderamulla ICD - Cash Flow from PPP Option 1


Figure 12.8 Peliyagoda/Telangapata ICD: Project Revenue and Costs

Figure 12.9 Peliyagoda/Telangapata ICD - Cash Flow for PPP Option 3

Figure 12.10 Ratmalana ICD: Project Revenue and Costs

Figure 12.11 Ratmalana ICD - Cash Flow from PPP Option 2

Figure 12.12 Veyangoda + Ratmalana ICDs: Project Revenue and Costs

Figure 12.13 Relationship between Govt Grant and FIRR for Veyangoda+Ratmalana ICDs


Final Report 6

Figure 12.14 Veyangoda + Ratmalana ICDs - Cash Flow from PPP Option 5

Figure 12.15 Enderamulla + Ratmalana ICDs: Project Revenue and Costs

Figure 12.16 Enderamulla + Ratmalana ICDs - Cash Flow from PPP Option 3

Figure 12.17 Peliyagoda/Telangapata + Ratmalana ICD: Project Revenue and Costs

Figure 12.18 Peliyagoda/Telangapata + Ratmalana ICDs - Cash Flow from PPP Option 5

Figure 16.1 Traffic flow on Port Access Road approach to Ingurukade junction

Figure 16.2A Veyangoda decongestion corridor

Figure 16.2B Enderamulla decongestion corridor

Figure 16.2C Peliyagoda/Telangapata decongestion corridor

Figure 16.2D Ratmalana decongestion corridor

Figure 16.3 Road haulage price model derived from regression of ACT data

Figure 16.4 Road user costs: articulated truck

Figure 16.5 Road user costs: car

Appendices

Appendix A SLPA’s Peliyagoda scheme and complementary long term options

Appendix B Responses to comments on the Draft Final Report

Appendix C Terms of Reference


Final Report 7

FINAL REPORT

EXECUTIVE SUMMARY

See Volume 1


Final Report 148

FINAL REPORT

8 Project costs There are many elements of project costs, firstly by category and location:

• Capital expenditure (capex) at ICD sites;

• O & M expenditure at ICD sites;

• Capex at the New Port railhead;

• O & M expenditure at the New Port railhead;

• Capex on the Sedawatta link and the rest of the connecting railway; and

• O & M expenditure on the Sedawatta link and the rest of the connecting railway.

Both capex and O&M are broken down by item type, examples being equipment purchases

and fuel consumption. We begin with a detailed examination of railway costs; these exclude

all lifting equipment costs.

8.1 Railway costs

The unit costs of rail transport can be shown to decline with increasing distance and with

increasing transport unit capacity and with increasing transport volume. This results from

the fact that (a) there is a high level of fixed cost associated with railway operation and (b)

that rail carrying capacity cannot be adjusted easily to match the level of transport demand.

The costs of operating container trains of various sizes, over various distances and for

various levels of ICD throughput were assessed for the purposes of:

• Providing a basis for comparison with road container haulage charges, to determine

the scope for setting a competitive level of rail container haulage tariff in future;

• Demonstrating the extent to which costs will vary with train size (and hence

container carrying capacity), distance and transport volume.

A point-to-point train costing model was adapted to generate the cost estimates for this

assessment.

8.1.1 Cost model adaptation

Train operating costs were estimated for future railway services to the ICDs under

consideration – Veyangoda, Enderamulla, Peliyagoda/Telengapata and Ratmalana.

For this purpose, the unit rates for individual items of cost were obtained from the Sri Lanka

Railways and other sources, for inputting to the model. The relevant items of cost are as

follows:

Variable costs


Final Report 149

• Train crews

• Fuel consumption

• Locomotive maintenance

• Wagon maintenance

• Variable track maintenance

Fixed costs

• Fixed cost of infrastructure maintenance

(track and bridges, buildings and signalling)

• Station operations

Administrative overhead

Incremental capital costs

• Locomotive capital

• Wagon capital

• Infrastructure capital

(i) Variable costs

(a) Train crews. The total annual cost of train crews in the Sri Lanka Railway system

was calculated from personnel data which showed that there were 460 drivers,

460 assistant drivers and 600 guards and assistant guards in the system, each

with a monthly wage, including overtime and benefits of Rs. 75,000.1 The

resulting cost of Rs. 1.368 billion was distributed over an estimated 411,756 train

hours in 2010 (both passenger and freight), to derive an average crew cost of Rs.

3,332 per train hour.

(b) Fuel consumption. Based on the rate of fuel consumption per engine km2 for M8

locomotives, the rate of fuel consumption was calculated at 4.2 litres per gross

trailing tonne-km. For the more modern 3,500 HP locomotives, a fuel

consumption rate of 3.9 litres per gross trailing tonne-km was applied. The

current price of Rs. 80 per litre paid by Sri Lanka Railways for diesel fuel was used

to estimate the fuel consumption cost.

(c) Locomotive maintenance. The cost of overhaul for M8 locomotives was given as

Rs. 40 million per unit.3 Since these overhauls are undertaken every 360,000 km,

the average cost per locomotive km is Rs. 111.11. To this cost was added 10% to

cover the cost of running repairs and servicing, giving an all-up estimate of Rs.

122.2 per locomotive-km.

1 Meeting with Commercial Superintendent and Principal Costing Officer, Sri Lanka Railways, 20 May 2011. 2 FT Study – ADB 07/07/2011, prepared by former Sri LaMnka Railways staff. 3 Chief Mechanical Engineer, Sri Lanka Railways, 11 August 2011.


Final Report 150

(d) Wagon maintenance. The cost of scheduled overhaul of wagons (based on the

Bogie Low Sided, or BLS, wagon) was given as Rs. 2 million every 4 years.4 Based

on an average of 50,000 km per wagon per year in future, the average cost per

wagon-km was estimated at Rs. 10 per wagon-km. With the addition of 10% to

cover running maintenance, all-up maintenance was estimated to cost Rs. 11 per

wagon-km.

(e) Variable track maintenance. The cost of maintaining track (including bridges,

culverts, tunnels and other track structures) may be divided into variable and

fixed portions. The variable portion is that which varies directly with the level of

traffic (measured in gross tonne-km) passing over the track, while the fixed

portion is invariant with the level of traffic. Advice was given that the fixed

portion would represent approximately 90% of the total track maintenance cost

in Sri Lanka.5 This largely reflects the effects of a tropical climate, where time-

related maintenance activities such as vegetation control or ballast tamping in

areas of high rainfall would account for a high proportion of track maintenance.

The system-wide cost of track maintenance was given as Rs. 740 million in 2010.6

The variable portion of this amount was estimated at Rs. 74 million, which when

distributed over the 5,248 million GTK estimated for the Sri Lanka Railway system

in 2010, gave an average rate of Rs. 0.0141 per gross tonne-km.

(ii) Fixed costs

(a) Fixed cost of infrastructure maintenance. This comprises 90% of the cost of track

maintenance, as indicated above, plus the costs of buildings and signalling

system maintenance, both of which categories are invariant with traffic. The

total fixed cost of infrastructure maintenance was estimated as Rs. 1.09 billion in

2010. When distributed over the total track length of the Sri Lanka Railways

system (1,569 km), this gave an average cost of Rs. 694,779 per track-km per

year. The model distributes this cost between container and other trains in direct

proportion to the numbers of each operated. On the Main Line to Enderamulla,

container trains would represent only 12% of the total number of trains on the

line in 2034, so would bear only 12% of the fixed maintenance cost, or Rs.

83,373 per track-km.

(b) Station operations. The number of station staff for 329 stations in Sri Lanka (i.e.

all excluding Colombo Fort) was reported as 3950, or an average of 12 staff per

station.7 Application of the average monthly wage, including overtime and

benefits, of Rs. 50,000 per person gives an average annual cost per station of Rs.

7,203,647. The model allocates some station costs to container trains, since the

station staff have a safe-working function in addition to their passenger handling

functions. The allocation is in direct proportion to the share of freight trains in

the total number of trains operated on the system in 2010. This share was

4 Ibid 5 Mr P De Silva, former GM Sri Lanka Railways 6 Chief Engineer (Track and Bridges) Sri Lanka Railways. 7 Op cit. Commercial Superintendent Sri Lanka Railways


Final Report 151

calculated at 6%, so that container trains would bear a cost of 0.06 x Rs. 7.2

million = Rs. 400,000 per station per year.

(iii) Administrative overhead

An administrative overhead rate of 20% was applied to the total of the variable

and fixed costs attributable to the container traffic to provide an estimate of the

administrative overhead cost of this traffic.

(iv) Incremental capital cost

(a) Locomotive capital. Based on the number of container trains estimated to be

operated per day and the train cycle time for a single trip, the required number

of train sets may be calculated. This gives the incremental number of

locomotives to be purchased to support the traffic. The purchased quantity is

then valued at the assumed purchase price for a 3,500 HP locomotive of Rs. 320

million and the resulting capital cost is depreciated over an assumed life of 25

years to obtain the annual cost of the locomotive purchases.

(b) Wagon capital. The number of train sets calculated by the above method

multiplied by the number of wagons per train set gives the incremental number

of wagons to be purchased to support the traffic. The purchased quantity is then

valued at the assumed purchase price for a 3-TEU wagon of Rs. 6.78 million and

the resulting capital cost is depreciated over an assumed life of 20 years to

obtain the annual cost of the wagon purchases.

(c) Infrastructure capital. Calculation of the incremental infrastructure capital cost is

based on the assessed need for construction of the following trackage:

• Construction of loading/unloading tracks in the New Port and in the

proposed ICDs;

• Reconstruction of the existing port access line;

• Construction of a “Y” short-cut track at Sedawatta to connect the port

access line to the Main Line;

• Construction of access tracks from the Main and Coast lines to connect

with ICDs.

For train costing purposes, the cost for construction of fully signalled embedded track in the

port and the ICD’s was assumed to be US$ 2.0 million per km (Rs. 218.5 million), while the

cost for construction of fully signalled ballasted track outside of the terminals was assumed

to be US$ 1.0 per km (Rs. 109.3 million). The annual cost of the incremental infrastructure is

calculated by depreciating the total capital cost over an assumed track life of 50 years.

8.1.2 Cost results

This section contains the results generated by the railway cost model, excluding the

incremental capital costs, which are summarized later.


Final Report 152

(i) Estimates of railway operating costs for transportation of containers to/from

ICD’s

Table 8.1 gives the estimated cost per TEU and per TEU-km of container transport by rail

from the port to the various ICDs in 2015, 2020, 2021 and 2034. Distances from the port

railhead to the ICDs are given in the table headings. At Veyangoda, short trains – 15 x 3 TEU

wagons (shaded green) – are used in all years. At the other ICDs, short trains are used until

2020, after which long trains – 35 x 3 TEU wagons (shaded yellow) – are used.

Table 8.1: Cost of container transport by rail from the port each ICD

Year Veyangoda

(42.5 km)

Enderamulla

(16.3 km)

PelTel

(14.3 km)

Ratmalana

(27.0 km)

Rs per

TEU

Rs per

TEU-km

Rs per

TEU

Rs per

TEU-km

Rs per

TEU

Rs per

TEU-km

Rs per

TEU

Rs per

TEU-km

2015 1072 25.26 517 31.79 478 33.51 797 29.47

2020 501 30.79 466 32.65 761 28.11

2021 351 21.59 389 27.27 648 23.96

2034 991 23.35 334 20.56 372 26.10 599 22.12 Source: SLMMT train cost model

During a visit to the ICD of Aitken Spence at Wattala, the project team was informed that

the prevailing rate for road haulage of a laden 20 ft container to the port is US$ 50 (Rs.

5,500). The distance involved is about 8 km, giving a unit cost of Rs. 687.5 per TEU-km. This

is considerably more than the rail unit costs in Table 8.1 but the road haulage unit cost

includes truck replacement costs, whereas locomotive and wagon replacement costs are

additional to the Figures in Table 8.1, as are lifting equipment costs.

8.2 Cost components of each project

Each alternative project consists of one or two ICD sites, a compatible railhead at the New

Port and works on the connecting railway. Table 8.2 shows the components of project costs.

If there are two ICD sites, four tracks are needed at the port railhead. If there is only one ICD

site, three tracks suffice. Reinstatement of the Sedawatta link is necessary for all three

northern ICD sites but not for Ratmalana on its own.

Table 8.2 Components of project costs

Project description

Component

Port

Rail-

head

4 tracks

Port

Rail-

head

3 tracks

Seda-

watta

Link

Veyan-

goda

ICD

Endera-

mulla

ICD

PelTel

ICD

Ratma-

lana

ICD

Veyangoda Include Include Include

Enderamulla Include Include Include

Peliyagoda/Telangapata Include Include Include

Ratmalana Include Include

Veyangoda + Ratmalana Include Include Include Include

Enderamulla + Ratmalana Include Include Include Include

PelTel + Ratmalana Include Include Include Include


Final Report 153

8.3 Port railhead – 3 track and 4 track options

Table 8.3 summarises costs at the port railhead for the 3 track option (if one ICD site is

chosen). Table 8.4 summarises costs at the port railhead for the 4 track option (if two ICD

sites are chosen).

Both tables shows key results from detailed spreadsheets compiled by Roughton

International from local, international, government, commercial and internet sources. In

both tables, item descriptions indicate which ICD(s) the railhead is connected to.

‘Operations staff – Veyangoda’ denotes expenditure on operations staff at the 3 track

railhead if Veyangoda is the ICD. ‘Equipment + container control system maintenance –

Enderamulla + Ratmalana’ denotes expenditure on such maintenance at the 4 track railhead

if Enderamulla and Ratmalana are the ICDs.

As may be expected, within the infrastructure capital expenditure railway construction costs

are higher for the 4 track railhead than for the 3 track railhead.

Equipment required at the railhead consists of rubber tyred gantries (RTGs) and tractor-

trailer units. The former load and unload the containers at the railhead and the number of

RTGs required is related to the number of TEUs per train and the number of trains to be

loaded and unloaded at once. Each RTG can move between 28 and 30 TEU/hr. Each

incoming train must be unloaded and loaded in 105 minutes. Veyangoda can handle only

short trains (45 TEU); the other ICDs will handle long trains (105 TEU) from 2021. The

number of RTGs required by 2034 varies from 3 if Veyangoda is the only ICD to 10 if

Enderamulla + Ratmalana or Peliyagoda/Telengapata + Ratmalana are the ICDs selected.

The unit price is 175.5 SLR millions.

Tractor-trailer units will transfer containers between the railhead and the New Port. The

number required is related to the anticipated daily TEU throughput. Each tractor-trailer unit

can make 4 round trips per hour, carrying 12 TEU/hr. The number of units required by 2034

varies from 3 if Ratmalana is the only ICD to 11 if Enderamulla + Ratmalana or

Peliyagoda/Telengapata + Ratmalana are the ICDs selected. The unit price per tractor-trailer

is 19.0 SLR millions.

A management information system is required for the control of containers. The server and

software would be located at the railhead, with monitors at the ICDs. One system has been

investigated. There is a purchase cost and an annual maintenance and support charge. The

purchase cost is greater if the system has to monitor containers at two ICDs rather than one.


Final Report 154

Table 8.3 Summary of costs at the port railhead (3 track version for one ICD site)

Item Stage 1 Stage 2 Total

(1 US$ = 110 SLR) US$ m SLR m US$ m SLR m US$ m SLR m

Preliminaries 0.45 49 0.45 49

Land acquisition N/A

Resettlement N/A

Deck preparation 1.88 207 1.88 207

Circulation N/A

Access road 0.06 7 0.06 7

Boundary wall N/A

CFS buildings N/A

Other buildings 0.62 68 0.62 68

Sub-total civil & building works 3.01 331 3.01 331

Railway track & buildings 8.38 922 8.38 922

Level crossings & signaling 4.03 443 4.03 443

Sub-total railways works 12.41 1,365 12.41 1,365

Rubber tyred gantries 4.79 527 4.79 527

Trucks & trailers 0.35 38 0.35 38 0.69 76

Container control system 0.26 29 0.26 29

Sub-total equipment + container control

system capex – Veyangoda

5.40 594 0.35 38 5.74 632

Rubber tyred gantries 4.79 527 4.78 526 9.57 1,053

Trucks & trailers 0.69 76 0.86 95 1.55 171



system capex – Enderamulla

5.74 632 5.64 621 11.38 1,253


Trucks & trailers 0.69 76 0.86 95 1.55 171



system capex – PelTel

5.74 632 5.64 621 11.38 1,253


Trucks & trailers 0.35 38 0.17 19 0.52 57



system capex – Ratmalana

5.40 594 4.95 545 10.35 1,139

Capex sub-total – Veyangoda 20.82 2,290 0.35 38 21.16 2,328

Capex sub-total – Enderamulla 21.16 2,328 5.64 621 26.80 2,948

Capex sub-total – Peliyagoda 21.16 2,328 5.64 621 26.80 2,948

Capex sub-total – Ratmalana 20.82 2,290 4.95 545 25.77 2,835

Operations staff – Veyangoda 4.16 458

Operations staff – Enderamulla 8.21 903

Operations staff – PelTel 8.21 903

Operations staff – Ratmalana 5.94 653

Other staff 4.50 495

Energy 22.37 2,461

Equipment + container control system

maintenance – Veyangoda

7.03 773


maintenance – Enderamulla

11.25 1,238


Final Report 155


maintenance – PelTel

11.25 1,238


maintenance – Ratmalana

9.03 993

O&M sub-total – Veyangoda 38.06 4,187

O&M sub-total – Enderamulla 46.33 5,096

O&M sub-total – PelTel 46.33 5,096

O&M sub-total – Ratmalana 41.84 4,602

Overall total – Veyangoda 59.22 6,515

Overall total – Enderamulla 73.13 8,044

Overall total – PelTel 73.13 8,044

Overall total – Ratmalana 67.61 7,437 Sources: Government of Sri Lanka, commercial sources, internet sources, Consultant’s calculations

Table 8.4 Summary of costs at the port railhead (4 track version for 2 ICD sites)




Land acquisition N/A

Resettlement N/A


Circulation N/A

Access road 0.06 7 0.06 7

Boundary wall N/A

CFS buildings N/A


Sub-total civil & building works 3.01 331 3.01 331

Railway track & buildings 9.94 1,093 9.94 1,093


Sub-total railways works 13.97 1,537 13.97 1,537


Trucks & trailers 0.52 57 0.52 57 1.04 114


Equipment + container control system –

Veyangoda + Ratmalana

8.85 973 5.30 583 14.14 1,556


Trucks & trailers 0.86 95 1.04 114 1.90 209



Enderamulla + Ratmalana

9.18 1,011 9.01 991 18.20 2,002


Trucks & trailers 0.86 95 1.04 114 1.90 209



PelTel + Ratmalana

9.18 1,011 9.01 991 18.20 2,002

Capex sub-total – V + R 25.83 2,841 5.30 583 31.12 3,424

Capex sub-total – E + R 26.16 2,879 9.01 991 35.18 3,870

Capex sub-total – P + R 26.16 2,879 9.01 991 35.18 3,870

Operations staff – 8.69 956


Final Report 156

Veyangoda + Ratmalana

Operations staff –

Enderamulla + Ratmalana

11.85 1,304

Operations staff – PelTel + Ratmalana 11.85 1,304

Other staff 4.50 495

Energy 34.97 3,847


maintenance – Veyangoda + Ratmalana

12.55 1,380


maintenance – Enderamulla + Ratmalana

15.98 1,758


maintenance – PelTel + Ratmalana

15.98 1,758

O&M s/t – Veyangoda + Ratmalana 60.71 6,678

O&M s/t – Enderamulla + Ratmalana 67.31 7,404

O&M s/t – PelTel + Ratmalana 67.31 7,404

Overall total – Veyangoda + Ratmalana 91.83 10,102

Overall total – Enderamulla + Ratmalana 102.49 11,274

Overall total – PelTel + Ratmalana 102.49 11,274 Sources: Government of Sri Lanka, commercial sources, internet sources, Consultant’s calculations


Final Report 157

8.4 Sedwatta link

The Sedawatta link is the missing arm of a ‘Y’ rail junction located near Orugodawatta. In its

absence, trains travelling between the port and northern locations have to divert to the

south and reverse the engine at sidings before proceeding northwards. This wastes an hour

and restoration of the link is essential for efficient operation. The site has been surveyed

and an alignment selected so as to minimize the need for resettlement. Construction of a

trough span bridge is needed and a signaling upgrade is needed to control trains travelling

along the restored ‘Y’ link.

Table 8.5 Summary of costs at the new Sedawatta link




Land acquisition 0.00 0 0.00 0

Resettlement 1.44 158 1.44 158


Circulation N/A

Access road N/A

Boundary wall N/A

CFS buildings N/A

Other buildings N/A

Sub-total civil & building wks 3.14 345 3.14 345



Sub-total railway works 5.30 583 5.30 583

Locomotives and wagons N/A

Rubber tyred gantries N/A

Trucks & trailers N/A

Forklift trucks N/A

Sub-total equipment capex 0.00 0 0.00 0

Capex sub-total 8.44 928 8.44 928

Transport costs N/A

Operations staff N/A

Other staff N/A

Energy N/A

Equipment maintenance N/A

Infrastructure maintenance N/A

O&M sub-total 0.00 0 0.00 0

Total 8.44 928 8.44 928


Final Report 158

8.5 Veyangoda ICD site and Daraluwa Bemmulla Loop

At the Veyangoda site, expenditure falls naturally into three categories:

• Infrastructure capex, with most expenditure occurring in either 2014 (stage 1) or

2020 (stage 2); stage 2 expenditure is mainly on additional CFS building capacity and

associated works;

• Equipment capex, in which equipment is bought as required. ‘Stage 1’ refers to

equipment to be purchased between 2014 and 2019. ‘Stage 2’ refers to equipment

bought in 2020 onwards; and

• Operations and maintenance costs, where expenditure occurs in every year and is

generally on a rising trend, as TEU throughput increase.

There are significant resettlement costs. Deck preparation costs of 1,225 SLR millions

include 749 SLR millions for demolition of existing structures. Within infra buildings, the

building of CFS stations will cost 570 SLR millions in 2014, 719 SLR millions in 2020. By 2034,

equipment purchase needs will be 4 locomotives, 56 wagons, 7 RTGs, 14 tractor-trailers and

22 forklift trucks.

Table 8.6 Summary of costs at Veyangoda ICD site and Daraluwa Bemmulla Loop





Resettlement 9.67 1,064 9.67 1,064

Deck preparation 11.14 1,225 2.16 238 13.30 1,463

Circulation 0.32 35 0.36 40 0.68 75

Access road 0.28 31 0.28 31

Boundary wall 0.74 81 0.74 81

CFS buildings 5.70 627 6.54 719 12.24 1,346


Sub-total civil & building wks 33.87 3,726 9.06 997 42.93 4,722

Railway works on ICD site 5.51 606 5.51 606

Daraluwa Bemmulla loop 1.25 137 1.25 137


Locomotives and wagons 1.48 163 9.25 1,017 10.73 1,180


Trucks & trailers 1.73 190 0.69 76 2.42 266

Forklift trucks 0.25 28 0.25 27 0.50 55

Sub-total equipment capex 11.43 1,258 11.78 1,296 23.22 2,554

Capex sub-total 52.06 5,727 20.84 2,293 72.91 8,020

Transport costs 37.32 4,105

Operations staff 54.67 6,014

Other staff 16.45 1,810

Energy 22.37 2,461

Equipment maintenance 15.01 1,651

Infrastructure maintenance 3.52 387

O&M sub-total 149.34 16,427

Overall total 222.25 24,447


Final Report 159

8.6 Enderamulla ICD site

At the Enderamulla site, expenditure falls naturally into three categories:



associated works;






Deck preparation costs of 2,763 SLR millions include 2,072 SLR millions of costs incurred by

building on marshy land. Within infra buildings, the building of CFS stations will cost 1,452

SLR millions in 2014, 1,665 SLR millions in 2020. By 2034, equipment purchase needs will be

4 locomotives, 131 wagons, 14 RTGs, 30 tractor-trailers and 54 forklift trucks.

Table 8.7 Summary of costs at Enderamulla ICD site





Resettlement 1.71 188 1.71 188


Circulation 0.62 68 0.64 70 1.26 138

Access road 1.04 114 1.04 114

Boundary wall 1.33 146 1.33 146

CFS buildings 14.52 1,597 16.65 1,832 31.17 3,429

Other buildings 12.10 1,331 12.10 1,331

Sub-tot civil & building works 59.31 6,524 21.45 2,360 80.76 8,883


Level crossings & signalling 2.02 222 2.02 222



Rubber tyred gantries 11.16 1,228 11.17 1,229 22.34 2,457

Trucks & trailers 3.11 342 2.07 228 5.18 570

Forklift trucks 0.59 65 0.64 70 1.23 135


Capex sub-total 83.23 9,155 50.88 5,597 134.12 14,753




Energy 48.08 5,289



O&M sub-total 268.55 29,541



Final Report 160

8.7 Peliyagoda/Telangapata ICD site

At the Peliyagoda/Telangapata site, expenditure falls naturally into three categories:



associated works;






There will be high resettlement costs on the Thelangapata side, particularly in 2020. Within

infra buildings, the building of CFS stations will cost 1,452 SLR millions in 2014, 1,665 SLR

millions in 2020. By 2034, equipment purchase needs will be 4 locomotives, 131 wagons, 14

RTGs, 30 tractor-trailers and 54 forklift trucks.

Table 8.8 Summary of costs at Peliyagoda/Telangapata ICD site




Land acquisition 0.00 0 0.00 0 0.00 0

Resettlement 22.81 2,509 68.00 7,480 90.81 9,989


Circulation 0.64 70 0.55 61 1.19 131

Access road 0.67 74 0.67 74

Boundary wall 0.79 87 0.42 46 1.21 133

CFS buildings 14.52 1,597 16.65 1,832 31.17 3,429

Other buildings 12.10 1,331 0.02 2 12.12 1,333

Sub-tot civil & building works 74.37 8,181 89.96 9,896 164.33 18,077

Railway track & buildings 2.88 317 1.45 160 4.33 477

Level crossings & signalling 1.72 189 0.20 22 1.92 211

Sub-total railway works 4.60 506 1.65 182 6.25 688



Trucks & trailers 3.11 342 2.07 228 5.18 570

Forklift trucks 0.59 65 0.64 70 1.23 135


Capex sub-total 97.28 10,702 121.04 13,315 218.33 24,017




Energy 48.08 5,289



O&M sub-total 270.62 29,768



Final Report 161

8.8 Ratmalana ICD site

At the Ratmalana site, expenditure falls naturally into three categories:



associated works;






There will be high resettlement costs in 2014. Within infra buildings, the building of CFS

stations will cost 433 SLR millions in 2014, 496 SLR millions in 2020. By 2034, equipment

purchase needs will be 1 locomotive, 44 wagons, 7 RTGs, 14 tractor-trailers and 17 forklift

trucks.

Table 8.9 Summary of costs at Ratmalana ICD site





Resettlement 14.98 1,648 14.98 1,648

Deck preparation 2.49 274 0.91 100 3.40 374

Circulation 0.18 20 0.21 23 0.39 43

Access road 0.13 14 0.13 14

Boundary wall 0.75 83 0.75 83

CFS buildings 4.32 475 4.96 546 9.28 1,021


Sub-total civil & building wks 27.86 3,065 6.08 669 33.94 3,734


Level crossings & signalling 1.35 149 1.35 149


Locomotives and wagons 1.17 129 5.18 570 6.35 699


Trucks & trailers 1.73 190 2.07 228 3.80 418

Forklift trucks 0.20 22 0.19 21 0.39 43


Capex sub-total 44.71 4,919 23.10 2,541 67.81 7,459




Energy 18.35 2,019



O&M sub-total 129.76 14,274



Final Report 162

8.9 Total project costs

All the projects consist of works at one or two ICD sites, at the railhead by the New Port and,

in the case of any project containing a northern ICD site (all ICD sites except Ratmalana), the

Sedawatta link. All involve major expenditure in 2014 and a second wave of expenditure in

2020. Amounts vary and main features are highlighted for each project.

8.9.1 Veyangoda project

Veyangoda is the most remote northern site, with an anticipated annual throughput of

109,909 TEU per annum in 2015, rising to 318,781 in 2034. The Veyangoda project consists

of Veyangoda ICD + a 3-track New Port railhead + Sedawatta link. The expected expenditure

profile is shown in Figure 8.1. Some aspects of O&M costs increase with throughput. The

ratio of expenditure in 2020 to that in 2014 is less than at other sites because Veyangoda

runs short trains throughout; larger, more expensive locomotives are unnecessary.

Figure 8.1 Annual expenditure profile for the Veyangoda project (SLR millions)

8.9.2 Enderamulla project

Enderamulla is a large northern site located just south of Ragama, with an anticipated

annual throughput of 279,904 TEU per annum in 2015, rising to 811,838 in 2034. The

Enderamulla project consists of Enderamulla ICD + a 3-track New Port railhead + Sedawatta

link. The expected expenditure profile is shown in Figure 8.2. Some aspects of O&M costs

increase with throughput. Expenditure in 2014 includes a high site preparation cost.

Expenditure in 2020 includes the costs of 3 powerful SD-50 locomotives and additional CFS

buildings.

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Final Report 163

Figure 8.2 Annual expenditure profile for the Enderamulla project (SLR millions)

8.9.3 Peliyagoda/Telangapata project

Peliyagoda/Telangapate (PelTel) is a large northern site located across the Kelania river from

Colombo, with an anticipated annual throughput of 279,904 TEU per annum in 2015, rising

to 811,838 in 2034. The PelTel project consists of PelTel ICD + a 3-track New Port railhead +

Sedawatta link. The expected expenditure profile is shown in Figure 8.3. Some aspects of

O&M costs increase with throughput. Expenditure in 2014 includes a high land acquisition

cost. Expenditure in 2020 includes high resettlement and compensation costs.

Figure 8.3 Annual expenditure profile for the PelTel project (SLR millions)

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Final Report 164

8.9.4 Ratmalana project

Ratmalana is the only ICD site south of Colombo, located on the southern railway, with an

anticipated annual throughput of 83,356 TEU per annum in 2015, rising to 241,767 in 2034.

The Ratmalana project consists of Ratmalana ICD + a 3-track New Port railhead. The

expected expenditure profile is shown in Figure 8.4. Some aspects of O&M costs increase

with throughput. Expenditure in 2014 includes high land and resettlement costs.

Expenditure in 2020 includes the costs of one powerful SD-50 locomotives and additional

CFS buildings.

Figure 8.4 Annual expenditure profile for the Ratmalana project (SLR millions)

8.9.5 Veyangoda + Ratmalana project

The Veyangoda + Ratmalana project consists of Veyangoda ICD + Ratmalana ICD + a 4-track

New Port railhead + Sedawatta link. Anticipated annual throughput at the New Port railhead

would be 193,265 TEU per annum in 2015, rising to 560,548 in 2034. The expected

expenditure profile is shown in Figure 8.5. Costs would be less than the sum of Veyangoda

project and Ratmalana project costs because two 3-track railheads in the New Port would

be replaced by one 4-track railhead.

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Final Report 165

Figure 8.5 Annual expenditure profile for Veyangoda + Ratmalana (SLR millions)

8.9.6 Enderamulla + Ratmalana project

The Enderamulla + Ratmalana project consists of Enderamulla ICD + Ratmalana ICD + a 4-

track New Port railhead + Sedawatta link. Anticipated annual throughput at the New Port

railhead would be 363,260 TEU per annum in 2015, rising to 1,053,605 in 2034.The expected

expenditure profile is shown in Figure 8.6. Costs would be less than the sum of Enderamulla

project and Ratmalana project costs because two 3-track railheads in the New Port would

be replaced by one 4-track railhead.

Figure 8.6 Annual expenditure profile for Enderamulla + Ratmalana (SLR millions)

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Final Report 166

8.9.7 Peliyagoda/Telangapata + Ratmalana project

The Peliyagoda/Telangapata (PelTel) + Ratmalana project consists of PelTel ICD + Ratmalana

ICD + a 4-track New Port railhead + Sedawatta link. Anticipated annual throughput at the

New Port railhead would be 363,260 TEU per annum in 2015, rising to 1,053,605 in

2034.The expected expenditure profile is shown in Figure 8.7. Costs would be less than the

sum of Enderamulla project and Ratmalana project costs because two 3-track railheads in

the New Port would be replaced by one 4-track railhead.

Figure 8.7 Annual expenditure profile for PelTel + Ratmalana (SLR millions)

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Final Report 167

9 Forecast gross revenue

9.1 Results

Chapter 3 presented the demand forecast, including TEU throughput at each ICD site, the

proportion of TEU expected to be stuffed / destuffed, and the charges for rail transport

needed to achieve these targets. Table 9.1 summarises the forecast gross revenue. Note

that revenue accrues only at the ICD sites, not at the port railhead. Figures 9.1 to 9.4 show

the forecast gross revenue streams for each site, subdivided into five categories.

For the two ICD projects – Venyangoda + Ratmalana, Enderamulla + Ratmalana, PelTel +

Ratmalama – the revenue is the sum of the revenues at the two individual ICD sites.

Table 9.1 Forecast gross revenue (Rs Million) between 2015 and 2034

Revenue item Veyangoda Enderamulla Peliyagoda /

Telangapata

Ratmalana

Transport charges 28,770 51,057 47,739 13,195

Stuffing & destuffing 17,827 45,400 44,946 13,520

Container storage 1,764 4,493 4,493 1,338

Warehousing & inventory 1,470 3,744 3,744 1,115

Office rentals 2,341 5,962 5,962 1,775

Total 52,172 110,657 106,884 30,944

Figure 9.1 Forecast gross revenue at Veyangoda ICD site

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Final Report 168

Figure 9.2 Forecast gross revenue at Enderamulla ICD site

Figure 9.3 Forecast gross revenue at PelTel ICD site

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Final Report 169

Figure 9.4 Forecast gross revenue at Ratmalana ICD site

9.2 Key determinants

As indicated, the principal revenue earners would be transport and cranage charges and

charges for stuffing and destuffing, accounting for more than 85% of all revenue. The key

unit charges and annual revenues are indicated in Table 9.2 below.

Table 9.2 Calculation of transport & cranage revenue and stuffing/destuffing revenue

Item Unit Veyangoda Enderamulla Peliyagoda /

Telangapata

Ratmalana

Year 2015

Annual TEU throughput TEU 109,909 279,904 279,904 83,356

Transport & cranage

charge/trip

Rs / TEU 7,175 5,000 4,675 4,339

Annual transport &

cranage revenue

Rs million 789 1,400 1,309 362

CFS throughput TEU 36,636 93,301 92,368 17,785

Stuffing/destuffing charge Rs / TEU 13,338 13,338 13,338 13,338

Annual stuffing/destuffing

revenue

Rs million 489 1,244 1,232 371

Year 2034

Annual TEU throughput TEU 318,781 811,838 811,838 241,767

Transport & cranage

charge/trip

Rs / TEU 7,175 5,000 4,675 4,339

Annual transport &

cranage revenue

Rs million 2,287 4,059 3,795 1,049

CFS throughput TEU 106,260 270,613 267,906 80,589

Stuffing/destuffing charge Rs / TEU 13,338 13,338 13,338 13,338

Annual stuffing/destuffing

revenue

Rs million 1,417 3,609 3,573 1,075

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Final Report 170

The forecast of annual revenue is crucially dependent on the two unit charge rates – for

transport and cranage and for stuffing / destuffing. Derivation of the transport and cranage

charges to/from each ICD has been presented in Chapter 4.

The Rs 13,338 per TEU is a composite. Prices for stuffing & destuffing 20ft, 40 ft and 45 ft

containers were obtained from 3 sources, SLPA and two commercial sources. The middle of

the 3 data sets, those of a leading consolidator, were used. These were Rs 16,500 for 20 ft

containers, Rs 11,000 per TEU for 40ft and 45 ft containers. The numbers of laden 20ft, 40 ft

and 45 ft passing through Colombo Port in 2010 were used as the basis for forming the

composite rate.


Final Report 171

10 Applicable forms of Procurement Contracts

10.1 Responsibility for Procurement

The responsibility for the implementation of the project, and therefore for the payment of

goods, works, and services under this Project, rests solely with the borrower. ADB, for its

part, is required by its Charter to ensure that funds are paid from ADB financing only as

expenditures are incurred. Disbursements are made only at the borrower’s request.

Supporting evidence that the funds are used in accordance with the financing agreement

and/or the procurement plan shall be submitted with the borrower’s withdrawal

application.

Payment may be made (a) to reimburse the borrower for payment(s) already made from its

own resources, (b) directly to a third party (usually to a supplier or contractor), or (c) to a

commercial bank for expenditures against a Commitment Letter covering a commercial

bank’s letter of credit. The borrower is legally responsible for the procurement. It invites,

receives, and evaluates bids, and awards the contract. The contract is between the

borrower and the supplier or contractor. ADB is not a party to the contract.

ADB’s Role

ADB reviews the procurement procedures, documents, bid evaluations, award

recommendations, and the contract to ensure that the process is carried out in accordance

with agreed procedures, as required in the financing agreement. In the case of major

contracts, the documents are reviewed by ADB prior to their issue.

ADB, for its part, has the obligation to ensure that the proceeds of its financing are used

with due attention to considerations of economy and efficiency.

If, at any time in the procurement process (even after the award of contract), ADB

concludes that the agreed procedures were not followed in any material respect, ADB may

declare misprocurement. However, if a borrower has awarded a contract after obtaining

ADB’s “no objection,” ADB will declare misprocurement only if the “no objection” was

issued on the basis of incomplete, inaccurate, or misleading information furnished by the

borrower. Furthermore, if ADB determines that corrupt or fraudulent practices were

engaged in by representatives of the borrower or of the bidder, ADB may impose applicable

sanctions.

Bidder’s Role

Once a bidder receives the prequalification or bidding document, the bidder should study

the documents carefully to decide if it can meet the technical, commercial, and contractual

conditions, and if so, proceed to prepare its bid. The bidder should then critically review the

documents to see if there is any ambiguity, omission, or internal contradiction, or any

feature of specifications or other conditions which are unclear or appear discriminatory or

restrictive; if so, it should seek clarification from the borrower, in writing, within the time

period specified in the bidding documents for seeking clarifications.


Final Report 172

The criteria and methodology for selection of the successful bidder are outlined in the

bidding documents, generally under Instructions to Bidders and Specifications. If these are

not clear, clarification should be similarly sought from the borrower.

ADB's Procurement Guidelines require that borrowers must use the appropriate standard

procurement documents issued by ADB for International Competitive Bidding.

ADB's standard procurement documents for the procurement of goods, and for the

procurement of works (large contracts) are based on Master Procurement Documents

prepared jointly by multilateral development banks and other public international financing

institutions.

Roughton International has considered and will recommend the use of these documents for

this Project, an important feature of the documents is that they can be used with minimum

changes, as they do not contain explanations, footnotes or examples.

The rights and obligations of the borrower and the providers of goods and works for the

project are governed by the bidding documents, and by the contracts signed by the

borrower with the providers of goods and works.

On a large project, there may be a number of different contracts and delivery models.

Roughton International wish to emphasise that the ADB will review the borrower’s

procurement procedures, documents, bid evaluations, award recommendations, and

contracts to ensure that the procurement process is carried out in accordance with the

agreed procedures. The procurement plan approved by ADB shall specify the extent to

which these review procedures shall apply in respect of the different categories of goods

and works to be financed, in whole or in part by ADB.

10.2 Selecting a Delivery Model

10.2.1 The Choice

Determining the procurement method is a critical step in the project delivery process. It is

important to consider which method will best balance the control of project cost and risk

against achieving project objectives and outcomes. The key issue is which form of project

delivery provides the best value for money in meeting the client's service objectives.

The vast majority of investment in Sri Lankan public services has been, and will continue to

be, procured through traditional means. However, other innovative approaches, PPPs

(Public Private Partnerships)8 in particular, must be considered to be used to deliver some

of the country's most complex and significant public sector infrastructure projects.

Major infrastructure projects require detailed and careful planning and it is important that a

robust, value for money assessment is made when choosing the procurement option.

8

Refer Chapters 11 & 12 of this Report


Final Report 173

Open competition is the basis for efficient public procurement. Borrowers need to select the

most appropriate method for the specific procurement. In most cases, international

competitive bidding (ICB), properly administered, and with the allowance for preferences

for domestically manufactured goods and, where appropriate, for domestic contractors for

works under prescribed conditions is the most appropriate method. In most cases,

therefore, ADB requires its borrowers to obtain goods, works and services through ICB open

to eligible suppliers and contractors.

10.2.2 Procurement Plan

As part of the preparation of the project the borrower must prepare and, before loan

negotiations, furnish to ADB for its approval, a Procurement Plan acceptable to ADB setting

forth: (a) the particular contracts for the goods, works, and/or services required to carry out

the project during the initial period of at least 18 months; (b) the proposed methods for

procurement of such contracts that are permitted under the financing agreement, and (c)

the related ADB review procedures. The borrower must update the Procurement Plan

annually or as needed throughout the duration of the project. The borrower must

implement the Procurement Plan in the manner in which it has been approved by ADB.

The Procurement Plan for this Project can be found later in this Chapter of this report.

10.2.3 International Competitive Bidding

The objective of International Competitive Bidding (ICB) is to provide all eligible prospective

bidders with timely and adequate notification of a borrower’s requirements and an equal

opportunity to bid for the required goods and works.

The bidding documents clearly state the type of contract to be entered into and contain the

proposed contract provisions appropriate therefore. The most common types of contracts

provide for payments on the basis of a lump sum or unit prices, or combinations thereof.

The size and scope of individual contracts depend on the magnitude, nature, and location of

the project. For projects requiring a variety of goods and works, separate contracts generally

will be awarded for the supply and/or installation of different items of equipment and plant

and for the works.

On this Project, International Competitive Bidding (ICB) procedures will be used for works

contracts valued above $3 million and goods valued above $500,000, National competitive

bidding for works and goods beneath that stated for ICB. Shopping will be used for contracts

for procurement of works and equipment worth less than $100,000.

When and if any National Competitive Bidding (NCB) is proposed, before starting any

procurement, ADB and the Government will review the public procurement laws of the

central and state governments to ensure consistency with ADB’s Procurement Guidelines.


Final Report 174

Two-Stage Bidding

For certain packages of this Project, for example, for the construction of the Inland

Container Depots, Roughton International are recommending two-envelope bidding

procedures. With these procedures, bids with separate envelopes for technical and financial

proposals are submitted simultaneously. Such procedures are also recommended for the

procurement of goods. The borrower uses the two-envelope procedure with single-stage

bidding. In this procedure, the technical proposal is opened first and reviewed to determine

responsiveness to the bidding documents. Only the financial proposals of bidders with

responsive technical proposals are opened for evaluation and comparison. The financial

proposals of bidders whose technical proposals are not responsive shall be returned

unopened. The use of these procedures must be agreed upon by ADB and the borrower.

10.2.4 National Competitive Bidding

General

National competitive bidding shall conform to the provisions for "National Competitive

Bidding" as prescribed in the Procurement Guidelines 2006 for Goods and Works issued in

January 2006 by the National Procurement Agency, and the specific procedures prescribed

by the Procurement Manual issued on March 2006, with the clarifications and modifications

described in the following paragraphs required for compliance with the provisions of the

ADB Procurement Guidelines.

Registration

(i) Bidding shall not be restricted to pre-registered firms under the national

registration system of the Institute for Construction, Training and Development

(ICTAD), and such registration shall not be a condition for the submission of bids

in the bidding process.

(ii) Where registration is required prior to award of contract, bidders: (i) shall be

allowed a reasonable time to complete the ICTAD registration process; and (ii)

shall not be denied registration for reasons unrelated to their capability and

resources to successfully perform the contract, which shall be verified through

post-qualification.

(iii) National sanction lists or blacklists may be applied only with prior approval of

ADB.

10.2.5 Notification and Advertising

Timely notification of bidding opportunities is essential in competitive bidding. For this

Project the borrower will be required to prepare and submit to ADB a draft general

procurement notice. ADB will arrange for its publication. The notice shall contain

information concerning the borrower (or prospective borrower), amount and purpose of the

loan, scope of procurement under ICB, and the name, telephone number, e-mail address (or

fax number) and address of the borrower’s agency responsible for procurement and the


Final Report 175

address of the website where specific procurement notices will be posted. If known, the

scheduled date for availability of prequalification or bidding documents should be indicated.

The related bidding documents shall not be released to the public earlier than the date of

publication of the general procurement notice.

10.2.6 Bidding Documents

General

Bidding documents have been prepared by Roughton International, these documents state

that payments from the proceeds of ADB loans or grants will be limited to goods produced

in, and services supplied by, member countries of ADB.

These documents provide all the information necessary for bidders to prepare responsive

bids. While the detail and complexity of these documents vary depending upon the kind of

goods to be procured and the size of the contract, they include the following: invitation for

bids; instructions to bidders; bidding forms; conditions of contract, both general and special;

technical specifications; bills of quantities and drawings; schedule of prices; and necessary

appendixes, proforma bid securities and performance securities.

For this Project, sample documents are separately bound.

Roughton International have used the appropriate Standard Bidding Documents (SBDs)

issued by ADB with minimum changes, acceptable to ADB, as necessary to address the

Project specific conditions. Any changes to the SBDs shall be introduced only through bid or

contract data sheets, or through special conditions of contract, and not by introducing

changes in the standard wording of ADB’s SBDs.

Validity of Bids

Bidders shall be required to submit bids valid for the period specified in the bidding

documents. The period is to be sufficient to enable the borrower to complete the

comparison and evaluation of bids, review the recommendation of award with ADB (if prior

review is required), and obtain all the necessary approvals so that the contract can be

awarded within that period.

Clarity of Bidding Documents

The Bidding documents have been so worded as to permit and encourage international

competition, and they set forth clearly and precisely the work to be carried out, the location

of the work, the goods to be supplied, the place of delivery or installation, the schedule for

delivery or completion, minimum performance requirements, and the warranty and

maintenance requirements, as well as any other pertinent terms and conditions. In addition,

the bidding documents define the tests, standards, and methods that will be employed to

judge the conformity of equipment as delivered, or works as performed, with the

specifications.


Final Report 176

Pricing

Bids for goods are invited on the basis of CIF, or CIP for all goods offered from abroad.

Where inland transportation, installation, commissioning or other similar services are

required to be performed by the bidder, as in the case of “supply and installation” contracts,

the bidder shall be required to provide a separate quotation for these services.

The bidder shall be required to quote the price of the installed plant at site, including all

costs for supply of equipment, marine and local transportation and insurance, installation

and commissioning, as well as associated works and all other services included in the scope

of contract such as design, maintenance and operation. Unless otherwise specified in the

bidding documents, the price shall include all duties, taxes, and other levies.

Terms and Methods of Payment

Payment terms are to be in accordance with the international commercial practices

applicable to the specific goods and works, and shall be made in accordance with the

procedures provided in ADB’s Loan Disbursement Handbook.

(i) Contracts for supply of goods shall provide for full payment on the delivery

and inspection, if so required, of the contracted goods except for contracts

involving installation and commissioning, in which case a portion of the

payment may be made after the supplier has complied with all its obligations

under the contract.

(ii) Contracts for works shall provide in appropriate cases for mobilization

advances, advances on contractor’s equipment and materials, regular

progress payments, and reasonable retention amounts to be released upon

compliance with the contractor’s obligations under contract.

Conditions of Contract

The contract documents clearly define the scope of work to be performed, the goods to be

supplied, the rights and obligations of the borrower and of the supplier or contractor, and

the functions and authority of the engineer, in the supervision and administration of the

contract. In addition to the general conditions of contract, special conditions particular to

the specific goods or works to be procured and the location of the project have been

included. The conditions of contract provide a balanced allocation of risks and liabilities.

General Conditions of Contract should always be used un-amended; however each

procurement exercise is a unique one and will require specific terms and conditions that will

only apply to one contract. There is therefore a clear need for a method of introducing

specific clauses into the documents.

The most effective way of doing this is through the use of Special Conditions of Contract

that are used to supplement those in the general conditions of contract, taking precedence

over the general conditions in the event of a conflict between the two.


Final Report 177

A set of generic special conditions have been employed by Roughton International, who has

selected from the generic conditions those that apply to the particular procurement

exercise and amended them to suit.

Specifications

Specifications for works may be based on specifications recommended by ICTAD to the

extent possible, but ICTAD approval shall not be required for adoption of specifications in a

particular procurement activity.

The “Technical Specifications” is the section of the Bidding Document that communicates to

the prospective bidders the Project’s exact requirements with regard to each item to be

supplied or works to be completed. The Technical Specifications section should include a full

commentary of the intended use of the items as well as a list of all the required attributes,

variables and parameters.

A Technical Specification can simply be described as one or more of the following:

• A statement of attributes of a product, a service or a process;

• The communication of a requirement;

• A means which enables the “like-for-like” comparison of bids;

• A description of the required performance.

When standards are used, as they will need to be especially in the case of works contracts,

the specifications must present a clear statement of the required standards of

workmanship, materials, and performance of the goods and services to be procured.

References to Brand and Trade Names

References to brand names, catalogue numbers or similar classifications have been avoided

whenever possible as they potentially limit competition. When there was no other

alternative to clarify an otherwise incomplete specification, the words "or equivalent" have

been added after such reference.

When the specifications refer to trade or brand names the bidding document and

specification make it clear that the purchaser or employer will accept items that have similar

characteristics and which provide performance at least substantially equivalent to those

specified.

All drawings shall be consistent with the text of the specifications, and an order of

precedence between the two shall be specified.


Final Report 178

Preferences

No preference of any kind shall be given to domestic bidders or for domestically

manufactured goods.

Foreign suppliers and contractors from ADB member countries shall be allowed to bid,

without registration, licensing, and other government authorizations, leaving compliance

with these requirements for after award and before signing of contract.

Member Country Restrictions

Bidders must be nationals of member countries of ADB, and offered goods, works and

services must be produced in and supplied from member countries of ADB.

10.2.7 Bid Opening, Evaluation, and Award of Contract

Time for Preparation of Bids

The time allowed for the preparation and submission of bids has been determined with due

consideration of the particular circumstances of the project and the magnitude and

complexity of the contract. Generally, not less than six weeks from the date of the invitation

to bid or the date of availability of bidding documents, whichever is later, shall be allowed

for ICB. Where large works or complex items of equipment are involved, a longer period has

been allowed.

Bid Opening Procedures

The time for the bid opening is the same as for the deadline for receipt of bids, and has

been announced, together with the place for bid opening, in the invitation to bid. The

borrower will open all bids at the stipulated time and place. Bids shall be opened in public;

bidders or their representatives shall be allowed to be present.

Evaluation and Comparison of Bids

The purpose of bid evaluation is to determine the cost to the borrower of each bid in a

manner that permits a comparison on the basis of their evaluated cost. The bid with the

lowest evaluated cost, but not necessarily the lowest submitted price, shall be selected for

award.

The bidding documents also specify the relevant factors, in addition to price, to be

considered in bid evaluation, and the manner in which they will be applied for the purpose

of determining the lowest evaluated bid. For goods and equipment, other factors may be

taken into consideration including, among others, payment schedule, delivery time,

operating costs, efficiency and compatibility of the equipment, availability of service and

spare parts, and related training, safety, and environmental benefits.


Final Report 179

Award of Contract

The borrower will award the contract, within the period of the validity of bids, to the bidder

who meets the appropriate standards of capability and resources and whose bid has been

determined (i) to be substantially responsive to the bidding documents and (ii) to offer the

lowest evaluated cost.

10.3 Procurement under BOO/BOT, Concessions etc.

For more detail on BOO/BOT, concessions and similar private sector arrangements, refer to

Chapter 11 of this report.

In the case of loans made by ADB to the private sector without government guarantee, ADB

does not insist on ICB procedures, but will request borrowers to satisfy ADB that

procurement procedures have been applied in a transparent manner, preferably through

competitive bidding procedures, and that the goods and works procured are from eligible

member countries and are suitable for the project. Where ADB is participating in financing a

BOO/BOT or similar type of project, either of the following procurement procedures shall be

used:

(a) The project sponsor for a BOO/BOT or similar type of project shall be selected

in a transparent manner, preferably through competitive bidding procedures

acceptable to ADB, which may include several stages in order to arrive at the

optimal combination of criteria for the purpose of establishing the most

economic and efficient proposal, such as the performance specifications of

the facility offered, the cost charged to the user or purchaser, and the period

of the facility depreciation. The project sponsor selected in this manner shall

then be free to procure the goods and works required for the facility from

eligible member countries, using suitable procedures.

Or,

(b) If the project sponsor has not been selected in the manner set forth as above,

the goods and works required for the facility and to be financed by ADB, shall

be procured from eligible member countries in a transparent manner,

through competitive bidding procedures acceptable to ADB.

10.4 Packaging of Procurement and Bidding Strategy

Definitions

A procurement lot is an item or number of similar items that are collected into one lot for

the purpose of letting one single contract

A procurement package is a number of lots – that again will be similar grouped together to

be treated as one procurement exercise (included in the same bidding document).


Final Report 180

Lots are to be packaged so that they attract the maximum of competition. Desegregation

into small lots to avoid procurement process and review thresholds is strictly prohibited.

Also artificially consolidating of lots to avoid delegation to decentralized units is prohibited.

Roughton International has utilised the Asian Development Bank Procurement Guidelines to

complete set of bidding documents for use on this Multimodal Transport Project. These

documents form annexes to this Report and their use is mandatory. They are not in a final

form at this stage because the designs produced to date are preliminary designs.

The following documents form the Bidding Documents for the Project:

10.4.1 Works – Large Contracts for the Procurement of Works

These use the Conditions of Contract for Construction for Building and Engineering Works

Designed by the Employer, Multilateral Development Bank Harmonized Edition 2010,

prepared by the Fédération Internationale des Ingénieurs-Conseils, or FIDIC.

10.4.2 Using Single-Stage: Two-Envelopes Bidding Procedure.

This document requires Bidders to submit two sealed envelopes simultaneously, one

containing the Technical Proposal and the other the Price Proposal, enclosed together in an

outer single envelope. This procedure allows the Employer to evaluate the Technical

Proposals without reference to price. Bids of Bidders who do not conform to the specified

requirements may be rejected as deficient Bids.

Roughton International has prepared such documents, seperately bound, for:

(i) Single Inland Container Depot site, consisting of Enderamulla plus Sedawatta plus

Port Railhead (3 track version), Civil and Building Works.

(ii) Single Inland Container Depot site, consisting of Enderamulla plus Sedawatta plus

Port Railhead (3 track version), Railway Infrastructure Works.

(iii) Double Inland Container Depot site, consisting of Enderamulla, Ratmalana plus

Sedawatta plus Port Railhead (4 track version), Civil and Building Works.

(iv) Double Inland Container Depot site, consisting of Enderamulla, Ratmalana plus

Sedawatta plus Port Railhead (4 track version), Railway Infrastructure Works.

Similar documents (apart from Scope Description, Bills of Quantities and Drawings), can be

expeditiously prepared for other ICD sites, if and when selected.

10.4.3 Works – Small Contracts for the Procurement of Works.

These bidding documents adopt a post qualification procedure that requires bidders to

submit the information pertaining to their qualification together with their technical bids.

These documents include a model form of conditions of contract which has been developed

on the basis of considerable international experience in the drafting and management of


Final Report 181

contracts, bearing in mind a trend in the construction industry towards a simpler, more

straightforward language.

10.4.4 Goods - Using Single-Stage: One-Envelope Bidding Procedure

This is the main bidding procedure used for most of the procurement financed by ADB.

Roughton International has prepared such documents, separately bound, for:

(i) All lifting equipment – RTGs, reachstackers, fork lift trucks and some containers.

(ii) Locomotives and Wagons

10.4.5 Consultant Services

All consultants will be recruited according to ADB’s Guidelines on the Use of Consultants.

Consulting services are distinct from both goods and works in that they present different

challenges when we try to quantify them. Instead of using a specification “Terms of

Reference” are used. Terms of Reference are broken down into six standard parts:

(i) Background,

(ii) Objectives,

(iii) Scope of the Services,

(iv) Training (when appropriate),

(v) Outputs and Time Schedule, and

(vi) Data, Local Services, Personnel, and Facilities to be provided by the Client.

The Terms of Reference for all consulting services for this Project are detailed in a

separate document.


Final Report 182

INDICATIVE CONTRACT PACKAGES AND PROCUREMENT PLAN

1. Program Information

Country Sri Lanka

Name of Borrower Democratic Socialist Republic of Sri Lanka

Project Name Multimodal Transport Project

Loan Reference Related to TA 7600 SRI (RFP syle)

Date of Effectiveness To be determined

ADB Financing Amount To be determined

Executing Agency Ministry of Transport

Implementing Agency Sri Lanka Ports Authority

Approval Date of Original Procurement Plan N/A

Approval of Most Recent Procurement Plan N/A

Publication of Local Advertisement April 2012

Period Covered by this Plan April 2012 to September 2013

2. Program Thresholds for Goods and Related Services, Works and Supply, and

Installation

Procurement Method Threshold

International Competitive Bidding (ICB) Works Equal, or above, $3 million

ICB Goods Above $500,000

National Competitive Bidding (NCB) Works Beneath that stated for ICB, Works

3. Program Thresholds for Consultant Services

Procurement Method Threshold

Quality- and Cost-Based Selection Above $200,000

Consultants Qualifications Selection (CQS) Less than or equal to $200,000

4. ADB Prior or Post Review

Procurement Method Prior or Post

ICB Works Prior

ICB Goods Prior

NCB Works and Goods Post

Quality- and Cost-Based Selection Prior

Consultants Qualifications Selection (CQS) Prior


Final Report 183

5. Contract Packages in Excess of $100,000 Goods, Work and Consultancy Services

Package

No.

Contract Description Estimated

Cost ($m)

Procurement

Method

Expected Date

of

Advertisement

Prior

Review

SLICDA1a

Endermulla +

Sedawatta + Port

Railhead (3 Track

version), Stage 1, Civil

and Building Works

58.88

International

Competitive

Bidding (ICB)

Works

Q2/2012

SLICDA1b

Endermulla +

Sedawatta + Port

Railhead (3 Track

version), Stage 1,

Railway Construction

22.88

International

Competitive

Bidding (ICB)

Works

Q2/2012

SLICDA2a

Endermulla +

Ratmalana +

Sedawatta + Port

Railhead (4 Track

version), Stage 1, Civil

and Building Works

70.96

International

Competitive

Bidding (ICB)

Works

Q2/2012

SLICDA2b

Endermulla +

Ratmalana +

Sedawatta + Port

Railhead (4 Track

version), Stage 1,

Railway Construction

28.56

International

Competitive

Bidding (ICB)

Works

Q2/2012

SLICDA1rw Provision of Railway

Wagons 3.72

International

Competitive

Bidding (ICB)

Goods

Q2/2012

SLICDA1rtg

Provision of Rubber

Tyred Gantry (RTG)

Cranes

33.5

International

Competitive

Bidding (ICB)

Goods

Q2/2012

SLICDA1tt Provision of Tractor-

Trailers 1.00

International

Competitive

Bidding (ICB)

Goods

Q2/2012

SLICDA1f Provision of Forklifts 1.70

International

Competitive

Bidding (ICB)

Goods

Q2/2012


Final Report 184

6. Consulting Services Contracts Estimated to Cost More Than $100,000

No. Contract Description Estimated

Cost ($m)

Procurement

Method

Expected Date of

Advertisement

Prior

Review

1

Consulting services

for construction

supervision and

6.0

Quality- and Cost-

Based Selection Q1/2012

7. Goods and Works Contracts Estimated to Cost Less than $1,000,000 and Consulting

Services Contracts Less than $100,000


Final Report 185

Table 10.1 Sample Procurement Plan, Procurement of Goods and Works by ICB/NCB9

Project name:___________________________ As At _____________________[insert date]

Contract No.____________________________ Prior or Post Review______________

ADB Loan/Credit___________________ Method of Selection ICB/NCB

Description of Goods or Works_____________ Consultants Name____________ Amount______

Activity Time Planned Planned Actual Actual

Period Start Finish Start Finish

Int./Nat

Preparation

Specification and cost estimate prepared 3w/1w

Bidding Document drafted 3w/1w

Bidding Document Approved by Committee 1w

Bidding Document Submitted to Bank 1w

NOL Issued 1d

Pre

Qu

al

(wh

en

ap

pli

cab

le) Advertisement issued 1d/NA

Invitation to pre-qualification period 6w/NA

Applications received 1d/NA

Application evaluated 2w/NA

Pre-qualification evaluations sent to Bank 1d/NA

Bid

din

g

Per

iod

Specific Procurement Notice Issued 1d

Bidding Period 6w/4w

Bid Closing Date 1d

Bid Opening Minutes Distributed 1d

Ev

alu

ati

on Evaluation of Bids 4w/2w

Procurement Committee Review 2w/1w

Evaluation Sent to Bank 1w

NOL Issued 1d

Contract Formation

Notification of Award Issued 1d

Performance security received 3w

Contract Signed 1d

Letter of Credit Established 2w/NA

Special Commitment Applied for 2w/NA

Special Commitment Issued 1d/NA

Contract Effective 1d

Contract

Implementation

Delivery Period

Goods delivered/Taking Over certificate Issued

Final Acceptance (goods) 2w

Start of Warranty/Latent Defects

Expiry of Warrant/Latent Defects

9

Those activities shown in italics are only applicable to prior review and should not be considered when the contract is

subject to post review. The above standard time periods are applicable to international procurement. When procurement

is undertaken through NCB the second period is to be used. Pre qualification will only be used in exceptional cases and with

the Bank’s no objection


Final Report 186

Table 10.2 Sample Procurement Plan, Procurement Services10

Project name:___________________________ As At _____________________[insert date]

Contract No.____________________________ Prior or Post Review______________

ADB Loan/Credit___________________ Method of Selection QCBS/QBS/LCS/FBS/CQS/SSS

Description of Goods or Works______________ Consultants Name____________ Amount____________

Activity Time Planned Planned Actual Actual

Period Start Finish Start Finish

Int./Nat

EOI/ToR

ToR and Request for EOIs sent to Bank 1d

for NOL

Bank’s NOL 1w

Request for EOI issued 1w

EOI Closing date 6w/4w

Evaluation of EOI and drafting of RFP 3w/2w

RF

P

Shortlist and RFP sent to Bank 1d

Bank’s NOL 1w

RFP Issued 1d

Proposals Received 6w/4w

Tec

hn

ica

l

Ev

alu

ati

on

Technical Evaluation of Proposals 4w/2w

Technical Evaluation sent to Bank 1d

Bank’s NOL 1w

Firms Invited to Financial Opening 2w/1w

Financial

Evaluation

Financial proposal Publicly Opened 1d

Financial Evaluation 1w

Financial Evaluation sent to Bank 1d

Bank’s NOL 1w

Recommended Firm invited to 3w/1w

Negotiate

Contract Formation

Contract negotiations 1w

Draft Contract Approved 1w

Draft Sent to Bank 1d

Bank’s NOL 1w

Contract Signature and advance 3w/1w

payment security requested

Advance Payment Security Received 1d

Advance Payment Made 3w

Consultants Mobilize 3w/1w

Contract

Implementation

Inception Report Issued

Progress Report #1

Progress Report #2

Progress Report #3

Draft Final Report Issued

Final Report Accepted

Final Payment Made

10

Those activities shown in italics are only applicable to prior review and should not be considered when the contract is

subject to post review. The above standard time periods are applicable to international procurement. When procurement

is undertaken only with national consulting firms the recommended time period is shown as the second period.


Final Report 187

11 Procurement Strategy under PPP and Public Finance

11.1 Introduction

In Chapter 10, we identified procurement methods and contracts to obtain the supply of

particular packages of works and equipment – the ‘what and how?’ of procurement. In

Chapters 11 and 12, we look at the more strategic aspects, namely the types of institution

doing the procurement and the funding methods available – the ‘who and why’ of

procurement.

11.1.1 Funding Options

This chapter and the next chapter provide a detailed analysis of the proposed PPP options

which are viable for the implementation of ICD services for Colombo. These include the

study of procurement approaches under different funding options with traditional public

funding and Public and Private Partnership (PPP), equity structure analysis, and the

recommended investment profile, geared to risk identification and mitigation.

This study is to identify a financially viable and sustainable implementation option for the Sri

Lanka Government on the ICD project development. This option will involve less project

investment from the Government, with a practical risk sharing/management scheme

between the private and public sectors.

11.1.2 Project Cases

Four potential sites have been selected for the possible construction of Inland container

depots (ICDs) to serve Colombo port.

Based on the projection of container throughput volumes, revenues and cost estimates of

each of the proposed ICDs, and railway system and rolling stock analysis as discussed in the

previous chapters, this chapter and the next one discuss the procurement options and

financial assessment of each one.

The selected ICD sites are located at:

• Veyangoda

• Enderamulla

• Peliyagoda/Telangapata (PelTel)

• Ratmalana

As discussed in earlier chapters, each of the above sites has been considered in isolation. In

addition, each of the first three has been considered in conjunction with the fourth site at

Ratmalana, making a total of seven potential projects. Implementation of each project

requires additional investment as shown below.


Final Report 188

Table 11.1 ICD Sites and Facility Requirements

Case

No

ICD description

Port

Rail

head

Port

Rail

head

Seda-

watta

Veyan-

goda

Endera-

mulla Pel Tel

Ratma-

lana

4 rail

tracks

at port

3 rail

tracks

at port

New rail

link ICD ICD ICD ICD

1 Veyangoda

√ √ √

2 Enderamulla

√ √

√

3

Peliyagoda/Tel

angapata

(PelTel)

√ √

√

4 Ratmalana

√

√

5 Veyangoda +

Ratmalana √

√ √

√

6 Enderamulla +

Ratmalana √

√

√

√

7 PelTel +

Ratmalana √

√

√ √

11.2 Procurement Approach from Public Finance to Private Finance

Public Private Partnership (PPP) has been widely adopted by both developed countries and

developing countries as an instrument to enable government to utilise private investment

for public infrastructure project development. The traditional project procurement

approach with the public sector taking the majority of risks (as shown in the figure below),

including cost overruns and delays, is not an efficient way to procure infrastructure projects.

Providing ICDs in Colombo under a PPP approach presents a case where income directly

related to usage can be derived from users. Using the PPP procurement method to

construct the ICD service area and procure rail rolling stock is therefore considered as a

financing option which will enable the Sri Lanka Government to retain development funds

available for use in other areas less attractive to private investment.

TA 7600 SRI – Multimodal Tra

Final Report

Figure 11.1 Overview of Procurement Approaches

Considering the last two scenarios above, the ICD projects can be procured either:

• under a DBFO (Design

having ownership of the ICD and rail facilities and a Special Purpose Vehicle (SPV)

under the procurement to lease the asset back for operation and maintenance; or

• under a BOOT (Build

during a concession period, and transferring the asset back to the government at the

end of the concession period.

11.3 Evaluation Approach of

The evaluation approach comprises five main study components including container

throughput, cost, asset, finance and risk analysis. The throughput projection and cost

estimates have been completed in the previous chapters. The methodology for evaluation

of the ICD projects is illustrated in the flow chart given below:

Multimodal Transport Project

189

Overview of Procurement Approaches

two scenarios above, the ICD projects can be procured either:

under a DBFO (Design-Build-Finance-Operate) form of contrac



under a BOOT (Build-Own-Operate-Transfer) with the SPV having full owner


end of the concession period.

Evaluation Approach of Public Finance and PPP Options




of the ICD projects is illustrated in the flow chart given below:

Sri Lanka

two scenarios above, the ICD projects can be procured either:

Operate) form of contract, with the public



Transfer) with the SPV having full ownership


Options





Final Report 190

Figure 11.2 Evaluation Process Chart

11.4 Identification of Procurement Options

It is necessary that the financial viability of the project is assessed and meets various

requirements including sustainable development, environmental, re-settlement and social

assessment aspects. Additionally, it is necessary to establish an implementable equity

structure, and subsequently a concession agreement for construction, operations and

maintenance.

As part of an important exercise, the Consultant held a number of meetings with public

sector and private sector representatives in Colombo, including the Ministry of Finance

(MoF), the Ministry of Transport (MoT), Sri Lanka Ports Authority (SLPA), Sri Lanka Railways

(SLR), Asian Development Bank (ADB), HSBC, and Sri Lanka Commercial Bank. It was noticed

that the financial institutions in Sri Lanka have a limitation on providing loans in a hard

currency to a project in Sri Lanka, of around US$ 20m from each loan provider. The opinions

from the public and private sectors on ICD investment and procurement are valuable,

assisting the Consultant to identify the most viable PPP procurement strategy for this

project.

For the ICD project, typical procurement structures for public finance and private finance, as

shown in the figures below, are used for the project evaluation through financial analysis:

Risk Analysis

Operational

Assumptions

CAPEX

• Facility maintenance

• Expansion developmental

• Asset management & lifecycle

OPEX

• Staff costs (fixed and variable)

• Railway transport charge

• Material and maintenance (fixed

and variable)

PPP Model

Scenario Management

Key Outputs:

Annual Revenues

Annual Costs

CAPEX

Sensitivities/ScenariosBenchmarking

Analysis

Financial

Assumptions

Financial Viability

Report

Economic

AssumptionsContainer Transhipment

Evaluation

Key Outputs:

ContainerVolume

Key year revenue

Year for Expansion

Container Volume

survey

Financial Model


Final Report 191

• Public finance: SLPA and SLR to obtain public funds and an ADB loan for project

finance;

• PPP basic option: Joint Venture (JV) between SLPA, SLR and private investors with

project financing; and

• PPP alternative option: JV between SLPA and private investors with project financing.

In a PPP arrangement, a private investment company will partner the government’s owned

enterprise or its agency, as a consortium. Formation of a project company (Special Purpose

Vehicle, SPV) to execute the PPP project is essential. The difference between the PPP

options is the number of public enterprises/authorities involved and the procurement

approaches to railway services. This will depend on the capability of Sri Lankan Railways to

invest in this project or provide land to ICD projects.

Figure 11.3 Public Finance Model

Figure 11.4 PPP Basic Option

(100-X)%X%

Railway Corporation

Project Company

EPCContractor

RailwayOperator

ADB

SLPA

ICDOperator

(Outsourcing/

subsidy)

(100-X-Y)%Y%

SLPARailway

Corporation

SPV

EPCContractor

RailwayOperator

Lending Banks

PrivateInvestor

X%

ICDOperator


Final Report 192

Figure 11.5 PPP Alternative Option

The ICD projects generate different levels of operations revenue. Financial analysis is an

effective tool to identify the options which are the most financially viable for PPP

implementation. A typical equity structure consists of private finance, supported by

government grants or loans to fill the funding gap of a project. A financial analysis will

identify the portion of the investment (X% or X+Y%) to be made by a private investor based

on the minimum return to equity. The funding gap (100-X or 100-X-Y)% will be supported by

government grants or loans with a zero return. In a PPP procurement, the project Company

is an SPV which undertakes the project execution and financing. The project Company may

appoint an EPC contractor for construction work and an O&M contractor for the operations

and maintenance, or may carry out these functions itself. Note that an EPC contractor is an

Engineering Project Management Contractor: the term typically refers to firms such as

Bechtel and Fluor.

Further to the procurement option analysis above, the feasibility of the procurement

options for each ICD project are evaluated in this section.

Based on a preliminary evaluation of the ICD projects, it is shown that the revenue

generated from operation at each ICD cannot provide an adequate financial return to

private investors. It is also noted that the ICD projects would heavily involve the railway and

port authorities. Private investors would face significant challenges in respect of land

acquisition, resettlement, rail operations and coordination of port operations. Therefore,

100% private finance would be the least favoured option for this project.

In order to make the PPP procurement feasible, it is recommended that the government

make the investment in part of the project, such as land, resettlement or rolling stock, or

part of engineering costs. The procurement option matrix, which is based on the project

financial internal return rates viable for public financing and PPP financing for the ICD

services, is summarised below.

100-X%X %

Railway Corporation

SPV

ICDOperator

RailwayOperator

FinancingBank

PrivateInvestor

EPCContractor

SLPA


Final Report 193

Table 11.2 General Procurement Options from Preliminary Evaluation

No ICD description Public

Financing PPP

Private

Financing

1 Veyangoda √ √ ×

2 Enderamulla √ √ ×

3

Peliyagoda/

Telangapata

(PelTel)

√ √ ×

4 Ratmalana × √ ×

5

Veyangoda +

Ratmalana √ √ ×

6

Enderamulla +

Ratmalana √ √ ×

7 PelTel + Ratmalana √ √ ×

11.4.1 Public Funding Option: Government Providing 100% Funding

Before the PPP and private investment options are considered, a preliminary review of the

ICD services under public funding is presented.

From the project experience of Sri Lanka Port Authority using the ADB fund for the Colombo

Port extension project, SLPA had the ADB’s loan lending facility with an average rate of

LIBOR + 15 - 40 basis points for a 25 year loan period. It is noted that the current LIBOR is in

a low level after the global financial crisis, and an average 3% borrowing cost is assumed for

a 20 year loan period to test the project financial performance.

The preliminary evaluation indicated that Veyangoda ICD, Enderamulla ICD, and

Peliyagoda/Telangapata ICD are feasible under public finance while Ratmalana ICD has a

project IRR of 4.2% which is well below the benchmark of approval from public sector for a

public funded project. The major issue for Ratmalana ICD is the high cost of the project

construction and M&E procurement, with low container throughput which results in

relatively low revenue from the project. In order to develop the Ratmanlana ICD under

public funding, the ICD has to be developed together with at least one of the other ICDs,

such as Veyangoda ICD, Enderamulla ICD or Peliyagoda/Telangapata ICD, which have IRRs

higher than the benchmark for government approval.

Table 11.2 indicates that all cases, apart from the Ratmalana ICD site, are feasible for public

funding. However, it is understood that the Ministry of Finance is willing to procure this type

of project with private investment or private participation such as a PPP arrangement. This

would provide the government with flexibility to use the government’s funds on other

projects that are much needed by the public, and also most importantly sharing risks with

private investors.


Final Report 194

11.4.2 PPP Options

Under a PPP arrangement, there are two potential public organisations/companies which

can be the shareholders for the project company, which is normally called a Special Purpose

Vehicle (SPV). The activities of the public companies/organisations must be closely related

to the business of the ICDs. Sri Lanka Railways is the only rail service provider in Sri Lanka

and the ICD will fully rely on the railway operations. The Sri Lanka Port Authority will be the

land provider for the ICDs within the Colombo port area, and the authority is responsible for

the Colombo port administration.

The potential private investors could include a port investor, or a port operator, or a

logistics company with business at the Colombo port. This would bring in mutual benefits to

private and public bodies with business links with the existing port operations.

The PPP option is applicable when the public and private sectors are willing to share the

project risks under a PPP arrangement. The public sector will have the capability to pay a

portion of project costs, such as land acquisition, railway rolling stocks or M&E equipment

for ICD operations, when the minimum equity return to private investors would otherwise

not be achieved. The entire operation, maintenance, financing costs and capital expenditure

(CAPEX) within the concession period (which is assigned as 22 years in this report) are the

responsibilities of the SPV; and the operations revenue will meet the minimum expectation

of financial returns to the private investors. The SPV will be responsible for engineering

construction, operation and maintenance. At the end of the concession period the project

will be transferred back to the government. It is a clear PPP model as all the activities are on

construction and O&M at ICD sites. The proposed options are as below:

• Option 1: Public funding of land acquisition and resettlement; private sector

investing in civil engineering, rolling stock and M&E;

• Option 2: Public funding of land acquisition, resettlement, and civil engineering;

private sector investing in rolling stock and M&E;

• Option 3: Public funding of land acquisition, resettlement, and rolling stock; private

sector investing in civil engineering and M&E;

• Option 4: Public funding of land acquisition, resettlement, rolling stock and M&E;

private sector investing in civil engineering; and

• Option 5: Public funding of land acquisition, resettlement and 50% of civil

engineering; private sector investing in rolling stock and M&E.

Option 1: Public Funding of Land Acquisition and Resettlement

This option requires government grant or funding to cover the funding gap. Land acquisition

and resettlement costs are the components to be provided by the public sector to attract

private investors. It is assumed that SLPA will provide free land within the Colombo Port

area for the development of the port railhead. This option will be viable when the

operations revenue is sufficient to repay the remaining project costs, and the entire

operation, maintenance, CAPEX and financing costs within the concession period for the

SPV. In addition, the operations revenue must meet the minimum expected financial return

to the private investors. The SPV will be responsible for engineering construction, operation


Final Report 195

and maintenance. At the end of the concession period the project will be transferred to the

government.

The ownership of ICDs can be with the SPV during the concession period and the asset can

be transferred back to Sri Lanka Government at the end of the concession period (BOOT).

For the rail facilities, such as rolling stock and new railway tracks, the ownership of these

facilities could be with the SPV as the SPV is the investor for these facilities. Alternatively,

all the assets apart from M&E equipment could be transferred to the government when the

construction is completed (DBFO). The SPV will lease back the assets for operations and

maintenance over the concession period.

Option 2: Public Funding on Land Acquisition, Resettlement and Civil Engineering

This option is based on Option 1 not being sufficiently attractive to attract potential private

investors. It requires government grant or funding to cover land acquisition, resettlement

costs and civil engineering costs including rail tracks. The public sector will pay these costs at

stage 1 development in 2014 and stage 2 in 2020 as well. It is assumed that SLPA will

provide free land within the Colombo Port area for the development of the port railhead.

This option will be viable when the operations revenue is sufficient to repay the remaining

project costs, and the entire operation, maintenance, CAPEX on rolling stock and M&E and

financing costs within the concession period for the SPV. In addition, the revenue must meet

the minimum expectation of financial returns to the private investors. The SPV will be

responsible for engineering construction, operation and maintenance. At the end of the

concession period the project will be transferred to the government.

The ownership of ICDs will be with the government, and the SPV will have the asset of

rolling stock and M&E during the concession period and the asset will be transferred to the

Sri Lanka Government at the end of the concession period.

Option 3: Public Funding on Land Acquisition, Resettlement, and Rolling Stock

This option is based on Option 1 not being sufficiently attractive to attract potential private

investors, and is an alternative option in that the government will not invest in civil

engineering costs. This option requires the government to provide more grants or funding

to cover the land acquisition, resettlement, and rolling stock costs to improve the project

financial performance during the concession period. It is assumed that SLPA will provide

free land within the Colombo Port area for the development of the port railhead. This

option will be viable when the operations revenue is sufficient to repay the remaining

project costs, and the entire operation, maintenance, financing costs and CAPEX within the

concession period for the SPV. In addition, the operations revenue must meet the minimum

expectation of financial returns to the private investors. The SPV will be responsible for

engineering construction, operation and maintenance. At the end of the concession period

the project will be transferred to the government.

The ownership of ICDs can be with the SPV during the concession period (BOOT) and the

asset can be transferred to the Sri Lanka Government at the end of the concession period.

For the rail facilities, such as rolling stock, the ownership of rolling stock could be with the


Final Report 196

Sri Lanka Railways as the Government is the investor for these facilities. A lease agreement

will be required when SPV needs to use these facilities.

Option 4: Public Funding on Land Acquisition, Resettlement, Rolling Stock and M&E

This option may work when Options 1 and 3 are not sufficiently attractive to attract

potential private investors. This option requires the government to provide more grants or

funding than for Option 2, to cover the land acquisition, resettlement, partial rolling stock

and M&E equipment costs, so as to improve the project financial performance during the

concession period. It is assumed that SLPA will provide free land within the Colombo Port

area for the development of the port railhead. This option will be viable when the operation

revenue is sufficient to repay the remaining project costs which are invested by private

investors, and the entire operation, maintenance, financing costs and CAPEX within the

concession period for the SPV. In addition, the operations revenue must meet the minimum

expectation of financial returns to the private investors. The SPV will be responsible for


the project will be transferred back to the government.

The ownership of ICDs can be with the SPV during the concession period (BOOT) and the

asset can be transferred back to the Sri Lanka Government at the end of the concession

period. For the rail facilities, such as rolling stock and new railway tracks, the ownership of

these facilities could be with Sri Lanka Railways and SLPA (DBFO) as they are the investors in

these facilities. A lease agreement will be required when the SPV needs to use these

facilities.

Option 5: Public Funding on Land Acquisition, Resettlement and 50% Civil Engineering

This option is appropriate when Option 2 makes an excessive return to the private investor,

and there is room for the government to invest less than the entire engineering cost. This

option requires government grant or funding to cover land acquisition, resettlement costs

and 50% of the civil engineering costs, including rail tracks. The public sector will pay these

costs at stage 1 development and stage 2 in 2020 as well. It is assumed that SLPA will

provide free land within the Colombo Port area for the development of the port railhead.

This option will be viable when the operation revenue meets the minimum expectation of

financial returns to the private investors. The SPV will be responsible for managing


the project will be transferred to the government.

The ownership of ICDs will be with the government or SPV as both parties are the investors

(BOOT). The SPV will have the asset of rolling stock and M&E during the concession period

and the asset will be transferred to Sri Lanka Government at the end of the concession

period (DBFO).

11.5 Risk Assessment

Rigorous risk assessment is critical in any PPP project. The effective allocation of risk

between the parties is the key to success or failure. A private investor will wish to control


Final Report 197

costs and outcomes, whilst government will emphasise service delivery and quality. It is

important that a balance is attained and reflected in the risk allocation structure within the

overall project framework.

11.5.1 Risk Evaluation Approach

A risk assessment process for the PPP arrangement has been conducted. The aim has been

to establish the risks (technical, contractual and commercial risks) involved, their impact on

the project, and methods to manage and/or mitigate the said risks. Risk assessment is

carried out normally in a workshop with the private investor and public sector respectively

in order to develop a risk register. In the absence of such a workshop we have relied on our

extensive knowledge of the project gained while working on the project development. The

risk assessment has attempted to:

• Identify key risks associated with the project under a PPP arrangement: revenue,

technical design, environmental, major costs streams and financial. Lessons have

been drawn from international practice;

• Identify and classify risks in construction, operations, and maintenance; and

• Identify any alternative options in financial structures in order to mitigate risks.

Risk Management Procedure

Figure 11.6 illustrates the 4 main stages we have followed to establish the risk factors.

Figure 11.6: The ICD Risk Assessment Procedure

Mitigation of Risks

This involves identifying measures to ensure that either the probability of occurrence and/or

the severity of impact of the risk are reduced during the entire project life cycle. For each

risk an ‘owner’ is identified with responsibility for ensuring that the mitigation measures are

implemented and are effective.

Identify AssessMitigate /

RespondReview

� Methods of Identification

� Likelihood� Impact

� Proximity

� Time

� Cost� Quality

� Prioritisation

� Management of risks� Risk response

planning� Eliminate / Avoid

� Reduce / mitigate

� Transfer� Accept

� Update Register

� Communicate

�Lessons learned

Plan, Conduct, review


Final Report 198

Risk Review

It is important to highlight that a Risk Register should be updated periodically and

communicated to all relevant stakeholders.

11.5.2 Risk Identification

Typically, under a PPP scheme, project risks during construction, operation and

maintenance are shared between government and private investors. The issues which

constitute the major risks for the project are shown in the figure below and are fairly typical

for a railway related project, under PPP arrangements:

Figure 11.7 Major Risk Constituents for ICD Projects

For the ICD projects, these risks occur during:

• The project development process and project approval stage;

• Construction and the M&E installation stage; and

• The operations and maintenance stage.

Where the risks are quantifiable, such as construction costs, and low revenue due to

economic downturn, they have been tested and examined through sensitivity analysis in the

financial model.

Planning and approval risks

• Land acquisition risk;

• Re-planning of the existing rail network in Colombo;

• Competition from the new terminal and other ports in Sri Lanka; and

• Environmental approval risk.

3. Less rapid

economic growth –

reduction of container

volume

5. Currency risks -

Local devaluation

6. Civil war/Security

risks

1. Construction and

M&E cost overrun,

poor quality, and

delay

8. Inflation risks –

high labour costs and

material costs

7. Poor Management –

operations cost

overrun.

4. Competition from

new ports/terminals

2. Change of

Government polices,

regulations, planning/

Rail network

Project

Major Risks


Final Report 199

Construction and M&E procurement risks

• Overrun of construction and M&E procurement costs;

• An incorrect bill of quantities;

• Material/market prices;

• Late completion of construction and M&E installation;

• Additional financing costs; and

• Impact on the concession agreement, revenue and security.

Operations and maintenance risks

• Overrun of operations and maintenance costs;

• Poor management;

• Higher inflation, increase of labour costs and material costs; and

• Low efficiency from employing more resources.

Revenue risks

Revenue projections are based on positive economic growth and Colombo port expansion. If

the assumed growths are not met, the revenue targets are unlikely to be achieved.

• Lower economic growth/slower port expansion;

• Changes of market demands;

• Competition from other adjacent ports or new ports;

• Change of government's multimodal regulation/policy; and

• Leading to one or more of (i) reduced annual TEU throughput (ii) reduced CFS station

throughput (iii) reduced unit prices.

Foreign exchange risk

• Fluctuating foreign exchange rates and availability of hard currency;

• Difficulty in obtaining competitive interest rates for long term funds; and

• Local currency devaluation.

Political and security risks

• Political stability: reducing concession years;

• Inadequate or subjective enforcement of laws and regulations: factored into costs -

the worst case scenario; invested capital in front, arbitrary termination; and

• Security risk.


Final Report 200

Unforeseeable events (natural disasters, changes to national and state legislation)

A number of the key risks identified which can be quantified, such as those growth factors

related to lower GDP growth and global financial crisis, are tested and examined through

sensitivity analysis in the financial model.

11.5.3 Risk Assessment

At this feasibility stage, we have assessed only the following risks:

• Revenue risks;

• Construction and M&E procurement risks;

• Operations and Maintenance risks.

Based on the probability and impact of each of these three risk items, the risks are

presented in the categories shown in the table below. Depending on how it is scored against

both probability of occurrence and impact, each event was classified as high, medium or low

risk. This stage also involved understanding the causes of the risks and the interrelationships

between various risks.

Following the identification of the risks, a qualitative risk assessment is undertaken in the

next section to provide an indication of the likelihood of the event giving rise to the risk

occurring.

The following scoring system was adopted in which each risk was categorised by probability

of occurrence (P) and impact (I).

Table 11.3 Risk Score Structure

Scale Description Score

Probability

High

Medium

Low

Very Likely

Likely

Unlikely

3

2

1

Impact

High

Medium

Low

Large

Significant

Small

3

2

1

The table below details the output of the risk assessment under the categories of revenue

(R), construction (C), and operations (OM). Risks with a (P times I) value of 4 or above

(shaded) were taken forward for sensitivity analysis. GOS represents the Government of Sri

Lanka.


Final Report 201

Table 11.4 Evaluated Risks for ICD Service Project

CODE RISK CATEGORY H/M/L P x I Risk Owner

P I

R1

Shortfall in expected transport and cranage

revenue:

� Annual throughput (TEU) below forecast

� Unable to realise desired unit charge per

TEU trip

M H 6 SPV/GOS

R2

Shortfall in expected Container Freight

Station (CFS) revenue:

� Annual CFS throughput (TEU) below

forecast

� Unable to realise desired unit charge per

TEU for stuffing / destuffing

M H 6 SPV/GOS

R3 Shortfall in other revenue sources – container

storage, warehousing & inventory, rentals M M 4 SPV/GOS

C1

Overrun of construction costs and M&E

procurement costs :

� detailed design not completed

� unforeseen ground conditions

� errors of BOQ

� Inflation on material price and equipment

price

� Variations

M H 6 SPV/GOS

C2

Late completion of the construction and M&E

installation:

� additional financial costs

� delay of service revenue and impact to

the period of concession agreement and

revenue

M M 4 GOS/SPV

OM1

Overrun of operations and maintenance costs

� higher inflation,

� increase of labour costs and material

costs,

� low efficiency employing more resources,

� Increase of CAPEX

M M 4

SPV/

O&M

Contractor

11.5.4 Risks and Risk Mitigation

Revenue risks, Construction and M&E procurement cost risks, and Operations &

Maintenance cost risks have been identified as major risks. Each of these risks is considered

in turn. Mitigation measures are in some cases possible.

Revenue risks

A shortfall in revenue can arise from a number of factors:

• Less than expected import / export container growth for Sri Lanka;

• Less than expected import / export container growth at Colombo Port due to

(future) competition from other Sri Lanka ports;


Final Report 202

• A lower than expected market share for train transport via the ICD;

• A lower than expected unit charge for transport and cranage between the port and

the ICD(s);

• A lower than expected market share of stuffing / destuffing activities; and

• A lower than expected unit charge per TEU for stuffing / destuffing.

Until the ICD(s) are actually built, we cannot collect data on these items, so we have to

content ourselves with a sensivity test with respect to total revenue.

As the sole or dominant owner of any project, SLPA would naturally carry most of the

revenue risks. Under PPP, asking the private sector to share revenue risks is possible.

However, if the private sector partner is being lent money by commercial banks, it must be

remembered that banks are very risk averse. The financial markets are generally not very

receptive to PPP project proposals where the private concessionaire carries the

throughput/traffic volume risk. In practice, therefore, the private sector’s exposure to

revenue risk must be limited.

Construction and M&E procurement cost risks

Infrastructure projects have historically experienced cost overruns, above early planning

estimates. A recent study of 258 infrastructure projects spanning a time period of more than

70 years found that project costs were underestimated in approximately 90% of the

projects. Actual costs averaged 28% higher than estimated from a survey in 2002. For the

ICD projects, the likely increases in construction costs and M&E procurement costs are not

only related to inflation but also to material availability, security and unforeseen ground

conditions.

As indicated from the financial analysis for the ICD projects, it is highly likely that GOS will

fund certain project costs, and that the cost overrun risks will be borne by both government

and private investors. With GOS’s desire to fast track the implementation of the ICD

projects it would be reasonable to distribute the management of this risk between GOS and

the selected EPC contractor.

It is expected that SPV will negotiate a risk sharing mechanism with the EPC contractor to

agree an acceptable price. In order to facilitate such negotiation it is important that the EPC

contractor provides a detailed breakdown of its tender.

The sensitivity of risks of construction costs has been tested in the financial evaluation in the

last section of this chapter.

Operation and Maintenance costs risk

Operation and maintenance costs can overrun because of increases in unit labour costs and

materials and because of low employee efficiency.

The sensitivity of risks of O&M costs has been tested in the financial evaluation in the last

section of this chapter.


Final Report 203

11.6 Proposed Sensitivity Cases for Sensitivity Testing

The table below details the various sensitivity testing scenarios from the impact assessment

developed for input into the financial model as a result of the above risk assessment which

includes risks of revenue and costs.

Table 11.5 Sensitivity Testing Scenarios

Scenario

Number Primary Risk Measurement

Risk

Score

Assumption

for Scenario

Model

Assumptions

SA01 – 1 ICD revenue decrease Revenue 6 20% increase 1.20 of Base

case

SA01 – 2 ICD revenue increase Revenue 6 20%

decrease

0.80 of Base

case

SA01 – 3 ICD revenue decrease Revenue 6 10% increase 1.10 of Base

case

SA01 – 4 ICD revenue increase Revenue 6 10%

decrease

0.90 of Base

case

SA02 - 1 Construction Costs & M&E

Costs increase Construction 6 20% increase

1.20 of Base

case

SA02 – 2 Construction Costs & M&E

Costs decrease Construction 6 20% saving

0.80 of Base

case

SA02 - 3 Construction Costs & M&E

Costs increase Construction 6 10% increase

1.10 of Base

case

SA02 – 4 Construction Costs & M&E

Costs decrease Construction 6 10% saving

0.90 of Base

case

SA03 – 1 Future operation costs

increase

CAPEX/OPEX

Costs increase 6

20% increase

in O&M

costs

1.20 of Base

case


decrease

CAPEX/OPEX

Costs decrease 6

20% saving

in O&M

costs

0.80 of Base

case


increase

CAPEX/OPEX

Costs increase 6

10% increase

in O&M

costs

1.10 of Base

case


decrease

CAPEX/OPEX

Costs decrease 6

10% saving

in O&M

costs

0.90 of Base

case


Final Report 204

12 Financial evaluation and recommendations This section includes financial analyses for ICD projects with public finance and PPP

respectively on the procurement models proposed in Section 11 and shown in Figures 11.3

and 11.4.

12.1 Basic Assumptions for the Financial Analysis

12.1.1 Basic Assumptions

It is assumed that the first full year of operation would be 2015 with the assumption of a 2

year construction period. A major upgrade and expansion is assumed in 2020. The basic

assumptions for the ICD projects comprise the following:

• Land is assumed to be free, or an estimated land acquisition cost is assumed to be

incurred a year before construction;

• Estimated daily container traffic flow and relevant revenue projected in the previous

chapters are used;

• Estimated construction costs obtained from the engineering designs and related bills

of quantities are used;

• Professional service fees such as project development, design, legal, financial, and

supervision fees and contingencies have been included;

• Estimated annual operational and maintenance costs have been obtained from the

previous chapters;

• All the financial analysis has been in terms of nominal prices;

• Short term financing options are included when high CAPEX occurs;

• Corporate tax rate: 28%;

• Resource cost price index: 7%, other cost price index: 4%; and

• Average exchange rate in November 2011: 1USD=110 Rs.

12.1.2 Assumptions for PPP Procurement

Financial assumptions under PPP procurement:

• Equity/Debt ratio: 40/60 for private investment (based on the consultation with

commercial banks in Sri Lanka for project finance); and

• It is assumed that a 10 year loan would be taken out at 8% real interest (based on

the consultation with commercial banks in Sri Lanka) to cover stage 1 project costs

including rolling stock costs, construction costs, professional fees and other project

costs.

• As the project is funded by the Government, there will be little impact on the

financial performance with the different equity shares between the SLPA and

Railway Corporation.

12.1.3 Assumptions for Public Financing

Financial assumptions under public financing:


Final Report 205

• Equity/Debt ratio: 15/85 in which the Government will provide funding equivalent to

15% of the total project costs from national budget, and remaining 85% of the total

project costs would be ADB’s loan ; and

• It is assumed that the Government will apply for a 20 year loan from ADB, and an

average 3% real interest rate (average from historical LIBOR rates plus ADB’s

charges) is assumed to finance project costs for stage 1 and stage 2.

12.2 Revenue and Costs

12.2.1 Revenue Projection

Based on the analysis in the previous chapters, the revenue projections from providing ICD

container services for the key calendar years are summarised in real terms below:

Table 12.1 Revenue Projection for the ICD and ICD Combinations (Rs m)

Case No ICD Project 2015 2020 2025 2030 2034

1 Veyangoda 1,430 1,932 2,589 3,364 4,148

2 Enderamulla 3,033 4,098 5,492 7,135 8,797

3 Peliyagoda/Telangapata

(PelTel) 2,930 3,958 5,305 6,892 8,498

4 Ratmalana 848 1,146 1,536 1,995 2,460

5 Veyangoda + Ratmalana 2,278 3,078 4,125 5,360 6,608

6 Enderamulla + Ratmalana 3,881 5,243 7,028 9,131 11,258

7 PelTel + Ratmalana 3,778 5,104 6,841 8,888 10,958

Note: the details of the revenue forecast on an annual basis are given in Chapter 9.

12.2.2 Cost Estimates

Based on the cost estimates presented in Chapter 8, the costs for the combinations of the

ICD sites for the project development at stage 1 in real terms are summarised in the table

below including land, engineering, rolling stock and M&E.

Table 12.2 Estimate of the Starting Project Costs (Rs m)

Case

No ICD Project

Engin-

eering Land

Resettle-

ment

Rolling

stock M&E

Total

cost

(Rs m)

Total

cost

(US$ m)

1 Veyangoda 5,872 - 1,222 129 2,427 8,427 77

2 Enderamulla 9,253 166 346 305 3,609 13,167 120

3 Peliyagoda/Tela

ngapata (PelTel) 8,644 - 2,667* 305 3,609 12,558 114

4 Ratmalana 3,573 - 1,648 102 2,265 5,939 54

5 Veyangoda +

Ratmalana 7,919 - 2,870 231 4,478 12,627 115

6 Enderamulla +

Ratmalana 11,300 166 1,994 407 5,679 17,386 158

7 PelTel +

Ratmalana 10,691 - 4,315 407 5,679 16,777 153

* Includes compensation for buying out 95 year leases


Final Report 206

The CAPEX in the concession period is summarised in Table 12.3 in real terms including land,

resettlement, engineering, rolling stock and M&E. There will be a major expansion in 2020,

and therefore the CAPEX in 2020 is significantly higher than in the other calendar years. In

this revision, the land acquisition costs for Peliyagoda/Telangapata (PelTel) ICD have been

removed; compensation to be paid to companies holding long term leases is included in the

resettlement costs.

The cost estimates for operation and maintenance over the entire concession period in real

terms are summarised in Table 12.4. The O&M costs consist of three major cost

components, transport, resource and material/utilities. All the railway operation costs are

included in the transport costs as it may be operated by the Railway Corporation rather than

the project company. Resource costs include all the staff costs of ICDs. Material costs are

the costs of materials used for maintenance and operations. Utility costs include the costs of

electricity, water, and gas.


Final Report 207

Table 12.3 CAPEX during Concession Period 2015-2034 (Rs m)

Case No. ICD Project 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

1 Veyangoda 3 0 3 0 36 1,739 3 0 5 0 22 3 0 79 3 0 5 296 3 0

2 Enderamulla 3 22 3 79 80 5,136 24 3 8 22 5 5 81 200 5 5 276 424 27 0

3 Peliyagoda / Telangapata (PelTel) 3 22 3 79 80 12,854 24 3 8 22 5 5 81 200 5 5 276 424 27 0

4 Ratmalana 0 5 0 19 30 2,905 0 3 0 3 0 3 0 5 0 22 0 144 3 0

5 Veyangoda + Ratmalana 22 5 3 0 66 4,644 3 22 5 3 3 5 19 84 3 3 24 421 5 0

6 Enderamulla + Ratmalana 3 27 3 79 109 7,884 5 5 27 5 5 27 5 81 205 8 276 568 29 0

7 PelTel + Ratmalana 3 27 3 79 109 15,602 5 5 27 5 5 27 5 81 205 8 276 568 29 0


Final Report 208

Table 12.4 Operation and maintenance Cost Summary (Rs m)

Case No. Cost Item 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

1

Transport Costs 118 125 132 139 147 156 165 175 185 195 205 215 226 237 248 261 273 287 301 316

Resource costs 290 304 313 321 327 342 388 403 417 425 440 458 474 488 522 536 553 567 593 615

Material/utility Costs 260 266 273 280 288 296 353 362 372 383 392 405 416 427 459 471 484 498 516 531

2

Transport Costs 145 153 161 170 180 189 143 151 160 169 177 186 195 204 214 225 235 247 259 271

Resource costs 521 543 569 591 639 661 779 812 842 879 912 948 978 1,035 1,082 1,118 1,164 1,230 1,276 1,332


3

Transport Costs 134 141 149 158 167 176 159 168 178 188 198 208 218 229 241 253 266 279 293 308

Resource costs 521 543 569 591 639 661 779 812 842 879 912 948 978 1,035 1,082 1,118 1,164 1,230 1,276 1,332


4

Transport Costs 66 70 74 77 81 86 77 82 86 91 96 100 105 110 115 120 126 132 138 145

Resource costs 258 264 271 279 290 298 429 438 452 459 468 475 489 497 512 527 537 552 567 582


5

Transport Costs 184 195 205 217 229 242 242 256 271 286 300 315 330 346 363 381 400 419 439 461

Resource costs 515 539 555 570 584 607 782 806 838 853 877 898 928 954 1,003 1,032 1,056 1,087 1,125 1,162


6

Transport Costs 211 223 235 248 261 275 221 233 246 260 273 286 300 314 329 345 362 379 397 416

Resource costs 749 778 811 841 896 926 1,170 1,208 1,252 1,300 1,338 1,381 1,429 1,494 1,556 1,607 1,660 1,741 1,802 1,872

Material/utility Costs 568 584 605 623 662 683 936 960 984 1,014 1,038 1,064 1,094 1,143 1,176 1,208 1,241 1,299 1,336 1,378

7

Transport Costs 200 211 223 235 248 262 236 250 264 279 293 308 323 339 356 373 392 411 431 453

Resource costs 684 713 746 776 831 861 1,068 1,106 1,150 1,198 1,237 1,279 1,327 1,392 1,454 1,506 1,559 1,639 1,701 1,771

Material/utility Costs 531 547 568 586 626 647 884 908 932 962 987 1,012 1,043 1,091 1,125 1,156 1,189 1,247 1,284 1,326


Final Report 209

12.3 Base Case Analysis for Public Financing

From a preliminary assessment on the project revenue, the total revenue from a 20 year

operation is clearly not able to meet the expectation of a minimum financial return from

private investors after covering the entire construction costs, M&E equipment costs, CAPEX

and O&M costs in the concession period. The project IRRs shown in the table below indicate

that the government will carry a significant financial burden under a public funding

procurement approach although the Government could acquire a cheaper longer term loan

from ADB or other financial organisations.

Table 12.5 Project IRR under Public Funding

Case

No. ICD Project NPV (USD m) IRR

1 Veyangoda -29.9 11.0%

2 Enderamulla 7.3 19.0%

3 Peliyagoda/Telangapata (PelTel) -60.9 12.9%

4 Ratmalana -57.6 1.5%

5 Veyangoda + Ratmalana -71.8 8.9%

6 Enderamulla + Ratmalana -32 15.3%

7 PelTel + Ratmalana -100.3 11.1%

Although the public finance gets cheaper loans than the private sector, the project returns

will be low in most ICD cases. The disadvantages are that the Government will be

responsible for both initial investment costs and O&M and further investment costs, and

majority risks for the entire project life.

Enderamulla ICD shows the highest IRR and NPV among all other six ICDs but the return is

relatively low in terms of financial viability. In addition, there are significant cash flow

deficits in 2020 for all ICDs, from USD 20.8 m for Case 1 to USD 171.6 m for Case 7 in 2020 in

nominal terms. It is obvious that further public funds will be required in 2020 to meet the

CAPEX and O&M requirements due to expansion. No matter which ICD case is chosen for

development with public finance, the entire project costs and risk are significant and not

sustainable to the Government.

With such low IRRs of the ICD cases under public financing, it is clearly financially unviable

for private finance on its own. Unless the Government is willing to fund the entire project

costs and majority risks, it becomes necessary to introduce Public and Private Partnership to

attract private investment to reduce the financial burden to the Government and risks

carried by the Government.

From the brief analysis above, the public financing option appears not sustainable. The

remaining options are the PPP options studied in Section 11.4, where 5 PPP options were

proposed for the ICD projects. The financial viability of these PPP options are analysed in

Sections 12.4-12.8.


Final Report 210

12.4 Base Case Analysis for PPP

For a PPP procurement project, the concession period is normally 25 years to 30 years.

However the project TOR indicates the concession to be the construction period plus 20

years, which has been adopted in the financial analysis.

Five PPP options have been proposed in order to identify the best possible PPP equity

structure for both the public and private sectors:

• Option 1: Public funding of land acquisition and resettlement; private sector

investment in civil engineering, rolling stock and M&E;

• Option 2: Public funding of land acquisition, resettlement, and civil engineering;

private sector investment in rolling stock and M&E;

• Option 3: Public funding of land acquisition, resettlement, and rolling stock; private

sector investment in civil engineering and M&E;

• Option 4: Public funding of land acquisition, resettlement, rolling stock and M&E;

private sector investment in civil engineering;

• Option 5: Public funding of land acquisition, resettlement and 50% of civil

engineering; private sector investment in rolling stock and M&E.

As there is a major expansion and upgrading programme around year 2020, it is assumed

that the government grant or funding (with zero return) will be available to each option

listed above. For example, the government will be responsible for the land acquisition and

resettlement costs in 2020 if Option 1 is chosen. Similarly, the government will be

responsible for the land acquisition, resettlement and civil engineering costs in both 2014

and 2020 if Option 2 is chosen.

The financial analysis indicates that the Weighted Average Costs of Capital (WACC) for each

ICD project are as shown in the table below with the assumption of full private finance and

PPP with the government to invest on land and resettlement:

Table 12.6 The Weighted Average Costs of Capital for each ICD

Case No. ICD Project WACC (%)

Under Private finance

WACC (%)

under PPP

1 Veyangoda 5.81 4.85

2 Enderamulla 5.81 5.53

3 Peliyagoda / Telangapata (PelTel) 5.81 4.46

4 Ratmalana 5.81 4.19

5 Veyangoda + Ratmalana 5.81 4.38

6 Enderamulla + Ratmalana 5.81 4.95

7 PelTel + Ratmalana 5.81 4.21

12.4.1 Veyangoda ICD – Base Case

It is here assumed that Veyangoda ICD site will be operated separately. This operation

requires a 3 track railhead within Colombo Port, and a new rail link at Sedawatta.


Final Report 211

The figure below shows the projected revenue and costs over a 20 year concession period in

nominal terms. Revenue will grow with the increase in container throughput while the costs

are also related to the container throughput and the M&E equipment. Costs and revenues

are expressed in nominal terms over the concession period.

Figure 12.1 Veyangoda ICD - Project Revenue and Costs

The analysis results show that the project IRR is 11.0%. The table below shows the FIRRs on

equity in nominal terms under each PPP investment option for Veyangoda ICD. Obviously,

FIRRs from PPP Options 1 and 3 are below 20% and these equity arrangements will not

attract the private sector to invest and operate under this PPP scenario starting from 2015.

Options 2, 4 and 5 are financially viable and attractive to private investors as the FIRRs are

higher than the 20% benchmark. Option 2 requires high percentages of government

investment and the return to equity is excessive. The government will not achieve the

maximum benefits from PPP Option 2 but will take more risks, and therefore Option 2 is not

recommended for PPP procurement.

Table 12.7 FIRR of Veyangoda ICD under different PPP options

Option

No Public Investment Private Investment

Public/private

equity ratio

NPV (USD

m) FIRR

1 Land, resettlement

Civil engineering,

rolling stock,

M&E equipment

12/88 28.1 15.3%

2 Land, resettlement,

civil engineering

Rolling stock,

M&E equipment 69/31 71.1 55.1%


Rolling stock

Civil engineering

M&E equipment 13/87 32.7 17.4%

4

Land, resettlement,

Rolling stock,

M&E equipment

Civil engineering 36/51 51.7 24.3%


50% civil engineering

50% Civil

engineering,

rolling stock,

M&E equipment

40/60 49.6 24.1%


Final Report 212

The above analysis shows the FIRR on the equity investment and NPV under different public

and private investment scenarios. The FIRRs with different percentages of government

grants to the project costs are shown in the figure below. Private investors’ expected rate of

financial return is 20%. The results show that the most viable equity investment structure

for Veyangoda ICD is Option 5, with the public/private equity ratio being 40/60 with FIRR

24.1%. Alternatively, the government funding level at a minimum 25% of the total project

costs in 2014 and 2020 is recommended as the PPP procurement option shown in the figure

below.

Figure 12.2 Relationship between Government Grant and FIRR for Veyangoda ICD

Figure 12.3 shows the cash flow from 2015 to 2034 for Veyangoda ICD with the assumption

of Government grants for land, resettlement and 50% of civil engineering costs (Option 5).

Option 5 shows a negative cash flow in 2020 and the support of short term loans or

refinancing is required to resolve the cash flow deficit. The minimum debt service coverage

ratio is 2.33 excluding year 2020. In reality, the expansion investment in 2020 could be over

a number of years and cash flow deficit could be reduced significantly as shown in Figure

12.4, and it may not require short term loans under an optimized investment plan.

The details of cash flow are summarized in Table 12.15.

0

10

20

30

40

50

60

0 10 20 30 40 50 60 70 80

FIR

R

Government Grant aginst total costs (%)

+


Final Report 213

Figure 12.3 Veyangoda ICD - Cash Flow from PPP Option 5


In summary, in order to ensure a workable cash flow during the concession period for a PPP

implementation, it is suggested that the Government provide grants or funding (with zero

returns) for 25% of project costs, and this would attract private investors to invest the

remaining 75% of project costs. Private investors would be responsible for O&M and

provide short term loans to resolve the cash flow deficit for project expansion in 2020.

12.4.2 Enderamulla ICD – Base Case

It is here assumed that Enderamulla ICD site will be operated separately. This operation

requires a 3 track railhead within Colombo Port, and a new rail link at Sedawatta.


nominal terms. Revenue will grow with the increase in container volume throughput while

the costs are also related to the container throughput and the M&E equipment. Costs and

revenues are expressed in nominal terms over the concession period.

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m

0.0

10.0

20.0

30.0

40.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m


Final Report 214

Figure 12.5 Enderamulla ICD: Project Revenue and Costs


equity in nominal terms under each PPP investment option for Enderamulla ICD. All the

options are financially viable and attractive to private investors as the FIRRs are higher than

the 20% benchmark. Option 2 requires high percentages of government investment and the

return to equity is excessive. The government will not achieve the maximum benefits from

PPP Option 2 but will take more risks, and therefore Option 2 is not recommended for PPP

procurement.

Table 12.8 FIRR of Enderamulla ICD under different PPP options

Option


Public/private

equity ratio

NPV

(USD m) FIRR


Civil engineering,

rolling stock,

M&E equipment

04/96 80.6 20.3%


civil engineering

Rolling stock,

M&E equipment 68/32 152.4 75.5%


rolling stock

Civil engineering

M&E equipment 06/94 89.2 21.9%

4

Land, resettlement,

rolling stock,

M&E equipment




50% Civil engineering,

rolling stock,

M&E equipment

35/65 116.5 32.4%

In view of the implementation feasibility and the principle of PPP procurement with

minimum government investment, Option 1 is recommended as the PPP procurement

option for Enderamulla ICD. Option 1 requires the government to invest in land and re-

settlement, with the public/private equity ratio being 4/96 with an equity FIRR of 20.3%.

Alternatively, the government funding level at 5% of the total project costs in 2014 and

2020 is recommended as the PPP procurement option.

Figure 12.6 shows the cash flow of Option 1 from 2015 to 2034 for Enderamulla ICD with the

assumption of Government grants for land and resettlement costs. Option 1 shows negative

cash flow between 2020 and 2021, and the support of short term loans or refinancing is


Final Report 215

required to resolve the cash flow deficit. The minimum debt service coverage ratio is 1.94

excluding 2020 and 2021. In reality, the expansion investment in 2020 could be over a

number of years and the cash flow deficit could be reduced significantly as shown in Figure

12.7, and it only requires a very small amount of short term loans under an optimized

investment plan.


Figure 12.6 Enderamulla ICD - Cash Flow from PPP Option 1



implementation, it is suggested that the Government provides grants or funding (with zero

returns) for 4% of project costs, and this would attract private investors to invest the


provide short term loans to resolve the cash flow deficit for project expansion in 2020.

12.4.3 Peliyagoda/Telangapata ICD – Base Case

It is here assumed that Peliyagoda/Telangapata ICD site will be operated separately. This

operation requires a 3 track railhead within Colombo Port, and a new rail link at Sedawatta.

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

201

5

201

7

201

9

202

1

202

3

202

5

202

7

202

9

203

1

203

3

USD m


Final Report 216

It is assumed that most publicly land owned land will be provided free of charge to the

project, in line with the assumption made for other potential ICD sites. However, some of

this land has already been leased to the private sector on a long term basis. Compensation

to buy out these leases, as estimated by a professional valuer, has been included in the

resettlement costs. The figure below shows the projected revenue and costs over a 20 year

concession period in nominal terms. Revenue will grow with the increase in container

throughput while the costs are also related to the container volume throughput and the

purchase of M&E equipment. Costs and revenues are expressed in nominal terms over the

concession period.

Figure 12.8 Peliyagoda/Telangapata ICD: Project Revenue and Costs


equity, in nominal terms under each PPP investment option for Peliyagoda/Telangapata ICD.

In this analysis, the only land acquisition costs relate to buying out long term leases held by

companies; these are included in the resettlement costs. All the options in the table below

apart from Option 1 are financially viable and attractive to private investors as the FIRRs are

higher than the 20% benchmark. Options 2, 4 and 5 require high percentages of government


maximum benefits from these PPP options, which are therefore are not recommended.


Final Report 217

Table 12.9 FIRR of Peliyagoda/Telangapata ICD under different PPP options

Option


Public/private

equity ratio

NPV

(USD m) FIRR


Civil engineering,

rolling stock,

M&E equipment

17/83 72.2 19.6%


civil engineering

Rolling stock,

M&E equipment 71/29 141.4 71.4%


rolling stock

Civil engineering

M&E equipment 18/82 80.9 21.2%

4

Land, resettlement,

rolling stock,

M&E equipment




50% Civil

engineering,

rolling stock,

M&E equipment

44/56 106.8 31.2%



option for Peliyagoda/Telangapata ICD. Option 3 requires the government to invest in land

re-settlement and civil engineering costs, with the public/private equity ratio being 18/82

with FIRR 21.2%. The government grant or funding level of 18% of the total project costs in

2014 and 2020 is recommended as the PPP procurement option.

The figure below shows the cash flow of Option 3 from 2015 to 2034 for

Peliyagoda/Telangapata ICD with the assumption of the Government grants for land,

resettlement and rolling stock costs. Option 3 shows negative cash flow in 2020 and the

support of short term loans or refinancing is required to resolve the cash flow deficit. The

minimum debt service coverage ratio is 1.1 excluding 2020.


Figure 12.9 Peliyagoda/Telangapata ICD - Cash Flow for PPP Option 3

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m


Final Report 218



returns) for 18% of the project costs. This would attract private investors to invest the


provide short term loans to resolve the short term cash flow deficit.

12.4.4 Ratmalana ICD – Base Case

It is here assumed that Ratmalana ICD site will be operated separately. This operation

requires a 3 track railhead within Colombo Port, but does not require a new rail link at

Sedawatta.


nominal terms. Revenue will grow with the increase in container throughput while the costs


are expressed in nominal terms over the concession period.

Figure 12.10 Ratmalana ICD: Project Revenue and Costs


equity in nominal terms under each PPP investment option for Ratmalana ICD. It is shown

that FIRRs from all the PPP Options are below 20% apart from Option 2 and these equity

arrangements will not attract private sector to invest and operate under this PPP scenario

starting from 2015. The highest return is from Option 2, with an FIRR of 26.2%, which is

financially viable but would require government funding of 63% of the investment.


Final Report 219

Table 12.10 FIRR of Ratmalana ICD under different PPP options

Option


Public/private

equity ratio

NPV

(USD m) FIRR


Civil engineering,

Rolling stock,

M&E equipment

20/80 -7.1 7.5%


civil engineering

rolling stock,

M&E equipment 63/27 19.4 26.2%


rolling stock

Civil engineering

M&E equipment 21/79 -4.2 8.4%

4

Land, resettlement,

rolling stock,

M&E equipment




50% Civil engineering,

rolling stock,

M&E equipment

42/58 6.2 13.0%

The figure below shows the cash flow of Option 2, with the highest FIRR of all options.

Provision of short term loans could resolve the cash flow problem in 2020. The minimum

debt service coverage ratio is 3.18 excluding 2020.


Figure 12.11 Ratmalana ICD - Cash Flow from PPP Option 2

Unless the government is to invest under the proposal for Option 2, Ratmalana ICD will not

be viable when developed separately under a PPP procurement. It is unlikely that the

government will be willing to invest in a small scale project requiring a large percentage of

public funding to cover 63% of project costs, since the project IRR is only 1.5%.

12.4.5 Veyangoda + Ratmalana ICDs – Base Case

It is here assumed that Veyangoda ICD will be operated together with Ratmalana ICD. This



nominal terms. Revenue will grow with the increase of container throughput while the costs

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20

15

20

17

20

19

20

21

20

23

20

25

20

27

20

29

20

31

20

33

USD m


Final Report 220


are expressed in nominal terms over the concession period. Only one headquarter

management team is included as a cost saving scheme.

Figure 12.12 Veyangoda + Ratmalana ICDs: Project Revenue and Costs


equity in nominal terms under each PPP investment option for the ICD combination

Veyangoda ICD + Ratmalana ICD, recognizing that the latter is not financially viable on its

own. With the ICD combination, management costs and operation costs will be optimised.

FIRRs from PPP Options 1 and 3 are below 20% and these equity arrangements will not

attract the private sector. Options 2, 4 and 5 are financially viable and attractive to private

investors as the FIRRs are higher than the 20% benchmark. Option 2 requires high

percentages of government investment and the return to equity is excessive. The

government will not achieve the maximum benefits from PPP Option 2 but will take more

risks, and therefore Option 2 is not recommended for PPP procurement.


Final Report 221

Table 12.11 FIRR of Veyangoda + Ratmalana ICDs under different PPP options

Option


Public/private

equity ratio

NPV

(USD m) FIRR


Civil engineering,

Rolling stock,

M&E equipment

18/82 25.6 13.7%

2

Land,

resettlement,

civil engineering

Rolling stock,

M&E equipment 66/34 85.2 40.1%

3

Land,

resettlement,

rolling stock

Civil engineering

M&E equipment 19/81 33.1 14.9%

4

Land,

resettlement,

rolling stock,

M&E equipment


5

Land,

resettlement,

50% civil

engineering

50% Civil

engineering,

rolling stock,

M&E equipment

42/58 55.4 21.0%

The above analysis shows the FIRR on the equity investment and hence its attractiveness to

private investment. The FIRRs with different percentages of government grants to the

project costs are shown in the figure below. A private investor’s expected rate of financial

return is 20%. The results show that the most viable equity investment structure for

Veyangoda + Ratmalana ICDs is Option 5, with the public/private equity ratio being 42/58

with FIRR 21%. Therefore, a government funding level at 40% or above of the total project

costs in 2014 and 2020 is recommended as the PPP procurement option shown in the figure

below.

Figure 12.13 Relationship between Government Grant and FIRR for Veyangoda +

Ratmalana ICDs

The figure below shows the cash flow from 2015 to 2034 for Veyangoda + Ratmalana ICDs,

with the assumption of the Government grants for land, resettlement and 50% of the civil

engineering cost (Option 5). Option 5 shows a negative cash flow in 2020 and the support of

0

10

20

30

40

50

0 10 20 30 40 50 60 70

FIR

R

Government Grant aginst total costs (%)

+


Final Report 222

short term loans or refinancing is required to resolve the cash flow deficit. The minimum

debt service coverage ratio is 1.67 excluding 2020.


Figure 12.14 Veyangoda + Ratmalana ICDs - Cash Flow from PPP Option 5



returns) for 42% of the project costs, and this would attract private investors to invest the

remaining project costs. Private investors would be responsible for O&M and provide short

term loans to resolve the cash flow deficit for project expansion in 2020.

12.4.6 Enderamulla + Ratmalana ICD – Base Case

It is here assumed that Enderamulla ICD will be operated together with Ratmalana ICD. This



nominal terms. Revenue will grow with the increase of container volume while the costs are

also related to the container volume and the M&E equipment in nominal terms over the

concession period.

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m


Final Report 223

Figure 12.15 Enderamulla + Ratmalana ICDs: Project Revenue and Costs


equity in nominal terms under each PPP investment option for Enderamulla + Ratmalana

ICDs. Options 2 to 5 are financially viable and attractive to private investors as the FIRRs are

higher than the 20% benchmark. Option 2 requires a high percentage of government


maximum benefits from PPP Option 2 but will take more risks, and therefore Option 2 is not

recommended for PPP procurement.

Table 12.12 FIRR of Enderamulla + Ratmalana ICDs under different PPP options

Option


Public/private

equity ratio

NPV (USD

m) FIRR


Civil engineering,

rolling stock,

M&E equipment

11/89 80.8 17.8%


civil engineering

Rolling stock,

M&E equipment 66/34 169.3 57.2%


rolling stock

Civil engineering

M&E equipment 12/88 92.3 19.4%

4

Land, resettlement,

rolling stock,

M&E equipment




50% Civil

engineering,

rolling stock,

M&E equipment

38/62 125 27.5%



option for combining Enderamulla ICD with Ratmalana ICD. Option 3 requires the

government to invest in land and re-settlement plus rolling stock, with the public/private

equity ratio being 12/88 and the FIRR 19.4%, only slightly below the 20% bench mark

expectation.


Final Report 224

The figures below shows the cash flow of Option 3 from 2015 to 2034 for Enderamulla +

Ratmalana ICDs with the assumption of Government grants for land, resettlement and

rolling stock costs. Option 3 shows negative cash flow in 2020 and the support of short term

loans or refinancing is required to resolve the cash flow deficit. The minimum debt service

coverage ratio is 1.94 excluding 2020 and 2021. In 2021, the minimum debt service coverage

ratio is 0.89, and a short term loan is required to cover the operation of 2020 and 2021.


Figure 12.16 Enderamulla + Ratmalana ICDs - Cash Flow from PPP Option 3



returns) for 12-15% of the project costs, and this would attract private investors to invest

the remaining 85-88% of the project costs. Private investors would be responsible for O&M

and provide short term loans to resolve the cash flow deficit for project expansion in 2020.

12.4.7 Peliyagoda/Telangapata + Ratmalana ICD – Base Case

It is here assumed that Peliyagoda/Telangapata ICD will be operated together with

Ratmalana ICD. This operation requires a 4 track railhead within Colombo Port, and a new

rail link at Sedawatta.


nominal terms. Revenue will grow with the increase of container volume while the costs are

also related to the container volume and the M&E equipment in nominal terms over the

concession period. Only one headquarter management team is included as a cost saving

scheme.

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m


Final Report 225

Figure 12.17 Peliyagoda/Telangapata + Ratmalana ICD: Project Revenue and Costs


equity in nominal terms under each PPP investment option for combining

Peliyagoda/Telangapata ICD with Ratmalana ICD. Options 2, 4 and 5 meet the private

sector’s target 20%+ FIRR. Options 2 and 4 require high percentages of government

investment and the return to equity is excessive. The government would not achieve the

maximum benefits from these PPP options, which are therefore not recommended for PPP

procurement.

Table 12.13 FIRR of Peliyagoda/Telangapata + Ratmalana ICDs under different PPP options

Option No Public Investment Private Investment Public/private

equity ratio

NPV

(USD m) FIRR


Civil engineering,

rolling stock,

M&E equipment

20/80 72.3 17.2%


civil engineering

Rolling stock,

M&E equipment 68/32 158.7 54.2%


rolling stock

Civil engineering

M&E equipment 21/79 83.8 18.8%

4

Land, resettlement,

rolling stock,

M&E equipment


5

Land, resettlement,

50% civil

engineering

50% Civil

engineering,

rolling stock,

M&E equipment

44/56 115.2 26.4%

From the point of view of implementation feasibility and the principles of PPP procurement

with minimum government investment, Option 5 is recommended as the PPP procurement

option for Peliyagoda/Telangapata ICD + Ratmalana ICD. Option 5 requires the government

to invest in land and re-settlement costs plus 50% of engineering costs, with the

public/private equity ratio being 44/56; this option yields an FIRR of 26.4%. Therefore, a

government grant or funding level at 45% of the total project costs in 2014 and 2020 is

recommended as the PPP procurement option.


Final Report 226

The figure below shows the cash flow of Option 5 from 2015 to 2034 for

Peliyagoda/Telangapata + Ratmalana ICDs with the assumption of Government grants for

land and resettlement costs, plus 50% of engineering costs. Option 5 shows negative cash

flow in 2020 and the support of short term loans or refinancing is required to resolve the

cash flow deficit. The minimum debt service coverage ratio is 2.06 excluding 2020.


Figure 12.18 Peliyagoda/Telangapata + Ratmalana ICDs - Cash Flow from PPP Option 5



returns) for 45% of the project costs, and this would attract private investors to invest the

remaining 50% of the project costs. Private investors would be responsible for O&M and

provide short term loans to resolve cash flow deficit for project expansion in 2020.

-80.0

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

USD m


Final Report 227

12.4.8 Base Case Summary

Based on the analysis in the above section, the main issue under PPP is the high costs of

land, resettlement and civil engineering in the Stage 1 project development in 2014 and the

major expansion in 2020. There is a cash flow problem in 2020 for all the ICD projects. Some

projects require short term loans to resolve the cash flow problem. In some other cases,

with smaller container volumes, refinancing may be considered.

The tables below show the summary of the recommended equity structure with the return

to equity and detailed cash flow under the recommended PPP scheme, with Government

providing grant or funding (with zero return) for the project funding gap. It is recommended

that the Government should seek ADB funds or other financial organization funds to finance

the grants and subsequently the total project costs to the Government should be

significantly lower than the costs from pure public financing.

These recommendations are preliminary and a detailed analysis is required in the

implementation stage with a more realistic equity structure accepted by both public and

private investors.

Table 12.14 ICD Base Case Summary

Case

No. ICD Project

PPP

Option

Public/priv

ate equity

ratio

NPV (USD m) FIRR

1 Veyangoda 5 40/60 49.1 25.6%

2 Enderamulla 1 04/96 80.6 20.3%


(PelTel) 3 18/82 80.9 21.2%

4 Ratmalana 2 63/37 19.4 26.2%

5 Veyangoda + Ratmalana 5 42/58 55.4 21.0%

6 Enderamulla + Ratmalana 3 12/88 92.3 19.4%

7 PelTel + Ratmalana 5 44/56 115.2 26.4%


Final Report 228

Table 12.15 ICD Base Case Cash Flow Summary (Rs m)

Case

No. 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

1

6.7

7.2

4.2

5.0

5.5

(14.6)

7.5

8.6

9.7

11.1

12.1

13.8

18.8

20.2

21.8

23.6

25.4

22.2

29.7

32.1

2

12.7

13.7

7.1

9.0

9.9

(62.0)

15.4

18.2

20.9

20.0

26.5

30.0

41.3

40.0

47.7

51.7

51.2

52.4

64.8

70.6

3

12.3

13.3

7.1

8.9

9.7

(53.2)

14.3

16.9

19.5

22.1

25.0

28.3

38.9

37.3

44.8

48.6

47.8

48.7

60.8

66.2

4

4.5

4.6

3.2

3.4

3.6

(12.0)

3.1

0.7

4.0

4.5

5.0

5.6

7.9

8.4

9.0

9.2

10.3

8.5

11.9

12.9

5

8.7

9.6

5.0

6.3

7.0

(32.5)

9.3

7.9

12.6

14.7

16.5

18.9

26.1

28.4

30.8

33.4

35.9

31.8

42.7

46.4

6

14.8

16.1

7.6

10.0

11.1

(62.7)

17.0

17.3

23.3

23.5

30.5

34.6

49.0

48.4

57.0

61.8

62.4

62.0

78.1

85.2

7

15.1

16.3

11.0

13.1

14.0

(66.6)

19.0

19.0

24.7

28.2

31.5

35.2

46.2

45.4

53.7

58.2

58.6

57.9

73.6

80.4


Final Report 229

12.5 Sensitivity Analysis for PPP Options

From the results of risk assessment, two key risk components identified with the highest risk

scores in Table 11.4, costs and revenue, are tested in this section.

12.5.1 Revenue Growth Sensitivity

For the revenue sensitivities in Table 11.5, Cases SA01, SA02, we tested sensitivity to a range

of revenues, ranging from 0.80 x base (=lower revenue case) to 1.20 x base revenue case

(=upper revenue case). The returns to equity in all the cases are as shown in the table

below.

From testing the upper revenue case for PPP options, there are 10-11% gains in FIRRs,

above the base case, apart from the ICD project 4, when the revenue are increased by 14%

from the base case.

When the revenue is reduced by 20% from the base case, i.e. the lower revenue base, the

impact on FIRR is mostly having 8-13% reduction and FIRRs drop below 20% which is

normally the minimum expected level of return to private investors. The impact is

significant.

The impact of revenue sensitivity is greater than that of cost sensitivity, analysed below.

Revenue risk is the biggest risk for ICD projects, and the best way for the revenue risk

allocation is sharing between the Government and private investors.

Table 12.16 Financial projections: FIRR sensitivities to revenue

Revenue Sensitivity case ICD Project

1 2 3 4 5 6 7

Base revenue x 80% 17.3 12.9 13.5 12.7 12.4 11.8 16.2

Base revenue 25.6 20.3 21.2 26.2 21 19.4 26.4

Base revenue x 120% 33.6 27.4 28.7 38.4 29.1 26.5 37

12.5.2 Construction and M&E Cost Sensitivity

The sensitivity to a range of costs, ranging from 0.80 x base (=lower cost case) to 1.20 x base

construction and M&E (=upper cost base) cost case is tested. The returns to equity in all

cases, including all the ICD projects with the recommended PPP options, are as shown in the

table below.

There are significant 6-7% gains on FIRRs when the construction and M&E costs are reduced

by 20% from the base case, i.e. the lower case base.

However when the construction and M&E costs overrun by 20% from the base case, i.e. the

higher cost base, the impact on FIRR is between 6-12% reduction, letting FIRRs drop below

20%, which is normally the minimum expected level of return to private investors. This

indicates that when private investors take the risk of the construction and M&E costs

overrunning, they may request more protection from the government, or alternatively for

higher government grants.


Final Report 230

Under PPP procurement, the Government may wish to share the extra profits from the ICD

projects and also to share part of risks on the revenue. As a realistic implementation plan, it

is recommended that the Government invest the land and resettlement project costs as the

minimum investment requirements and make further investment in partial civil engineering

costs or either rolling stocks or M&E equipment.

Table 12.17 Financial projections: FIRR sensitivities to construction and M&E costs

Cost Sensitivity case ICD Project

1 2 3 4 5 6 7

Base investment cost x

80% 33.7 27 28.2 38.5 27.9 25.6 35.8

Base investment cost 25.6 20.3 21.2 26.2 21 19.4 26.4

Base investment cost x

120% 20.4 15.9 16.7 19 16.4 15.2 26.4

12.5.3 Operation and Maintenance Cost Sensitivities

For the O&M cost sensitivities Table 11.5, Cases SA03), we tested sensitivity to a range of

O&M costs, ranging from 0.80 x base (=lower cost case) to 1.20 x base O&M cost case

(=upper cost base). The returns to equity at all the cases are as shown in the table below.

In comparison with the sensitivities from the project construction and M&E costs, the

impacts on FIRRs from the O&M costs are generally smaller than those from the project

construction and M&E costs.

From testing the lower cost case, there are 4-5% gains in FIRRs apart from the ICD project 4,

when the FIRR is increased by about 9%.

When the O&M costs overrun by 20% from the base case, i.e. the higher cost base, the

impact on FIRR is mostly having 4-5% reduction and FIRRs drop below 20% which is normally

the minimum expected level of return to private investors. The impact is slightly higher than

the sensitivity to the project construction and M&E costs.

In comparison with the construction and M&E cost sensitivities, the O&M cost sensitivities

are smaller, and this is the risk which private investors will be able to take for a concession

contract as the O&M costs are more controllable by management from private sector.

Table 12.18 Financial projections: FIRR sensitivities to O&M costs

Cost Sensitivity case ICD Project

1 2 3 4 5 6 7

Base O&M cost x 80% 29.5 22.9 24.1 35 25 22.3 30.7

Base O&M cost 25.6 20.3 21.2 26.2 21 19.4 26.4

Base O&M cost x 120% 21.8 17.6 18.3 16.7 16.8 16.4 22.2


Final Report 231

12.6 Further Sensitivity Analysis for PPP Options

This section shows the analysed results under ADB’s format. The items of sensitivity testing

are in line with Section 12.5 and Table 11.5. The sensitivity indicators and switching values

are calculated based on the ADB guidelines on sensitivity and risk analyses.

12.6.1 Veyangoda ICD

Table 12.19 Veyangoda ICD FIRR Sensitivities

Item Change NPV FIRR (%) Sensitivity

Indicator

Switching

Value (%)

Base case (Option 5) 49.6 24.1

Construction & M&E +10% 44.5 22.8 -1.0 -97.3

Construction & M&E -10% 54.6 29.2 -1.0 -99.2

Revenue +10% 63.5 29.6 2.8 35.7

Revenue -10% 35.6 21.5 2.8 35.4

O&M Costs +10% 43.1 23.7 -1.3 -76.3

O&M Costs -10% 56.1 27.6 -1.3 -76.3

12.6.2 Enderamulla ICD

Table 12.20 Enderamulla ICD FIRR Sensitivities


Indicator

Switching

Value (%)


Construction & M&E +10% 67.7 17.9 -1.6 -62.5

Construction & M&E -10% 93.5 23.2 -1.6 -62.5

Revenue +10% 110.1 23.8 3.7 27.3

Revenue -10% 51.1 16.6 3.7 27.3

O&M Costs +10% 69.4 18.9 -1.4 -72.0

O&M Costs -10% 91.8 21.6 -1.4 -72.0

12.6.3 Peliyagoda/Telangapata ICD

Table 12.21 Peliyagoda/Telangapata ICD FIRR Sensitivities


Indicator

Switching

Value (%)


Construction & M&E +10% 69.1 18.7 -1.5 -68.6

Construction & M&E -10% 92.6 24.3 -1.4 -69.1

Revenue +10% 109.4 25 3.5 28.4

Revenue -10% 52.4 17.4 3.5 28.4

O&M Costs +10% 69.6 19.8 -1.4 -71.6

O&M Costs -10% 92.2 22.7 -1.4 -71.6


Final Report 232

12.6.4 Ratmalana ICD

Table 12.22 Ratmalana ICD FIRR Sensitivities


Indicator

Switching

Value (%)


Construction & M&E +10% 16.6 22.2 -1.4 -69.3

Construction & M&E -10% 22.3 31.5 -1.5 -66.9

Revenue +10% 27.7 32.4 4.3 23.4

Revenue -10% 11.2 19.8 4.2 23.7

O&M Costs +10% 13.4 21.6 -3.1 -32.3

O&M Costs -10% 25.4 30.7 -3.1 -32.3

12.6.5 Veyangoda + Ratmalana ICD

Table 12.23 Veyangoda + Ratmalana ICD FIRR Sensitivities


Indicator

Switching

Value (%)

Base case 55.4 21

Construction & M&E +10% 47.2 18.5 -1.5 -67.6

Construction & M&E -10% 63.7 24 -1.5 -66.7

Revenue +10% 77.6 25 4.0 25.0

Revenue -10% 33.2 16.8 4.0 25.0

O&M Costs +10% 44.4 18.9 -2.0 -50.4

O&M Costs -10% 66.4 23 -2.0 -50.4

12.6.6 Enderamulla + Ratmalana ICD

Table 12.24 Enderamulla+ Ratmalana ICD FIRR Sensitivities


Indicator

Switching

Value (%)


Construction & M&E +10% 76.6 17.1 -1.7 -58.8

Construction & M&E -10% 107.9 22.2 -1.7 -59.2

Revenue +10% 130 23 4.1 24.5

Revenue -10% 54.5 15.7 4.1 24.4

O&M Costs +10% 76.7 17.9 -1.7 -59.2

O&M Costs -10% 107.8 20.8 -1.7 -59.5


Final Report 233

12.6.7 Peliyagoda/Telangapata + Ratmalana ICD

Table 12.25 Peliyagoda/Telangapata + Ratmalana ICD FIRR Sensitivities


Indicator

Switching

Value (%)


Construction & M&E +10% 102.9 23.2 -1.1 -93.7

Construction & M&E -10% 127.5 30.5 -1.1 -93.7

Revenue +10% 152 31.7 3.2 31.3

Revenue -10% 78.4 21.3 3.2 31.3

O&M Costs +10% 99.6 24.3 -1.4 -73.8

O&M Costs -10% 130.8 28.6 -1.4 -73.8

12.7 Summary of Sensitivity Testing on PPP Options

Based on the risk sensitivity analysis above, the major findings are as below:

• Revenue has a greater impact on FIRR; 20% reduction of annual total revenue will

reduce FIRR by 8-13% apart from Ratmalana;

• A container volume guarantee policy will be required to attract private investors,

and private investors will be able to take the tariff risk;

• Ratmalana ICD is highly sensitive to variations in costs and revenue due to its

relatively small size and capacity. The ICD project would not attract potential private

investors without a large percentage of government funding on the total project

costs from PPP Option 2. Therefore Ratmalana ICD is highly likely to be developed

together with other ICDs, with a better return to equity than that from Ratmalana

ICD alone;

• The sensitivity to O&M costs is lower than that to investment costs (Construction

and M&E costs), and the private investor would be able to carry and manage the

risk;

• Construction costs and M&E procurement costs have a greater impact than that of

the O&M costs, and the Government should finance the land acquisition and

resettlement costs, as the minimum, for each ICD project; and

• For the ICD projects with lower returns, the Government should invest further on

civil engineering costs or rolling stock or M&E equipment as these have been

identified as higher risk components, because the government is the party which can

control these cost components better.


Final Report 234

Table 12.26 FIRR sensitivity Summary

Cost

Sensitivity

case

ICD Project

1 2 3 4 5 6 7

Recommended

PPP Option 5 1 1 2 5 1 1

Base Case 25.6 20.3 21.2 26.2 21 19.4 26.4

Base revenue x

80% 17.3 12.9 13.5 12.7 12.4 11.8 16.2

Base O&M

cost x 120% 21.8 17.6 18.3 16.7 16.8 16.4 22.2

Base

investment

cost x 120%

20.4 15.9 16.7 19 16.4 15.2 26.4

Base O&M

cost x 80% 29.5 22.9 24.1 35 25 22.3 30.7

Base

investment

cost x 80%

33.7 27 28.2 38.5 27.9 25.6 35.8

Base revenue x

120% 33.6 27.4 28.7 38.4 29.1 26.5 37

12.8 Recommended Procurement Options and Implementation Plan

From the financial analysis and risk sensitivity analysis on PPP options, the results of FIRR

and NPV show that overall project costs are relatively high in terms of revenue level at each

ICD. The analyses indicate that public financing will lead to the Government to carry higher

financial burden and majority risks, which appear unsustainable.

In financial viability terms, the ICD project will be able to attract private investors under an

implementable PPP equity structure, subject to a certain level of the support from

government grants, a container volume guarantee from the SLPA, with the return to equity

to meet private investors’ expectations, of 20% as the minimum.

A cash flow deficit will appear in 2020 and some cases in 2021 as well when the expansion

plan is introduced and a short term loan could be a solution to resolve the short term cash

flow problem. Refinancing could be a solution, or increasing the government fund in 2020.

In reality, the expansion investment in 2020 could last over a number of years and the cash

flow deficit could be reduced significantly in most cases, and it only requires a very small

amount of short term loans under an optimized investment plan.

Generic Recommendations are presented below, followed by site-specific

recommendations.

12.8.1 Generic Recommendations

Each single site ICD will require a 3 track railhead within the Colombo Port, while each two-

site ICD project will require a 4 track railhead within the Colombo Port. Each project, except


Final Report 235

Ratmalana as a single site project will require a new rail link at Sedawatta. The following

points are common to all projects:

• Potential private investors could be the existing port investors, or port operators or

logistics companies having port related business in Sri Lanka;

• A container volume guarantee policy may be required for attracting private

investors;

• Recommended procurement forms are DBFO or BOOT;

• Construction to be procured under an engineering procurement contract;

• If the Special Purpose Vehicle (SPV) is outsourcing O&M services, the contract should

be in a 3-5 years renewable base;

• Expected starting O&M year: 2015.

12.8.2 Veyangoda ICD

Recommendations:

• Procurement PPP option: Option 5 is recommended for the procurement for

Veyangoda ICD:

• Government would invest in land acquisition, resettlement, and 50% of civil

engineering costs in 2014 and 2020;

• Private investors would invest in rolling stock, M&E equipment and 50% of civil

engineering costs;

• Public and private equity ratio: 40/60 from PPP Option 5 analysis; Recommended

ratio: 40/60;

• Project return to equity: 25.6% in the base case; and

• A short term loan will be required when expansion is carried out in 2020.

12.8.3 Enderamulla ICD

Recommendations:

• PPP Option 1 is recommended for the procurement for Enderamulla ICD:

• Government would invest in land acquisition and resettlement;

• The private investors would investment in rolling stock, M&E equipment and civil

engineering;


ratio: 5/95;



12.8.4 Peliyagoda/Telangapata ICD

Recommendations:


Peliyagoda/Telangapata ICD;

• Government would investment in land acquisition, resettlement and rolling stock;

• Private investors would invest in M&E equipment and civil engineering costs;


Final Report 236


ratio: 20/80;



12.8.5 Ratmalana ICD

Recommendations:

• Procurement PPP option: Option 2 is the best option under PPP but it could not

attract private investment on this project;

• Government would investment in land acquisition, resettlement and full civil

engineering costs;

• Private investors would invest in rolling stock and M&E equipment costs;


ratio: 65/35;



12.8.6 Veyangoda + Ratmalana ICDs

Recommendations:


Veyangoda and Ratmalana ICDs;

• Government would invest in land acquisition, resettlement, and 50% of civil

engineering costs in 2014 and 2020;

• Private investors would invest in rolling stock, M&E equipment and 50% of civil

engineering costs;

• Public and private equity ratio: 42/58 from PPP Option 5; Recommended ratio:

45/55;

• Project return to equity: 21% in the base case; and


12.8.7 Enderamulla + Ratmalana ICDs

Recommendations:


Enderamulla and Ratmalana ICDs;

• Government would invest in land acquisition, resettlement and rolling stock;

• Private investors would invest in M&E equipment and civil engineering costs;


ratio: 15/85;

• Project return to equity: 19.4% in base case; and



Final Report 237

12.8.8 Peliyagoda/Telangapata + Ratmalana ICDs

Recommendations:


Peliyagoda/Telangapata and Ratmalana ICDs;

• Government would invest in land acquisition, resettlement and 50% of civil

engineering costs;

• Private investors would invest in rolling stock, M&E equipment and 50% civil

engineering costs;

• Public and private equity ratio: 44/56 from PPP Option 1; Recommended ratio:

45/55;



12.9 Summary and Recommendations

12.9.1 Public Financing Option

Although the public finance gets cheaper loans than private sector, the disadvantages are

that the Government will be responsible for both initial investment costs and O&M and

further investment costs, and majority risks for the entire project life. No matter which case

is chosen for development with public finance, the entire project costs and risk are

significant and not sustainable to the Government.

With such low IRRs of the ICD cases under public financing, it becomes necessary to

introduce Public and Private Partnership to attract private investment to reduce the

financial burden to the Government and risks carried by the Government.

12.9.2 Project Financial Viability under PPP

Five PPP options have been proposed to evaluate the financial viability of each ICD. These

PPP options are based on different levels of government investment on each ICD project.

Due to the complexity of land acquisition, resettlement, and railway asset and railway

operations, the project is not financially viable under a full private finance scheme. PPP or a

full public funding option is considered to be a more practical approach.

Under a PPP procurement approach, it is anticipated that the operations would commence

in 2015, followed by a major upgrade and expansion in 2020.

Based on the financial analysis as discussed in this chapter, it is indicated that most of these

ICD Projects are financially viable under a PPP procurement strategy, However, the

Ratmalana ICD project, with an IRR of 4.4%, is less attractive with its limited capacity for

containers handling and storage.

Due to the complexity of the ICD asset structure, involving port and railway investment and

operations, the forms of procurement that can be adopted would include DBFO or BOOT.


Final Report 238

12.9.3 Public and Private Partnerships

The parties representing public and private sectors are as below:

• Public sector bodies to participate: SLPA and Railway Corporation

• Potential private investors: Port investors / operators, logistics companies

/operators, financial institutions

Table 12.27 is the recommended equity ratio of each ICD and its combinations for public

and private investors. It is recommended that the Government should seek ADB funds or

other financial organization funds to finance the grants and subsequently the total project

costs to the Government should be significantly lower than the costs from pure public

financing.

These recommendations are preliminary and a detailed analysis is required in the

implementation stage with a more realistic equity structure accepted by both public and

private investors.

Table 12.27 Recommended ICD PPP Equity Structure

Case

No. ICD Project IRR

PPP

Option*

Recommended

Public/private

equity ratio

FIRR

1 Veyangoda 11.0% 5 40/60 >20%

2 Enderamulla 19.0% 1 5/95 >20%


(PelTel) 12.9% 3 20/80 >20%

4 Ratmalana 1.5% 2 65/35 >20%

5 Veyangoda + Ratmalana 8.9% 5 45/55 >20%

6 Enderamulla + Ratmalana 15.3% 3 15/85 >20%

7 PelTel + Ratmalana 11.1% 5 45/55 >20%

Note: The PPP options are defined in Section 12.4 above.

12.9.4 Government Grants

Each ICD project would require a government grant or government funding (with zero

return on the public sector funding), varying from 5% to 65% of the total investment in the

startup period and in the expansion/upgrading period in 2020.

If Ratmalana ICD is developed separately, i.e., without combining with another ICD, this ICD

would require a government grant or government funding (with zero return) of over 65% of

the total investment at the start up period and the expansion periods in 2020.To this extent,

it is considered that Ratmalana ICD should not be developed as a separate project, but be

bundled with another ICD in order to reduce the overall cost and gain critical mass.


Final Report 239

12.9.5 Government Policy Support and Risk Sharing on Volume of

Container Transhipment

Revenue risk has been identified as the biggest risk for the ICD projects.

In view of the increasing economic importance of international trade to the economy of Sri

Lanka, coupled with GOS's current policy thrust on promotion of PPPs, it is recommended

that the government offer to share the risk on ICD container throughputs with private

investors, through profit sharing schemes, as the government provides grants to cover the

funding gaps.

12.9.6 ICD Implementation Plan

Based on the financial evaluation and projection, Table 12.27 shows the Consultant's

recommendation of ICD development under the PPP approach. It is recommended that the

ICD implementation should follow the following sequence:

Highly Recommended option:

Development of Enderamulla ICD (USD 120m) or combining Enderamulla ICD with

Ratmalana ICD (USD 158 m) is highly recommended as there are no land acquisition costs at

Enderamulla ICD site and low resettlement costs in comparison with those from other ICDs.

The required government investment on this project is the lowest compared to other

options.

Secondary Recommended option:

Development of Veyangoda ICD (USD 77m) or combining Veyangoda ICD with Ratmalana

ICD (USD 115 m) is a secondary recommended option as there are no land acquisition costs

at Veyangoda ICD site, and moderate resettlement costs in comparison with those at

Peliyagoda/Telangapata ICD. There is a requirement for the government to invest 50% of

civil engineering costs, and the government's investment will be higher than that at

Enderamulla ICD.

Least Recommended option:

Development of Peliyagoda/Telangapata ICD (USD 114m) or combining

Peliyagoda/Telangapata ICD with Ratmalana ICD (USD 153m) would only be recommended

if the above two options are not adopted. The land acquisition costs was assumed

significantly high originally at the Peliyagoda/Telangapata ICD site but was removed from

this analysis, and the resettlement costs are also high. The high resettlement costs would be

required to be paid by the government in order to make this option viable. Hence, the

government's investment will be the highest among the other ICD projects.


Final Report 240

Table 12.28 ICD PPP Implementation

Case No. ICD Project PPP

Option

Recommended

Public/private

equity ratio

Recommendation

Score

1 Veyangoda 5 40/60 High

2 Enderamulla 1 5/95 Very High


(PelTel) 3 20/80 Medium

4 Ratmalana 2 65/35 Very Low

5 Veyangoda + Ratmalana 5 45/55 High

6 Enderamulla + Ratmalana 3 15/85 Very High

7 PelTel + Ratmalana 5 45/55 Medium


Final Report 241

13 Summary of environmental, resettlement & social reports The following documents have been produced as part of this Draft Final Report in separately

bound volumes:

• Initial Environmental Examination;

• Initial Environmental Examination + Annexes;

• Resettlement Plans;

• Involuntary Resettlement screening; and

• Poverty and Social Assessment Report.

Summaries are presented here, including summaries of the Resettlement Plans.

13.1 Initial Environmental Examination (IEE)

The Initial Environmental Examination (IEE) was undertaken during the feasibility stage of

the project to investigate ecological, geological, hydrological and social implications

associated with the proposed four sites at Veyangoda, Enderamulla, Peliyagoda /

Telangapata and Ratmalana, in order to suggest the most feasible two sites with the least

environmental impacts.

Biogeographically, all proposed sites (Ratmalana, Peliyagoda/Telangapata, Enderamulla and

Veyangoda) lie within the Lowland Intermediate Zone. Floristically, it is under the Northern

Wet Lowlands Floristic Zone and Tropical Wet Evergreen Forests are typical natural

vegetation formations in the Northern Wet Lowlands Floristic Zone. Most of the lands in and

around the proposed sites are now under human influence and hence cleared for human

settlements, agriculture and developments. Therefore, no natural or typical vegetation

formations (Tropical Wet Evergreen Forests) can be seen in and around the proposed sites.

However, the Enderamulla site is predominantly marshland and part of the

Peliyagoda/Telangapata site is also marshland. There are interconnected canals or streams

in those sites. The Ratmalana and Veyangoda sites are predominately terrestrial lands and

there are a few small marshes, water holes and interconnected streams in the Veyangoda

site. None of them fall in or are in close proximity to reserved areas under Department of

Wild Life Conservation or Forest Department.

The proposed sites are spread among different types of land topography consisting of flood

plains, wetlands and low flat terrains. The climate is more or less similar in all the identified

locations as bio-geographically the sites are within the intermediate zone. Enderamulla and

Peliyagoda/Telangapata are located in flood prone areas where hydrological impacts are

moderate to high as per IEE findings. There are no such issues with respect to the Ratmalana

and Veyangoda sites. However, a detailed hydrological study is recommended if either

Enderamulla or Peliyagoda/Telangapata is selected for the proposed project, in order to

identify the drainage capacity and possible water retention areas.

The geological study was carried out for all four sites to have an understanding about the

general geological and soil distribution of the proposed areas. Veyangoda was

recommended by the geologist as the site is good for erecting permanent structures.

However, before finalizing foundation type and design of permanent structures, it is


Final Report 242

recommended to conduct a proper bore hole study within the land to further check the

ground situation.

The proposed sites are spread among different types of land topography consisting of flood

plains, wetlands and low flat terrains. The climate is more or less similar in all five identified

locations as bio-geographically the sites are within the intermediate zone. Enderamulla,

Peliyagoda and Telangapata are located in flood prone areas where hydrological impacts are

moderate to high. There are no such issues with respect to Ratmalana and Veyangoda sites.

A detailed hydrological study is recommended if Enderamulla, Peliyagoda and Telangapata

sites are identified for the proposed project in order to identify the drainage capacity and

possible water retention areas.

From a socio-economic point of view, Ratmalana and Veyangoda have different levels of

impact. Veyangoda is located in state land under the Food Department and the Economic

Development Ministry. The present land use in Veyangoda is commercial while in Ratmalana

it is more residential with some public buildings such as a school, religious places etc.

Therefore the resettlement issues will be great at Ratmalana.

The overall (negative) environmental impact scores are:

• Enderamulla 7%

• Ratmalana 51%

• Peliyagoda/Telangapata 50%

• Veyangoda 32%

The basis of these percentages was marks out of 200 awarded for assessments of various

impacts under the following headings:

• Physical Environmental Sensitivity Index (70 marks);

• Biological Environmental Sensitivity Index (55 marks); and

• Socio-economic Environmental Sensitivity (75 marks).

The IEE has addressed all the possible impacts that can be anticipated in both constructional

and operational phases referring to similar project activities. Since the IEE has been carried

out during the feasibility stage, preparation of a complete Environmental Management and

Monitoring Plan is not possible. However, considering the impacts for all sites, a general

Environmental Management Plan (EMP) is given in the IEE report. Contractors will be

required to minimize negative environmental impacts during construction. Construction

costs include 10% contingency, from which mitigation measures may be financed.

13.2 Resettlement plans of ICD sites

At the Interim Report stage, ten candidate sites located surrounding the Colombo city port

for the establishment of the ICDs, were evaluated by multi-criteria analysis, which included

key criteria such as demand, availability of lands, quality of onward access to road and rail

network and external costs for land acquisition like loss of assets etc. The conclusions of the

assessment were that the following sites should be taken forward to full feasibility:


Final Report 243

a. Veyangoda – a large site to the north of Colombo on the main railway line to

Jafna, Trincomalee and other eastern and northern locations in Sri Lanka.

b. Enderamulla – a large site north of Enderamulla station, which is south of

Ragama station, on the western side of the railway.

c. Peliyagoda/Telangapata – adjacent to the railway just north of Kelaniya station,

and occupying both sides of the expressway.

d. Ratmalana – this is located near Ratmalana railway station and the SLR

workshop. Ratmalana is the only known suitable site for freight traveling south.

These four sites had to be assessed for resettlement of people and businesses and any

associated costs. There were also resettlement issues at the railway link to be reinstated at

Sedawatta. This link is essential to reduce travel time and inefficiencies when moving

containers between the New Port and any of the three northern sites.

Most of the above sites are on government owned land, with minimum resettlement

impacts like acquisition of privately owned lands, resulting loss of lands, structures and

livelihoods for affected people. Five resettlement surveys were conducted in October 2011

by the Resettlement Expert and her staff. In order to assess possible resettlement impacts

and plan appropriate measures, five Resettlement Plans (RP) were prepared in line with

government’s land acquisition act (1950) and its amendments, NIRP guidelines in 2001 and

safeguard guidelines contained in ADB safeguard policy statement in 2009. A brief summary

of each RP is presented below.

13.2.1 Procedures common to all RPs

Legal framework

The legal framework within which these resettlement plans have been prepared is described

in each RP document. This describes national law relating to involuntary resettlement as

prescribed by the government Land Acquisition Act No. 9 of 1950 and the National

Involuntary Resettlement Policy (2001). The requirements of NIRP were compared with

those of ADB policy as established by the Policy on Involuntary Resettlement (1995) and

revised by the Safeguards Policy Statement (2009).

Families who are living in temporary structures on encroached land are not eligible for

compensation under the Land Acquisition Act (LAA) of Sri Lanka. However, providing

housing and basic amenities on new sites and restoring their livelihoods is needed to comply

with ADB and NIRP policy. The owners of commercial structures which are to be re-located

must be compensated to comply with the LA Act, and ADB and NIRP policies.

Resettlement plans

The Resettlement Plan (RP) provides an estimate of, and proposed means for,

compensation/new housing units for lost assets and resettlement of Affected Persons (APs).


Final Report 244

These are based on the set of eligibilities and entitlements of APs for various categories of

losses incurred by them due to the project. These are spelt out specifically in the project

entitlement matrix (EM). The RP identifies (i) the extent of losses; (ii) policy and legal

framework for compensation and resettlement; (iii) institutional framework for participation

and implementation; (iv) measures for income restoration and poverty reduction; and (v)

responsibilities for monitoring the implementation measures.

Entitlement matrix

An entitlement matrix sets out actions to be taken by the Executing Agency to compensate

affected persons for any loss of assets, income and livelihoods they may experience as a

result of the project. It covers a wide range of circumstances for anticipated resettlement

impacts that are expected, so that appropriate compensation in the form of built structures

or assistance may be provided. The entitlements and options for each impact category are

provided in the entitlement matrix. Mitigation and impact minimisation measures may be

included. The matrix also specifies additional assistance to be provided to vulnerable

groups who were found to be affected by the project. The entitlement matrix enables a

resettlement budget and financing plan for RP implementation to be calculated.

Executing Agency

The Executing Agency (EA) for overall responsibility of the ICD project is the Ministry of

Transport (MoT) in Sri Lanka. A project office established under the supervision and

guidance of MoT would implement the project under a separate Director who would be

responsible for all land transfer activities and resettlement related activities such as

disbursing compensation to APs, providing assistance, looking into grievance redress,

briefing and cooperating with the External Monitoring and Evaluation Consultant (EMEC),

etc. The project management unit (PMU) would also hire a full time resettlement officer

with adequate assistance to help him to implement the RP in the project area.

The MoT would post the approved RP on its website and endorse the posting of the same

on the ADB's resettlement website. MoT would also ensure that summaries of RPs are

translated into local languages and distributed among the affected people and local

stakeholders at the earliest opportunity. A copy of the final RP would be made available at

the local DS Office and the Project Office of the site for display and ready reference for

consultation to the APs / communities affected by the project.

Monitoring

The resettlement plan would be monitored both internally by the PMU and externally by an

independent consultant, with the objective of providing feedback to management on

implementation and identifying problems and successes as early as possible, to facilitate

timely adjustment of implementation arrangements. A project office established under the

supervision and guidance of MoT would implement the project. As the PMU would be the

agency to manage implementation of the RP, its implementation capacity would be

strengthened, including necessary staff and financial assistance under the project. The PMU


Final Report 245

under the guidance of MoT would prepare quarterly resettlement implementation progress

reports which would be submitted to the EA and to ADB.

Implementation schedules

Resettlement plan implementation (excluding monitoring, which will be undertaken

throughout the project period), is expected to be completed within 18 months. This would

start during the pre-construction period to comply with ADB policy that compensation/ new

housing units for employees and encroaching households for resettlement impacts must be

provided before the impact occurs. An implementation schedule specific to this project

includes the activities within three subproject stages: i) sub-project initiation stage, ii)

resettlement plan preparation stage iii) resettlement plan implementation stage.

(Note: At Ratmalana, resettlement plan implementation might take 36 months, delaying the

opening of the site.)

Grievance redress mechanism

A Grievance Redress Mechanism (GRM) would be made accessible to affected persons. The

GRM would be capable of responding to a wide scope of issue related grievances,

construction related grievances, and alternative house related grievances. The resettlement

officer (RO) and focal point in the PMU would record any grievances and the contact

information of affected persons. Any grievances not able to be addressed by the PMU would

be relayed to the RO. Grievances not redressed by the RO would be brought to the

Resettlement Committee (RC). If an affected person was dissatisfied with the outcome of

the process they may refer their case to the appropriate court of law. All affected

communities would be made aware of the GRM.

13.2.2 Veyangoda RP

This site is located close to Veyangoda Railway station, which is North East of Colombo in

the Gampaha district of Sri Lanka. Ownership of the site is with Government under the Food

Department (FD). An area of 21.5 hectares is required to establish the proposed ICD project.

Field observations made at the site (October 2011) identified buildings and activities that

need to be relocated elsewhere to clear the site. They included several FD buildings which

were under-utilized, a Weekly Fair with 33 renting traders and an Economic Center with 70

renting shop traders, two government institutions – vocational training center and cultural

center – and temporary buildings belonging to the Sri Lanka Army. For the relocation of

these activities, it was planned under this project to find the land from 12 acres of land

owned by the government and Veyangoda textile mill and to purchase the required balance

of about 4 acres from privately owned vacant land in the vicinity of the project. It was

planned with a view to minimizing negative resettlement impacts. Acquisition of privately

owned land, and negative impacts like loss of land, housing and livelihoods for the affected

parties, were to be avoided.

In order to assess the negative resettlement impacts for the 33 renting traders in the

Weekly Fair and 70 renting shop owners in the Economic Center, a short resettlement plan

(SRP) was prepared in line with the Land acquisition act (1950) and its amendments, NIRP


Final Report 246

policies of 2001 and the ADB Involuntary resettlement policy statement of 2009. A

resettlement framework and an entitlement matrix were prepared. In the SRP, appropriate

mitigation measures for identified negative impacts for affected traders, an estimated

budget for purchasing additional land and reconstruction of buildings, shops and required

infrastructure, information disclosure, monitoring, and required staff were included in

adhering to the above national laws and ADB safeguard policy.

13.2.3 Enderamulla RP

Enderamulla is one of the candidate sites which were identified for the feasibility study. It is

situated In Wattala DS Division in Gampaha District. The land is owned by Sri Lanka Railways

and the government, and would be released for the project. 90% of the site consists of

marshy land. Land acquisition is necessary to accommodate the new access road to the site.

This land belongs to a private party. When developing the land for provision of an ICD site,

33 housing units of 35 families and some commercial units would be affected. Compared

with other proposed sites, this site would cause less resettlement and relocation activities.

The requirement of completing information disclosure, consultation and participation was

carried out successfully. Stakeholder meetings were held. Individual meetings were also

held with some key officials in affected commercial properties and representatives of

communities.

According to the data found through the resettlement survey, there are 35 low-income

families living in 33 temporary housing structures which were constructed in encroached

government land, with minimum basic facilities. The survey also found that 100% of the

families are willing to relocate to a better place with housing and infrastructure facilities.

Since it was found that the majority of families are involved in temporary employments, the

relocation site should be close to the present location. The requirement of provision of

proper houses, basic amenities, and a strong livelihood restoration assistance program

including special attention to vulnerable families, is highlighted by the survey results and the

outcome of the consultation process. The need of a comprehensive RP to ensure fulfillment

of the above requirements would be compiled for Enderamulla.

Thirty three (33) temporary housing units would be re-located in a land within two km,

complying with the ADB and NIRP social safeguard policies on housing, infrastructure with

basic amenities, and livelihood restoration. Vulnerable families would be identified for

special attention and special assistance would be provided. Assistance available from

government at DS office level would also be linked with these 35 families. The entitlement

matrix is specially designed to ensure identification of AP’s requirements and provide

assistance as appropriate.

13.2.4 Peliyagoda/Telangapata RP

Resettlement and relocation requirements for this site have been considered through the

Resettlement Plan that was based on the proposed resettlement and re-location activities of

the stage 1 & 2 areas of the Peliyagoda/Telangapata site. Stage 1 lasts until 2020, in which

year extra land would be bought to facilitate long trains (stage 2). Resettlement activities

would be:


Final Report 247

Stage 1

• Telangapata side: relocating 30 houses along the canal located behind warehouses;

• Telangapata side: relocating 24 houses that are close to the railway main line and on

the line of the rail spur into the site;

• Peliyagoda side: relocating 28 houses that are close to the CKE; and

• Telangapata side: compensation for 5 commercial properties which would be

removed.

Stage 2

• Telangapata side: relocating 84 houses which are in the land strip of the proposed

railway track;

• Telangapata side: compensation for 3 commercial properties which would be

removed; and

• Peliyagoda side: compensation for 3 commercial properties which would be

removed.

Stakeholder consultation was given priority and data collection was carried out for this

project by the Resettlement Expert and her team to prepare different reports at different

stages of the project. Key steps were followed in the resettlement survey, such as

consultation with the Divisional Secretary of Mahara to make him aware of the project and

to obtain his support to work with the respective Grama Niladharies relevant to the area.

Informal meetings with the relevant Grama Niladaries in the area were held by the

Resettlement Expert to obtain their comments and views on relocation. Their views are

incorporated in the RP. A resettlement survey of 100% of affected persons was also

completed in October 2011.

Socio-economic data shows that all the housing structures are temporary and unauthorized.

The availability of common amenities is very poor. Although the majority of them use water

and toilets, they are not fulfilling the required hygienic conditions. Most working family

members are labourers and income levels are below Rs. 15000. Housing structures are also

not suitable for living. The floor area of the majority of them is below 300 sq.ft. There are no

expansion possibilities of settlements with better housing and infrastructure in this area.

Relocation of 166 encroaching houses and 11 commercial enterprises is unavoidable in

getting adequate land released for the ICD project at Peliyagoda/Telangapata. Provision of

new housing units within a reasonable distance of the present location has been planned.

Land developed by SLLRDC in Mudun Ela, 3km far from the original locations would provide

new houses and common amenities for families to be resettled. Rs. 10,600,000 would be

spent to construct a 500 sq. ft house and to provide other infrastructure for each house

owner in the relocated site. Paying compensation for commercial structures through

government valuation would be carried out.

13.2.5 Ratmalana RP

The Ratmalana site is situated In Dehiwala DS Division in Colombo District. It has a total land

area of around 21.1 hectares, owned by Sri Lanka Railways (SLR). Occupied structures

include 280 SLR quarters, 71 encroaching houses, 15 SLR buildings/structures, one


Final Report 248

government school, two Buddhist temples and one unauthorized business center. If it is

decided to establish an ICD site here, rearrangement and resettlement of existing structures

would be necessary to release 15 hectares for establishment of the ICD and 10 hectares

outside the site would have to be used for reconstruction of existing structures on a land

sharing basis under the project cost. The RP is prepared for assessment of resettlement

impacts due to implementation of the rearrangement plan at Ratmalana site and specifies

the measures required to mitigate or minimize negative resettlement impacts, according to

the national law and ADB safeguard policy statement of 2009.

Avoiding involuntary resettlement impacts (including minimizing the acquisition of privately

owned land and relocation of households and businesses) was a key feature of preliminary

site selection of the project, consistent with national law and ADB safeguard policy. Most

such impacts were successfully avoided by selecting government land owned by the Sri

Lanka Railway (SLR) which comes under the ministry of Transport (MoT), the Executing

Agency that implements the ICD project. Since the entire project area is owned by SLR and

the government, relocation and resettlement of all identified activities and structures will

not need any land acquisition.

Expected resettlement impacts due to the relocation of 280 quarters are not significant, as it

is planned to provide alternative quarters stage by stage and residents will not be affected

as their quarters will be demolished after provision of new quarters. Dwellers living in 71

encroached houses would have to be provided with new houses with tenure rights. They

would not be affected by adverse resettlement impacts as their houses would be

demolished after handing over the new serviced housing units with improved infrastructure

(pipe borne water and sewerage facilities). The only shop which collects discarded items

would be allocated a space suitable for its business under a lease agreement with SLR. One

of two religious temples would have to be relocated outside the project site by allocating

suitable land. SLR has agreed to provide the alternative land located outside this site. The

other temple land is situated in the identified resettlement area and could be incorporated

within a proposed redevelopment plan. The school could be relocated on public ground and

released land. After construction of the required buildings and facilities, the school could

continue in a new location in the vicinity. Studies in the school would not be disrupted due

to the change of location.

Selection of SLR land for the ICD project has resulted in minimizing loss of incomes for

affected parties as the options to provide alternative houses in released spaces would take

place at replacement cost in the vicinity of the original occupied location. Since the

employee residents in SLR quarters would receive new quarters in the vicinity, there would

not be negative resettlement impacts like loss of land, house or incomes.

Public consultations were held at several meetings and discussions with affected persons in

the Ratmalana project area while conducting a resettlement survey by the Resettlement

Expert in October 2011. This has informed the affected communities of the project,

regarding resettlement methodology, benefits envisaged and the time schedule. At special

meetings, primary stakeholders like SLPA, SLR and Education Department officials with AP

representatives were invited and their participation was helpful. The Ministry of Transport

(MoT) would post the approved RP on its website and endorse the posting of the same on


Final Report 249

ADB's resettlement website. MOT would also ensure that summaries of RPs are translated

into local languages and distributed among the affected people and local stakeholders at

the earliest opportunity. A copy of the final RP would be made available at the SLR Office at

Ratmalana for display and ready reference for consultation to the APs / communities

affected by the project.

The budget for resettlement covers the cost of: (i) construction of quarters, serviced

housing units, school buildings and SLR structures and assets; (ii) information disclosure,

consultation and participation; and (iii) management and monitoring of the resettlement

process. It also includes contingency items to provide special assistance to vulnerable

households who are identified by the detailed measurement surveys, and to cover the cost

of any unforeseen items.

13.2.6 Sedawatta RP

With the purpose of facilitating railway transport for container movements, a new rail link

has been planned to interconnect two rail lines, the harbour line to/from Colombo Port and

the northern railway system. A land strip of 767 m with an area of 13,848 sq.m has been

identified as a feasible site at Sedawatta to locate this proposed link. Formation of a new

embankment would first be necessary. The identified area is owned by SLR and occupied by

40 encroaching houses which would need to be relocated in close proximity in accordance

with a resettlement plan. The RP also suggests measures to mitigate or minimize negative

resettlement impacts.

Avoiding involuntary resettlement impacts (including minimizing the acquisition of privately

owned land and relocation of households and businesses) was a key feature of preliminary

site selection of the project, consistent with national law and ADB safeguard policy. Most

such impacts were successfully avoided by selecting government land owned by the Sri

Lanka Railway (SLR) which comes under the Ministry of Transport. Since the entire project

area comes under the ownership of the SLR, relocation and resettlement of all identified

activities and structures would not need any land acquisition.

Dwellers living in 40 encroaching houses would have to be provided with new houses with

tenure rights. They would not be affected with adverse resettlement impacts as their

houses would be demolished after handing over the serviced housing units with improved

infrastructure (piped water and sewerage facilities) in close proximity to the Sedawatta site.

At present they are living in unauthorized houses constructed on government owned land

under the SLR. The available infrastructure is also in poor condition. Since the relocation is

planned under two options, their livelihoods and other social needs like schooling and

cultural links would also not be significantly affected.

Public consultations were held at several meetings and discussions with affected persons at

the Sedawatta project area while conducting a resettlement survey by the Resettlement

Expert in October 2011. This informed the 40 APs of the project, resettlement methodology,

benefits envisaged and the time schedule. At special meetings, primary stakeholders like

SLPA, SGRD and Divisional Secretariat officials participated with AP representatives; these

were helpful. The Ministry of Transport (MoT) would post the approved RP on its website

and endorse the posting of the same on ADB's resettlement website. MoT would also


Final Report 250

ensure that summaries of RPs were translated into local languages and distributed among

the affected people and local stakeholders at the earliest opportunity.

The resettlement budget covers the purchase land close to the site and provision of

alternative serviced houses. This includes the cost of: (i) construction of serviced housing

units, (ii) information disclosure, consultation and participation, and (iii) management and

monitoring of the resettlement process. It also includes contingency items to provide special

assistance to vulnerable households who are identified by the detailed measurement

surveys, and to cover the cost of any unforeseen items.

13.2.7 Resettlement Budgets

The rates that would be used in preparation of the resettlement budget have been derived

from the following information sources:

• rates used in paying compensation to APs of the Outer Circular Highway;

• rates paid to APs of the adjoining projects of the RDA;

• interviews with stakeholders;

• discussions with valuation offices and property developers; and

• paper advertisements by prospective sellers etc.

Table 13.1 Summary of resettlement costs

Name of site Resettlement Cost (Rs)

Veyangoda 1,063,246,206

Enderamulla 188,419,000

Telangapata/Peliyagoda-stage1 2,509,413,500

Telangapata/Peliyagoda-stage2 7,479,752,500

Ratmalana 1,647,617,070

Sedawatta 158,493,500

13.3 Poverty and Social Assessment Report

In the course of this study, the Consultant has prepared a Poverty and Social Assessment

Report, including a Summary Poverty Reduction and Social Strategy in accordance with the

Bank’s format. This has been submitted as a separate volume, and is summarized in this

section.

The analysis of the poverty and social impacts is based on data collected from primary data,

collected by the Consultant, and available secondary data. The primary stakeholders are

considered to be the people residing in the vicinity of each of the four potential ICD sites.


Final Report 251

In Ratmalana ICD site, many families are residing within the identified project land and this

community will have negative impacts due to possible evacuation. The same situation is

observed in Peliyagoda/Telangapata site. In Enderamulla there is one residential area

established within the identified land. The land proposed in Veyangoda is presently used for

stores and various other business establishments by the government and private parties;

the owners of these establishments will have to shift their business activities to other

appropriate locations.

The majority of the population in all the ICD site areas are Sinhala but with minorities from

other groups, primarily Tamil and Muslim. With the exception of Veyangoda, the potential

ICD sites are located in urban areas. On all sites, the percentage of people employed in

agriculture is small. The primary income generation activities are government employment,

private sector employment and daily paid labour.

In 2002, when the last poverty level survey was conducted, the levels of poverty in the

districts in which the sites are located were much lower than the national headcount index

of 22.7%. In Gampaha district (Veyangoda and Enderamulla) the index was 11%, while in

Colombo district it was 6%. Data at Divisional Secretariat (DS) level was also available.

Each site is close to a number of schools, hospitals and religious centres. One school on the

Ratmalana site will have to be relocated. With that exception, project impacts, both

positive and negative, to such social infrastructure, are expected to be small.

It is expected that the ICDs, when implemented will generate opportunities for both direct

and indirect employment.

Re gender issues, some women in Ratmalana, Peliyagoda/Telangapata and Enderamulla are

vulnerable to social discriminations. Most of these vulnerable women live in shanty type

houses in project land and the vicinity.

Risks of human trafficking and child labour are discussed, and it is recognized that, especially

in the Peliyagoda and Enderamulla areas, a significant number of under-age children are in

employment.

While levels of HIV prevalence are low, it is recognized that there are significant risks,

especially in respect of shanty dwellers, for whom dangerous drug sales, prostitution and

alcoholism pose risks.

Stakeholder perceptions are generally positive, including enhanced employment

opportunities, reduced traffic congestion and improved water and electricity infrastructure.

There is concern about the possibility of flooding resulting from filling in wetlands in

Enderamulla and Peliyagoda/Telangapata.

The project is classified as GI (General Intervention) and therefore full poverty analysis is not

required. The Summary Poverty Reduction and Social Strategy has identified a need for a

Resettlement Strategy, addressed elsewhere in this report, but found no need for a Gender

Plan, Indigenous Peoples Plan, Labour Plan or HIV/AIDS Plan.


Final Report 252

14 Economic evaluation methodology

14.1 The “Without Project” Case Economic appraisal compares one or more “with project cases” with a “without project

case”, usually by calculating the incremental costs and benefits arising as a result of

implementing the project. To do this a “Without Project” case is needed.

“In the “Without Project” case, it is assumed that all stripping and stuffing of containers will

take place in the port, except in respect of that proportion of containers (LCL or FCL) which

is currently stripped or stuffed at shipper/consignee premises or at existing groupage

operator premises.

“Incremental costs and benefits”, are best understood by considering the possibility that, as

a result of constructing an ICD, investment on similar facilities inside the port was to be

scaled back. The “incremental cost” would then be the cost of the ICD investment less the

port investment saved. Similarly, if the creation of an ICD were to render some port assets

redundant, and those redundant assets were to have some value in some other use, the

incremental cost would be the cost of providing the ICD less the value expected to be

realised from the redundant facilities.

14.2 Opportunity Costs

Few resources are free. It has been suggested that government land at some possible sites

may be given to the project free of charge. This would certainly help with the project

finances but nevertheless, the land concerned would have a value in another use, best

described as its Opportunity Cost, and this is a recognised economic cost. “Opportunity

Cost” is defined as the cost of any activity measured in terms of the value of the best

alternative that is not chosen (that is foregone). In practice it is not necessary to know what

the alternative use would be: a fair valuation of the market price is a good indicator.

Also, it is proposed to use the existing fleet of M8 locomotives to haul container trains in the

early days of the project. These will not be purchased and so their capital costs are not

easily known. However, ignoring the fact that rail passenger services seem to be heavily

subsidised, those locomotives have an opportunity cost – if not taken into the service of the

proposed project, they would no doubt be in use hauling trains for the Sri Lankan railways.

In this respect, there is no market, and no easy way to estimate the opportunity cost, so the

Consultant has instead worked on the basis of replacement cost, adjusted to reflect asset

age, as discussed in Section 15.2.1.

14.3 Incremental Capital Costs

The team’s engineers have calculated the capital cost of developing each of the four

proposed sites. The capital cost used includes design, construction, equipment,

environmental amelioration, land acquisition and compensation and resettlement costs. It

also includes the necessary railway, investment including any track works required, and also


Final Report 253

the cost of the required port railhead. This is not necessarily all incremental cost, as

explained below.

Logically, creation of capacity external to the port should reduce the amount of similar

capacity required in the port. For the purposes of economic appraisal we are interested in

incremental costs to the national economy resulting from the project, irrespective of where,

or by which economic actor, they are incurred. Thus activities which the project simply

transfers from one location to another are not relevant, and their associated costs are not

relevant.

The best way in which to identify those activities and costs which are incremental is to

follow a container. The routing of an import LCL container is considered in Table 14.1

below. Note that while Table 14.1 refers to an import LCL container, the conclusions drawn

from Table 14.1 are assumed to apply to all containers.

Table 14.1 Container Tracking

With ICD No ICD Notes

The container is lifted from the

ship onto a port trailer,

transported to the stack and

lifted into the stack.


ship onto a port trailer,

transported to the stack and

lifted into the stack.

Identical actions, with and

without an ICD.


stack onto a trailer.


stack onto a trailer.

Identical actions, with and

without an ICD.

The container is transported to

the port railhead.

This occurs only with an ICD.

The trailer will be owned by the

port railhead operator.


trailer onto the train

This only occurs with an ICD.

Note that this requires good

control of the flow of

containers so that they do not

require intermediate storage at

the railhead. Otherwise an

additional lift would be

required.

The container is transported by

train to the ICD.



train into the ICD stack



ICD stack.



the CFS.


the CFS.

Identical actions with and

without an ICD.

The goods are unstuffed from

the container into a shed and

subsequently delivered to the

consignee’s transport.

The goods are unstuffed from

the container into a shed and

subsequently delivered to the

consignee’s transport.


without an ICD.

The container is returned to an

“empties” stack.

The container is returned to an

“empties” stack.


without an ICD.

Source: Consultant


Final Report 254

For convenience, the incremental tasks have been shaded. These provide a guide as to

which costs are incremental, but some practicalities also have to be considered.

Relevant Capital Costs

It is clear from the above that the capital costs of the port railhead plus any capital costs

incurred in respect of the rail link and some part of the ICD capital costs are incremental

costs and therefore relevant as incremental costs.

Considering the port railhead, the entire capital cost is relevant, including the cost of the

tractor trailer units used to transport containers to and from the railhead (In fact, it is

expected that the said tractor and trailer units will be purchased as part of the project).

As noted all capital expenditure related to the rail link, including rolling stock, additional

track works etc. is relevant.

The ICD is more complicated:

• Clearly the land acquisition for the entire site will not be offset by the port not

acquiring land of equivalent value, and so is relevant;

• Initial equipment costs are similarly not likely to be offset by the port not acquiring

equipment at the same date, and so are relevant (this is a conservative assumption

as the acquisition of new equipment may save the economy the cost of replacing

some old port equipment);

• After the initial phase, replacement costs of equipment used in the shaded activities

of Table 14.1 above, and additional equipment required to cater for expansion

beyond the initial phase will be relevant; but

• The costs of replacing CFS equipment, and equipment used for stacking empties and

of providing additional equipment to cater for expansion in these areas (activities

not in the shaded part of Table 14.1) is not relevant because such replacements and

additions will simply offset similar expenditures which would, in the absence of an

ICD, have been made in the port.

Recurrent Costs

Recurrent costs are simpler. All recurrent costs at the port railhead are relevant.

Railway recurrent costs are less simple as they should exclude any costs which would have

been incurred by the Sri Lankan railways in the absence of the project. Railway costs have

to be scrutinised with this objective in mind.

In respect of ICD recurrent costs, the same distinction between costs relating to the shaded

area of Table 14.1 and the unshaded area has to be observed.


Final Report 255

14.4 Shadow Pricing

14.4.1 Numeraire

The consultant considered whether to use the domestic price numeraire or the world price

numeraire, and chose the former as being easier for the reader to understand. As noted on

p200 of the Bank’s Guidelines for the Economic Appraisal of Projects: “As long as consistency

is maintained across all project effects, project decisions will not be affected by whether the

domestic price level or the world price level is used to express the numeraire.”

14.4.2 General

Shadow pricing will be applied to correct for significant market failures. This section

discusses taxation, Section 14.4.3 relates taxation to shadow pricing in general, Section

14.4.4 discusses the Shadow Exchange Rate Factor (SERF) and Section 14.4.5 discusses the

shadow pricing of labour.

Sri Lanka has the normal range of taxes, including income tax, corporate tax, import duties

and VAT, plus some less common taxes.

Table 14.2 shows government tax revenues, actual or estimated, from 2008 to 2011, with a

breakdown of revenue from taxes on international trade (Revenue Code 10.01). Similar

breakdowns of Revenue Codes 10.02, 10.03 and 10.04 are available, but not shown in the

table. It can be seen that:

• Total Tax Revenue has increased from Rs 585 bn. (billion) in 2008 to an estimated Rs

862 bn. in 2011; and

• Taxes on Domestic Goods and Services (Revenue Code 10.02) yield the largest

amount, followed by Taxes on International Trade (Revenue Code 10.01), which yield

about one third more than Taxes on Income and Profits (Revenue Code 10.04).

License Taxes and Other (Revenue Code 10.03) yield a very small amount.

Considering the Taxes on International Trade:

• Import Duties are fully documented in the National Imports Tariff Guide 2011;

• Export Duties are less relevant, except to calculating the Shadow Exchange rate (if

we apply one);

• Import and Export Licence fees are small, and are not differentiated between import

and export;

• The Ports and Airports development Levy (PAL) is a tax on imports, levied at 2% or

5%, and is fully documented in the National Imports Tariff Guide 2011;

• It is not clear why the cesses are levied separately from import and export duties,

They are simply additional import and export taxes. Import Cesses are documented

in the National Imports Tariff Guide 2011; and

• The only remaining source still existing is the Special Commodity Levy, which again is

documented in the National Imports Tariff Guide 2011.


Final Report 256

Table 14.2 Government Tax Revenues, 2008 -2011 (Rs’000)

2010 Revised 2011

Revenue Description 2008 2009 Budget Budget Budget

Code Actual Actual Estimate 2010 Estimate

Tax Revenue 585,770,457 619,182,257 733,464,000 720,040,500 862,142,600

10.01 Taxes on International Trade 136,958,276 164,447,689 188,526,000 158,242,500 212,051,000

10.01.01.00 Import Duties 63,994,292 79,809,561 85,507,000 66,304,000 93,003,000

10.01.02.00 Export Duties 39,524 79,935 110,000 21,500 30,000

10.01.03.00 Import & Export Licenses Fees 231,232 240,660 250,000 250,000 260,000

10.01.04.00 Ports & Airports Development Levy 31,016,970 36,286,024 42,012,000 49,000,000 63,000,000

10.01.05.00 Cess Levy 24,472,031 28,519,946 35,233,000 29,774,000 40,758,000

10.01.05.01 Import Cess Levy 22,800,414 26,938,572 33,285,000 27,926,000 33,808,000

10.01.05.02 Export Cess Levy 1,671,617 1,581,374 1,948,000 1,848,000 6,950,000

10.01.06.00 Motor Vehicle Concessionary Levy 2,076 591

10.01.07.00 Regional Infrastructure Development levy 2,598,939 546,058 525,000 2,500,000

10.01.08.00 Special Commodity Levy 14,603,213 18,964,916 24,889,000 10,393,000 15,000,000

10.01.99.00 Other

10.02 Taxes on Domestic Goods And Services 320,480,038 311,907,974 381,014,000 421,336,000 488,236,000

10.03 License Taxes & Other 1,790,959 3,268,546 3,580,000 5,422,000 6,972,600

10.04 Taxes on Income & Profits 126,541,183 139,558,049 160,344,000 135,040,000 154,883,000 Source: Government Estimates 2011, Code 4.2.1 Government Revenue - Tax Revenue


Final Report 257

In addition to the above, the National Imports Tariff Guide 2011 also documents Value

Added Tax (VAT), Nation Building Tax (NBT); and Excise. These are all included under

Revenue Code 10.02: Taxes on Domestic Goods and Services.

Value Added Tax is levied at 12%. The Nation Building Tax on importers, retailers etc. is

levied at 2% of turnover. Excises mostly apply to cigarettes, liquor etc, but do also apply to

motor vehicles and fuel. There are many other taxes in this group, but they are not of direct

relevance to this study.

As already noted, the amounts collected under 10.03: License Taxes & Other are small.

Revenue Code 10.04: Taxes on Income & Profits, includes: Corporate Taxes, Non-corporate

taxes, Withholding Taxes and the Economic Service Charge. While the purpose of the

Economic Service Charge is unclear, it seems unlikely that any of the above taxes are of

direct relevance, except in calculating the Weighted Average Cost of Capital (WACC).

Small companies and venture capital companies are taxed at 12% of taxable income, while

larger companies pay 28%. Income tax rates are progressive up to 24%.

In addition to charging PAYE (personal income tax paid by employees through their

employers), and remitting it to the taxation authorities, employers also have to pay.

14.4.3 Application to Imports

For the purposes of this study, the taxes likely to have the greatest impact on costs, and

therefore most needing to be corrected by shadow prices are those ad valorem taxes

affecting the costs of inputs. These are particularly numerous in respect of imports and, as

noted above, include:

• Customs Duty;

• Ports and Airports development Levy (PAL);

• Cess Levy;

• Excise Duty;

• Value Added Tax (VAT); and

• Nation Building Tax (NBT).

Some of the above are additive, and some are compounded. In addition the CIF value is

arbitrarily increased before some taxes are charged, increasing the tax take. Sri Lanka

Customs provides a tariff calculator in the form of a small spreadsheet, from which the

following expressions have been taken:

Customs Duty (c) = f x rc

Ports and Airports development Levy (PAL) (p) = f x rp

Cess Levy (s) = f x 1.1 x rs


Final Report 258

Excise Duty (e) = ((f x 1.15) + c + p + f) x re

Value Added Tax (VAT) (v) = ((f x 1.1)+(c + p + s + e)) x rv

Nation Building Tax (NBT) (n) = ((f x 1.1) + (c + p + s + e)) x rn

Where:

f is the CIF price of the imported goods;

c, p, s, e, v and n are as defined above; and

rc, rp, rs, re, rv and rn are the rates at which the above taxes are levied.

Sri Lanka imports large of cement, both as clinker and as the finished product. Taking

imported finished cement as an example, the relevant tax rates are shown under “Nominal

Rate” below, while “Tax Take” shows the percentage of the CIF price raised by each tax.

Table 14.3 Nominal Rate vs Tax Take, Cement, 2011

Tax Nominal Rate Tax Take(a)

Customs duty(b) 5% 5.000%

PAL 5% 5.000%

Cess Levy 8% 8.800%

Excise Duty 0% -

VAT 12% 15.456%

NBT 2% 2.576%

Total Tax 36.832% Source: Consultant

(a) as a percentage of the CIF price

(b) Cement imports from India and Pakistan are free of duty

This implies that, at the market exchange rate, the price of cement in Sri Lanka exceeds the

world price by some 37%. So, subject to taxes being the only distortion, it would be

necessary to apply a shadow price factor of 0.731 (=100/136.832) to reduce the domestic

price of cement to an international price. In fact taxes also distort the exchange rate itself,

as discussed below.

Table 14.4 extracts various useful rates from the National Imports Tariff Guide, 2011,

concentrating on the project costs. For some imports a range of preferential rates is shown.

These refer to imports from:

• IN: India

• PK: Pakistan

• SF: the South Asia Free Trade Area (SAFTA), including Bangladesh, Bhutan, India,

Maldives, Nepal, and Pakistan; and

• SD: the Least Developed Countries under SAFTA, including Bangladesh, Bhutan,

Maldives, and Nepal.

Table 14.5 shows the application of the said taxes.


Final Report 259

Table 14.4 Selected Tax Rates, 2011

Item HS Heading

/Code Customs Duty VAT PAL NBT Cess Excise

Preferential General

IN PK SF SD

Aggregates, Tarred Macadam 2517 – various Free Free 10.83% 4.5% 15% 12% 5% 2%

Portland Cement 2523.10 Free Free Free Free 5% 12% 5% 2% 8%

Petrol 2710.11.20 Rs 35/l Ex 5% Ex Rs 25/l

Diesel/Gas oil 2710.19.40 Rs 15/l Ex 5% Ex Rs 25/l

Lubricants 2710.19.80 30% 12% 5% Ex

Tyres: cars, truck and bus: new 4011.10 30% or Rs90/kg 12% 5% 2% 10%

Tyres: motorcycle: new 4011.30 30% 12% 5% 2% 10%

Tyres: used or retread 4012 – various 30% 12% 5% 2% 10%

Re-bar(a) 7214.20.90 30% 12% 5% 2%

Railway track 7302 – various Free Free 10.83% 4.5% 15% 12% 5% 2%

Cranes 8426 – various Free Free Free Free Ex 5% 2%

Fork lift trucks 8427 – various Free Free Free Free Free 12% 5% 2%

Railways(b) 86 – various 4% 1.50% 5% 12% 5% 2% Source: National Imports Tariff Guide, 2011, Sri Lanka Customs

(a) Described as: Other bars and rods of iron or non-alloy steel, not further worked than forged, hot-rolled, hot drawn or hot extruded, but including those twisted after

rolling: containing indentations, ribs, grooves or other deformations produced during the rolling process or twisted after rolling: other.

(b) Chapter 86 shows duties and related taxes on locomotives, wagons, track fixtures and fittings and signalling equipment. In total there are about 24 codes, but all have

the same tax rates.


Final Report 260

Table 14.5 Calculation of Total Taxes on Imports, Excluding Fuels, 2011

Aggregates,

Tarred

Macadam Portland

Cement Lubricants

Tyres:

cars,

truck and

bus:

new(a)

Tyres:

motorcycle:

new

Tyres:

used or

retread Re-

bar Railway

track Cranes

Fork

lift

trucks Railways

CIF 100 100 100 100 100 100 100 100 100 100 100

Customs duty 15 30 30 30 30 30 15 - 5

PAL 5 5 5 5 5 5 5 5 5 5 5

Cess Levy - 9 - 11 11 11 - - - - -

VAT 16 15 17 19 19 19 17 16 - 14 14

NBT 3 2 - 3 3 3 3 3 2 2 2 Total Tax

Value 38 31 52 68 68 68 55 38 7 21 27 Source: Consultant

(a) Based on the ad valorem customs duty rate.


Final Report 261

Table 14.6 shows the taxes on imported vehicles relevant to the study. These have been

worked out in the same way as the taxes shown in Table 14.5, and apply to the vehicle

classes used in estimating congestion.

Table 14.6 Taxes on Vehicle Imports (Rs. per 100 Rs. CIF value)

Motor

Cycle 3-

Wheeler Car/

saloon

Utility

(Pickup/

Jeep/Van) Mini

Bus Large

Bus

Light

Goods

Veh

Medium

Goods

Veh

Heavy

Goods

Veh

Multi

Axle

Goods

Veh

54 38 119 119 55 21 38 27 27 27 Source: Consultant

Notes: Motorcycle: 50-200cc imported, not more than 3 years old, from India (HS Code 8711.20.10).

3-wheeler: not more than 3½ years old, from anywhere (There is no preferential rate for imports

from India) (HS Code 8703.21.53).

Car/ saloon: 1,000-1,500cc, not more than 3½ years old, from anywhere (HS Code 8703.22.59).

Utility (Pickup/ Jeep/Van): includes disparate vehicle types, but has been assumed the same as

the Car/Saloon above (HS Code 8703.22.59).

Mini Bus: 13-17 passengers, not more than 5 years old, from anywhere (HS Code 8702.90.39).

Large Bus: more than 17 passengers, not more than 5 years old, from anywhere (HS Code

8702.90.59).

Light Goods Vehicle: Carrying capacity less than 1,500kg, Not more than 5 years old, (HS Code

8704.21.61).

Medium Goods Vehicle gvw 5-20 tonnes, Not more than 5 years old (HS Code 8704.22.10).

Imports from India are free of customs duty, so the figure given reduces to 21.

Heavy Goods Vehicle: Goods Vehicle gvw 20 tonnes +, Not more than 5 years old (HS Code

8704.23.30). Again this figure reduces to 21 in respect of imports from India.

Multi Axle Goods Vehicle: Tractor Unit only, imported not more than 5 years old (HS Code

8701.20.10) . Again this figure reduces to 21 in respect of imports from India.

Semi-trailers (the trailer part of an articulated truck) are manufactured locally, and are

not included in the above table.

Taxes on fuels have been calculated separately because the pump prices strongly

suggested to the Consultants that pricing does not follow the National Imports Tariff

Guide.

It was reported on Apr 02, 2011 (Lanka Business Online) that Sri Lanka had raised fuel

prices: the Ceylon Petroleum Corporation had raised petrol (90 Octane) prices by 10

rupees a litre to 125 rupees but had raised auto diesel by only 3 rupees to 76 rupees.

Because international petroleum products are traded freely, with the price varying day-

by-day, or even hour by hour, it is difficult to know exactly which international price to

compare with the pump price for the purpose of determining shadow prices. However,

during the half month preceding the weekend of 1 – 2 October, the reported

international prices for both fuels, on the Singapore market, had been moving around

the US$123 per barrel level, suggesting the resource costs shown below.


Final Report 262

Table 14.7 International Fuel Prices, 2nd half of September 2011

International Price Resource cost

(US$ per Barrel) (US$ per Litre) (Rs per Litre) (Rs per Litre)

Petrol 95 Octane Unleaded 123 0.77 85 90

Diesel 123 0.77 85 90 Source: Singapore Market Reports

Note: I barrel = almost exactly 159 litre.

US$1.00 = Rs110.

Distribution cost, a legitimate part of the resource cost at the pump, has been assumed at Rs5

per litre.

The petrol price shown in Table 14.7 refers to 95 octane petrol, while the price given in

the preceding text is for 90 octane petrol. 95 octane petrol is sold for about 10 rupees

per litre more than 90 octane petrol, giving a pump price of Rs 135/l.

Comparing pump prices with the resource costs shown above gives the tax/subsidy

estimates shown below.

Table 14.8 Taxes/Subsidies and Shadow Prices, September 2011 (Rs)

Petrol Diesel

Pump Price 135 76

Resource cost 90 90

Taxes/(Subsidies) 45 (14) Source: Consultant

In practice shadow pricing should be applied to the marginal supply of each input,

because it is at the margin that savings will be made. Thus, on the basis of the

Consultant’s understanding of the Sri Lankan economy, of the inputs discussed above,

only aggregates and cement should be locally produced, and the primary input of

cement, cement clinker, is itself an import. Other items are either:

• not locally produced, like railway locomotives; or

• meet marginal demand through imports. For example Sri lanka has a refinery

but remains a significant importer of petrol and diesel fuel.

14.4.4 Shadow Exchange Rate Factor (SERF)

The SERF Calculation

As explained in Appendix 16 to the Guidelines for the Economic Analysis of Projects,

“Where tariffs represent the main distortion in the market for foreign exchange, the

SERF has been approximated by one plus the weighted average tariff rate”. This is easily

calculated as demonstrated below.

As 2011 is not yet over, this calculation has been based on the revised 2010 budget, as

shown in Table 14.2 above, except that:


Final Report 263

• The Regional Infrastructure Development Levy has been ignored as it appears

not to exist in 2011; and

• The revenue from Import & Export Licenses Fees has been ignored as the mix of

revenue raised on imports and revenue raised on exports is not clear.

Both of the above raised only small amounts of revenue, so their exclusion is not likely

to greatly change the calculation results.

The weighted average tax rate is given by:

Revenue raised from imports – Revenue raised from exports

Value of total Trade

Where:

• From Table 14.2, Revenue raised from imports = the sum of revenues from:

Import Duties, Ports & Airports Development Levy, Import Cess Levy and Special

Commodity Levy = Rs 153.6 tr.;

• Also from Table 14.2, Revenue raised from exports = the sum of revenues from:

Export Duties and the Export Cess Levy = Rs 1.9 tr.; and

• From Table 14.9 below, the value of total trade in 2010 is estimated as Rs

2,461.6 bn.

So calculated, the SERF = 1 + 153.6 – 1.9 = 1.062

2,461.6

It is clear that there is a large trade imbalance, with imports greatly exceeding exports.

In this respect, an IMF staff mission led by Brian Aitken visited Colombo May 31-June 10,

and, at the end of the mission, issued a generally favourable press release which did

however carry the following advice:

“Strong export growth and continued large remittance inflows have supported reserves,

but going forward, rapid import growth and high oil prices could put pressure on the

balance of payments. In this event, the central bank should allow the exchange rate to

reflect market forces flexibly and avoid sustained sales of foreign exchange, ensuring

that reserves remain healthy and the economy competitive”.

Whether or to what extent the rupee will decline is not known to the Consultant, and

estimating the size of any decline would a require a knowledge both of the elasticity of

demand for imports and the elasticity of demand, in importing countries, for Sri Lanka’s

exports. However, the Consultant has not taken into account the possible future decline

in value of the Rupee, and has assumed a SERF of 1.06, based on the calculation above.

The Consultant’s approach to estimating the economic prices of tradable inputs, such as

railway track, is to take the sale price, reduce it by correcting for the various taxes, and

then increase it by multiplying by the SERF. This is done by means of Shadow Price

Factors, as described in Section 14.4.6.


Final Report 264

Total Trade

The trade data in Table 14.9 below are taken from statistical tables published by the

Central Bank of Sri Lanka, actually showing the balance of payments breakdown by year,

denominated in US$.

Table 14.9 Sri Lanka Trade Performance in Jan-Dec 2010

2010 2009 Y/Y growth

(in millions of dollars) (in percent)

Exports 8,307.00 7,084.50 17.3

Imports 13,511.70 10,206.60 32.4

Balance of trade 5,204.70 3,122.10 66.7 Source: www.xe.com (website)

From the above, the total value of external trade in 2010, the sum of imports and

exports, was US$ 21.818 bn. Converting at a mid 2010 exchange rate of US$1.00 = Rs

112.8200 (Central Bank – 1 July 2010), gives a total of Rs 2,461.6 bn.

14.4.5 Unskilled labour

Appendix 12 of the Bank’s Guidelines for the Economic Appraisal of Projects divides

labour into three classes: skilled, semi-skilled and unskilled. Semi skilled workers are

generally not relevant to this project, being more relevant to manufacturing projects,

and so two classes have been considered: skilled and unskilled workers.

Paragraph 4 of the above appendix states that “Since skilled workers are generally in

short supply in DMCs, prevailing market wages in the project area may be taken as

corresponding to their supply price”. The Consultant is in agreement with this view and

finds that this assumption can be applied in respect of the project under consideration.

A unity shadow price factor has been assumed for skilled labour.

Considering unskilled labour, the above appendix gives guidance on how to correct for

taxes, but is relatively silent on how to correct for market failure, preferring to use

expressions such as “If the market works fairly well” (para.9). In many DMCs, including

Sri Lanka, there is market failure, for example where the wages of the unskilled are

raised above a market level by their own action through trade unions, or by government

imposing minimum wages which are higher than would have been set by the market.

In respect of Sri Lanka, the Encyclopaedia of the Nations website reports that:

“The country has a strong trade union tradition, and the constitutional right to form

unions is respected by the government. Approximately 25% of the nationwide labor

force are union members, with over 70% of agricultural workers unionized as well. The

largest trade union federations are the Ceylon Workers' Congress, the National Workers'

Union, the Democratic Workers' Congress, and the Ceylon Federation of Labor. With the

exception of essential workers, employees have the right to strike. It is illegal for an

employer to discriminate against those who engage in union activity. Collective

bargaining is widely practiced.”


Final Report 265

There is no national minimum wage, but there are minimum wages set in individual

sectors and industries…”

The various minimum wages seem to be set by industry-specific wages boards.

Considering the Construction Industry, Statistics from the Ministry of Labour, shown

below, show that the average minimum wage for Construction is higher than those for

Agriculture and Manufacturing and that average earnings, while lower than those for

manufacturing are considerably higher than the minimum wage. However, it should be

noted that, while the statistics shown are the most detailed the Consultant has been

able to find, they do not disaggregate by skill level within sector. At the same time, it

would be surprising if no one benefitted from the minimum wage, and those most likely

to benefit from it are the least skilled.

Table 14.10 Minimum Wages vs Average Earnings 2003 – 2009 (Rs/day)

Average minimum wage rate (Daily) Average Earnings (Daily)

Agriculture Manufacturing Construction Agriculture Manufacturing Construction

2003 114.6 114.52 155 138.43 306.28 276.42

2004 119.53 123.72 155 152.94 310.84 316.16

2005 127.52 126.31 178.5 178.47 336.49 416.75

2006 147.94 128.51 178.5 206.33 356.11 424.55

2007 170.53 173.15 200.5 198.01 411.6 408.37

2008 222.34 221.65 252 298.85 469.47 443.91

2009 235.15 247.04 292.5 323.2 492.73 472.58 Source: Department of Labour

In practice:

• The operation of the project is unlikely to add significantly to long term employment

in Sri Lanka: it will transfer some mostly skilled employment from the trucking

industry to the railway industry and will transfer some port tasks to new locations in

the ICDs;

• It will create short term employment, including employment for the unskilled in the

construction industry; and

• It is unlikely that unskilled workers pay significant amounts of tax.

The Consultant has therefore chosen to assume that the shadow wage factor for

unskilled workers in the construction industry should correct for market failure rather

than for taxes, and, having no basis for a more detailed estimate, have assumed the

shadow wage rate factor for unskilled labour to be 90% of the actual wage rate.

It should be noted that this study is not of a labour intensive industry and that precision

in estimating the shadow wage rate factor for unskilled workers is not crucial to the

results.


Final Report 266

14.4.6 Shadow Prices

As already argued, of the inputs discussed in Section 14.4.2, only two should not be

shadow priced as imports. To shadow price the remainder, it is necessary to remove

taxes and then apply the SERF, giving the results shown below. The figures in the final

column of Table 14.11 are the shadow prices to be applied.

Table 14.12 shows domestic shadow prices. Aggregates have been replaced in this table

by building materials in general, on the assumption that all building materials except re-

bar are locally produced. Because they are locally produced, the SERF is not applicable

and it is therefore only necessary to remove the VAT and the NBT. VAT and NBT are

added rather than being compounded, giving a shadow price factor of 0.877.

Furthermore, because the tax rates on cement, before VAT and NBT, come close to

balancing the SERF, it has been decided to apply the 0.877 to cement also. Finally, the

shadow price factors for labour have been taken from Section 14.4.5.

The consultant has seen no reason for shadow pricing either land or resettlement and

compensation.

Table 14.11 Import Shadow Prices

Item Shadow Price

Factor

Before

SERF After

SERF

Lubricants 0.656 0.696

Tyres: cars, truck and bus: new 0.596 0.632

Tyres: motorcycle: new 0.596 0.632

Tyres: used or retread 0.596 0.632

Re-bar 0.644 0.683

Railway track 0.724 0.767

Cranes 0.932 0.988

Fork lift trucks 0.826 0.875

Railways 0.789 0.836

Petrol 0.667 0.707

Diesel 1.185 1.257

Motor Cycle 0.650 0.689

3- Wheeler 0.724 0.767

Car/ saloon 0.458 0.485

Utility (Pickup/ Jeep/Van) 0.458 0.485

Mini Bus 0.644 0.683

Large Bus 0.826 0.875

Light Goods Veh 0.724 0.767

Medium Goods Veh 0.789 0.836

Heavy Goods Veh 0.724 0.767

Tractor Unit 0.724 0.767 Source: Consultant


Final Report 267

Table 14.12 Domestic Shadow Prices

Item Shadow Price Factor

Building Materials 0.877

Cement 0.877

Trailers 0.877

Skilled labour 1.000

Unskilled labour 0.900 Source: Consultant


Final Report 268

15 Economic appraisal Throughout, an international exchange rate of 1 US$ = 110 Rs has been used. Where

appropriate, the Shadow Exchange Rate Factor (SERF) has been used to modify this –

see Section 14.4.4.

15.1 Land Values

As noted earlier it is assumed that land for most ICD sites will be provided to the project

free of charge. Nevertheless, such land is a resource with an opportunity cost, which

should be included in the appraisal whether or not money actually changes hands.

Table 15.1 shows the areas of land to be acquired, separating good quality land from

marshy land, and estimates the opportunity cost of that land.

Market prices of land are a good indicator of opportunity costs, and indicative market

prices have been collected for all sites except the port railhead sites, which are

discussed below. Land prices are not uniform, both location and quality matter, and as

a result there are prices for each site and for good land and marshy land.

The values shown are commercial sale prices and it can be assumed that they related to

sites which are cleared for development, not sites in respect of which compensation and

resettlement has to be paid. It can further be expected that the need to pay

compensation and resettlement costs will depress site values, by an amount equal to

the said costs. Thus, for those sites in respect of which compensation and resettlement

is payable, the land acquisition cost shown in the economic appraisal has been assumed

to be inclusive of the compensation and resettlement cost.

The potential site of the port railhead would be on reclaimed land, forming part of the

proposed Port City, and there is clearly no market in land which has yet to be reclaimed

from the sea. However, press reports say that, under a presidential directive, the Sri

Lankan government is to reclaim 300-400 acres of sea land between the Colombo South

Port Development project and the Galle Face Green in order to build a Port City at a cost

of US$ 300 million.

The reported total cost implies a unit development cost of around US$1 million per acre.

Further press releases say that of the 330 acres (a more precise figure), 200 acres of the

City are to be either sold outright or given out on a long term lease to investors,

implying a cost of at least US$ 1.5 million per acre sold or leased. While it is not yet

clear to the Consultant under what arrangements the project will use or own the port

railhead site, it is clear that the land will have a value and, if the decision to develop Port

City is rational, that the opportunity cost of the land will be not less than US$1.5 million

per acre, equivalent to Rs. 408 million/ha. This unit price has been taken into Table

15.1, and is not out of proportion to the prices given in respect of other sites.

The totals given in Table 15.1 have been taken into the economic appraisals.


Final Report 269

Table 15.1 Opportunity Cost of Land

Land Requirement (Ha) Cost per

Ha (Rs

million)

Opportunity cost (Rs million)

Site Stage 1 Stage 2

Total Stage 1 Stage 2

Good Marshy Good Marshy Good Marshy Total Good Marshy Total

Enderamulla 2.84 316.29 898

43.26 46.10 79.07 3,421 4,319

Ratmalana 13.83 13.83 988.42 13,670 0 13,670

Telangapata side of PelTel 2.86 8.22

27.60 See

valuation

report

1,950 4,530 16.52 0.00

Peliyagoda side of PelTel 4.38

3.60

16.05 1,645 1,980

7.80

0.27

Veyangoda 21.63 21.63 71.17 1,539 0 1,539

Sedawatta 0.07 474.44 475

1.32 1.39 336.06 444 918

Port Railhead - 3 lines 3.36 3.36 408 1,371 0 1,371

Port Railhead - 4 lines 3.71 3.71 408 1,514 0 1,514

Source: Consultant, Peliyagoda/Telangapata land compensation valuation report


Final Report 270

15.2 Incremental Capital Costs

This section shows the capital costs for each of the four candidate IDC sites, the

Sedawatta Link and the alternative port railhead sites. The costs shown are economic

costs. It has been assumed that the contingencies shown in the Consultants’ costing will

be spent in full. All costs in this chapter are at 2011 prices.

15.2.1 Economic costs of Civil and Track Works at ICD sites

Table 15.2 shows the economic capital costs for civil works at the four ICD sites. These

have been developed from the financial costs shown in Chapter 8. Preliminaries are

small, and have been included in full, without shadow pricing.

The economic prices of land at the sites have been estimated above in Table 15.1. As

explained in the preceding section, compensation and resettlement costs have been

included in the land acquisition cost, all shadow priced at unity.

Deck Preparation is a major item, which should be included in full as it seems unlikely

that there would be an offsetting saving in the port. A weighted average shadow price

has been calculated assuming 50% construction materials (SPF = 0.877), 25% skilled

labour (SPF = 1.00) and 25% unskilled labour (SPF = 0.90). All other civil works items

except railway construction have been treated in the same way as Deck Preparation.

Considering Infrastructure and buildings, most of the items are one off and their

construction is unlikely to be offset by savings elsewhere. The exception is the CFS, for

which staged construction is planned, and where it seems reasonable to assume that,

after the first tranche, expansion of the CFS will offset the need for more CFS capacity at

the port. Thus only the first tranche has been recognised as an incremental cost, again

shadow priced at the same rate as the Deck Preparation. This is a conservative

assumption, meaning one which is biased against the project, in that even though it is

unlikely that the first tranche of CFS construction will be immediately offset by a

reduction in investment at the port, it will probably be offset by a reduction in later

investment.

Finally, it is recognised that the railway construction will include steel track, and also

trackside furniture, which have their own shadow prices. A composite shadow price has

been applied made up of the shadow prices for skilled labour (25%), unskilled labour

(25%), construction materials (30%), track (10%) and “railways” (10%).

Table 15.2 shows the results of applying the above assumptions. The numbers for

Peliyagoda/Telengapa look a little different from those for the other three sites because

staged construction has been assumed as discussed in Chapter 8; there is a significant

land acquisition cost in Stage 2.


Final Report 271

Table 15.2 Economic Costs of Land and Civil Works (Rs million)

Economic Costs Veyangoda Enderamulla PelTel Ratmalana

2014 2020 2014 2020 2014 2020 2014 2020

Preliminaries 100

150 150 90

Land acquisition* 1,539 4,319 3,595 6,510 13,670

Deck preparation 1,119 217 2,524 418 2,158 434 250 91

Circulation 32 36 62 64 64 55 18 21

Access road 28 105 67 13

Boundary wall 74 134 79 42 75

CFS buildings 573 1,459 1,459 434

Other buildings 513

1,216 1,216 2 421

Railway works on site 545

355 285 143 280

Signalling, level Xings 124

200 170 20 133

Total Civil Works 4,647 253 10,523 482 9,243 7,206 15,385 113

Source: Consultant Note: * Land acquisition one year earlier, in 2013 & 2019

15.2.2 Economic costs of Rolling Stock and Cargo Handling Equipment

M8 locomotives

All locomotives and wagon purchases are incremental to the project, but one cost is

excluded from the Consultant’s costing. That is the use of M8 locomotives in the early

years of the project. While these locomotives are already inside the economy, and so

will not be imported, they have a value to the economy, and their use involves an

opportunity cost.

The M8 locomotives were first imported in 1996 and are described as being of 2,600hp

(horsepower). In the absence of a market for second hand M8 locomotives, there is a

need to estimate their capital costs for inclusion in the Consultant’s appraisals. The

Consultant is unaware of the value at which these locomotives are held in SLR’s books

and, given that a book value is an artificial figure based on a purchase price, long since

eroded by inflation, and an artificial idea of the asset life, would not find such

knowledge helpful.

Veyangoda

It has been assumed that the M8 equivalent locomotives proposed for Veyangoda from

2021 would cost Rs. 200 million, at today’s prices. It has therefore also been assumed

that today’s price for new M8 locomotives would also be Rs. 200 million.

But the existing M8 locomotives are not new, and how long a locomotive can be

expected to last is a relevant question. The Consultant understands that a reasonable

assumption is that the life of an M8 is 25 years.

Accountants typically depreciate assets on a straight line basis, but this is just a

simplification, with arguments for various other approaches. Nevertheless, for the

purpose of this analysis, it has been assumed that locomotive value declines, in real

terms, over the assumed life. On this basis, a locomotive imported in 1996, with new


Final Report 272

price of 200 million, will have a 2014 value of Rs 56 million, declining at a rate of Rs. 8

million per year, all at 2011 prices. It has further been assumed that, by the end of

2020, these locomotives will be very close to the ends of their lives, and so have no

value.

Finally, it has been assumed that 4 such locomotives will be taken into the project in

2014, and will remain in service until the end of 2020, the year in which the new

locomotives are assumed to be acquired, all before shadow pricing. The resulting costs

have been inserted into the Consultant’s calculations.

Locomotives and wagons have been shadow priced using the shadow price factor shown

in Chapter 14 (0.836). Additional wagons and locomotives are assumed to have been

purchased as and when necessary.

In deciding about the relevance of cargo handling equipment purchases, it is necessary

to be guided by Table 14.1, showing which activities, and hence which plant items, are

incremental, and which are simply existing activities, transferred from the port. It is

clear from Table 14.1 that all RTG lifts are incremental, and the ICD RTGs are included in

full in the economic costing and shadow priced using the shadow price factor shown in

Chapter 14 (0.988).

Considering tractor trailer units, It is clear that insofar as tractor trailer units are used for

transporting containers between the railway siding and the stack, their costs are

relevant to the appraisal, but when they are transporting containers between the stack

and the CFS, their costs are not relevant, because they are simply carrying out an activity

which would otherwise have been carried out at the port. A tractor-trailer unit is

assumed to consist of an imported tractor, shadow priced at the same rate as a road

tractor unit, and a trailer shadow priced as a locally constructed trailer, giving a

weighted average shadow price factor of 0.784.

Equipment required at the CFS is not relevant to the economic appraisal, except as

argued in respect of the CFS buildings themselves, for the first tranche. Hence, only the

first tranche of small fork lift trucks has been taken into account. A shadow price factor

of 0.875 has been applied.

Table 15.3A shows the economic capital costs for rolling stock and cargo handling

equipment for Veyangoda.

Enderamulla

The economic capital costs for rolling stock and cargo handling equipment for

Enderamulla have been worked out in the same way as those for Veyangoda above. Five

existing M8 locomotives are assumed to be taken into the project in 2014. However, the

locomotives to be acquired in 2020 would be of 3,500 h.p. and hence larger and more

expensive than the M8s.

Table 15.3B shows the year by year economic cost of rolling stock and cargo handling

equipment for Enderamulla.


Final Report 273

Peliyagoda/Telengapa


Peliyagoda/Telengapa have been worked out in the same way as those for Enderamulla

above, with the same assumptions concerning locomotives.

Table 15.3C shows the year by year economic cost of rolling stock and cargo handling

equipment for Peliyagoda/Telengapa.

Ratmalana


Ratmalana have been worked out in the same way as those for Enderamulla above. For

Ratmalana, only two M8 locomotives are assumed to be taken into the project in 2014.

Table 15.3D shows the year by year economic cost of rolling stock and cargo handling

equipment for Ratmalana.


Final Report 274

Table 15.3A Economic Capital Costs of Rolling Stock and Cargo Handling Equipment: Veyangoda (Rs million)

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Total Wagons and Locomotives 295 0 0 0 0 28 621 0 0 0 0

Total RTGs 1,040 0 0 0 0 0 0 0 0 0 0

Tractor trailer units 149 0 0 0 0 0 0 0 0 0 0

Forklift trucks 18 0 0 0 0 0 0 0 0 0 0

Total 1,502 0 0 0 0 28 621 0 0 0 0

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Total Wagons and Locomotives

0 0 0 0 0 0 0 230 0 0

Total RTGs

0 0 0 0 0 0 0 0 0 0

Tractor trailer units

0 0 0 0 0 0 0 0 0 0

Forklift trucks

0 0 0 0 0 0 0 0 0 0

Total

0 0 0 0 0 0 0 230 0 0

Source: Consultant

Table 15.3B Economic Capital Costs of Rolling Stock and Cargo Handling Equipment: Enderamulla (Rs million)

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Total Wagons and Locomotives 442 0 0 0 0 62 1,082 0 0 0 0

Total RTGs 1,214 0 0 0 0 0 867 0 0 0 0


Forklift trucks 44 0 0 0 0 0 0 0 0 0 0

Total 1,849 0 0 0 0 62 2,128 0 0 0 0

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034

Total Wagons and Locomotives 0 0 0 0 0 0 0 348 0 0

Total RTGs 0 0 0 173 0 0 173 0 0 0

Tractor trailer units 0 0 0 0 0 0 0 0 0 0

Forklift trucks 0 0 0 0 0 0 0 0 0 0

Total 0 0 0 173 0 0 173 348 0 0

Source: Consultant


Final Report 275

Table 15.3C Economic Capital Costs of Rolling Stock and Cargo Handling Equipment: Peliyagoda/Telengapata (Rs million)

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Total Wagons and Locomotives 442 0 0 0 0 62 1,082 0 0 0 0

Total RTGs 1,214 0 0 0 0 0 867 0 0 0 0


Forklift trucks 44 0 0 0 0 0 0 0 0 0 0

Total 1,849 0 0 0 0 62 2,128 0 0 0 0

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034


Total RTGs 0 0 0 173 0 0 173 0 0 0



Total 0 0 0 173 0 0 173 348 0 0

Source: Consultant

Table 15.3D Economic Capital Costs of Rolling Stock and Cargo Handling Equipment: Ratmalana (Rs million)

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Total Wagons and Locomotives 272 0 0 0 0 23 359 0 0 0 0

Total RTGs 1,040 0 0 0 0 0 0 0 0 0 0


Forklift trucks 13 0 0 0 0 0 0 0 0 0 0

Total 1,474 0 0 0 0 23 359 0 0 0 0

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034


Total RTGs 0 0 0 0 0 0 0 0 173 0



Total 0 0 0 0 0 0 0 118 173 0

Source: Consultant


Final Report 276

15.2.3 Port Railhead

The opportunity cost of reclaimed land for the port railheads has been discussed above.

Unlike at the ICD sites, where the situation is more complex, and in line with Table 14.1, all

activities, and all costs at the Port Railhead can be viewed as being incremental.

15.2.4 Sedawatta Link

The Sedawatta Link land acquisition and construction costs have been shadow priced using

the shadow price factors already applied to the ICDs.

15.3 Recurrent Costs

15.3.1 Railway Operations & Maintenance

Veyangoda Trains

It has been assumed that Veyangoda will operate with 15-wagon trains over the full period

addressed by the appraisal.

The railway recurrent costs shown in Chapter 8 bring together a number of different costs,

some of which vary with traffic level and some of which do not. Consequently, the weighted

average shadow price factor (SPF) varies slightly from year to year.

On the basis that all train crews are assumed to be skilled workers, an SPF of unity has been

applied. The shadow price of diesel fuel has been taken from Chapter 14.

The Consultant has assumed the cost of locomotive maintenance to be made up 50% of

spare parts and materials, to which the Railways shadow price factor of 0.946 has been

applied, and 50% of skilled labour, to which a unity shadow price factor has been applied,

giving an overall shadow price factor of 0.973. The same shadow price has been applied to

wagon maintenance.

The SPF for track maintenance, fixed and variable, has been assumed to be made up of

equal portions of construction materials, railway inputs, track and skilled labour, giving a

weighted average shadow price factor of 0.918.

The Interim Report identifies station operations as a fixed cost and argues that, as station

staff have a safe-working function in addition to their passenger handling functions, and will

therefore have some involvement with the container trains. Nevertheless, station operating

staff are only relevant to the economic costing of the container services if the introduction

of the container services leads to the employment of additional staff. In the Consultant’s

opinion this is unlikely to be the case, and so station operations have been excluded. In

practice, these costs are very small. Similarly, the costs shown in Chapter 8 include an

allocation of fixed maintenance costs for track shared with Sri Lankan Railways. This is also


Final Report 277

unlikely to be an incremental cost and so has been excluded. For convenience, these

excluded costs are shown in the tables above, with an SPF of zero.

As explained in the Interim Report, an administrative overhead rate of 20% was applied to

the total of the variable and fixed costs attributable to the container traffic to provide an

estimate of the administrative overhead cost of this traffic. Insofar as true incremental

costs have been identified, and accepting that cost areas require administration, there is a

case for including an administrative overhead in the economic costs. The figure of 20%

seems both high and arbitrary, but has nevertheless been adopted, and a unity shadow

price factor has been applied.

The above leads to weighted average shadow prices a little higher than unity, a

consequence of the domestic price of diesel fuel being below the international price.

Enderamulla Trains

It has been assumed that Enderamulla will operate with 15-wagon trains over the period

2015 to 2020, and 35-wagon trains thereafter. In all other respects the economic costing

has followed the approach outlined above in respect of Veyangoda.

Peliyagoda/Telangapata Trains

The economic costing has followed the approach outlined above in respect of Enderamulla.

Ratmalana Trains

The economic costing has followed the approach outlined above in respect of Enderamulla.

Table 15.4 shows sample recurrent cost breakdowns for each ICD site in 2015.


Final Report 278

Table 15.4 Railway Recurrent Costs Breakdown in 2015

Economic Costs Veyangoda Enderamulla Peliyagoda/Telengapa Ratmalana

Item % SPF

Weighted

SPF % SPF

Weighted

SPF % SPF

Weighted

SPF % SPF

Weighted

SPF

Non – incremental 2.7 0 0 1.0 0 0 0.8 0 0 1.4 0 0

Train crews 18 1 0.18 30.1 1 0.301 32.3 1 0.323 21.0 1 0.210

Fuel/energy consumption 25.9 1.257 0.325 20.5 1.257 0.258 19.5 1.26 0.245 22.2 1.257 0.279

Locomotive maintenance 12 0.973 0.117 11.2 0.973 0.109 10.9 0.97 0.106 10.9 0.973 0.106

Wagon maintenance 14.5 0.973 0.141 11.5 0.973 0.112 10.9 0.97 0.106 12.4 0.973 0.121

Variable track maintenance 0.9 0.918 0.008 0.7 0.918 0.006 0.7 0.92 0.006 0.7 0.918 0.007

Fixed cost of infrastructure maintenance 9.3 0.918 0.086 8.2 0.918 0.075 8.2 0.92 0.075 14.7 0.918 0.135

Administrative overhead cost 16.7 1 0.167 16.7 1 0.167 16.7 1 0.167 16.7 1 0.167

Total 100 1.024 100 1.029 100 1.029 100 1.024

Source: Consultant


Final Report 279

15.3.2 Operations & Maintenance in the ICDs

The CFS activities to be conducted within the ICD will largely be identical to those currently

conducted in the port’s CFSs. Also, there is no reason to assume that their costs will be

different, here meaning resource costs, not charges. This is particularly the case if the ICDs

are to be run by the SLPA, but even if they are not to be run by the SPLA, the costs of the

SPLA are the best “first guess” to the costs of ICD operation.

Under these assumptions, and to the extent that the activities are truly identical, the

incremental cost is zero – an activity is simply being transferred from one location to

another.

As demonstrated in Table 14.1, all activities from the arrival of import containers at the ICD,

to their being lifted from the stack, and the reverse for export containers, are incremental. It

follows from the above that CFS staff should be excluded from the appraisal as non-

incremental. All other staff are assumed to be skilled, and so subject to a unity SPF.

Logically, all RTG drivers but only those tractor trailer unit drivers needed to serve the

loading and unloading of trains should be included in the economic appraisal. All yard staff

have been treated as relevant to the study.

Some simplifications have been made in respect of energy. The full assumed volume of

6l/TEU has been assumed to be used by RTGs and tractor trailer units, although in reality

some would be used by the CFS fork lift trucks, and should be excluded, and electricity has

not been shadow priced on the grounds that the small sum involved does not justify what

could be a major shadow pricing effort. Diesel fuel has been shadow priced using the SPF

given in the preceding chapter.

In respect of equipment maintenance, an SPF has been chosen which is the arithmetic mean

of the SPF for a skilled worker (1) and that for the specific equipment referred to. For

infrastructure maintenance the SPF applied is that already used for civil works.

Tables 15.5A to D summarise the recurrent costs, railway and ICD, at each of the four sites.


Final Report 280

Table 15.5A Economic Recurrent Costs of Railways and ICD for Veyangoda (Rs million)

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Railway Recurrent Costs 121 128 135 143 151 165 169 179 190 201

ICD Recurrent Costs 262 267 273 278 283 289 358 365 372 379

Total 383 395 408 421 434 454 527 544 562 580

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034



Total 383 395 408 421 434 454 527 544 562 580

Source: Consultant

Table 15.5B Economic Recurrent Costs of Railways and ICD for Enderamulla (Rs million)

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024



Total 585 606 627 650 684 709 870 895 922 951

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034


ICD Recurrent Costs 795 814 834 865 886 909 934 970 997 1,026

Total 977 1,005 1,034 1,075 1,107 1,141 1,177 1,225 1,265 1,306

Source: Consultant


Final Report 281

Table 15.5C Economic Recurrent Costs of Railways and ICD for Peliyagoda/Telengapa (Rs million)

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024



Total 571 591 612 635 668 693 884 910 939 969

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034


ICD Recurrent Costs 793 812 832 863 885 907 932 969 996 1,024

Total 996 1,026 1,057 1,099 1,133 1,168 1,206 1,256 1,298 1,342

Source: Consultant

Table 15.5D Economic Recurrent Costs of Railways and ICD for Ratmalana (Rs million)

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024



Total 338 344 352 360 369 378 435 445 455 466

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034



Total 476 486 497 508 520 533 546 560 574 600

Source: Consultant


Final Report 282

15.3.3 Port Railhead

The capital and operating costs of the Port Railhead are shown in Table 8.3 for the 3 track

variant, to serve 1 ICD, and in Table 8.4 for the 4 track variant, to serve 2 ICDs.

As will be clear from Table 14.1, all activities at the Port Railhead are incremental and so

can be taken in full into the economic appraisal, subject to application of appropriate

shadow pricing.

The shadow price factors (SPFs) applied to the recurrent costs at the port railhead are

those which have also been applied to the candidate ICD sites. For example:

• Recurrent staff costs are taken to apply to people skilled in their various disciplines,

and a unity SPF has been applied;

• An SPF of 1.257 has been applied to diesel fuel as shown in Table 14.11. As

explained in the preceding section, electricity has not been shadow priced on the

grounds that the small sum involved does not justify what could be a major shadow

pricing effort;

• As explained in the preceding section, In respect of equipment maintenance, As

explained in the preceding section, an SPF has been chosen which is the arithmetic

mean of the SPF for a skilled worker (1) and that for the specific equipment referred

to. This gives SPFs of 0.994 for RTGs, and 0.892 for Tractor-trailer Units; and

• The operation and maintenance of the container control system has been shadow

priced at unity.

15.4 Traffic Impacts and Decongestion Benefits

The desire for decongestion benefits, by removing traffic from Colombo’s roads and

transferring the goods to rail, is the major objective of the project. A full chapter, Chapter

16, is devoted to the subjects of traffic modelling and decongestion benefits, with the

supporting calculations. Table 15.6 replicates Table 16.17, the final table of Chapter 16;

it shows the estimated savings for 2015, 2024 and 2025. Annual savings for years 2016 to

2023 and for years 2025 to 2033 have been estimated by assuming savings to grow on a

straight line basis between 2015 and 2024, and between 2024 and 2034.

The valuation of the above savings has been taken into the Consultant’s economic

appraisal, as described in Chapter 14. The results are given in Section 15.5.


Final Report 283

Table 15.6 Annual Transport and Congestion Savings (Rs. million/yr)

2015 2024 2034

Veyangoda - Trucking Savings 2,245 6,450 15,112

- Congestion Savings 464 60 1,320

- Total 2,709 6,510 16,431

Enderamulla - Trucking Savings 2,133 5,648 14,954

- Congestion Savings 1,838 2,140 1,142

- Total 3,971 7,788 16,096

Peliyagoda - Trucking Savings 918 2,303 6,114

- Congestion Savings 2,484 4,789 743

- Total 3,402 7,093 6,857

Ratmalana - Trucking Savings 715 2,026 4,703

- Congestion Savings 285 1,432 334

- Total 1,000 3,458 5,037

Source: Consultant

15.5 Results

15.5.1 Veyangoda

Table 15.7 shows the cost/benefit flows for an ICD at Veyangoda: These have been

generated by adding together the economic cost streams for Veyangoda ICD site, the

Sedawatta Link, the 3-line Port Railhead, the container control system and the traffic

impact. Costs are shown as negative numbers while savings or benefits are shown as

positive.

Also as noted above, a discount rate of 12% has been taken into account. In view of the

high discount rate, no residual value is shown. While all costs and the NPVs are shown at

2011 prices, discounting is to 2014.


Final Report 284

Table 15.7 Veyangoda: Economic Costs and Benefits (Rs. Million)

Year Civil Equipment:

Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent:

ICD +

Railhead

Traffic

Benefits

Total

2013 -3,828 0 0 0 0 0 -3,828

2014 -5,337 -295 -1,795 0 0 0 -7,427

2015 0 0 0 -121 -453 2,709 2,136

2016 0 0 0 -128 -462 3,132 2,542

2017 0 0 0 -135 -472 3,554 2,947

2018 0 0 0 -143 -481 3,976 3,352

2019 0 -28 0 -151 -491 4,399 3,728

2020 -253 -621 0 -160 -502 4,821 3,285

2021 0 0 0 -169 -601 5,243 4,473

2022 0 0 0 -179 -613 5,666 4,874

2023 0 0 0 -190 -626 6,088 5,272

2024 0 0 0 -201 -640 6,510 5,670

2025 0 0 -15 -211 -653 7,502 6,624

2026 0 0 0 -221 -673 8,495 7,601

2027 0 0 0 -232 -688 9,487 8,566

2028 0 0 0 -244 -703 10,479 9,532

2029 0 0 0 -256 -728 11,471 10,487

2030 0 0 0 -269 -744 12,463 11,450

2031 0 0 0 -282 -763 13,455 12,410

2032 0 -230 -15 -296 -781 14,447 13,126

2033 0 0 0 -311 -807 15,439 14,321

2034 0 0 0 -326 -827 16,431 15,278

ENPV @12% DR(a)

26,258

EIRR (%)

29%

(a) in 2011 prices but discounted to 2014

Source: Consultant

The ENPV is positive, at Rs 26,258 million.


Final Report 285

15.5.2 Enderamulla

Table 15.8 shows the cost/benefit flows for an ICD at Enderamulla, following the format

above.

Table 15.8 Enderamulla: Economic Costs and Benefits (Rs. Million) Year Civil Equipment:

Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent:

ICD +

Railhead

Traffic

Benefits

Total

2013 -6,608 0 0 0 0 0 -6,608

2014 -8,432 -442 -2,010 0 0 0 -10,884

2015 0 0 0 -148 -600 3,971 3,223

2016 0 0 -15 -156 -616 4,395 3,608

2017 0 0 0 -165 -640 4,819 4,014

2018 0 0 0 -174 -658 5,243 4,411

2019 0 -62 0 -184 -687 5,668 4,734

2020 -482 -1,082 -1,566 -194 -707 6,092 2,061

2021 0 0 -15 -147 -979 6,516 5,375

2022 0 0 0 -156 -1,008 6,940 5,777

2023 0 0 0 -165 -1,032 7,364 6,167

2024 0 0 -15 -174 -1,058 7,788 6,541

2025 0 0 0 -182 -1,088 8,619 7,349

2026 0 0 0 -191 -1,113 9,450 8,145

2027 0 0 0 -201 -1,139 10,280 8,940

2028 0 0 -188 -211 -1,177 11,111 9,535

2029 0 0 0 -221 -1,213 11,942 10,509

2030 0 0 0 -232 -1,243 12,773 11,298

2031 0 0 -188 -243 -1,276 13,604 11,897

2032 0 -348 0 -255 -1,327 14,434 12,505

2033 0 0 -15 -267 -1,363 15,265 13,620

2034 0 0 0 -280 -1,408 16,096 14,408

ENPV @12% DR(a)

24,354

EIRR (%)

24%


Source: Consultant



Final Report 286

15.5.3 Peliyagoda/Telangapata

Table 15.9 shows the cost/benefit flows for an ICD at PelTel , following the format above.

Table 15.9 Peliyagoda/Telangapata: Economic Costs and Benefits (Rs. Million)


Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent: ICD

+ Railhead

Traffic

Benefits

Total

2013 -4,239 0 0 0 0 0 -4,239

2014 -7,877 -442 -2,010 0 0 0 -10,329

2015 0 0 0 -137 -598 3,402 2,667

2016 0 0 -15 -145 -614 3,812 3,038

2017 0 0 0 -153 -638 4,222 3,432

2018 0 0 0 -162 -656 4,632 3,815

2019 -6,451 -62 0 -171 -685 5,042 -2,327

2020 -697 -1,082 -1,566 -181 -705 5,452 1,223

2021 0 0 -15 -163 -977 5,862 4,708

2022 0 0 0 -173 -1,006 6,272 5,094

2023 0 0 0 -183 -1,030 6,682 5,470

2024 0 0 -15 -194 -1,056 7,093 5,828

2025 0 0 0 -203 -1,086 7,069 5,780

2026 0 0 0 -214 -1,111 7,045 5,721

2027 0 0 0 -225 -1,137 7,022 5,660

2028 0 0 -188 -236 -1,175 6,998 5,399

2029 0 0 0 -248 -1,211 6,975 5,516

2030 0 0 0 -261 -1,241 6,951 5,450

2031 0 0 -188 -274 -1,274 6,928 5,192

2032 0 -348 0 -288 -1,325 6,904 4,943

2033 0 0 -15 -302 -1,361 6,880 5,202

2034 0 0 0 -318 -1,406 6,857 5,133

ENPV @12% DR(a)

11,893

EIRR (%) 20%


Source: Consultant

The ENPV is positive, at Rs. 11,893 million.


Final Report 287

15.5.4 Ratmalana

Table 15.10 shows the cost/benefit flows for an ICD at Ratmalana, following the format

above.

Table 15.10 Ratmalana: Economic Costs and Benefits (Rs. Million)


Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent:

ICD +

Railhead

Traffic

Benefits

Total

2013 -15,041 0 0 0 0 0 -15,041

2014 -3,248 -272 -1,776 0 0 0 -5,297

2015 0 0 0 -68 -421 1,000 512

2016 0 0 0 -72 -427 1,273 774

2017 0 0 0 -75 -436 1,547 1,035

2018 0 0 -15 -79 -444 1,820 1,282

2019 0 -23 0 -84 -460 2,093 1,527

2020 -113 -359 -1,739 -88 -469 2,366 -402

2021 0 0 0 -80 -741 2,639 1,818

2022 0 0 0 -84 -752 2,912 2,076

2023 0 0 0 -89 -764 3,185 2,333

2024 0 0 0 -94 -776 3,458 2,589

2025 0 0 0 -98 -787 3,616 2,731

2026 0 0 0 -103 -798 3,774 2,873

2027 0 0 0 -108 -811 3,932 3,013

2028 0 0 0 -113 -824 4,090 3,153

2029 0 0 0 -118 -838 4,248 3,291

2030 0 0 -15 -124 -852 4,405 3,414

2031 0 0 0 -130 -874 4,563 3,559

2032 0 -118 0 -136 -890 4,721 3,577

2033 0 0 0 -143 -906 4,879 3,830

2034 0 0 0 -150 -925 5,037 3,962

ENPV @12% DR(a)

-9,663

EIRR (%)

7%


Source: Consultant

The ENPV is negative, at Rs. -9,663 million.


Final Report 288

15.5.5 Veyangoda + Ratmalana

Table 15.11 shows the cost/benefit flows for an ICD at Veyangoda combined with an ICD

at Ratmalana, following the format above.

Table 15.11 Veyangoda + Ratmalana: Economic Costs and Benefits (Rs. Million)


Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent:

ICD +

Railhead

Traffic

Benefits

Total

2013 -17,641 0 0 0 0 0 -17,641

2014 -7,206 -567 -3,345 0 0 0 -11,118

2015 0 0 -15 -189 -789 3,710 2,717

2016 0 0 0 -199 -810 4,405 3,396

2017 0 0 0 -211 -827 5,101 4,063

2018 0 0 0 -222 -844 5,796 4,730

2019 0 -51 0 -235 -861 6,491 5,344

2020 -366 -979 -1,739 -248 -881 7,187 2,973

2021 0 0 0 -249 -1,226 7,882 6,407

2022 0 0 -15 -263 -1,248 8,578 7,052

2023 0 0 0 -278 -1,278 9,273 7,717

2024 0 0 0 -295 -1,302 9,969 8,372

2025 0 0 0 -309 -1,325 11,119 9,484

2026 0 0 0 -324 -1,348 12,269 10,596

2027 0 0 -15 -340 -1,374 13,418 11,689

2028 0 0 0 -357 -1,407 14,568 12,804

2029 0 0 0 -374 -1,445 15,718 13,899

2030 0 0 0 -393 -1,474 16,868 15,002

2031 0 0 -15 -412 -1,505 18,018 16,086

2032 0 -348 0 -432 -1,544 19,168 16,845

2033 0 0 0 -454 -1,578 20,318 18,286

2034 0 0 0 -476 -1,614 21,468 19,378

ENPV @12% DR(a)

20,315

EIRR (%)

18%


Source: Consultant

The ENPV is positive, at Rs. 20,315 million.


Final Report 289

15.5.6 Enderamulla + Ratmalana

Table 15.12 shows the cost/benefit flows for an ICD at Enderamulla combined with an ICD

at Ratmalana, following the format above.

Table 15.12 Enderamulla + Ratmalana: Economic Costs and Benefits (Rs. Million)


Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent:

ICD +

Railhead

Traffic

Benefits

Total

2013 -20,421 0 0 0 0 0 -20,421

2014 -10,302 -715 -3,574 0 0 0 -14,590

2015 0 0 0 -216 -942 4,972 3,813

2016 0 0 -15 -228 -964 5,669 4,461

2017 0 0 0 -241 -995 6,366 5,130

2018 0 0 0 -254 -1,020 7,063 5,789

2019 0 -85 0 -268 -1,057 7,760 6,350

2020 -595 -1,440 -3,147 -282 -1,086 8,458 1,907

2021 0 0 0 -227 -1,597 9,155 7,331

2022 0 0 0 -240 -1,629 9,852 7,983

2023 0 0 -15 -253 -1,664 10,549 8,617

2024 0 0 0 -268 -1,707 11,246 9,271

2025 0 0 0 -281 -1,740 12,235 10,214

2026 0 0 -15 -294 -1,775 13,224 11,140

2027 0 0 0 -309 -1,819 14,212 12,085

2028 0 0 -188 -324 -1,868 15,201 12,821

2029 0 0 0 -339 -1,917 16,190 13,934

2030 0 0 0 -356 -1,960 17,178 14,863

2031 0 0 -188 -373 -2,006 18,167 15,600

2032 0 -466 0 -391 -2,071 19,156 16,227

2033 0 0 -15 -410 -2,121 20,144 17,598

2034 0 0 0 -430 -2,182 21,133 18,521

ENPV @12% DR(a)

18,536

EIRR (%)

17%


Source: Consultant



Final Report 290

15.5.7 PelTel + Ratmalana

Table 15.13 shows the cost/benefit flows for an ICD at Peliyagoda/Telangapata combined

with an ICD at Ratmalana, following the format above.

Table 15.13 PelTel + Ratmalana: Economic Costs and Benefits (Rs. Million)


Railway

Equipment:

ICD +

Railhead

Recurrent:

Railway

Recurrent:

ICD +

Railhead

Traffic

Benefits

Total

2013 -18,052 0 0 0 0 0 -18,052

2014 -9,747 -715 -3,574 0 0 0 -14,035

2015 0 0 0 -205 -940 4,402 3,257

2016 0 0 -15 -216 -962 5,086 3,892

2017 0 0 0 -229 -993 5,769 4,547

2018 0 0 0 -241 -1,018 6,452 5,193

2019 -6,451 -85 0 -255 -1,055 7,135 -711

2020 -809 -1,440 -3,147 -269 -1,084 7,818 1,070

2021 0 0 0 -242 -1,595 8,501 6,664

2022 0 0 0 -257 -1,627 9,185 7,301

2023 0 0 -15 -272 -1,662 9,868 7,919

2024 0 0 0 -287 -1,705 10,551 8,558

2025 0 0 0 -302 -1,738 10,685 8,645

2026 0 0 -15 -317 -1,773 10,819 8,715

2027 0 0 0 -333 -1,817 10,954 8,804

2028 0 0 -188 -349 -1,866 11,088 8,685

2029 0 0 0 -367 -1,915 11,222 8,941

2030 0 0 0 -385 -1,958 11,356 9,014

2031 0 0 -188 -404 -2,004 11,491 8,895

2032 0 -466 0 -424 -2,069 11,625 8,666

2033 0 0 -15 -445 -2,119 11,759 9,180

2034 0 0 0 -467 -2,180 11,893 9,246

ENPV @12% DR(a)

6,075

EIRR (%) 14%


Source: Consultant


15.6 Interpretation

Table 15.14 below brings together the results for all seven variants shown above.


Final Report 291


ENPV EIRR

(Rs. Mil)

Veyangoda 26,258 29%

Enderamulla 24,354 24%

PelTel 11,893 20%

Ratmalana -9,663 7%

Veyangoda + Ratmalana 20,315 18%

Enderamulla + Ratmalana 18,536 17%

PelTel + Ratmalana 6,075 14%

Source: Consultant

The ADB’s threshold for economic viability is an EIRR of 12%. From the above table it can

be seen that the Ratmalana project is not viable and can be rejected on economic

grounds. All other projects are economically viable.

The question, in repect of Veyangoda, Enderamulla or PelTel is: does adding Ratmalana

benefit the economy. This can be resolved by:

• calculating the incremental cost and benefit flows resulting from adding the

incremental project, in this case Ratmalana, and discounting them to find out whether

there is a net benefit to the economy; or

• where NPVs have been calculated using a common discount rate and a common base

year, by simply subtracting NPVs to find the NPV of the incremental investment.

The calculations are shown below. In all three cases, adding Ratmalana has a negative

NPV. Thus Veyangoda + Ratmalana, Enderamulla + Ratmalana and PelTel + Ratmalana

can all be rejected on economic grounds.


ENPV (Rs. Mil)

Veyangoda Enderamulla PelTel

Combined Project 20,315 18,536 6,075

Single Project 26,258 24,354 11,893

Net Benefit from adding Ratmalana -5,943 -5,818 -5,818

Source: Consultant

The remaining viable projects are for potential ICDs at Veyangoda, Enderamulla and

PelTel. These are alternatives in that to a large extent, they serve the same traffic: it

would not make sense to implement more than one of them unless no single site had the

capacity to cater for the long term demand. While the Consultant recognises that the

choice of site will not be based purely on economic criteria, it may be instructive to rank

these three projects. It is generally accepted that the appropriate way to do this, given

that the supply of capital is usually limited, is to rank projects by ENPV/C: Economic Net

Present Value divided by capital cost. In this particular case, where capital costs are

spread over a number of years, the denominator is the present value of capital costs,

leading to the ranking shown below.


Final Report 292

Table 15.16 Project Ranking

Veyangoda Enderamulla PelTel

ENPV (Rs.mil) 26,258 24,354 11,893

PV of Capital costs (=C) 12,210 20,043 20,604

NPV/C 2.2 1.2 0.6

Ranking 1 2 3

Source: Consultant

Thus, in economic terms, only three projects are viable: those for stand-alone ICDs at

Veyangoda, Enderamulla and PelTel. Based on the NPV/C ratio, the economic ranking is

(1) Veyangoda (2) Enderamulla and (3) PelTel.

15.7 Risk and Sensitivity

15.7.1 Construction and M&E

The Consultant has tested the sensitivity of the three viable projects (ICDs at Veyangoda,

Enderamulla and Pel/Tel) to variations of +/- 10% in Construction and M&E costs.

15.7.2 Traffic Benefits

The projects under discussion display complex costs, with many different inputs. The

benefit side is much simpler, with all quantifiable benefits coming from traffic benefits.

As described in Chapter 16, traffic benefits consist of two closely related components

resulting from a single model and single costing exercises. Clearly, because they are the

only source of benefits, traffic benefits are particularly important, and the sensitivity of

the project NPV to this benefit is particularly important.

As explained in Chapter 16, road vehicle cost savings are particularly difficult to value. In

the Consultant’s opinion, there are two other sources of uncertainty in respect of traffic

benefits, which are the uncertainty in the traffic modelling process itself, and the

uncertainty attached to the consultant’s ICD throughput forecasts. The uncertainty

attached to the ICD throughput forecasts is discussed in the next sub-section. The

uncertainty in the modelling process is difficult to quantify, but has been combined with

vehicle time savings by adopting high and low values relative to the central value +/-20%.

15.7.3 O&M Costs

The Consultant has tested the sensitivity of the three viable projects (ICDs at Veyangoda,

Enderamulla and Pel/Tel) to variations of +/- 10% in Construction and O&M costs.

15.7.4 The SERF

The Consultant has considered testing the sensitivity of the three viable projects (ICDs at

Veyangoda, Enderamulla and Pel/Tel) to variations in the Shadow Exchange Rate Factor

(SERF). However, it was decided not to do this because:

• Bringing out the impact of the SERF in a way which would permit variations to be

tested would require extensive and time consuming reworking of the Consultant’s


Final Report 293

spreadsheets which, in view of the argument presented below, would be unlikely to

be justified by the output; and

• Both costs and revenues include significant proportions of traded items, here meaning

imports. The project is not one of those, such as a manufacturing project using local

inputs to provide a wholly exported output, or using imported inputs to provide a

locally consumed output, which are likely to be highly sensitive to variations in the

SERF. The Consultant is therefore confident that the results will not be highly

sensitive to the SERF.

15.7.5 Sensitivity Results

Tables 15.17A to 15.17C show the Sensitivity Results.

Table 15.17A Sensitivity Results for Veyangoda

Item Change ENPV (Rs

million)

EIRR (%) Sensitivity

Indicator

Switching

Value (%)

Base Case 26,258 29%

Construction and M&E 10% 25,466 28% -30% 331%

Construction and M&E -10% 27,051 30%

Traffic Benefits 10% 30,657 31%

167% -60% Traffic Benefits -10% 21,860 26%


Traffic Benefits -20% 17,462 24%

O&M Costs 10% 25,707 28% -21% 477%

O&M Costs -10% 26,810 29%

Source: Consultant

Table 15.17B Sensitivity Results for Enderamulla


million)


Indicator

Switching

Value (%)





214%

-47%




O&M Costs 10% 23,581 24% -32% 315%

O&M Costs -10% 25,127 24%

Source: Consultant


Final Report 294

Table 15.17C Sensitivity Results for PelTel


million)


Indicator

Switching

Value (%)





333% -30% Traffic Benefits -10% 7,869 18%



O&M Costs 10% 11,119 20% -65% 154%

O&M Costs -10% 12,666 21%

Source: Consultant

Even at the ± 10% level, traffic benefits most influence the ENPVs and EIRRs. At the more

realistic ± 20% level, traffic benefits are the dominant influence. In all cases, the ENPVs

and EIRRs remain above the ADB threshold of 12%. This demonstrates that each of

Veyangoda, Enderamulla and PelTel is robustly economically viable.

15.8 Poverty and Benefits Distribution

15.8.1 Theory

Historically, the main test of viability for ADB projects was an economic appraisal, which

broadly answered the question: does the project make a positive contribution to the

national economy? Over time the hurdles to be cleared by projects for which ADB

financing is sought have increased in number. In particular:

• Project impacts on the society and on the environment have been taken into

account; and

• Sustainability, in particular financial sustainability, has become important, as was

necessary. A project which shows a positive economic net present value, but

collapses because of financial problems, is of no use.

The ADB has been concerned with poverty reduction since its inception. However, in

1999, the Bank adopted poverty reduction as its overarching goal and announced its

Poverty Reduction Strategy (PRS) to achieve this end. Given this overarching goal, it is

important not only that a project be economically viable, financially sustainable and

environmentally and socially acceptable but also that its impact on the poor be known.

In this respect, both the ADB's Guidelines for the Economic Analysis of Projects (in

Chapter XIV and Appendices 25 and 26) and the ADB's Handbook for Integrating Poverty

Impact Assessment in the Economic Analysis of Projects present advice on how to

estimate the distribution of project net benefits among stakeholders and how to calculate

the Poverty Impact ratio.


Final Report 295

As recognised in the Consultant’s Poverty and Social Assessment Report, the project

under consideration is not a strongly pro-poor project. The main beneficiaries will be the

shippers and receivers of containerised cargo. However, the poor may benefit if:

• As a result of improved transport, the businesses for which they work become

more competitive;

• They are included in the workforces which construct and operate the dry port and

associated works; or

• As members of the Colombo general public, they benefit from reduced congestion

and pollution.

Considering poor members of the construction and operational workforces, the benefits

to them will be revealed through shadow pricing, but will be taken into the poverty

impact ratio calculation, as discussed below.

Table 15.18 and Table 15.19 below are taken from the 2010 Statistical Abstract on the

Department of Census and Statistics website. The percentages in Table 15.18 are a little

higher than those in Table 15.19, probably because poor households tend to be larger

than the average household.

The overall picture is one of stagnation between 1990-91 and 1995-96, and then of

retreating poverty thereafter. Furthermore, the last year for which data is available

(2006-7) is almost five years ago. Finally the first year of operation of the ICDs is expected

to be 2015, or 8½ years after the date of the most recent data, and will continue for a

further 20 years. Thus even the most recent data is only a poor guide to poverty over the

life of the project.

The Consultant has assumed that the reduction in the poverty level will continue. This

assumption has been taken into account in the analysis in the next section.


Final Report 296

Table 15.18 Poverty Headcount Ratio by District

District

Survey Period

1990-91 1995-96 2002 2006-07

(%) (%) (%) (%)

Sri Lanka 26.1 28.8 22.7 15.2

Colombo 16 12 6 5

Gampaha 15 14 11 9

Kalutara 32 29 20 13

Kandy 36 37 25 17

Matale 29 42 30 19

Nuwara Eliya 20 32 23 34

Galle 30 32 26 14

Matara 29 35 27 15

Hambantota 32 31 32 13

Kurunegala 27 26 25 15

Puttalam 22 31 31 13

Anuradhapura 24 27 20 15

Polonnaruwa 24 20 24 13

Badulla 31 41 37 24

Moneragala 34 56 37 33

Ratnapura 31 46 34 27

Kegalle 31 36 32 21

Note - Northern and Eastern Provinces are excluded.

Source - Household Income and Expenditure Survey 1990-91, 1995-96, 2002, 2006-07

Department of Census and Statistics


Final Report 297

Table 15.19 Percentage of Poor Households Based on the Official Poverty Line by

District

District

Survey Period

1990-91 1995-96 2002 2006-07

(%) (%) (%) (%)

Sri Lanka 21.8 24.3 19.2 12.6

Colombo 13.1 8.8 5 3.9

Gampaha 11.7 11.3 9.2 7.2

Kalutara 27 24.6 17.7 10.3

Kandy 30.9 32.7 20.9 13.9

Matale 24.3 36.8 24.5 15.7

Nuwara Eliya 15.6 25.9 18.2 27.5

Galle 25 25.5 21.7 10.7

Matara 23.3 29.5 23.2 11.7

Hambantota 26.3 26.2 27.8 10.5

Kurunegala 22.8 22.6 21.2 12.9

Puttalam 18.6 25.8 24.5 10.6

Anuradhapura 20.1 21.9 17.2 12.7

Polonnaruwa 21.2 17.1 20.1 10

Badulla 26.8 35.8 31.5 21

Moneragala 27.4 48.4 32.4 29.2

Ratnapura 26.4 40 30.1 21.5

Kegalle 27.3 31.7 27.5 18.4 Note - Northern and Eastern Provinces are excluded.

Source - Household Income and Expenditure Survey 1990-91, 1995-96, 2002, 2006-07

Department of Census and Statistics

15.8.2 Poverty Impact Ratio

This Section estimates the distribution of the project benefits between the various

stakeholders, and calculates the project’s Poverty Impact Ratio. The reader should note

that:

• All financial and economic numbers in Tables 15.20 - 15.22 are present values, at

2011 prices, discounted to 2014;

• Both financial and economic figures include only those activities which have been

included in the economic appraisal in accordance with Table 14.1. This primarily

means that, except for some initial costs, CFS operation is excluded. Revenue

from CFS operation is also excluded (44.7% of total revenue). It follows that

where activities are simply transferred from one location to another, as in CFS

activity being transferred from the port to an ICD, no additional jobs are created;

• Traffic benefits include a reduction in the number of trucks employed in carrying

containers and container cargo, and a saving in time for other vehicles, including

both freight and goods vehicles. It has been assumed that vehicle owners are not

able to make super-normal profits except in the very short term so that all savings

accrue to vehicle users, including both passengers and cargo owners;

• 55% of the traffic benefits have been estimated to be received by freight

transport, with the remainder being received by passenger transport;


Final Report 298

• To a large extent, the sources of the ICD’s revenue are the same people or firms as

benefit from savings in road freight transport costs;

• Unskilled construction labour would benefit from the project, and all such

labourers have been assumed to be poor. From the assumptions made in shadow

pricing civil works and railway construction costs, both assumed to include 25%

unskilled labour with an SPF of 0.9, it follows that 2.5% of these costs is benefit to

unskilled, and hence poor, labour. Further, because they are shadow priced at

unity, skilled workers do not feature in the difference between economic and

financial costs;

• Operating labour is assumed not to benefit. This is because the exclusion of the

CFS activity from the appraisal has removed the element of unskilled labour,

leaving only skilled workers, whose wage and/or salary rates are assumed not to

be distorted;

• The general public is also shown, but again without benefits. In practice they

would benefit in two ways, as passengers, already included as such in the table,

and as beneficiaries of reductions in vehicle emissions, which have been

recognised as being real but unquantifiable economically;

• The entity, firm or corporation owning the ICD has been shown as a separate

stakeholder, though it may in practice be part of the government. It has been

assumed that it earns normal profit, after taking risk into account; and

• The proportion of the benefits to freight transport users going to the poor is

difficult to determine and doing so would require a detailed study of the various

industries generating demand for container transport. However a figure of 20%

has been adopted as reasonable.

As shown in Table 15.18, the proportions of poor people in Colombo and Gampaha in

2006/7 were 5% and 9% respectively making them, with the probable exception of the

areas then experiencing war, the least poor districts in Sri Lanka. Most probably, the

extent of poverty has since declined further, but the Consultant has no data to confirm

that. Furthermore, as poor people are probably not large users of passenger transport

and have low values of time, it is likely that their participation in the benefits to passenger

transport users is small. A figure of 0.05 has been assumed.

Below are shown analyses of the distribution of benefits for Veyangoda, Enderamulla and

PelTel.


Final Report 299

Table 15.20 Distribution of Benefits: Veyangoda (Rs million)

A. Distribution of Project

Effects

Financial

Returns

Economic

Returns Difference

Freight

Transport

Users

Passenger

Transport

Users Labour

General

Public

Mananging

Owning

Entity

Government/

Economy Total

Capital Cost -9,073 -12,210 -3,136 141 -3,278

O&M Cost -5,643 -5,513 131 131

Traffic Benefits 43,981 43,981 24,189 19,791

Revenues 10,026 -10,026 -10,026

Total -4,691 26,258 30,950 14,164 19,791 210 0 0 -3,147

B. Poverty Impact Ratio

Beneficiaries

14,164 19,791 210 0 0 -3,147

NEB - NFB -4,691

Financial Return 14,164 19,791 210 0 -4,691 -3,147

Benefits 0.2 0.05 1 0 0.1

Proportion to poor

2,833 990 210 -315 3,718

Benefits to poor 14,164 19,791 210 0 0 -3,147

Poverty Impact Ratio = Benefits to poor/NPV = 0.14158

Source: Consultant


Final Report 300

Table 15.21 Distribution of Benefits: Enderamulla (Rs million)


Effects

Financial

Returns

Economic

Returns Difference

Freight

Transport

Users

Passenger

Transport

Users Labour

General

Public

Managing

Owning

Entity

Government/

Economy Total

Capital Cost -14,001 -20,043 -6,042 225 -6,267

O&M Cost -6,625 -7,729 -1,104 -1,104


Revenues 18,767 -18,767 -18,767

Total -1,859 24,354 26,213 9,902 23,456 210 0 0 -7,371


Beneficiaries

NEB - NFB 9,902 23,456 210 0 0 -7,371

Financial Return -1,859

Benefits 9,902 23,456 210 0 -1,859 -7,371

Proportion to poor

0.2 0.05 1 0 0.1

Benefits to poor 1,980 1,173 210 -737 2,626


Source: Consultant


Final Report 301

Table 15.22 Distribution of Benefits: PelTel (Rs million)


Effects

Financial

Returns

Economic

Returns Difference

Freight

Transport

Users

Passenger

Transport

Users Labour

General

Public

Mananging

Owning

Entity

Government/

Economy Total

Capital Cost -15,584 -20,603 -5,020 210 -5,229

O&M Cost -7,274 -7,738 -464 -464


Revenues 17,736 -17,736 -17,736

Total -5,122 11,893 17,015 4,393 18,105 210 0 0 -5,693


Beneficiaries

NEB - NFB 4,393 18,105 210 0 0 -5,693

Financial Return

-5,122

Benefits 4,393 18,105 210 0 -5,122 -5,693

Proportion to poor

0.2 0.05 1

0 0.1

Benefits to poor 879 905 210

-569 1,425


Source: Consultant


Final Report 302

The reader may note that the Financial NPV is shown as negative. This does not imply that

the Managing/Owning entity’s financial expectations will not be met. More likely, it is a

consequence of an acceptable financial return being lower than the 12%, in real terms,

used as a discount rate and of profitable CFS activity being excluded from the appraisal.

The Poverty impact ratios are 14.2% for Veyangoda, 10.8% for Enderamulla and 12.0% for

for PelTel.

15.9 Reductions in Noxious Emissions

15.9.1 General

The consultant is required to quantify the environmental benefits and costs of

implementing the projects, rather than road use, to cater to demand. In practice few

environmental costs and benefits can be usefully expressed in economic terms, and most

negative environmental benefits are better addressed through ameliorative measures

than through being included in the economic appraisal. This section addresses the likely

consequences of the project in respect of noxious emissions from the consumption of

fuels.

In practice three energy sources are of relevance:

• Diesel fuel, consumed in trucks and some other vehicles, the railway and the ICDs;

• Petrol, consumed by some vehicles which may benefit from a reduction in

congestion; and

• Electricity, also consumed at the ICD.

In practice there are three steps to assessing emissions:

• Quantifying the amount of energy used from each source;

• Assessing the emissions consequences per unit of energy consumed; and

• Bringing the two together to assess the emissions consequences.

This analysis focuses on Enderamulla as a model, and extends the findings to Veyangoda

and PelTel candidate ICD sites. Furthermore, because the focus is on the balance

between with-project and without project, which is not likely to vary much from year to

year, the calculations have been done for 2015.

15.9.2 Electricity

The Consultant estimates that the ICD’s would each consume about 51,900 kWh per Ha

year for lighting and general electrical purposes. After taking account of transmission

losses (7%) and generation efficiency (99%), this is equivalent to around 56,000KWh per

Ha year at the power station prime mover.

Sri Lanka is understood to use coal, diesel and renewable power, mostly hydro, to

generate electricity, but it is unlikely that hydro power is the marginal supplier, while no


Final Report 303

further coal fired power stations will be commissioned. Assuming that the marginal

supplier is diesel power and applying a realistic specific fuel consumption of 250 g/kWh,

gives a requirement for 14,000 kg (15,730 l) per Ha year, or 236,000 l at Enderamulla in

2015.

15.9.3 Other Fuel Consumption and Savings

Diesel fuel will also be consumed by the railway, the port railhead and the ICD itself, in

the course of operations, while diesel fuel will be saved as a result of displacing trucks.

Considering the above, all for Enderamulla in 2015:

• The port railhead is estimated to consume 1,680,000 litres of diesel fuel in 2015;

• The ICD is also expected to consume 1,680,000 litres of diesel fuel in 2015; and

• Fuel is expected to account for 27.7% of railway variable costs, or 530,000 l of

diesel fuel in 2015.

Considering fuel savings, the Consultant has estimated that implementing the project, in

2015 will save 51,519 truck km per day, with a consequent saving in fuel of 18,262 litres

per day, equivalent to 6,660,000 litres per year.

In addition, traffic will travel slightly more quickly and slightly more fuel efficiently, saving

14,668 litres of diesel and 1,179 litres of petrol per day, equivalent to 430,000 litres of

petrol and 5,350,000 litres of diesel per year.

Table 15.23 Fuel Balance for Enderamulla, 2015

Project Fuel Consumption: Diesel Litres

Electricity Generation 236,000

Port Railhead 1,680,000

Enderamulla ICD 1,680,000

Railway 530,000

4,126,000

Fuel Savings: Diesel

Truck Removal 6,660,000

Decongestion 5,350,000

12,010,000

Fuel Savings: Petrol

Decongestion 430,000

Net Savings: Diesel 7,884,000

Net Savings: Petrol 430,000

Source: Consultant.

15.9.4 Emissions

The use of leaded-fuel for road vehicles has been banned in Sri Lanka since 1999.

The consultant has consulted a number of sources and has found data concerning the

emissions from petrol and diesel engine road vehicles. The data found vary between

sources, but overall, they give a fairly consistent picture, as shown below.


Final Report 304

Table 15.24 Emissions by Engine Type (g/l)

Pollutant Petrol Diesel

Hydrocarbons 46-88 14

Carbon monoxide (CO) 200-1,000 15-22

Carbon dioxide (CO2) 2,200-2,300 2,550-2,600

Nitrous oxide (NOx) 3-20 10-40

Particulates 3-6 5

Sulphur Dioxide (SO2) 0.2 0.5

Source: Consultant, various

The impact of some emissions is not well understood, for example in connection with

global warming, while the impact of others is very time and location specific. It is thus not

realistic to attempt to value emissions in monetary terms for inclusion in the economic

appraisal. It is to be noted though that the project would save some 8.3 million litres of

fuel in its first year of operation, if implemented at Enderamulla. Savings in other years

and at other sites can be assumed to be proportional, and so to increase over time.

While the cost of the fuel has been taken into the economic appraisal, the reduction in

emissions is a large and growing, but unquantifiable externality.

15.10 Other Benefits

There are two other types of benefit that could be evaluated in if sufficient data were

available.

15.10.1 Road maintenance cost savings

There would be savings in road maintenance costs. However, while road maintenance

cost data is available, we would need to distinguish between road maintenance costs

attributable to weather effects and those attributable to traffic effects.

15.10.2 Safety benefits

There would potentially be safety benefits related to accident savings – reduced fatalities,

serious injuries and slight injuries. However, while accident statistics for road and rail are

available, the rail statistics relate mainly to the current passenger services. Accidents on a

freight railway are not known but would be at a lower level because of the reduced

human involvement.


Final Report 305

16 Traffic modeling and decongestion benefits

16.1 Introduction

Several readers of the Draft Final Report commented on the fact that the objective of

reducing congestion on Colombo’s road outside the port, and the computation of

decongestion benefits, had not been discussed. In fact, this topic had been discussed but

was well hidden inside Chapter 15 of the DFR. In the Final Report, we have decided to

give more prominence to the topic by giving it a chapter of its own and also to describe

the traffic observations and traffic modeling processes that preceded the computations.

Chapter 16 contains the following sections:

• Section 16.2 summarises the two transport models used and their roles;

• Section 16.3 presents the Short Term Do Nothing Analysis, based on traffic

observations made at Ingurukade junction in November 2011;

• Section 16.4 gives a full description of the University of Moratuwa’s Transplan

traffic model, used in the analysis of future year scenarios;

• Section 16.5 describes the three future year scenarios – 2015, 2024, 2034 – in

terms of key inputs such as GDP growth, regional development etc;

• Section 16.6 tabulates the traffic model outputs for 2015, 2024 and 2034. These

are the physical quantities prior to monetization;

• Section 16.7 deals with vehicle characteristics and unit cost savings. It

synthesises two road user models, one based on local haulage data, the other

based on the World Bank program HDM4. Weighted average values per truck

km saved and per vehicle hour saved; and

• Section 16.8 applies these weighted average values to traffic model outputs to

derive the truck savings (freight trucks removed from the road) and

decongestion benefits (vehicles remaining on the road but travelling faster).

The exposition in Sections 16.6 to 16.8 is detailed but all the calculations are reported in

chronological order.

16.2 Types of transport model

16.2.1 Multi-modal price based competition model

Two types of model have been used during this study. The first is a simple spreadsheet

model used in pricing and demand forecasting. It is a multi-modal price based model. The

way it works is that there is a demand forecast for each of the four ICDs under

consideration and a price based logit model representing the competition between road

only journeys and rail/road journeys via the ICD. The price of journeys by road has been

estimated by fitting a relationship to real data. The pricing of the rail portion of the

journeys has been adjusted by trial and error to yield the required overall ICD throughput

for which the design has been created. The details appear in Chapter 4. Such a model is

an aid to financial analysis, not economic analysis.


Final Report 306

16.2.2 Traffic model including representation of congestion

In economic analysis, we have to compare Do Something scenarios, each of which

includes the construction and operation of one or two ICD sites, with either a Do Nothing

scenario or a Do Minimum scenario. A Do Nothing scenario is viable only for a few years.

There is already significant queuing at the Ingurukade Junction on the Port Access Road

approach, coming from Colombo Port gate 6, the gate for laden containers.

In this chapter, we first analyse the probable short term outcome of a Do Nothing

scenario over the next few years, by making use of data collected at the Ingunkade

Junction and our import/export growth forecast.

In the longer term, we need to recognize two factors. Firstly, if absolutely nothing is done,

increased queuing delays at Ingurukade junction would eventually lead to suppressed

import/export demand. The Sri Lanka authorities would not tolerate this. Secondly, there

are other measures that can be taken to relieve congestion and our project is likely to be

one of a number of measures implemented. We need to define a sensible Do Minimum

(base) scenario and use a traffic model to aid our analysis and help us to compute

decongestion benefits.

16.3 Short term Do Nothing analysis

A programme of traffic counts and observations was undertaken. There were

observations at six sites; these are included in a separately bound Traffic Counts report.

The first five sites were potential junctions where ICD site access roads connect to main

roads. The sixth site was the Ingurukade Junction, and the observations recorded on 22nd

November 2011 were:

• Classified counts into and out of the junction on the Port Access Road approach

between 06:00 and 19:00 in quarter hour intervals. Hourly counts have been

computed from these;

• Traffic signal timings (cycle time and red/green alternation) at the junction on the

Port Access Road approach;

• Times of day when there was no queue on the Port Access Road approach; and

• Times of day when there was a policeman on duty overriding the traffic signals.

Summaries of this data appear below. Figure 16.1 shows the traffic flow on the approach,

with the heaviest flows in the afternoon.


Final Report 307

Figure 16.1 Traffic flow on Port Access Road approach to Ingunkade junction

Table 16.1 shows the times when the junction was controlled by a policeman, so that the

normal green times and cycle time of the traffic signals were overridden.

Table 16.1 Times of day of police control at Ingurukade junction

Period Start time End time

1 06:53 09:11

2 13:34 14:10

3 14:17 14:30

4 16:28 16:40

5 17:00 18:30

Source: Traffic survey 22nd

November 2011

There were only four hours when there was no police control. Details of the signals cycles

during these four hours are shown in Table 16.2. As can be seen, the Port Access Road

approach was allocated only a small portion of the cycle time, which is why the flows

across the stop line were so low. Between 10:00 and 12:00, the flow crossing the stop line

averaged 130 vehicles per hour and the green time / cycle time ratio averaged 0.037,

indicating a saturation flow of at least 3,500 vehicles per hour; the percentage of goods

vehicles was 55%. In the hour beginning 15:00, flow across the stop line was 175 vehicles

per hour and the green time / cycle time ratio was 0.072, indicating a saturation flow of at

least 2,400 vehicles per hour; the proportion of goods vehicles was 68%. These saturation

flows are plausible for two traffic lanes, as on the Port Access Road approach.

Table 16.2 Typical green times and cycle times when not under police control

Hour

beginning

Number of

cycles

Green time

(seconds)

Red time

(seconds)

Cycle time

(seconds)

Ratio

green/cycle

10:00 20 6.05 170.00 176.05 0.034

11:00 21 7.24 168.76 176.00 0.041

12:00 21 6.33 168.43 174.76 0.036

15:00 20 12.75 165.35 178.10 0.072


November 2011

0

50

100

150

200

250

Flo

w in

ve

hic

les

pe

r h

ou

r

Time (24-hour)

Traffic flow on Port Access Road approach

Traffic flow


Final Report 308

Flows crossing the stop line are supply flows. When demand flow on the approach

exceeds supply flow, a queue built up; when it is less, the queue diminishes. A record was

made of the times when there was no queue on the approach, each occurrence being

towards the end of a green period and the start of the following red period. As an

indicator, the number of cycles with no queue for part of the cycle has been compared

with the overall number of cycles, within each interval. In Table 16.3, the unshaded rows

are hours when there was no police control; the shaded rows are hours when there was

police control at least part of the time. It is clear that traffic volume and time of day were

the important factors rather than the presence or absence of police control. After 14:00

flows were greater (see Figure 16.1) and continuous queuing was the norm.

Table 16.3 Incidence of no queue on the Port Access Road approach

Start time End time Number of

cycles

Number of

cycles with

no residual

queue

Percentage of

cycles with

no residual

queue

06:30 07:00 9 8 89%

07:00 08:00 19 14 74%

08:00 09:00 18 11 61%

09:00 10:00 19 17 89%

10:00 11:00 20 18 90%

11:00 12:00 21 14 67%

12:00 13:00 21 14 67%

13:00 14:00 21 10 48%

14:00 15:00 22 0 0%

15:00 16:00 20 3 15%

16:00 17:00 20 3 15%

17:00 18:00 20 1 5%

18:00 18:30 9 1 11%


November 2011

The queuing problems on the Port Access Road Approach to Ingurukade junction are

clearly soluble by allocating a greater proportion of the cycle time to the green time from

that approach. That does not seem difficult. To cope with the resultant reduction of green

time on other approaches, a variety of measures are possible, ranging from area wide

traffic management schemes to reduce non-port traffic going through the junction to

increasing the capacity of Ingurukade junction.

16.4 The University of Moratuwa traffic model

From the above analysis of the situation on the Port Access Road approach to Ingurukade

junction, it is clear that the Do Nothing hypothesis – steadily increasing import / export

demand with no modifications to the operation of the junction – is not tenable. For

longer term analysis, we need to compare the situation with our project to a sensible Do

Minimum (base case) scenario without our project. To do this, we need to use a wider

area traffic model and define the base case scenario.

The TransPlan Estimation and Forecasting Model is computer software that can estimate

the traffic conditions of the present and future on the road network in Sri Lanka. The

model is capable of estimating the performance of the road network with respect to:


Final Report 309

• Changes to the road network itself (adding new roads, improvements or closures)

and

• Changes to the socioeconomic conditions (population, income, vehicle ownership,

jobs etc

The scope of the model can be understood by the following features (acknowledgement

to the University of Moratuwa).

• Study area

• Input data

• Model algorithms

• Model output

16.4.1 Study area

The study area of the TransPlan model is the entire country of Sri Lanka. The area is

divided into Divisional Secretariat Divisions (DSDs) the smallest administrative units for

which sufficient socioeconomic data is available. The model provides for coarser zoning

by combining a few DSDs.

16.4.2 Input data

The input data is made up of several categories.

• Network data

• Socioeconomic data

• Vehicle characteristics

Road network

There are a total of 2,460 links in the road network used by the TransPlan model. Some

important C Class Roads are also included. Furthermore, it includes links of proposed

expressways. The road network is also made up of 1,677 nodes. Nodes are essentially

intersections of roads within the network. The links then form sections of road between

nodes. There are also several nodes such as provincial boundaries where ‘artificial’ nodes

have been created to facilitate the model output requirements.

Existing roads

The road network data that was included in this database consists of the following

geometric, traffic and road condition parameters.

• Number of lanes

• Lane width

• Center median width (if any)

• Sidewalk width (if any)

• Shoulder width (if any)

• The location of all intersections with type of intersection control

• Pedestrian crossings

• Signalized pedestrian crossings

• At grade railway crossings

• Rise and fall for each link.

• Design curvature for each link

• Surface type with approximate International Roughness Index


Final Report 310

• Design speed

• Road side development

• Parking

New roads

The new expressways included in this network are as follows:

• A999: Colombo Katunayake Expressway (CKE)

• A998: Outer Circular Highway (OCH) :

• A997: Southern Highway (SH)

• A997: Extension to Southern Highway

• A996: Colombo-Kandy Alternate Highway

Socioeconomic data

The socioeconomic data used by the TransPlan model is arranged according to Divisional

Secretariat Divisions (DSD’s). That is, the basic planning data such as population, number

of households, vehicles by type, employment, jobs and unemployed persons etc. have

been collected and stored under a coded DSD format for the entire country. Data that is

not available at the DSD level, such as income, have been stored as district or provincial

data as the case may be. Data pertaining to 322 DSD’s have been used in the TransPlan

model.

Vehicle characteristics

The following vehicle types were identified in data collection.

a) Motor Cycle

b) Three Wheeler

c) Passenger Car

d) Passenger Van

e) Small Commercial Vehicle (including delivery van)

f) Medium Commercial Vehicle (Two Axle Truck with not more than 6 wheel)

g) Large Commercial Vehicle (Container carrier and Trucks with more than two axle)

h) Tractor (Land Vehicles and Construction equipment)

i) Large Bus (Bus with seating capacity of 40 or more)

j) Small to Medium Bus (Bus with seating capacity less than 40)

The model identifies only two vehicles categories.

a) Private Vehicles which includes vehicle types a) to d) including those used for para

transit

b) Goods Vehicles including vehicles types e) to h)

The model does not include route bus traffic.

16.4.3 Modelling algorithms

The TransPlan model uses several internal algorithms to estimate the traffic under

different socioeconomic, road network and transport policy conditions. These algorithms

use the variables discussed in the previous section of this report. The different algorithms

used in the TransPlan model are described in simple terms to provide a better


Final Report 311

appreciation of the modeling environment. All these models have been calibrated in the

Sri Lankan context after several years of study and analysis of land use, traffic and

socioeconomic conditions that have been included in the model algorithms.

Free flow speed model

Free flow speed is defined as the speed at which vehicles will travel on average, given

that there are no other vehicles (and other activities) on the road link. An algorithm has

been included in the TransPlan model to estimate this speed for each link of the road

network. This model has been calibrated using speed surveys on Sri Lankan highways

correlated with geometric and road condition parameters. For example, according to the

model, a unit increase in road width or an improvement to curvature or roughness will

contribute to different measures of increase to the free flow speed. Similarly, increase in

the commercial use of road frontage or an increase in the number of pedestrian crossings

will have a corresponding effect towards reduction of free flow speeds.

Speed flow model

The speed-flow model estimates the average travel speed on a link of any road as a

function of the rate of traffic flow. Based on the fundamental principles of traffic flow

theory and the Underwood speed-flow theoretical formulation, a model has been

calibrated to estimate travel speed under free flow conditions. Another model to

estimate speed under congested flow conditions has also been incorporated in the

TransPlan model. This algorithm is based on Smock’s theorem of traffic flow under

congested flow conditions. These have been calibrated using data from Sri Lankan

highways.

Traffic model

The traffic model is used to estimate the demand for vehicular traffic between any two

nodes in the road network. Traffic flow is generally estimated between any two DSD's in

the country. Therefore, a 322 x 322 matrix is generated for this purpose. The trips are

then distributed within the DSD area according to the number of nodes and also the

relative weight of importance attached to each node. There are three basic models that

are used for this purpose in TransPlan at present. These are, a) a private vehicle model for

estimating traffic between DSD’s; b) a model to estimate goods vehicle traffic between

DSD’s and c) a model to estimate all traffic that is entirely made within any one DSD. The

extension of this model to include bus travel and rail travel is presently under

development.

This model uses as input a number of socioeconomic, road condition and transport policy

variables discussed earlier. It is capable of estimating the traffic flows between DSD's for

any given year provided the input data for that year is know. Furthermore, the model is

capable of estimating separately for different vehicle types.

Traffic assignment

The TransPlan model uses a complex assignment technique to distribute the traffic

between any two nodes to the road network. In this process, traffic is distributed over the

network depending on either the distance, travel time or a combination of both. In this

particular application, a distance base was used. Due to the extensive network, capacity

constraints have not been used in this process; hence the assignment technique may be

referred to as the all-or-nothing approach to traffic assignment.


Final Report 312

Travel time model

The model estimates the travel speed on each link of the network by computing the total

assigned traffic on that link and then estimating the travel speed using the free flow

model and speed flow models described earlier. Travel time is computed by dividing the

distance by the estimated speed.

Travel cost model

The travel cost model is based on a Vehicle Operating Cost model. In this instance,

different VOC models have been calibrated. The TransPlan model has used some of these

models with suitable adjustments. The model also computes the value of user time. The

travel cost is then computed as the total of vehicle operating cost; user time cost and tolls

(if any).

Traffic route diversion

The traffic diversion model comprises an algorithm that would examine the traffic

diversion between different alternative routes. Presently this is limited to a defined study

area (as opposed to the entire country in the case of the traffic estimation and

assignment). In this case, the total trips assigned within the study area are kept at a

constant, while their internal assignment by route is enabled using a detailed route

assignment model.

Route choice model

This route assignment algorithm uses a basic logit type model formulation to distribute

trips between any two nodes in the study area among the any number of ‘most probable

routes’. Such routes for a study area are designed according to the possible pre-identified

routes of travel.

In applying the logit model, travel cost on each alternative is used as the criterion of

distribution. Travel cost can be computed by adding a) speed based vehicle operating

cost; b) speed based travel time costs and c) proposed toll rate.

16.5 Future year scenarios

Demand forecasts were produced for years 2015, 2024 and 2034. They were developed

from socio-economic data based on the following growth and development assumptions:

• Real GDP growth of 8% per annum until 2015, then 5.2% per annum to 2034; Real

GDP per capita 1% less than GDP in each year;

• Hambantota port related additional growth as currently used; and

• North East additional growth as currently used.

Two road network scenarios were modeled:

• Existing network – tested for year 2015 only; and

• All expressways currently approved including Southern Highway (SH), Extension to

Southern Highway (ESH), Colombo – Katunayake (CK), Outer Circular Highway

(OCH), Colombo Kandy Alternative Highway (CKAH) , and Hambantota

development highways; tested for years 2015, 2024 and 2034.


Final Report 313

Port switch scenarios:

The effect of opening one ICD was modeled by moving a portion of Colombo Port

import/export demand (the estimated ICD market share as given by the multi-modal

model) to the location of the ICD site. Proportions moved are given below:

• Port in Colombo with ICD only at Veyangoda (7.3%)

• Port in Colombo with ICD only at Enderamulla (18.5%)

• Port in Colombo with ICD only at Peliyagoda (18.5%)

• Port in Colombo with ICD only at Ratmalana (5.5%)

The model was not used to test directly the three projects involving two ICDs.

16.6 Traffic model output

16.6.1 Veh-km and veh-hrs savings

For each of the 3 years 2015, 2024 and 2034, model runs were undertaken for a base case

scenario and a with project scenario:

• Base case scenario: Demand forecast, with expressways network, without ICD

• With project scenario: Demand forecast, with expressways network, with ICD and

partial relocation of port import / export demand.

Tables 16.4, 16.5 and 16.6 compare veh-km per day, veh-hrs per day and network average

speed for the base and with project scenarios. Savings are computed to take forward to

the decongestion benefit calculations. The veh-hr savings have been sub-divided by

separating out the veh-hrs saved by goods vehicles removed from the road network and

the veh-hrs saved by vehicles remaining on the road network but travelling at higher

speeds. The former figure is derived by dividing the total veh-kms saved (column (3) of

the tables) by the average speed (Column (1)); the latter figure is the remainder of the

veh-hrs savings.

The values highlighted in the three tables are the veh-km savings and the veh-hrs savings

attributable to increases in travel speeds. Later, these are costed.


Final Report 314

Table 16.4 Transport and Congestion Savings 2015

TransPlan output Consultant’s calculations

hrs/day

saved by

removing Veh

km

Congestion

savings

(hrs/day)

(1) (2) (3) (4) (5)

Veyangoda Base case With project Savings

Vehicle Kms/day 3,300,986 3,248,698 52,288

Vehicle Hrs/day 112,195 109,549 2,646 1,777 869

Speed (km/hr) 29.42179 29.65517 (0.23338)

Enderamulla Base case With project Savings

Vehicle Kms/day 2,643,303 2,591,784 51,519

Vehicle Hrs/day 85,344 77,642 7,702 1,663 6,038

Speed (km/hr) 30.97228 33.38104 (2.40876)

Peliyagoda Base case With project Savings

Vehicle Kms/day 2,643,303 2,621,133 22,170

Vehicle Hrs/day 85,344 76,661 8,683 716 7,967

Speed (km/hr) 30.97228 34.19116 (3.21889)

Ratmalana Base case With project Savings

Vehicle Kms/day 3,300,986 3,284,339 16,647

Vehicle Hrs/day 112,195 111,093 1,102 566 536

Speed (km/hr) 29.42179 29.56378 (0.14199)



hrs/day

saved by

removing Veh

km

Congestion

savings

(hrs/day)

(1) (2) (3) (4) (5)


Vehicle Kms/day 5,491,404 5,400,984 90,420

Vehicle Hrs/day 325,754 320,279 5,475 5,364 111

Speed (km/hr) 16.85752 16.86338 (0.00586)


Vehicle Kms/day 4,370,591 4,276,228 94,363

Vehicle Hrs/day 225,761 217,930 7,831 4,874 2,957

Speed (km/hr) 19.35939 19.62204 (0.26265)


Vehicle Kms/day 4,370,591 4,332,116 38,475

Vehicle Hrs/day 225,761 217,260 8,500 1,987 6,513

Speed (km/hr) 19.35939 19.93974 (0.58035)


Vehicle Kms/day 5,491,404 5,462,997 28,408

Vehicle Hrs/day 325,754 321,445 4,309 1,685 2,624

Speed (km/hr) 16.85752 16.99514 (0.13761)


Final Report 315



hrs/day

saved by

removing Veh

km

Congestion

savings

(hrs/day)

(1) (2) (3) (4) (5)


Vehicle Kms/day 10,137,559 9,984,611 152,949

Vehicle Hrs/day 932,680 912,782 19,898 14,072 5,826

Speed (km/hr) 10.86928 10.93865 (0.06938)


Vehicle Kms/day 8,059,864 7,900,305 159,559

Vehicle Hrs/day 672,968 655,493 17,475 13,323 4,152

Speed (km/hr) 11.97659 12.05246 (0.07587)


Vehicle Kms/day 8,059,864 7,994,629 65,235

Vehicle Hrs/day 672,968 664,814 8,154 5,447 2,707

Speed (km/hr) 11.97659 12.02537 (0.04878)


Vehicle Kms/day 10,137,559 10,089,963 47,597

Vehicle Hrs/day 932,680 926,819 5,861 4,379 1,482

Speed (km/hr) 10.86928 10.88666 (0.01738)

16.6.2 Location of the savings

The forecast veh-kms and veh-hrs savings would be located on or in the corridors of four

main highways, as indicated in Table 16.7 and shown in Figure 16.2. The breakdown by

highway corridor of the savings shown in Tables 16.4 to 16.6 is indicated in Table 16.8.

Table 16.7 Principal highways for congestion savings

ID code Description

A001 Old Parliament Road at Fort to Mahara junction at Kiribathgoda

A002 Old Parliament Road at Fort to Golumadana, Ratmalana

CKAH Kadawatta Interchange to Balabowa Interchange

CKE Kelani Bridge to OCH at Karawalapitiya

Table 16.8 Breakdown of veh-kms and veh-hrs savings by highway corridor

ICD site Veh-kms Veh-hrs

ID code 2015 2024 2034 2015 2024 2034

Veyangoda ICD site

A001 40% 40% 40% 79% 62% 39%

CKAH 60% 60% 60% 21% 38% 61%

Enderamulla ICD site

A001 41% 41% 41% 90% 75% 47%

CKE 59% 59% 59% 10% 25% 53%

Peliyagoda/Telangapata ICD site

A001 100% 100% 100% 100% 100% 100%

Ratmalana ICD site

A002 100% 100% 100% 100% 100% 100%


Final Report 320

16.7 Vehicle Categories and Unit Cost Savings

Having used the TransPlan model to estimate veh-kms and veh-hrs savings in future

years, we must convert these quantities to economic benefits. Several processes were

involved:

• Relating the available classified traffic data to the two model vehicle categories;

• Selection of a suitable road user cost model; and

• Application of the road user cost model to the TransPlan model output.

Traffic benefits include:

• Savings in trucking costs, arising from the replacement of some truck transport by

rail transport; and

• Savings in costs to other vehicles on congested roads, arising from the fact that

the removal of a volume of trucking, above, permits other vehicles, including the

remaining trucks, to move at a higher speed.

These have been explored using the University of Moratuwa's traffic model, called

TransPlan.

16.7.1 Vehicle Classes

The output from the TransPlan traffic model aggregates all vehicle classes including:

• Private Vehicles consisting of: Motor Cycles, Three Wheelers, Passenger Cars and

Passenger Vans; and

• Goods Vehicles consisting of: Small Commercial Vehicles (including delivery vans),

Medium Commercial Vehicles (Two Axle Truck with not more than 6 wheels),

Large Commercial Vehicles (Container carrier and Trucks with more than two

axles) and Tractors (Land Vehicles and Construction equipment).

Buses are not included.

The Consultant has also been provided with national ADT data for 2004, which uses 14

vehicle classes as shown in Table 16.9 below:

Table 16.9 ADT Data Vehicle Classes

Motor Cycle 3wheeler Car/saloon Utility (Pickup/Jeep/Van)

Mini Bus Large Bus Service Vehicle Bicycle

Cart Light Goods Veh. Medium Goods Veh. Heavy Goods Veh.

Multi Axle Goods Veh. Tractors

Source: University of Moratuwa

Only some of these classes are of relevance to this study. Service vehicles are few in

number and can be ignored, while bicycles, carts and tractors are not relevant to a study

of mostly urban congestion. The remaining 10 classes are relevant to this study.

Finally, there are the HDM4 classes used in Sri Lanka, primarily by the Roads Development

Authority (RDA). They are:


Final Report 321

Table 16.10 HDM4 Data Vehicle Classes

Motor Cycle 3wheeler Car/saloon Utility (Pickup/Jeep/Van)

Mini Bus Large Bus Light Goods Veh. Medium Goods Veh.

Heavy Goods Veh. Multi Axle Goods Veh.

Source: RDA

It will be noted that, after removal of service vehicles, bicycles, carts and tractors from

the classes shown in Table 16.9, they closely resemble, but are not identical to, the

classes shown in Table 16.10. The objective of this section is to use the ADT data to

expand the aggregate TransPlan vehicle population into the 10 HDM 4 classes.

The ADT data provided included a weighted average traffic breakdown for “all roads

except rural roads”. The consultant has considered the relevance of this breakdown to

this study, and has concluded that establishment of ICD’s will have its greatest impact on

roads carrying large volumes of trucks and that a neutrally weighted average would

therefore be inappropriate, and that one giving a greater weighting to roads carrying

larger volumes of trucks would be more appropriate.

In this respect most trucks entering Colombo do so along four roads: the A001 Colombo-

Kandy Road, the A003 Colombo-Negombo Road; the B435 Urugodawatte-Ambatale Road,

and the B062 Cotta Road carried most of the large trucks, as counted at the CMC

(Colombo Municipal Council) cordon. Table 16.11 below shows both the national average

traffic distribution and the average traffic distribution of the four roads carrying most

heavy trucks in and out of Colombo. On the grounds that the correct traffic distribution

for the purposes of this study probably lies somewhere between the two, a straight

average has been taken to give the distribution shown.

Table 16.11 Vehicle Distributions

Motor

Cycle

3-

Wheeler

Car/

saloo

n

Utility

(Pickup/

Jeep/

Van)

Mini

Bus

Large

Bus

Light

Goods

Veh.

Medium

Goods

Veh.

Heavy

Goods

Veh.

Multi

Axle

Goods

Veh Total

National Average 21.9 17.9 16.4 21.2 2.4 4.7 4.1 9.9 0.6 0.9 100.0

4 Roads Average 17.6 16.8 21.3 27.2 2.3 3.5 2.4 5.9 0.9 2.1 100.0

Average 19.7 17.4 18.9 24.2 2.4 4.1 3.2 7.9 0.7 1.5 100.0

Source: Consultant

Large buses and mini buses make up 6.5% of the above traffic, or 6.9% of the non-bus

traffic. The Consultant has assumed that TransPlan underestimates traffic volumes

vehicle time savings and vehicle km. saved or additional, by excluding buses, and has

therefore added such buses in, as shown below.

Table 16.12 Expansion of TransPlan Vehicle Population

TransPlan Vehicles

Motor

Cycle

3-

Wheeler

Car/

saloon

Utility

(Pickup/

Jeep/

Van)

Light

Goods

Veh

Medium

Goods

Veh

Heavy

Goods

Veh

Multi

Axle

Goods

Veh

Total Mini

Bus

Large

Bus

21.1 18.6 20.1 25.9 3.5 8.4 0.8 1.6 100 2.5 4.4

Source: Consultant


Final Report 322

While the above analysis is based on 2004 data, the consultant has reviewed traffic count

data for “A” roads covering the period from 2006 to 2011, including the main roads

serving Colombo (AA0001, AA0002, AA003, AA004 and AA0008) and found no reason to

change the above distribution.

16.7.2 Alternative Models of Road User Costs

General

Road user costs can be defined as including all costs related to the use of vehicles

including:

• fuel;

• lubricating oil;

• tyres;

• spare parts and maintenance;

• capital;

• crew;

• overhead; and

• passenger time.

Many of these costs, when expressed in terms of cost/vehicle km, vary with vehicle

speed. Capital costs and passenger time are particularly important. Capital costs are the

costs of owning a vehicle, effectively the sum of depreciation and interest on the capital

tied up in the vehicle. Passenger time cost is the cost of an individual’s time and is

generally recognised as approximating to the sum of the individuals pay rate plus payroll

costs during working time, and as being a proportion of that amount during leisure time.

Even when individuals’ time values are low, delays to large buses, carrying up to 40

people may be costly.

In theory, the cost of financing cargo in transit is also relevant, but in practice, this tends

to be insignificant.

The Consultant had two alternative models available to be used to estimate road user

costs. They were:

• The road user cost (RUC) model in HDM4. This is a data-hungry computer

programme, which has been much used in Sri Lanka, by the RDA and others, and

has similar vehicle classes to those in the TransPlan model. HDM4 itself is much

used for economic appraisals of road investments and road maintenance

programmes, and the RUC model is used to generate costs expressed in economic

terms for these purposes. It is not usually used to study traffic networks, or for

urban traffic studies; and

• A pricing model, developed by the Consultant, for articulated trucks, primarily for

use in preparing forecasts of the split between road and rail transport.


Final Report 323

HDM4

Much of the HDM4 input data changes only slowly over time, for example with advancing

vehicle technology, but costs and other financial inputs change quickly, with inflation and

economic growth. They include: vehicle purchase prices, tyres, fuel, maintenance labour,

crew costs and value of passengers’ time. In addition, vehicle life is a particularly

important input.

Team members had access to the slowly changing data, as used in Sri Lanka in the recent

past. However, the Consultant collected cost and price data relating to typical vehicles,

converted it to economic terms using the shadow price factors (SPFs) in Chapter 12 and

used it with existing technical data to run HDM 4 and generate road user costs at various

vehicles speeds, for 10 classes of vehicles. The results of this exercise were credible but,

to the Consultant, appeared rather low, most probably because HDM4 is not intended to

model congested conditions. The consultant would expect the cost of travelling at a low

average speed, with much stopping and starting, as occurs under congested conditions, as

including increased fuel consumption and additional maintenance costs, for example

clutch wear, particularly in respect of heavy vehicles.

The HDM4 results were used for a number of purposes in addition to providing an

indication of total road user costs: for example they were used to give an indication of

fuel consumption against for the purpose of discussing emissions.

The price model, referred to above, was used to check on the HDM4 results for

articulated trucks.

The Price Model

At the Interim Report stage, we created a road haulage price model that included a speed

related term. This was based on limited data from freight forwarders and on the

assumption that the difference in tariffs for road journeys from Colombo Port and for

other road journeys was down to congestion on the road network. However, subsequent

inquiry revealed that standing charges for waiting inside the port were a contributory

factor.

We therefore abandoned the Interim Report model and developed a model that related

the price charged for freight to/from the port to a constant term plus a multiple of

distance from the port. The constant term includes the standing charges. The price model

was developed from prices recommended by the Association of Container Transporters

(ACT) for various distances along a number of routes from the port.

The model was fitted to 27 ACT data points along six different routes out of Colombo

using linear regression. The data was limited to prices for distances not exceeding 100.5

km (Kandy). Prices were for the transport of 40 foot laden containers. The resultant

regression formula is shown below and in Figure 16.3.

Price = Rs. 10,000 + Rs. 228.47/km.


Final Report 324

Figure 16.3 Road haulage price model derived from regression of ACT data

The Consultant had used this price model results in forecasting container throughput at

each site, as described in Chapter 4. The pricing model was appropriate for the

forecasting purpose and, as prices must be cost based to some extent, was also relevant

as a source of vehicle operating cost data, as a supplement or alternative to the HDM4

results described above.

It should be noted that this is a price formula, including profit and is also based on

financial costs rather than economic ones. As an approach to costing, the said formula

had been recast as a formula which gave a price per unit km for a range of vehicle speeds.

This can be done by:

• Taking the slope of the expression above as representing the cost per km of

operating a truck at “normal” operating speed;

• Taking the intercept as consisting of a standing cost, for loading and unloading, and

a congestion cost, being the additional cost per kilometre of operating at a low

speed, under congested conditions multiplied by the distance travelled under

congested conditions. This is only a constant if the routes to all or most destinations

considered include a similar distance travelled under congested conditions; and

• Taking a realistic formula relating price (actually cost plus any normal or super-

normal profit element) to speed and adjusting it by trial and error until it gave

price/km under congested and normal conditions which, when passed through the

above formula, replicated the charges for transport between the port and the

hinterland, for a number of different hinterland origins/destinations.

The outcome is a formula relating price to distance and speed. It is a pricing formula

and not a cost formula. A number of adjustments were required to convert the above

price formulae to cost formulae, and to make the results comparable with those from

HDM4. They were applied initially to the linear regression result above, as follows:

y = 228.47x + 10000

R² = 0.8937

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0.0 20.0 40.0 60.0 80.0 100.0 120.0

Pri

ce p

er

40

ft

con

tain

er

(Rs)

Distance from Port Gate (km)

Road haulage price vs distance

Journeys up to 100 km

Linear (Journeys up to 100

km)


Final Report 325

• The HDM4 results were in economic rather than financial terms but, because the

Shadow Price Factor for fuel is large and acts in the opposite direction from the

other shadow prices, this makes little difference;

• There may be a profit element in the price model which is not reflected in the

HDM4 results;

• There may also be confidential discounts, often a feature of the shipping industry,

leading to the average price being lower than that suggested by the formula;

• The intercept was interpreted in part as compensation for congestion, leading to

low vehicle speed and possibly high costs, and in part to vehicle standing time;

and

• The slope above was interpreted as an amount per unit km. But, because this is a

price model, the kilometres forming the horizontal axis are not kilometres

travelled by the truck, but km travelled by the cargo being transported. In the

extreme case, the truck may have an empty return leg, and so travel twice the

distance, or even more if its depot is remote from the start and finish points of its

paid work. Obviously, trucking companies try to minimise empty running, but

even where there is return road, there may be a repositioning leg to pick it up.

To arrive at more realistic values, the consultant has:

• Assumed profit and confidential discounts to account for 20% of the apparent

price;

• Assumed that shadow pricing would reduce it by a further 3%;

• Assumed 50% of the remaining intercept to be accounted for by standing time;

and

• Assumed the true km travelled to be 1.6 times the paid km, i.e. empty running is

60% of loaded journeys.

The result of applying the above is to create the following hypothetical cost model:

Price = Rs. 3,880 + Rs. 111/km.

It is now referred to as a cost model because it no longer includes a profit element and

the kilometres referred to are kilometres run by the vehicle rather than “paid” km,

carrying cargo.

Central Values

The price model results above relate only to articulated trucks. The Consultant found that

there was a good agreement between the two sources at normal highway running speed

(70 k/h), with the results derived from the pricing model being significantly higher at low

speeds. As noted above, the Consultant recognises that results derived from HDM4 are

likely to be low, so it was no surprise that those from the price model were higher than

the HDM4 ones. It is also the case that there are uncertainties regarding the price model

and its conversion into a cost model. These uncertainties were addressed by taking the

mid point between each HDM4 result and the corresponding result derived from the price


Final Report 326

model as the central value, again, only for articulated trucks. The said central values are

shown in the final row of Table 16.13, below.

Recognising that other trucks have similar dynamics to articulated trucks, with fuel

consumption being related to frequent acceleration of a heavy mass, the central values

for other trucks were for each speed, derived by increasing the HDM4 result by the

percentage by which the central value for an articulated truck exceeded the

corresponding HDM4 result.

Lighter vehicles have different dynamics, with energy consumption related more to

overcoming rolling resistance than to acceleration, implying that the central values should

be closer to the HDM4 results. For these vehicles, the HDM4 result was increased by only

half the percentage by which the central value for an articulated truck exceeded the

corresponding HDM4 result.

The above approach gave the “central” values shown below.

Table 16.13 Central Road User Costs (Rs/km)

Speed (km/h)

5 10 20 30 40 50 60 70

Motor Cycle 37.72 18.98 9.76 6.93 5.66 5.06 4.83 4.85

Three Wheeler 37.43 18.86 9.72 6.91 5.66 5.06 4.83 4.85

Car/Saloon 200.49 108.02 61.85 46.87 39.49 35.19 32.65 30.78

Utility 347.84 175.47 90.00 62.19 48.64 40.79 36.20 32.64

Mini Bus 315.55 157.95 79.98 55.11 43.20 36.51 32.78 30.18

Large Bus 569.96 281.02 138.82 93.61 71.88 59.50 52.29 47.18

Light Goods 105.36 54.61 29.59 22.02 18.68 17.13 16.54 16.64

Medium Goods 222.45 116.34 63.78 47.37 39.66 35.55 33.34 32.31

Heavy Goods 546.59 283.30 152.86 110.75 91.01 80.39 74.62 71.58

Articulated Trucks 684.59 363.41 203.57 151.54 126.87 113.43 105.97 102.01

Source: Consultant

Figures 16.4 and 16.5 below show the cost curves for a car and an articulated truck: in

fact the cost curves for all vehicle classes are the same shape, falling steeply at low

speeds and then levelling out. This is the source of congestion savings: a small increase in

vehicle speed at low speeds generates large savings, while at optimum speed, a small

increase in vehicle speed generates no saving at all.


Final Report 327

Figure 16.4 Road User Costs: Articulated Truck

Source: Consultant

Figure 16.5 Road User Costs: Car

Source: Consultant

16.7.3 Savings

Table 16.14 below shows the calculation of the weighted average values per truck km

saved. Travel speeds are shown in column (2). The central user costs of Table 16.13 were

used as a look-up table, with interpolation based on speed between the columns of the

0

100

200

300

400

500

600

700

800

0 10 20 30 40 50 60 70 80

Cost

(Rs./km

Speed (km/h)

0

50

100

150

200

250

0 10 20 30 40 50 60 70 80

Cost

(Rs./km

Speed (km/h)


Final Report 328

articulated trucks, heavy goods and medium goods rows; these are shown in columns (3),

(4) and (5). Vehicle proportions 0.5, 0.25 and 0.25 were then applied to yield the

weighted average unit cost savings in Rs/km displayed in column (6).

Table 16.14 Weighted average values per truck km saved (Rs./km)

Candidate ICD

site

Speed

(km/hr)

Unit costs saving (Rs/km)

Articulated

truck

HGV rigid

bodied

MGV rigid

bodied

Weighted

average

0.5 0.25 0.25

(1) (2) (3) (4) (5) (6)

Year 2015

Veyangoda 29.42 154.54 113.18 48.32 117.65

Enderamulla 30.97 149.14 108.83 46.62 113.43

PelTel 30.97 149.14 108.83 46.62 113.43

Ratmalana 29.42 154.54 113.18 48.32 117.64

Year 2024

Veyangoda 16.86 253.80 193.85 80.30 195.44

Enderamulla 19.36 213.81 161.21 67.15 164.00

PelTel 19.36 213.81 161.21 67.15 164.00

Ratmalana 16.86 253.80 193.85 80.30 195.44

Year 2034

Veyangoda 10.87 349.51 271.96 111.77 270.69

Enderamulla 11.98 331.81 257.52 105.95 256.77

PelTel 11.98 331.81 257.52 105.95 256.77

Ratmalana 10.87 349.51 271.96 111.77 270.69

Table 16.15 below shows the calculation of the weighted average values per veh-hr saved

as a result of increased speeds. All vehicle categories are affected. For each year, there

are two blocks of data, each with one line per ICD.

First data block: Travel speeds on the base case and with project networks are displayed

in columns (2) and (3). From these, the time saved per veh-km was computed, as shown

in column (4). The central user costs of Table 16.13 were used as a look-up table. The

speed interval containing the base case and with project speeds was selected; for each

vehicle category, the unit costs at the ends of this speed interval were extracted from

Table 16.13 and the difference was computed. This difference was then scaled down to

be compatible with the difference between the base case and with project travel speeds.

These results are shown in columns (5) to (14) of Table 16.15.

Second data block: Weightings in accordance with the vehicle mix were then applied to

these costs and the results are displayed in columns (5) to (14). These outputs were

added together and multiplied by 106.9% (to allow for the buses that are not included in

the traffic model); the result is displayed in column (15). Finally, the values in column (15)

of the second data block were divided by the time savings per veh-km in column (3) of the

first data block. The results, which are savings per veh-hr, are displayed in column (3) of

the second data block.


Final Report 329

Table 16.15 Weighted average values per vehicle hour saved (Rs./hr)

ICD site Speed Speed Time

saved per

veh-km

Saving per veh-km

(km/hr) (km/hr) (hrs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs) (Rs)

Base

case

With

project

Artic HGV MGV LGV

Large

Bus

Mini

Bus Utility Car

3-

wheeler

Motor-

cycle All

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)

Year 2015

Veyangoda 29.42 29.66 0.0002675 1.2144 0.9828 0.3830 0.1767 1.0550 0.5805 0.6490 0.3496 0.0656 0.0662

Endearmulla 30.97 33.38 0.0023298 5.9408 4.7536 1.8564 0.8037 5.2352 2.8687 3.2633 1.7768 0.3017 0.3046

PelTel 30.97 34.19 0.0030396 7.9389 6.3524 2.4807 1.0741 6.9960 3.8335 4.3608 2.3744 0.4032 0.4070

Ratmalana 29.42 29.56 0.0001632 0.7389 0.5979 0.2330 0.1075 0.6419 0.3532 0.3949 0.2127 0.0399 0.0403

(Rs/hr) Weighting

1.62% 0.79% 8.43% 3.46% 4.39% 2.53% 25.88% 20.15% 18.56% 21.11% 106.9%

Veyangoda 1,463 0.0197 0.0077 0.0323 0.0061 0.0463 0.0147 0.1680 0.0704 0.0122 0.0140 0.3913

Endearmulla 834 0.0962 0.0373 0.1566 0.0278 0.2297 0.0725 0.8447 0.3580 0.0560 0.0643 1.9431

PelTel 854 0.1286 0.0499 0.2092 0.0371 0.3070 0.0969 1.1287 0.4783 0.0748 0.0859 2.5967

Ratmalana 1,459 0.0120 0.0047 0.0197 0.0037 0.0282 0.0089 0.1022 0.0429 0.0074 0.0085 0.2381

Year 2024 (hrs)

Veyangoda 16.86 16.86 2.060E-05 0.0936 0.07639 0.0308 0.0146 0.0833 0.0457 0.0501 0.0270 0.0054 0.0054

Endearmulla 19.36 19.62 0.0006914 4.1982 3.4261 1.3805 0.6571 3.7351 2.0479 2.2450 1.2129 0.2399 0.2421

PelTel 19.36 19.94 0.0015034 9.2761 7.5701 3.0502 1.4518 8.2528 4.5249 4.9605 2.6799 0.5301 0.5350

Ratmalana 16.86 17.00 0.0004804 2.1995 1.7950 0.7233 0.3442 1.9569 1.0729 1.1762 0.6355 0.1257 0.1268

(Rs/hr) Weighting

1.62% 0.79% 8.43% 3.46% 4.39% 2.53% 25.88% 20.15% 18.56% 21.11% 106.9%

Veyangoda 1,484 0.0015 0.0006 0.0026 0.0005 0.0036 0.0012 0.0130 0.0054 0.0010 0.0011 0.0306

Endearmulla 1,983 0.0681 0.0269 0.1164 0.0227 0.1639 0.0518 0.5811 0.2444 0.0445 0.0511 1.3708

PelTel 2,015 0.1503 0.0594 0.2573 0.0502 0.3621 0.1144 1.2839 0.5399 0.0984 0.1130 3.0290

Ratmalana 1,495 0.0356 0.0141 0.0610 0.0119 0.0859 0.0271 0.3044 0.1280 0.0233 0.0268 0.7182


Final Report 330

Year 2034 (hrs)

Veyangoda 10.87 10.94 0.0005835 1.1089 0.9050 0.3646 0.1736 0.9866 0.5409 0.5930 0.3204 0.0634 0.0640

Endearmulla 11.98 12.05 0.0005256 1.2127 0.9897 0.39887 0.1898 1.0789 0.5915 0.6485 0.3504 0.0693 0.0699

PelTel 11.98 12.03 0.0003387 0.7796 0.6362 0.2564 0.1220 0.6936 0.3803 0.4169 0.2252 0.0446 0.0450

Ratmalana 10.87 10.89 0.0001469 0.2778 0.2267 0.0913 0.0434 0.2471 0.1355 0.1485 0.0802 0.0159 0.0160

Weighting

1.62% 0.79% 8.43% 3.46% 4.39% 2.53% 25.88% 20.15% 18.56% 21.11% 106.9%

Veyangoda 621 0.0180 0.0071 0.0308 0.0060 0.0432 0.0137 0.1535 0.0645 0.0118 0.0135 0.3621

Endearmulla 753 0.0196 0.0078 0.0336 0.0066 0.0473 0.0150 0.1679 0.0706 0.0129 0.0148 0.3960

PelTel 752 0.0126 0.0050 0.0216 0.0042 0.0304 0.0096 0.1079 0.0454 0.0083 0.0095 0.2546

Ratmalana 618 0.0045 0.0018 0.0077 0.0015 0.0108 0.0034 0.0384 0.0162 0.0029 0.0034 0.0907


Final Report 331

16.8 Decongestion benefits

Table 16.16 displays the calculation of daily transport and congestion savings. The truck savings

are copied from Tables 16.4 to 16.6. The rates per veh-km and per veh-hr are copied from

Tables 16.14 and 16.15 respectively. Column (4) is the product of columns (2) and (3), divided

by 10^6 to convert to Rs million. Column (7) is the product of columns (5) and (6), divided by

10^6 to convert to Rs million.

Table 16.16 Daily transport and congestion savings (Rs. million)

ICD site

Year

Trucking savings Congestion savings

Trucking

savings

(veh-

km/day)

Rate

(Rs/veh-

km)

Value of

daily saved

truck km

(Rs m/day)

Congest-

ion savings

(hrs/day)

Rate

(Rs/veh-

hr)

Value of

daily

congest-

ion savings

(Rs m/day)

(1) (2) (3) (4) (5) (6) (7)

Veyangoda

2015 52,288 117.65 6.1516 869 1,463 1.2713

2024 90,420 195.44 17.6714 111 1,484 0.1651

2034 152,949 270.69 41.4017 5,826 621 3.6154

Enderamulla

2015 51,519 113.43 5.8439 6,038 834 5.0362

2024 94,363 164.00 15.4750 2,957 1,983 5.8621

2034 159,559 256.77 40.9705 4,152 753 3.1284

Peliyagoda

2015 22,170 113.43 2.5147 7,967 854 6.8062

2024 38,475 164.00 6.3097 6,513 2,015 13.1218

2034 65,235 256.77 16.7505 2,707 752 2.0352

Ratmalana

2015 16,647 117.65 1.9585 536 1,459 0.7820

2024 28,408 195.44 5.5519 2,624 1,495 3.9232

2034 47,597 270.69 12.8839 1,482 618 0.9152


Final Report 332

Table 16.17 converts the daily savings of Table 16.16 to annual savings.

Table 16.17 Annual transport and congestion savings (Rs. million)

2015 2024 2034

Veyangoda - Trucking Savings 2,245 6,450 15,112

- Congestion Savings 464 60 1,320

- Total 2,709 6,510 16,431

Enderamulla - Trucking Savings 2,133 5,648 14,954

- Congestion Savings 1,838 2,140 1,142

- Total 3,971 7,788 16,096

Peliyagoda - Trucking Savings 918 2,303 6,114

- Congestion Savings 2,484 4,789 743

- Total 3,402 7,093 6,857

Ratmalana - Trucking Savings 715 2,026 4,703

- Congestion Savings 285 1,432 334

- Total 1,000 3,458 5,037

Source: Consultant

The valuation of the above savings has been taken into the appraisals shown in Chapter 15.


Final Report 333

17 Project impact monitoring

17.1 Project Impact Monitoring Framework

In this section, as in the rest of the report, the term “ICD” (Inland Container Depot) has been

used, rather than “dry port”, the term used in the ToR.

Logically, the Project Impact Monitoring Framework (PIMF) cannot be completed until such

time as it has been decided which site is to be developed, or which sites are to be developed,

and how that development is to be financed. Nevertheless, the Consultant has taken the PIMF

as far as practicable at this Final Report stage.

Originally identified study objectives were;

• Policy objective 1 – to provide sustainable and environmentally friendly hinterland

transport;

• Policy objective 2 – to minimize congestion on the roads around Colombo port, to

improve road safety and benefit the environment by reducing noise and emissions from

trucks;

• To select up to two ICDs with integrated multimodal logistic centres in the vicinity of

Colombo;

• To provide the said ICD(s) with supporting functions for packing, storing and value

addition to goods;

• To connect these ICDs via railway lines to Colombo port;

• To rehabilitate the existing railway line to Colombo port;

• To construct transhipment yards in the ICDs and in Colombo port;

• To address capacity constraints on the railway in and around Colombo; and

• To quantify the needs of the railway in terms of rolling stock, maintenance facilities,

signalling, communication and lifting equipment to cater for the additional demand

triggered by the rail connected ICDs.

These are general and could relate to any of the potential ICD sites. Once ICD(s) have been

selected and constructed, most of the above will be easily verifiable. However, monitoring to

determine whether the policy objectives have been achieved and whether the ICD(s) are

financially sound will require specific measurements. Quantitative monitoring should take place

of:

• Annual ICD throughput in TEU;

• Annual CFS throughput in TEU;

• Financial viability;

• Traffic levels; and

• Congestion outside the port.

Staged construction is envisaged and, while the consultant has coordinated the phasing with

the throughput forecasts, it is clear that, in the event that the throughput grows more quickly


Final Report 334

or more slowly than envisaged, the phasing should also be adjusted.

A suitable PMIF is presented as Table 17.1 below, while Section 17.2 below discusses baseline

data.

Table 17.1: Project Impact Monitoring Framework

Design

Summary

Performance

Targets/Indicators

Data Sources/

Reporting

Mechanisms

Assumptions

and Risks

Impact

Reduce congestion and

pollution around Colombo

port

Traffic congestion around

Colombo Port does not

worsen

Air pollution around

Colombo port does not

increase

Traffic counts /

air quality

measurements

by

RDA/Colombo

City Council.

Assumptions

Steps are taken to

control/reduce non-port

traffic and congestion.

Risks

Uncontrolled

traffic/population Growth

Outcome

(i) Increased rail transport

of containers

(ii) Reduced container and

general cargo

transportation by road

(iii) transport costs for

imports and exports are

reduced

(iv) The ICD(s), including the

port railhead and rail links

are a financially viable

business.

Rail transport of

containers into and out of

Colombo port increases in

line with the forecasts.

Use of the ICD proves

attractive to customers.

Financiers’ expectations

are realised.

SLPA and

managing/

owning entity

reports.

Market reports

from the

managing/

owning entity.

Annual Report

and Accounts

Assumptions

Other factors affecting

investment and economic

development are in place.

Costs and revenues are as

predicted.

Risk

Customs/Port authority

rules and practices

disadvantage the ICD(s)

Outputs

(i) Construction of up to

two ICDs with integrated

multimodal logistic centres

in the vicinity of Colombo,

with supporting functions

for packing, storing and

value addition to goods;

(ii) Rehabilitation/

extension of the rail system

to connect these ICDs to

Colombo port, with

adequate capacity;

(iii) Construction of

transshipment yards in the

ICDS and in Colombo port;

ICD(s) constructed and

operational by start 2015.

Railway

rehabilitation/extension

completed and


Transshipment yards in

the ICDs and Colombo

port completed and


Necessary rolling stock

and other railway

equipment procured by

start 2015.

Consultant

reports and

reports from

the managing/

owning entity.

Assumptions

Contract award for

infrastructure and works

is done on schedule.

Contracts are completed

on schedule.

Rolling stock and

equipment are procured

on schedule.

Risk

Delays caused by

Government/institutional

factors.


Final Report 335

(iv) Quantify the needs of

Sri Lanka Railways in terms

of rolling stock and

infrastructure to cater for

the additional demand

triggered by the multimodal

logistics centres.

Activities with Milestones

1. Project approval and establishment of project managing/owning entity.

2. Contract award for civil works component is awarded by Oct 2013.

3. Site(s) available to the Contractor by end 2013

4. Civil works and procurement are completed by end 2014.

5. ICDs reach full operation by start 2015.

Inputs

• ADB: $? million

• Government: $? million

• Private sector: $?

million

ADB = Asian Development Bank, SLPA = Sri Lanka Ports Authority. RDA = Roads Development Authority,

ICD = Inland container deport

Source: Consultant

17.2 Baseline data and monitoring approach

Baseline data is the data against which the results of monitoring must be assessed to provide

meaning to monitoring results.

The ToR ask the Consultant, in Paragraph e(vii), to “Develop a project impact monitoring

framework and carry out socio-economic baseline survey”. The team’s Social Development

Expert has conducted an extensive survey of the socio-economic conditions of the people living

on and around the four candidate sites, and the resulting data can be used as baseline data if

necessary. However, it is clear that the intended main beneficiaries of the project are the

people and businesses who will benefit from the reduction in congestion on and along the

roads serving the port. These are a very diffuse population and do not lend themselves to

survey techniques. Instead, it will be necessary to monitor:

• The extent to which the project does indeed take containers and their contents off the

roads;

• The extent to which the project is financially successful: financial failure could lead to

the loss of all the envisaged benefits; and

• The extent to which congestion benefits are realised.

In order to achieve this, the monitoring process will provide:

• Comparisons of import and export container movements through Colombo Port with

the forecasts made in this report;

• Counts of containers passing through Colombo Port road and rail gates in order to check

that rail is attaining the market share predicted;

• Comparisons of annual ICD throughput in TEU, unit transport and cranage charges, and

annual gross revenue derived from transport and cranage charges, with the forecasts;


Final Report 336

• Comparisons of annual CFS throughput in TEU, unit stuffing / destuffing charges, and

annual gross revenue derived from stuffing / destuffing charges, with the forecasts;

• Measurements of journey times by road to/from the Colombo Port container gates, and

more generally, by non-port traffic in the area east of the container gates.


Final Report 337

18 Conclusions

Decongestion benefits

A principal project objective was to alleviate congestion in the area around Colombo Port by

constructing one or two Inland Container Depots (ICDs) in the vicinity of Colombo, connected to

the port by environmentally friendly and economical rail transport. Our study has shown that

the project will yield substantial decongestion benefits, dependent on the site chosen.

The four ICD sites

The Inland Container Depot (ICD) sites taken forward to full feasibility, all adjacent to the

existing railway and indicated on the location map, were:

• Veyangoda – a site to the north, on the main railway line to Jaffna and Trincamalee but

too far from Colombo for a substantial TEU demand;

• Enderamulla – a large site north of Enderamulla station, which is south of Ragama

station, on the western side of the railway;

• Peliyagoda/Telangapata – a large site lying on both sides of the Colombo Katunayake

Expressway, adjacent to the railway just north of Kenaliya station; and

• Ratmalana – a site lying adjacent to the Sri Lanka Railways workshop; the only southern

site but with limited demand.

Projects evaluated

Projects evaluated comprised one or two ICDs, correspondingly a 3-track or 4-track railhead in

the New Port and (for the 3 northern sites) the Sedawatta link, as follows:

• Veyangoda + 3-track railhead + Sedawatta link;

• Enderamulla + 3-track railhead + Sedawatta link;

• Peliyagoda/Telangapata (PelTel) + 3-track railhead + Sedawatta link;

• Ratmalana + 3-track railhead;

• Veyangoda + Ratmalana + 4-track railhead + Sedawatta link;

• Enderamulla + Ratmalana + 4-track railhead + Sedawatta link; and

• Peliyagoda/Telangapata + Ratmalana + 4-track railhead + Sedawatta link.

Timing

A task in our study was to undertake a preliminary design during 2011. A reasonable schedule is

that detailed design will take place during 2012, and land acquisition, procurement,

construction and implementation will occupy late 2013 and 2014. The first full year that the

ICD(s) will be open to traffic is 2015. A twenty year period takes us to 2034, the final evaluation

year. So the total project evaluation period is 21 years.

The train service

Between the port and each ICD, a shuttle service would operate via the single track port access

line. Initially, it would operate with trains carrying 15 new wagons, each with a capacity to carry

3 TEUs. At most ICDs, the service would operate with trains carrying 35 wagons and 105 TEU

from 2021, requiring powerful new locomotives. At Veyangoda, short trains would remain in

force because this ICD site cannot accommodate long trains.

Estimated construction costs and land costs

The estimated construction cost of each ICD site has been compared with that calculated from

regional data in the UNESCAP 2007 report ‘Policy Framework for the Development of


Final Report 338

Intermodal Interfaces as part of an Integrated Transport Network in Asia (US$ million). The

costs are similar except for the issue of land costs.

Following discussions with the Urban Development Authority (UDA) and Sri Lanka Railways, we

understand that government and railway land would be provided free to the project at

Veyangoda, Enderamulla, Peliyagoda/Telangapata, Sedawatta and Ratmalana. However,

compensation payments would be made where government land has been leased to private

sector entities for 95 years (Telangapata) and where private sector land has to be acquired to

construct part of the site (Enderamulla access road).

Demand and revenue

Market evaluation and forecasting has yielded estimates of annual ICD throughput and annual

Container Freight Station throughput, measured in TEU, at each ICD site. Transport and cranage

charges between the port and the ICD, and stuffing / destuffing charges at CFS stations, are

expected to be the principal revenue earners. The unit charge for stuffing / destuffing activities

is estimated to be Rs 13,338 per TEU.

Estimated annual throughput at ICDs in TEU

Year Veyangoda Enderamulla Peliyagoda /

Telangapata

Ratmalana

2015 109,909 279,904 279,904 83,356

2024 188,866 480,983 480,983 143,328

2034 318,781 811,838 811,838 241,767

Estimated annual throughput at Container Freight Stations in TEU

Year Veyangoda Enderamulla Peliyagoda /

Telangapata

Ratmalana

2015 36,636 93,301 93,301 27,785

2024 62,995 160,328 160,328 47,746

2034 106,260 270,613 270,613 80,589

Rail and cranage charges between the New Port railhead and ICDs (Rs per TEU)

ICD site Base Cost

(Rs)

Co-efficient

(Rs per km)

Distance from

Port Gate (km)

Charge per TEU

trip (Rs)

Veyangoda 3,475 100 37 7,175

Enderamulla 4,000 100 10 5,000

Peliyagoda/Telangapate 3,975 100 7 4,675

Ratmalana 2,239 100 21 4,339

Financial analysis

Analysis was carried out for both a publicly owned project and a public private partnership

(PPP) project. For the former, Ratmalana would yield a very low FIRR. Enderamulla would be a

good investment, yielding an FIRR of 19%, close to the minimum 20% acceptable for purely

private investment. Veyangoda and Peliyagoda/Telangapata would yield FIRR’s in excess of

11%, acceptable for a public scheme. The addition of Ratmalana as a second ICD site to any of

Enderamulla, Veyangoda and Peliyagoda/Telangapata would reduce the FIRR.

PPP is designed to secure private sector investment and participation. Under PPP, the private

sector investor is assumed to want an FIRR in excess of 20% and the public sector partners have


Final Report 339

to ensure that this happens by accepting a low or zero return. Ratmalana would require 65%

public funding, an unattractive prospect for the Government. All the other six projects would

require 45% public funding or less.

Economic appraisal

If land is provided free to the project, the cost of land can be omitted from financial analysis.

However, in economic appraisal, the opportunity cost of land must be included. Economic land

costs are high at Peliyagoda/Telangapata and Ratmalana. Ratmalana has a negative overall

ENPV and an EIRR of 7%, less than ADB’s minimum requirement of 12%. As a result, Ratmalana

is not economically viable. Veyangoda, Enderamulla and Peliyagoda have EIRRs of 29%, 24%

and 20% respectively, exceeding the minimum requirement of 12%.

Traffic benefits are a function of reductions in veh-km and veh-hrs of travel by road. The latter

are commonly known as ‘decongestion benefits’. These benefits would be high if Enderamulla

were to be selected but almost as great if Veyangoda or Peliyagoda/Telangapata were selected.

Veyangoda has a high EIRR because its traffic benefits are large in relation to the project cost.

Environmental, resettlement and social issues

Environmental, resettlement and social issues influence site selection. Enderamulla would have

a high level of negative environmental impacts, Veyangoda a low one. The negative

environmental impacts were scored out of 70 for physical impacts, 55 for biological impacts and

75 for socio-economic impacts, a total of 200. Resettlement costs would be significant at

Ratmlana. They would be high at Peliyagoda/Telangapata, especially in phase 2 when business

premises must be taken over to accommodate the long trains. It is anticpated that many daily

paid labour jobs would be created at Peliyagoda/Telangapata, some at Enderamulla.

Fulfilment of Government of Sri Lanka’s international commitments

The feasibility study has identified three projects – based on ICDs at Veyangoda, Enderamulla

and Peliyagoda/Telangapata – that satisfy ADB financial and economic performance

requirements and have been assessed for environmental, resettlement and social factors. It is,

therefore, possible to satisfy international commitments made by the Government of Sri Lanka.

These are given in full in the Ministry of Transport’s letter of 2nd February 2012 commenting on

the Draft Final Report. In brief, they are:

• Inter-governmental Agreements on the Asia Highway Network and the Trans Asian

Railway, which entered into force in 2005 and 2009 respectively;

• Agreement on the international importance of dry ports, as a refinement to these

Inter-Governmental Agreements, at a 2011 September 13th – 14th meeting of the

Committee on Transport; and

• Commitment to the UNESCAP South and South West Asia sub-region to establish dry

ports, to be confirmed in an agreement due to be signed in 2013.

Summary of the assessment of the ICD sites

Ratmalana cannot proceed on its own. It has a low financial internal rate of return (FIRR) and an

economic internal rate of return (EIRR) less than the ADB’s 12% minimum.

Veyangoda, Enderamulla and Peliyagoda/Telangapata would all produce reasonable FIRRs,

suitable for either public ownership or for Public Private Partnership. They also have EIRRs well

in excess of ADB’s 12% minimum. Enderamulla has the best FIRR and Veyangoda the best EIRR.


Final Report 340

Adding Ratmalana to any of Veyangoda, Enderamulla or Peliyagoda/Telangapata, giving a two-

ICD project, would reduce the FIRRs and EIRRs of those projects.

Recommendation

In our view, maximizing throughput and the financial return are paramount. Enderamulla would

yield a higher FIRR than Veyangoda and would be a much more ambitious project (design

throughput 811,838 TEU per annum versus 318,781). It is recommended that Enderamulla

proceed immediately, plus the Sedawatta link and a 4-track New Port railhead for later

provision of a southern ICD site.

It is recommended that implementation of Ratmalana be delayed for a few years until:

(a) Throughput can be expected to be higher and returns better

(b) RDA’s plans for the southwards extension of Marine Drive, which could cross our site,

and for improved east west links connecting Marine Drive, Galle Road and the Southern

Expressway become clearer. Timing is important.

Ownership

The practical options for ownership of the ICDs, New Port railhead and equipment are:

Public ownership: Sri Lanka Ports Authority the sole owner

Public ownership: SLPA the main owner with Sri Lanka Railways in support

Public Private Partnership: Private sector investor + SLPA as the sole public sector owner

Public Private Partnership: Private sector investor + SLPA as the main public sector owner + Sri

Lanka Railways as a minority investor

The final choice between public ownership and PPP is likely to depend on the size of loan that

ADB is willing to make. Our thinking is that if ADB is willing to lend 85% of the project cost, the

Government of Sri Lanka would contribute the remaining 15% and opt for public ownership. If

ADB is only willing to lend a much smaller proportion of the project cost, GoSL would do better

to select PPP and gain the benefit of private sector input. ADB loans for public sector projects

are at a lower rate of interest than for PPP projects.

Outsourcing

Ownership is not the same thing as managing the facility. It is perfectly possible to have public

ownership and to outsource the management of the facility or parts of it to the private sector.

-----------------------------------------------------------------------------------------------------------------------------

Sri Lanka Ports Authority and their Peliyagoda ICD site

SLPA have decided to proceed with an ICD at Peliyagoda, with provision for expansion into

Telangapata. They have produced a plan of their proposed railhead in Colombo Port and

provided summary information of their scheme. It differs from our PelTel scheme in that their

railhead would be on the Peliyagoda side of CKE and it would use ultra-short trains carrying 30

TEU. Twenty trains per day would be run in each direction, giving an annual throughput of

420,000 TEU.

It is not known how SLPA propose to increase annual capacity as demand grows towards

1,000,000 TEU per annum in the long term. Some options are discussed in Appendix A,

including later provision of a truncated site at Enderamulla.


Final Report 341

APPENDIX A – SLPA’s PELIYAGODA SCHEME AND COMPLEMENTARY LONG TERM OPTIONS

A1 SLPA’s policy and Peliyagoda scheme

At the second Tri-partite Workshop for the presentation of the Draft Final Report, held at the

Galadari hotel on Friday 20th January 2012, Dr Wickrama, Chairman of the Sri Lanka Ports

Authority, stated that SLPA would proceed with the construction of an ICD at Peliyagoda using

their own resources. In conversation afterwards, Dr Wickrama confirmed that:

• It was SLPA’s intention to implement and control the Dry Port / ICD construction

programme for Sri Lanka’s ports;

• One ICD site at Peliyagoda was sufficient for Colombo Port;

• ICDs to serve Sri Lanka’s other ports would be proposed by SLPA as the need arose;

• Revenue from stuffing/activities, expected to profitable, would be retained by SLPA;

• Some other activities would be leased to the private sector by competitive tender;

• High revenue from transport and cranage charges was not essential; such charges would

be at ‘reasonable levels’, ‘for the benefit of the nation’; and

• The long term potential throughput of an ICD at Peliyagoda was approximately

1,000,000 (one million) TEU per annum.

Subsequently, in two letters from the Chairman of SLPA, Dr Wickrama, an outline of SLPA’s

scheme was supplied. There are supporting drawings.

Dr Wickrama’s letter of 18th March 2012 stated:

“SLPA has selected a land at Peliyagoda and preliminary planning has been commenced to

implement the project. This land will be connected with the rail track so that transport of

containers will be done by train. Main objective of the project is to shift following activities to

the proposed Peliyagoda site as this will help to minimize traffic congestion due to transport of

containers on the road.

1. LCL operations.

2. Container (export) transfers.

3. MCC/SPECIAL cargo operations.

4. Providing facilities for BONDING and ENTRE PORT cargo operations etc.

However, there will be a consideration by the SLPA for outside operators to handle MCC,

BONDING and SPECIAL operations other than LCL cargo operations depending on the

requirement and necessary approval of the SLPA.”

A subsequent letter of 29th May 2012, written in response to a request for additional

information by Roughton International, stated:

“The requested information is summarized below for your information.

(01) The planned length of the Train at the initial stage is 230m length and it includes 15

number of wagons having 02 numbers of TEU capacity each.

(02) It is expected to operate Twenty numbers trains per day.


Final Report 342

(03) Railhead inside the Colombo Port is 300m x 25m and it is expected to deliver and

receive containers from and to the Railhead using stacking yards already available at

the JCTs and other terminals. Hence, number of container rows and stacking height are

not relevant to the Colombo Port Railhead.

(04) SLPA also stress the need of Sedawatta Loop and a passing loop (outside the port) is

mandatory for an uninterrupted and smooth transportation system of containers. It is

also noted the involvement of compensation for this work.

(05) Drawings of the proposed Railhead at the port is forwarded herewith please.”

A2 Comments on the proposed SLPA Peliyagoda scheme

A2.1 Information Provided

SLPA’s Peliyagoda scheme differs radically from Roughton International’s Peliyagoda /

Telangapata (PelTel) proposal. In the latter, the ICD railway track would remain on the

Telangapata side. In the former, an arch would be built underneath the Colombo – Katunayake

Expressway to accommodate a railway track leading to the Peliyagoda side. Roughton

International has been shown several drawings of possible railway track alignments to fit under

such an arch; it seems that tight track radii of approximately 130 metres would be needed.

SLPA plan to use ultra-short trains carrying 30 TEU each, less than the short trains carrying 45

TEU that Roughton International have proposed during Stage 1 of the project (up to 2020).

The plans provided to us for the port rail indicate parallel track sections of 300m, plus tapers

either end. Although we have not received plans of SLPA’s proposed Peliyagoda ICD

development, the site dimensions indicate that this would also be the maximum length of rail

head achievable west of the Katunaya expressway.

There is no explicit mention of FCL operations or container (import) transfers, so some

clarification of the split between port and ICD business is needed.

A2.2 Capacity of SLPA’s initial Peliyagoda scheme

Based on SPLA figures, the annual 2-way throughput for their initial Peliyagoda scheme is 2

directions x 20 trains/day x 30 TEU/train x 350 operating days/year, = 420,000 TEU. This is

confirmed by the assessment below.

The annual TEU capacity of a system based on one or two ICDs and a port railhead is the lower

of two calculations:

• The capacity of the single track harbour line immediately outside the port, as boosted

by the provision of a passing loop; and

• The capacity derived from the train cycle time for loading, transporting and unloading

trains, in both directions, and the number of trains that can operate simultaneously.

According to Scott’s formula (see Chapter 6 of Volume 1), the ultimate capacity of the single

track line is 40 trains per day, 20 in each direction. A harbour line passing loop would increase

this slightly but it would be difficult to build the passing manoeuvres into a detailed schedule.

We shall take 20 trains each way per day as the practical capacity.


Final Report 343

In Chapter 6, we undertook detailed train planning for the combination of 12 long trains each

way per day to Enderamulla and 4 long trains each way per day to Ratmalana. Figure 6.2

displays the train diagram for a 24-hour period in 2034. It shows that 4 trains could operate the

shuttle service. Four trains in operation simultaneously is taken as the practical limit for any

container service operating between the port and one or two ICDs.

We can use information in the tables of sub-section 6.2.6 of Volume 1 to determine the train

cycle time for short and ultra-short trains. The cycle would be comprised of:

• 90 minutes to unload and load at the port railhead;

• 5 minutes delay (e.g. waiting clearance from the controller);

• 36 minutes transit time;

• 90 minutes to unload and load at the ICD site;

• 5 minutes delay (e.g. waiting for a signal); and

• 36 minutes transit time.

Thus, the cycle time would thus be 262 minutes, leading to 5.5 round trips per train per day. It

would be possible to operate 4 trains simultaneously, leading to 22 round trips in total. The

carrying annual capacity based on the train cycle would be 22 x 60 x 350 = 462,000 TEU.

In conclusion, the capacity of a system based on SLPA’s Peliyagoda ICD proposals would be Min

(420,000, 462,000) = 420,000 TEU per annum.

A2.3 Implementation Issues

The arch under CKE must accommodate international standard 9’6” containers in order for the

SLPA scheme to be commercially viable, so the means to achieve this must be addressed:

• What is the cost of constructing the arch under CKE? If RDA have offered to construct it

at no cost, that affects financial analysis but not economic analysis. It still involves Sri

Lanka resources;

• Has it been necessary to alter the vertical alignment of CKE to accommodate the arch?

• Has it been necessary to lower the track under the arch to below ground level? If so,

what are the drainage plans?

• Does the rolling stock need to have ultra-small wheels so as to lower the container

carrying platform?

• Does the proposed railway track cross New Nuge Road and/or the canal system? If so,

what mitigation measures are needed?

Other major questions that would have to be addressed are:

• Would illegal settlers (squatters) be resettled, compensated or evicted without

compensation? Under ADB’s Safeguard Policy 2009, such settlers have rights but under

the Sri Lanka Land Acquisition Act they do not. SLPA have promised compensation along

the Sedawatta link the harbour line passing loop but there has been no statement about

compensation within the Peliyagoda ICD site; and

• Is there a long term plan, with drawings, to increase the capacity of SLPA’s Peliyagoda

ICD to 1,000,000 TEU per annum?

Were SLPA to seek an ADB loan for their scheme as outlined, there would need to be an audit

after SLPA had taken their planning and preliminary design to the level we have taken our


Final Report 344

schemes. The audit would need to be reasonably wide ranging, covering physical, operational

and commercial aspects of their proposals as well as resettlement and environmental issues.

Compliance with ADB Safeguard Policy 2009 would be required. Roughton International’s work

on the Sedawatta link alignment, resettlement, cross sections and quantities would make

useful starting points. So, too, would the Resettlement Plan and the environmental assessment

for RI’s PelTel site.

Such an audit though would cause a delay. In the remainder of this appendix, therefore, we

assume that due to SLPA’s stated urgency they will proceed with their initial scheme using their

own funding sources.

A3 Planning for long term demand

SLPA and Roughton International agree that by 2034 demand could reach 1,000,000 TEU per

annum, especially if SLPA bear down on the transport and cranage charges as promised. We

therefore need to address capacity issues, and examine all options for increasing capacity from

420,000 TEU per annum to approaching 1,000,000 TEU per annum.

As virtually all currently available train paths are used up by SLPA’s initial Peliyagoda proposal,

the only conceptual options for increasing capacity are:-

• Increasing the number of train paths, or

• Using longer trains

We have only briefly considered the first of these options. Increasing train paths would require

double-tracking a substantial portion of the route, including within the port, the arch under the

main road, and most of the route, including use of a second track over the new Kelaniya railway

bridge (either by addition of a further track or joint use of a passenger one.) Provision of

additional train paths therefore seems unrealistic, and the rest of this assessment addresses

use of longer trains.

It should be noted that this has major implications for upgrade costs both at the Port railhead,

and at Peliyagoda. The planned railhead in the port is more or less constrained to its current

length by a proposed internal road bridge at one end and by the Main Stores building at the

other. It is designed for 30 TEU trains, though might take slightly more. The overall dimensions

of the Peliyagoda site limit a railhead there, west of the expressway, to a similar length, and any

upgrade to longer trains is likely to involve relocation of the railhead to the Telangapatha side.

In section A4 we assess two capacity upgrades involving an expansion of SLPA’s Peliyagoda

scheme. In section A5 we assess three capacity upgrades involving the provision of a second

ICD site in addition to Peliyagoda.

A4 Expansion of SLPA’s Peliyagoda scheme to 1,000,000 TEU per annum

A4.1 First upgrade option – long trains (105 TEU)

With a move to long trains (105 TEU), a harbour line passing loop might not be long enough,

and we would introduce a contingency factor, as for the Roughton International Enderamulla /

Ratmalana scheme, using only 32 of the 40 train paths. The effects would be:

• Harbour line annual capacity increased to 32 x 105 x 350 = 1,176,000 TEU;


Final Report 345

• Unload / load time increased from 90 minutes to 105 minutes (only a modest increase

because additional rubber tyred gantries could be deployed);

• Train cycle time increased to 292 minutes, leading to 4.93 round trips per train per

day, or 19 round trips per day in total;

• Capacity based on the train cycle time increased to 19 x 210 x 350 = 1,396,500 TEU.

Therefore, a move to long trains (105 TEU) trains would provide sufficient capacity to meet a

1,000,000 per annum TEU demand. However, such trains are not favoured by SLPA because of

operational considerations inside the port, so this option is not carried forward.

A4.2 Second option – intermediate length trains (75 or 70 TEU)

Intermediate length trains would make use of the harbour line passing loop and the harbour

line capacity would be 20 trains each way each day. To give a line capacity of 1,000,000 TEU per

annum, each train would have to carry 1,000,000 / (2 x 20 x 350) = 71 TEU.

Using a train cycle time of 292 minutes, implying 19 round trips per day, the train carrying

capacity needed to hit the 1,000,000 TEU per annum target would be 1,000,000 / (19 x 2 x 350)

= 75 TEU.

As a practical compromise, trains carrying 35 of the 2 TEU wagons being ordered by SLPA would

yield 70 TEU per train and a capacity, based on the train cycle time, of 931,000 TEU per annum.

Such a train would be 527 metres long and the harbour line passing loop would need to be long

enough to accommodate it; the harbour line has approximately 2 km of straight track, so this

should be possible.

This second option is taken forward to the summary of alternatives in Section A6.

A5 Provision of an additional ICD site to achieve 1,000,000 TEU per annum

A5.1 Preliminary assessment

If little or no expansion at the Peliyagoda site were possible (other than provision of a longer

railhead), construction of an additional ICD site would be needed to deliver the required

capacity. We have assessed two possible upgrades involving Peliyagoda plus a site at

Veyangoda, and an upgrade involving Peliyagoda plus a truncated Enderamulla site (a smaller

site than the one proposed by RI).

In making our assessment, we first looked at the potential demand by adapting our multimodal

transport model to consider the following 3-way transport choices between the port and each

origin / destination:

• Road only, rail & road via Peliyagoda ICD, rail and road via Veyangoda ICD; and

• Road only, rail & road via Peliyagoda ICD, rail and road via Enderamulla ICD.

The results are shown in Table A.1 below, retaining the same unit prices per rail trip from port

railhead to ICD as used for the single site case.


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Table A.1 Demand for two ICD sites vs demand for one ICD site

ICD site Context Rail price

(Rs/trip)

2015 2024 2034 Market

share

Peliyagoda/Telangapata + Veyangoda

Peliyagoda Two competing 4,675 255,170 438,480 740,097 16.8%

Veyangoda Two competing 7,175 88,935 152,824 257,948 5.9%

Total Two competing 344,104 591,304 998,045 22.7%

Peliyagoda Single site 4,675 280,047 481,229 812,252 18.5%

Veyangoda Single site 7,175 109,784 188,651 318,419 7.2%

Peliyagoda/Telangapata + Enderamulla


Enderamulla Two competing 5,000 220,677 379,209 640,055 14.6%

Total Two competing 439,791 755,730 1,275,575 29.0%

Peliyagoda Single site 4,675 280,047 481,229 812,252 18.5%

Enderamulla Single site 5,000 280,075 481,277 812,333 18.5%

Superficially, these results look encouraging – competition between two northern sites means

that each achieves less than its full potential but in both cases the total is greater than for

Peliyagoda on its own. However, capacity, determined by the number of train paths per day on

the harbour line, is still a limiting factor. This is particularly true when Veyangoda is one of the

two ICD sites, since Veyangoda can only accommodate short trains (45 TEU).

In considering the provision of an additional ICD site, we have based our calculations on short

45 TEU trains (15 X 3 TEU wagons each 20.2 metres long) and intermediate length 75 TEU trains

(25 x 3 TEU wagons). The 2 TEU wagons favoured by SLPA are 14 metres long. Trains of similar

length in metres, based on the 2 TEU wagons, would be 42 TEU (21 wagons) and 70 TEU (35

wagons) respectively, having roughly 7% less carrying capacity, which is acceptable.

None of the additional site options that we now consider would retain the ultra-short 30 TEU

trains, either in Peliyagoda or in the additional site. Given the limited number of train paths

available, they could not provide sufficient capacity. All of the upgrades would therefore

involve longer railheads in Peliyagoda and in Colombo Port.

It should be noted that all the above train length options are less than the 105 TEU trains

recommended in the main report, and will therefore to varying degrees be a little bit less

economic per TEU to run.

A 5.2 Peliyagoda & Veyangoda combination

If 45 TEU trains were used between the port railhead and each ICD site, then the train cycle

times would be 262 minutes for Peliyagoda as derived above and 342 minutes for Veyangoda,

which is 30 km further from the port. Assuming a ratio of 3 trains to Peliyagoda for every train

to Veyangoda, the weighted average train cycle time would be 282 minutes. That would give

5.1 train cycles per train pr day, or 20.4 train cycles per day for 4 trains in operation. Capacity

based on train cycle time would therefore be 20.4 x 90 x 350 = 642,600 TEU per annum. To

reduce demand to this level would involve an increase in rail transit unit prices in excess of Rs

600 per TEU trip, as shown in Table A.2 below.


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Table A.2 Demand for Peliygoda + Veyangoda (increased rail transit price)


(Rs/trip)

2015 2024 2034 Market

share

Peliyagoda/Telangapata + Veyangoda


Veyangoda Two competing 7,813 61,970 106,489 179,739 4.1%


A5.3 Peliyagoda & Veyangoda combination (variant)

The only way to boost annual capacity would be to run 45 TEU trains to Veyangoda and 75 TEU

intermediate length trains to Peliyagoda. Operationally that would be difficult and it would

need the active cooperation of SLPA.

The train cycle times would be 292 minutes for Peliyagoda and 342 minutes for Veyangoda,

which is 30 km further from the port. Assuming a ratio of 3 trains to Peliyagoda for every train

to Veyangoda, the weighted average train cycle time would be 304.5 minutes. That would give

4.7 train cycles per train pr day, or 18.9 train cycles per day for 4 trains in operation. Capacity

based on train cycle time would therefore be 18.9 x 2 x (75x0.75 + 45x0.25) x 350 = 893,025

TEU per annum.

A5.4 Peliyagoda + Truncated Enderamulla combination

For the Peliyagoda + Enderamulla combination, an increase of Rs 400 per TEU trip from the port

railhead to each ICD would dampen total demand to 1,000,000 TEU per annum. This could be

achieved using the harbour line passing loop, together with intermediate length (75 TEU) trains.

Table A.3 Demand for Peliyagoda + Truncated Enderamulla (increased rail transit price)


(Rs/trip)

2015 2024 2034 Market

share

Peliyagoda + Enderamulla


Enderamulla Two competing 5,400 173,420 298,002 502,989 11.4%


A6 Long term recommendation if SLPA’s Peliyagoda scheme is implemented

The currently planned SLPA scheme will deliver less than half of the capacity required in the

long term, which is 1,000,000 TEU per annum. Table A.4 below summarises the contending

options to increase system capacity in the longer term.


Final Report 348

Table A.4 Summary of options to deliver overall throughput of 1,000,000 TEU pa by 2034

Scheme name Features / comments

Expansion of SLPA’s Peliyagoda

site

Use trains capable of carrying 75 TEU / 70 TEU

Would deliver annual throughput approaching 1,000,000 TEU

Pelyagoda + Veyangoda ICDs Use trains capable of carrying 45 TEU (Veyangoda constraint)

Would only deliver annual throughput of 642,600 TEU

Pelyagoda + Veyangoda ICDs

(variant)

Use trains carrying 75 TEU / 70 TEU to/from Peliyagoda

Use trains capable of carrying 45 TEU to/from Veyangoda

Operationally difficult to mix trains of different lengths

Would deliver annual throughput approaching 900,000 TEU

Pelyagoda + Truncated

Enderamulla ICDs

Use trains capable of carrying 75 TEU / 70 TEU

Would deliver annual throughput approaching 1,000,000 TEU

Note: It is assumed that SLPA’s initial scheme includes Sedawatta link and a harbour line

passing loop.

The two schemes most likely to deliver a throughput of about 1,000,000 TEU per annum are:

• Expansion of SLPA’s Peliyagoda site; or

• SLPA Peliyagoda site amended + Truncated Endermulla ICD.

Which of these two schemes is most likely to be cost effective may be determined when SLPA

have defined their initial scheme in more detail. In both cases, the railheads in Colombo Port

and in the Peliyagoda ICD site would need reconstruction to accommodate longer trains.

Trains would have to be able to carry 75 TEU, based on 25 of the 3 TEU wagons identified by RI.

Alternatively, 70 TEU trains, based on 35 of the 2 TEU wagons favoured by SLPA, could be

operated. SLPA’s dislike of long (105 TEU) trains, for operational reasons inside the port, is

known. However, 70 or 75 TEU trains would be needed to meet the long term capacity

requirement because the number of train paths available is limited, even with the passing loop.

A financial evaluation of constructing a truncated Enderamulla project in 2020, with an

evaluation period from 2021 to 2040, is summarized below. The evaluation is compared with

the financial evaluation of the full Enderamulla project from 2014 to 2040.

Table A.5 Financial evaluation of a Truncated Enderamulla project

Item Unit Full Enderamulla

project (Capex in 2014

and 2020)

Truncated Enderamulla

project (Capex in 2020)

Design throughput TEU/annum 811,838 502,989

20 years of revenue Rs million 110,657 91,340

ICD costs including rolling stock Rs million 44,294 35,081

Railhead costs in the port Rs million 7,787 8,033

Container control system Rs million 258 268

Sedawatta link Rs million 928 Sunk cost

Harbour line passing loop Rs million Not included Sunk cost

21 years of costs Rs million 53,267 43,482

FIRR % 19.0% 18.6%

Add Peliyagoda ICD upgrade costs Rs million Not applicable 5,000

Revised FIRR % Not applicable 13.3%


Final Report 349

In the evaluation of a truncated Enderamulla project, it has been assumed that the Sedawatta

link and the harbour line passing loop would be sunk costs, having been constructed as part of

SLPA’s initial Pelyagoda scheme. The FIRR would be 18.6%. However, some allowance must be

made for the cost of modifying the Peliyagoda ICD site to take longer trains and a slightly higher

throughput. If Rs 5,000 million is allocated for this, then the anticipated FIRR drops to 13.3%.

Our provisional conclusion, therefore, is that construction of a truncated Enderamulla ICD in

2020, together with the necessary complementary upgrades to the port railhead, the container

control system and within the Peliyagoda ICD site, would be a financially viable project.

However, expansion of Peliyagoda to use the Telangapatha side of the site would be expected

to have a cost advantage, provided the design of SLPA’s Phase 1 scheme takes the requirement

for subsequent expansion to 1,000,000 TEU per annum throughput adequately into account.


Final Report 350

APPENDIX B – RESPONSES TO COMMENTS ON THE DRAFT FINAL REPORT

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Final Report 351

APPENDIX C – TERMS OF REFERENCE

SRI LANKA MULTIMODAL TRANSPORT PROJECT OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. Background

1. Due to its geographical location as an island nation, efficient sea transport is essential to achieve higher levels of economic growth needed for sustainable poverty reduction in Sri Lanka. To fully benefit from the enhanced capacity of Colombo Port, sustainable and environmentally friendly hinterland transport is required combined with supporting functions for packing, storage and value addition to goods. Due to congestion in Colombo City surrounding the Colombo Port area, the Government of Sri Lanka (GOSL) intends to establish up to two dry ports with integrated multimodal logistic centers in the vicinity of Colombo and connect these dry ports via railway lines to Colombo Port. The existing railway line to Colombo Port needs to be rehabilitated, the dry ports need to be connected to the railway network and transshipment yards have to be constructed in the dry ports and in Colombo Port. Furthermore, capacity constraints on the railway network in and around Colombo have to be addressed and Sri Lankan Railways (SLR) needs adequate rolling stock, maintenance facilities, signaling, communication and lifting equipment to cater the additional demand triggered by the multimodal logistic centers. 2. ADB is supporting the development of Colombo Port by the ongoing Loan 2319-SRI: Colombo Port Expansion Project. The container-handling capacity of Colombo Port will be increased from 3.3 million twenty foot equivalent units (TEU) in 2006 to 8.1 million TEU by 2015 and 10.5 million TEU by 2024. The Project will facilitate economic growth by enhancing national competitiveness in international trade via lower costs and faster delivery times. Export container traffic handled by Colombo Port is expected to increase by 9.5% per annum starting in 2011. Whilst the ongoing project in Colombo Port will especially support the port’s role as a regional hub as described in the SAARC Regional Multimodal Transport Study (SRMTS) 1, which identified Colombo Port as SAARC Maritime Gateway No. 10. The proposed project will improve Colombo Port’s ability to cater the national Sri Lankan market and improve therefore sustainable economic growth in Sri Lanka. Shifting the hinterland transport of Colombo Port from road to rail will ease congestion in Colombo, improve road safety and benefit the environment by reducing emissions and noise from trucks. B. Consulting Services

3. As no feasibility study is available, this consulting service will prepares the Multimodal Transport Project for possible financing by ADB. A feasibility study with preliminary engineering design for all project components and economic and financial assessment will be carried out. The main outcome of the Technical Assistance (TA) will be the project design fully agreed to by the Government and ADB and related safeguards planning documents prepared. 4. The consulting services shall be carried out in two phases following an initial inception phase of one month, during which the consultant will discuss with the executing agency, the government and all major stakeholders to further agree on the scope and objective of the project and identify all relevant projects to be considered and parties involved. The consultant

1 South Asian Association for Regional Cooperation (SAARC), 2006:SAARC Regional Multimodal Transport Study

(SRMTS), supported by ADB RETA 6187: Promoting South Asian Regional Economic Cooperation; SAARC is composed of Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

will submit an Inception Report within one month and organize a meeting with the executing agency and the government to discuss on the inception report. Afterwards, during the first phase of the project, the consultant shall review and all compare the potential locations for the multimodal logistic centers including road and rail access, carry out interviews with potential stakeholders and surveys for the traffic forecast as input for the technical, economic and financial viability of each option and summarize this in an interim report. The findings of the Interim Report shall be discussed with the Government in a tri-partite workshop comprising the executing agency, the consultants, ADB and other relevant stakeholders as required. This first workshop will discuss initial findings of the TA including potential private sector involvement (within 4 months after the start of services), and agree on the way forward for the second phase of the Feasibility Study with more detailed scrutiny of the proposals as outlined in these TOR. The Consultant will submit a Draft final Report after completion all the tasks as outlined in the TOR and organize a second workshop to discuss the findings of the feasibility study including safeguard-related requirements and procedures, and overall implementation of the project (within 7 months after the start of services). Based on the discussions during the second workshop and the written comments from the executing agency, ADB and other stakeholder, the consultant will complete the Final Report. 5. The TA will be carried out by a firm of consultants consisting of experts in transport planning, railway engineering, road and bridge design, transport economics and financial analysis, procurement and contract management, social impact assessment, involuntary resettlement and environmental assessment. The consultants firm will be recruited in accordance with ADB’s Guidelines on the Use of Consultants. The consultant will be selected in accordance with ADB's quality and cost based selection method with a quality to cost ratio of 90:10. Simplified technical proposals shall be submitted. 6. The TA, among other tasks, needs to adequately address the following aspects relating to the ensuing loan project: (i) detailed loan executing agency /implementing agency capacity assessment, and suggested remedial action plan to build executing agency and implementing agency capacity to minimize procurement and financial management risks; (ii) proposed or indicative loan related procurement plan with suggested level of priority or, if applicable, post review based on executing agency and implementing agency capacity assessment; and (iii) indicative implementation schedule with proposed sequencing of consultant recruitment and procurement bidding and awarding. C. Scope of Works

7. The team leader of the consultant will coordinate the preparation of all documentation required by ADB guidelines and the ADB project officer to develop the report and recommendation of the President document for the ensuing loan, including (i) a design and performance monitoring framework; (ii) project performance monitoring and evaluation arrangements, including baseline data; and (iii) an assessment of the detailed procurement and implementation arrangements. The team leader will be accountable for the quality and timeliness of all deliverables, and will ensure that all components are clearly and concisely documented to the full satisfaction of the ADB project team. The team leader will also be responsible for ensuring that the proposed investment that will be prepared through the feasibility study is complete, cohesive, economically and financially viable, and in full compliance with all pertinent ADB and Government policies and guidelines. The outline terms of references for the project preparatory TA consultants shall include the following:

a. Transport Planner/Team Leader (international, 6 person-months), Transport Planner/Deputy Team Leader (national, 7 person-months), Multimodal Transport Expert (international, 2 person-months), Road and Bridge Engineer (national, 3 person-months, two Railway Engineers (international 2 person-months and national, 3 person-months); Logistic and supply-chain Expert (national 2 person-months); Intermodal Expert (national 3 person-months):

8. The activities of the above positions shall include, but not be limited to the following:

(i) Review available data and studies, establish the overall scheme for the multimodal transport and identify alternatives and conduct the necessary surveys;

(ii) Liaise with all parties involved in the project, especially Colombo Port Authority, the future operator of the new container terminal, potential shippers from the dry port, etc. to optimize the design for the project;

(iii) Prepare in the inception period an approval procedure for the preliminary design process and identify all stakeholders in the railway, government authorities and other related agencies to be involved including the time allocated for review and approvals.

(iv) Establish a general layout of the integrated multimodal logistic centers including dry ports, free port area, road and railway lines, lifting equipment, auxiliary services etc. and design and/or specify all components required;

(v) Establish the train operation program for the multimodal transport project together with the existing infrastructure layout, including locations of stations with passing loops, crossovers, signals, stations and yards, connections of Colombo Harbor Station and the dry ports to the existing network, etc. to identify key infrastructure bottlenecks in the short and long term scenario, recommend options to optimize the infrastructure layout and propose standard layouts from operational point of view.

(vi) Review the signaling and dispatching system and recommend measures to increase the transport capacity, quality, flexibility and reliability of operation by analyzing the impact of additional intermediate block signals, location and layout of passing loops, turnouts with higher operation speed in the diverging tracks, crossovers in regular intervals, bi-directional operation on both tracks, etc. on the line capacity during normal and degraded operation and in case of maintenance.

(vii) Review the design and operation of the existing level crossings and propose improvements considering for example automatic barriers for those level crossings not replaced by road-over bridges (ROB).

(viii) Review the safety concept for freight train operations and propose improvements if necessary, considering the transport of dangerous goods, trains passing bridges in case of strong wind, alignment in tunnels, if any, and underpasses, fencing of the line, ROB, alignment parallel along existing roads and passing congested areas, etc.

(ix) Develop a design standard for rehabilitation/improvement of railways and for new roads based on the traffic forecast;

(x) Assess the technical feasibility of the design and alignments; alternatives based on inputs from technical, financial, social, resettlement and environmental studies, recommend a preferred alignment for further study; conduct a preliminary geometric design;

(xi) Prepare the preliminary engineering design of the physical infrastructure for the selected option including alignment design, all civil works structures such as

bridges and culverts, railway track, signaling and telecom system, roads, equipments as cranes and storage yards to be constructed in the dry port and port areas etc. and the related reports on resettlement, safeguard issues etc. to prepare a comprehensive cost estimate for the project.

(xii) Review and supplement where necessary the preliminary engineering design with the horizontal and vertical alignment, alignment for stations, yards, connections with the existing railway network, bridges, tunnels and earthworks, all changes in existing infrastructure such as roads, waterways, power transmission lines etc. displaced by the project, all major auxiliary installations needed such as maintenance depots, buildings for signaling and telecom equipment etc.

(xiii) Prepare technical specifications for all civil works necessary for the project and all equipments to be purchased;

(xiv) Prepare the Bill of Quantities (BOQ) and Cost Estimate within a 10% margin of error; investigate availability and costs of local and imported construction materials and equipment;

(xv) Clarify with the borrower whether financing of taxes and duties is requested, and if so, calculate ADB's financing percentages inclusive of taxes and duties. considering ADB’s list of eligible expenditures.

(xvi) Develop a quality management system for the design and construction stage of the project;

(xvii) Prepare the terms of reference (TOR) for detailed design, project management and supervisory consultants who will be recruited for the implementation of the investment loans

(xviii) Review whether all components of the project can be implemented solely through central government involvement; of provincial or local authorities have authority over any part of the project component, the consultant shall consider this in the suggestions for implementation arrangements and identify, how the provincial governments will contribute to the counterpart funding obligations for the project.

(xix) Identify institutional and financial requirements for maintaining the project during operations; prepare relevant documents for ADB to process the loan.

b. Financial Adviser (international, 2 person-months):

9. The Financial Adviser will review the project design and identify components in the scheme suitable for private sector participation, describe the different possible schemes with their pros and cons, identify institutional arrangements to ensure efficient project implementation as well as operation and maintenance of the scheme. The Financial Advisor shall comment whether the current regulatory environment is sufficiently developed to launch private sector participation, discuss the findings with the Government and other relevant stakeholders and make recommendation on regulatory changes that may be deemed necessary.

c. Procurement Specialist (international, 2 person-months): 10. The activities of the above position shall include, but not be limited to the following:

(i) Prepare procurement and implementation arrangements including contract packaging and a project implementation schedule taking into account the geographic/socioeconomic conditions in the project area;

(ii) Prepare standard bid documents to be used in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time);

(iii) Assist in finalizing civil works bidding documentation and bids evaluation, and prepare a procurement plan.

d. Transport Economist (international, 3 person-months, national 3 person-

months), Traffic Modeler (national, 3 person-months and Financial Analyst (national, 3 person-months):

11. The activities of the above positions shall include, but not be limited to the following:

(i) Review existing traffic data and study for the project area, if any; plan and carry out necessary traffic counts, origin-destination surveys and interviews; and forecast traffic demand over a 20-year period.

(ii) Undertake the economic evaluation following ADB's Guidelines for the Economic Analysis of Projects taking into account modal shift and diversion of existing traffic,

(iii) estimate the expected distribution of project net benefits among freight transport users, passenger transport users, vehicle owners, labor, the Government, and the economy in general, including international trade; conduct poverty impact assessment in accordance with ADB's Handbook for Integrating Poverty Impact Assessment in the Economic Analysis of Projects;

(iv) Conduct a quantitative risk analysis in accordance with ADB’s Handbook for Integrating Risk Analysis in the Economic Analysis of Projects.

(v) Undertake sensitivity analysis for various scenarios such as changes to the cost, generated and diversion traffic, modal shift, construction period, etc.

(vi) In cooperation with the environment expert, quantify the environmental benefits and costs of implementing the projects, rather than road use, to cater to demand.

(vii) Develop a project impact monitoring framework and carry out socio-economic baseline survey.

(viii) Carry out financial analysis and sensitivity analysis for the project. (ix) Obtain the financial internal rate of return (FIRR), and comparing the FIRR with

the weighted average cost of capital. (x) Identify financing requirements for operation and maintenance (O&M) of the

project; assess the level of funding required for sustainable O&M of existing assets and the availability of funds.

(xi) Carry out financial management assessment of Sri Lankan Railways in accordance with ADB guidelines, and provide advice how the financial management systems could be improved, e.g., action plan.

e. Social Development Expert (national, 3 person-months):

12. The Social Development Expert will prepare (i) Indigenous Peoples (IP) screening and impact categorization checklists, (ii) Summary Poverty Reduction and Social Strategy (SPRSS) and (iii) Indigenous Peoples Development Plans (IPDPs), if required, in accordance with ADB's Safeguards Policy Statement (SPS,2009) and other related policies such as the Public Communications Policy (2005). 13. Specifically, the tasks will include, but not be limited to, the following:

(i) Based on the issues identified in the summary Initial Poverty and Social Analysis (IPSA) report, review and analyze relevant available data and reports, and undertake field visits to the proposed Project sites.

(ii) Together with other team members, conduct interviews, focus group discussions or other meetings with stakeholders in order to determine the scale and scope for further detailed social analysis to make project design more pro-poor, socially inclusive, and sustainable, and to effectively deal with significant issues related to participation, gender, indigenous or vulnerable people, labor, affordability, HIV/AIDS transmission and human trafficking, or other social risks, including the need to prepare any action or mitigation plans or other measures.

(iii) Identify key stakeholders, possible barriers to benefiting the Project, prepare initial stakeholder analysis and initial C&P plan (see appendix 5 of the ADB Handbook on Social Analysis, 2007).

(iv) Assess the institutional, personnel, and financial capacities of the executing and implementing agencies and other stakeholders working with and for indigenous peoples, and develop a strategy for their participation in the project.

(v) Based on this initial review of existing documentation and field investigations, prepare and submit Indigenous Peoples (IP) screening and impact categorization forms for each sub-project road to ADB and the EA for review and comments.

(vi) Conduct in-depth social and poverty analysis, in accordance with ADB’s Handbook on Social Analysis (2007) and Poverty Handbook (2006), to assess local demand for the proposed road investments, employment opportunities, gender specific capacity to take advantage of the likely socioeconomic opportunities that would result from the Project, HIV transmission and/or other health and safety risks, and to collect baseline data for monitoring social impacts.

(vii) Conduct gender analysis and identify project design elements that have the potential to address gender equity if appropriate.

(viii) Propose measures to ensure that the Project is in compliance with national labor laws and international core labor standards.

(ix) If required, prepare separate Indigenous Peoples Development Plans (IPDPs) or specific actions for each relevant sub-project road in accordance with ADB's Safeguard Policy Statement (SPS, 2009).

(x) These IPDPs or specific actions should also incorporate the findings of the resettlement census to be conducted by the Resettlement Specialist (see TOR Part f).

(xi) Submit all draft final IPDPs to ADB and the EA for review and comments. (xii) Incorporate comments and finalize the IPDPs accordingly, then re-submit the

revised IPDPs based on Feasibility Studies to ADB through the EA. (xiii) Submit a draft final Poverty and Social Analysis (PSA) report to ADB and the EA

for review and comments. (xiv) Incorporate comments and finalize the PSA accordingly, then re-submit the

revised PSA to ADB through the EA. Summarize and submit these PSA findings in the Summary Poverty Reduction and Social Strategy (SPRSS) Report Form.

(xv) Conduct a workshop to provide guidance to the EA on Project-related social issues and ADB’s IP policy procedural requirements during Project preparation and implementation.

f. Resettlement Expert (national, 6 person-months):

14. The resettlement Expert will prepare (i) Involuntary Resettlement (IR) screening and impact categorization checklists, and (ii) Resettlement Plans (RPs) in accordance with ADB's Safeguard Policy Statement (2009) and other related policies such as the Public Communications Policy (2005).

15. Specifically, the tasks will include, but not be limited to, the following:

(i) Based on the issues identified in the summary Initial Poverty and Social Analysis (IPSA) report, review and analyze relevant available data and reports, and undertake field visits to the proposed Project sites.

(ii) Together with other team members, conduct interviews, focus group discussions or other meetings with stakeholders to identify permanent and temporary socioeconomic impacts as a result of possible land acquisition, changes of land use, or restrictions of access to assets and common property resources.

(iii) Based on this initial review of existing documentation and field investigations, prepare and submit Involuntary Resettlement (IR) screening and impact categorization forms for each sub-project road to ADB and the EA for review and comments.

(iv) If required, prepare separate Resettlement Plans (RPs) for each sub-project road in accordance with relevant laws and regulations related to land acquisition and resettlement; and ADB's Safeguard Policy Statement (2009). The scope and format of the required RPs should be consistent with ADB's Handbook on Resettlement: A Guide to Good Practice (1998).

(v) RPs should be based on a complete enumeration (100%) of all Affected People (APs) and their affected assets. RPs should also incorporate, where relevant, the findings of the socioeconomic survey to be conducted by the Social Development Consultant (see TOR Part e).

(vi) Define categories of impact and eligibility of affected persons for compensation, and prepare an entitlement matrix covering compensation for all lost assets and income, and assistance to achieve full replacement costs for lost assets, income, and livelihoods. Assess whether the compensation standards for all types of assets, crops, and trees are based on replacement value and discuss in detail the valuation methodology used.

(vii) Develop detailed budget and implementation schedules for the resettlement plan. (viii) Identify management, consultation, and dispute resolution mechanisms for the

resettlement plan. (ix) Review the organizational structure and capacity of executing and implementing

agencies to implement the resettlement plan and recommend improvements required before the start of land acquisition.

(x) Ensure that gender concerns are incorporated in the resettlement plan. (xi) Identify targets and indicators related to the resettlement plan for inclusion in the

DMF and PPMS, and make arrangements for internal and independent monitoring and evaluation.

(xii) Together with the executing agency, prepare and carry out a consultation plan and a format for documenting consultation with affected people, listing events, people consulted, documents disclosed, and timing of disclosure in accordance with ADB’s public communications policy (2005) and summarizing the issues raised, agreed actions, and improvements resulting from the consultation. Assess stakeholders’ concerns and consider possible changes in the project design to minimize resettlement impacts. Help the executing agency to finalize, disclose, and obtain government endorsement of the resettlement plan prior to submission to ADB for review and approval.

(xiii) As the resettlement plan is prepared based on a feasibility study or preliminary project design, it should also provide for updating the plan based on the detailed project design, and disclosing the updated plan to the affected persons prior to submitting it to A DB for review and approval.

(xiv) Submit all draft final RPs to ADB and the EA for review and comments. (xv) Incorporate comments and finalize the RPs accordingly, then re-submit the

revised RPs based on Feasibility Studies to ADB through the EA.

g. Environment Expert (national, 6 person-months):

16. The Environmental Expert will repare (i) environmental categorization form and environmental assessment checklist; and (ii) an initial environmental examination (IEE) or environmental impact assessment (EIA) in accordance with ADB's Safeguard Policy Statement (2009) by taking into consideration the Government's guidelines on Environmental Impact Assessment (EIA). 17. Specifically, the tasks will include, but not be limited to, the following:

(i) Undertake the reconnaissance survey for the project, and prepare the scoping and TOR of the EIA. The scoping will include the scope of study areas, sampling methods, and approach on assessment of the environmental impacts as required by government and ADB policies.

(ii) Process the approval for the scope and TOR in accordance with government and ADB requirements.

(iii) Undertake data collection to describe environmental conditions of the project areas and consultation with local community to gather their environmental concerns.

(iv) Gather data from the engineering consultant on the detailed project activities for the project to enable the accurate assessment of the potential environmental impacts.

(v) Assess the potential environmental impacts (direct and indirect impacts, and accumulated impacts) of the project and prepare the environmental management and monitoring plan (EMP).

(vi) Work closely with the transport economist to quantify environmental costs and benefits.

(vii) Undertake alternative analysis from environmental point of view for various transports and engineering options

(viii) Undertake second consultation with affected people of the project. (ix) Prepare the final draft EIA report and its summary with EMP for the project in

accordance to the Government and ADB’s requirement. This EMP should include: (a) clear identification of institutional arrangement for its implementation and potential involvement of community-based organizations as well as NGO, and (b) environmental costs including environmental monitoring plan.

(x) Facilitate the process of obtaining environmental clearance for the Project as per Government’s requirement

D. Time Schedule and Staff Requirements

18. For a team of experts, the assignment will be implemented for 8 months from April 2011 to December 2011. International inputs of 17 person-months and national inputs of 42 person-months are required as in Table 1.

Table 1: Summary of Consulting Services Requirement International National Name of Positions Person-months Name of Positions Person-months

Transport Planner (TL) 6 Transport Planner (Dty. TL) 7 Railway Engineer 2 Road and bridge Engineer 3 Multimodal Transport Expert 2 Railway Engineer 3 PPP Expert & Financial Adviser 2 Logistic and supply-chain Expert 2 Procurement Specialist 2 Intermodal Expert 3 Transport Economist 3 Transport Economist 3 Traffic modeler 3 Financial Analyst 3 Social Development Expert 3 Environmental Expert 6 Resettlement Expert 6 TL = Team Leader; Dty. TL = Deputy Team Leader Source: ADB E. Reports and Workshops

19. The consultants will submit the following reports:

Table 2: Summary of Major Outputs and Activities

Major Activities Expected

Completion Date Major Outputs Expected

Completion Date

Tri-partite meeting (Inception Report) June 2011 Inception Report May 2011 Mid-term workshop August-September

2011 Interim Report August 2011

Final workshop November-December

Draft Final Report November 2011

Feasibility Study November 2011 Final Report December 2011 Economic/Financial Analysis November 2011 Institutional Assessment November 2011 Safeguard Documents November 2011 Source: ADB 20. In addition, during TA implementation, the consultant will submit monthly progress reports. 21. ADB requires 3 copies of each report, and the EA requires 3 copies of each report. ADB and EA require also a softcopy of the report. 22. The consultants will also organize two tripartite meetings/workshops comprising the executing agency, the consultants, ADB and other relevant stakeholders as required. The first meeting/workshop will discuss initial findings of the TA including potential private sector involvement (within 3 months after the start of services), and the second meeting/workshop will

discuss feasibility study of the project including safeguard-related requirements and procedures, and overall implementation of the project (within 5 months after the start of services).

Sri Lanka: Multimodal Transport Project

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