Peshawar Sustainable Bus Rapid Transit Corridor Project (RRP PAK 48289)

ECONOMIC AND FINANCIAL ANALYSIS

A. Project Background

1. The city of Peshawar, which has a population of 1.8 million, currently lacks a formal public
transport system. Instead, an informal network of minibuses, wagons, vans, and other vehicles
provide public transport. This lack of formalization has created inefficiencies as well as safety and
environmental issues. While several modes of transport have consistent routes, they lack
designated schedules, stops, or stations. Consequently, service frequency is irregular. Drivers
pull over to pick up passengers at will, and sometimes wait in place until the vehicles fill.
Passengers must hail vehicles from the side of the road, creating a safety hazard. Boarding the
vehicles can be challenging—especially for the elderly, children, and the physically disabled—
and all the more so on the side of a busy road. During peak commute times, it is also common for
passengers to sit on the roof, or hang from the side of moving vehicles. Finally, vehicles in this
informal network tend to be poorly maintained, leading to inefficient fuel consumption, increased
emissions, and higher operating costs.

2. As in many growing cities in Asia, traffic congestion plagues Peshawar, limiting traffic
speeds to less than 10 kilometers (km) per hour along certain popular routes. Steady population
and economic growth has exacerbated the problem as residents increasingly purchase private
cars and motorcycles, and the informal transit network expands to meet demand. In addition to
the challenges outlined above, the informal system contributes to urban congestion as vehicles
stopping for passengers block traffic lanes.

3. The proposed Peshawar Sustainable Bus Rapid Transit (BRT) Corridor Project aims to
provide high frequency service with multiple routes. BRT vehicles will travel a designated corridor
in the busiest parts of the city and will also be able to travel off-corridor. This approach, known as
the “direct service” model, expands the system’s reach and lessens passenger transfers. The
BRT lane will be physically separated from mixed traffic along the corridor, and stations are
designed to accommodate up to four buses in each direction at a time. Most of the corridor will
be at-grade, and the design also includes bicycle lanes and pedestrian facilities intended to
streamline BRT station access.

4. The economic analysis described herein focuses on measurable changes in transport

costs, specifically vehicle operating cost (VOC) savings, and travel time savings. Additional public
benefits to safety and the environment were also considered. The costs and benefits of the with-
project scenario were assessed against a base-case scenario that assumed the informal transport
system’s continued dominance. A financial analysis assessed whether or not the revenue
generated by BRT operations would sufficiently cover the system’s operation and maintenance
(O&M) costs.

B. Demand Estimate

5. The analysis assumed that most passengers will come from the existing informal public
transport system that operates along the proposed BRT routes, with 50%–100% of bus, station
wagon, and pickup truck passengers transferring to BRT. Based on observed examples from past
projects, a moderate 7% modal shift from private vehicles was also assumed. Current and
projected passenger demand on routes covered by the project is shown in Table 1, based on data
collected by the Asian Development Bank (ADB) project preparatory technical assistance (PPTA)
team. It is estimated that 476,838 of passengers from different modes will shift to BRT if the
project is implemented.
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Table 1: Passenger Demand by Mode Before and After the Project

Daily passenger Daily passenger
demand Modal shift demand
Mode (base case) (% to BRT) (with project)
Motorcycle 26,915 7% 25,031
Bicycle 1,165 0% 1,165
Car 87,923 7% 81,768
Suzuki pickup truck 203,639 50% 101,820
Large bus 44,601 50% 22,301
Rickshaw 82,211 50% 41,106
Taxi 49,902 25% 37,427
Minibus 236,483 100% 0
Station wagon 50,006 100% 0
Datsun pickup truck 9,219 50% 4,610
Mixed Traffic Total 792,064 315,226
Bus Rapid Transit 0 476,838
Source: Asian Development Bank estimates.

6. Future BRT trip growth was estimated at 3.5% per year after considering population
growth forecasts, historical trends in travel growth, and the evolution of car ownership and trip
rates by mode. The projected annual BRT ridership is in Table 2.
Table 2: Projected Annual Ridership in the Proposed Bus Rapid Transit Network
2020 2025 2030 2035
Annual bus rapid transit
158,870,438 188,688,244 224,102,443 266,163,403
ridership
Source: Asian Development Bank estimates.

C. Analysis of Alternatives

7. Alternative mobility solutions for Peshawar considered in the decision-making process

included formalizing the existing informal system, a first generation “trunk-only” BRT system, and
light rail transit. Although an in-depth cost–benefit analysis was not conducted for these
alternatives, they were ruled out for other reasons. Formalizing the informal system appeared to
have little impact with regard to improving travel speeds or VOCs. A trunk-only BRT service would
serve only a fraction of Peshawar’s transit demand and require passengers to make multiple
transfers; therefore, this was considered unlikely to be financially sustainable. Light rail was ruled
out due to its long implementation time and comparatively high capital costs.

8. As demonstrated below, the BRT design employed for the project serves Peshawar’s
demand needs more effectively than do the alternatives and with greater economic viability.

D. Cost–Benefit Analysis

9. Introducing BRT as a new transport mode will generate direct and indirect benefits for
Peshawar. The direct benefits of the proposed BRT system include a lower operating cost for the
city’s public transit system, reduced travel time for transit riders who switch from existing modes
to BRT, and reduced travel time for users of other transport modes due to the decongestion of
the road network. Indirect benefits include the reduction of costs related to greenhouse gas
emissions and traffic accidents.
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10. All costs and benefits of the proposed BRT system were estimated based on a comparison
with a base-case (“do-nothing”) scenario, in which private vehicle ownership continues to increase
unabated, and informal transport operators continue to provide most public transit services.

11. Based on ADB’s Guidelines,1 the project’s economic viability was assessed by examining
the project’s economic internal rate of return (EIRR) and net present value with a discount rate of
9%. The assessment assumed a 2-year project implementation period starting in 2017, and a 20-
year economic life thereafter (2019–2039). The cost information used in the analysis was based
on 2017 constant prices. The analysis was conducted based on the domestic price numeraire.

E. Project Costs

12. Capital costs. The economic assessment included the following capital costs: (i)
investment costs, including civil works, rolling stock, and equipment; (ii) environmental and social
impact mitigation costs, including compensation for resettlement and costs to fund a fleet
scrapping program for informal providers; (iii) construction supervision services costs; and
(iv) physical contingencies.

13. Operating costs. The analysis included the following operating costs: (i) costs to be borne
by TransPeshawar, a public company newly established to manage the BRT system and maintain
the BRT infrastructure (infrastructure maintenance estimated at 2% of civil works per year); 2 (ii)
the vehicle operating companies’ costs, including driver, mechanic, and vehicle O&M expenses;
(iii) costs of fare system operations, station services (e.g., cleaning, landscaping, and fare
collecting), an intelligent transportation system, and revenue distribution services; and (iv) vehicle
renewal and replacement costs (estimated based on the vehicle design life).

14. Taxes and duties, financial charges during construction, and price contingencies were
excluded from the calculation of economic costs. Financial costs were converted to economic
costs in line with ADB’s Guidelines (footnote 1). A distinction was made between traded and non-
traded goods, and a shadow exchange rate factor of 1.039 was applied to traded goods. A shadow
wage rate factor of 0.85 was estimated and applied to unskilled labor.

F. Vehicle Operating Cost

15. The PPTA team determined the average VOC/km travelled for existing modes to be
PRs71.7/km, including fuel, maintenance, and driver costs. Operating costs for BRT vehicles was
assumed to be PRs46.98/km, calculated based on known fuel consumption (per km travelled) of
the proposed vehicles; the cost of replacement materials (lubricant, filters, and tires, estimated at
PRs3.7/km); miscellaneous vehicle maintenance costs (PRs3.5/km); driver and mechanic costs.3

16. Vehicle kilometers travelled (VKT) in the base case were estimated based on surveying
and transport modeling conducted by the PPTA team in 2016. VKT for public transit operations
along the proposed BRT corridor is estimated to reach 33,306,284 per year in 2020. Estimated
VKT for the proposed BRT fleet is 28,736,264 per year in 2020. Both VKT figures were assumed
to increase by 3.5% per year on average, in line with ridership growth. Annual VKT estimates in
the base and project case are shown in Table 3. The lower VKT in the project case is due to the
higher capacity of BRT vehicles, and the efficiency gains yielded by transporting the same number
of passengers on the project corridor.
1 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila.
2 Estimated based on the experience of the design team under the project preparatory technical assistance (PPTA).
3 Estimated from: Cities Development Initiative for Asia. 2014. Peshawar Urban Transport Pre-Feasibility Study. Manila.
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Table 3: Projected Vehicle Kilometers Travelled for Public Transit

along the Proposed Bus Rapid Transit Corridor
2020 2025 2030 2035
VKT Base Case 33,306,284 39,557,417 46,981,803 55,799,644
VKT Project Case 28,736,264 34,129,668 40,535,339 48,143,267
VKT = vehicle kilometers travelled.
Source: Asian Development Bank estimates.

17. To calculate VOC savings, the average VOC for the existing fleet (PRs71.7/km) was
multiplied by the base-case VKT. Operating costs for the BRT system (PRs46.98/km) were
multiplied by the projected VKT for the proposed system. Costs for the proposed system were
subtracted from those of the existing system to yield total VOC savings. The results are
summarized in Table 4.
Table 4: Vehicle Operating Cost Savings Summary
(million)
2020 2025 2030 2035
PRs $ PRs $ PRs $ PRs $
VOC without BRT 2,388 22.8 2,837 27.1 3,369 32.1 4,001 38.2
VOC with BRT 1,350 12.9 1,603 15.3 1,904 18.2 2,262 21.6
VOC savings 1,038 9.9 1,233 11.8 1,465 14.0 1,740 16.6
BRT = bus rapid transit, PRs = Pakistan rupees, VOC = vehicle operating cost.
Source: Asian Development Bank estimates.

G. Travel Time

18. Traffic congestion and operational inefficiencies in Peshawar’s existing transport system
result in long and uncomfortable trips for the city’s residents. The project offers a rapid and direct
service that will yield travel time savings for riders of the new BRT system. Segregated bus lanes
on the BRT corridor will ensure traffic-free travel and, although traffic may still affect buses outside
the corridor, bus lanes will be implemented in the city’s major arterial roads where most of the
congestion occurs. Furthermore, by helping to streamline other traffic, the project will also yield
travel time savings for non-BRT users.

19. Reductions in travel time were determined by first conducting origin–destination surveys
to understand current travel times, and then using a demand model to estimate the anticipated
time savings resulting from the project. For those shifting to BRT, average time savings are
estimated at 9.3 minutes per passenger trip. Due to the decongestion effect (para. 18), road users
not using the BRT are expected to save 2.6 minutes per passenger trip for private transport users,
and 5.8 minutes per passenger trip for public transit users.
Table 5: Mixed Traffic and Bus Rapid Transit Passenger Travel Time Savings
Travel time Travel time Travel time Travel time
without BRT with BRT savings savings
(minutes) (minutes) (total minutes) (%)
BRT passenger 43.3 34.0 9.3 21
Private passenger (mixed traffic) 28.6 26.0 2.6 9
Public passenger (mixed traffic) 43.3 37.6 5.8 13
BRT = bus rapid transit.
Source: Asian Development Bank estimates.
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20. To convert these physical time savings into economic values, the value of time (VOT) for
the average road user was estimated. Based on Pakistan’s average per capita income of
approximately $1,600 per year (in early 2017), and adjusting for the fact that incomes are higher
in urban areas, the VOT for working time was estimated at PRs84/hour. For higher income taxi
and car users, the VOT was calculated at PRs227/hour.4 The VOT for non-working time was
estimated as half that of working time. Furthermore, it was assumed that 50% of journeys on the
corridor would be for work, and 50% for non-work travel.

21. Travel time cost savings were calculated for both expected BRT passengers and non-BRT
users who would benefit from decongestion by multiplying the physical time savings summarized
in Table 5 by the VOT explained in para. 20. The value of travel time savings from mixed traffic
and BRT passengers is shown in Table 6 below.
Table 6: Travel Time Cost Savings for Bus Rapid Transit Passengers and Mixed Traffic
(million)
2020 2025 2030 2035
PRs $ PRs $ PRs $ PRs $
BRT passenger travel time
savings 1,551 14.8 1,843 17.6 2,188 20.9 2,599 24.8
Mixed traffic travel time
savings 8,296 79.2 8,296 79.2 8,296 79.2 8,296 79.2
Total Travel Time Cost
Savings 9,847 94.0 10,139 96.7 10,484 100.0 10,895 104.0
BRT = bus rapid transit, PRs = Pakistan rupees.
Source: Asian Development Bank estimates.

H. Road Safety

22. Traffic collisions inflict significant costs on society, including lost economic productivity for
those involved. Studies show that the average annual number of collisions is positively related to
the VKT. Thus, the number and social cost of traffic collisions decrease when the VKT is lower.

23. To calculate the value of reduced traffic collision costs, crash data from Khyber
Pakhtunkhwa was obtained from the Bureau of Statistics. The average value during 20042013
was calculated to prevent an exceptional event from altering the results. Traffic collisions in
Peshawar were estimated proportionally based on the city’s population relative to that of the
province. The derived number of the expected collisions was multiplied by their value—PRs27.7
million ($264,000) for fatalities and PRs1.4 million ($13,000) for serious injuries.5 Figures were
adjusted to 2017 prices in the analysis.

24. While the collision growth rate varies year-to-year, the average annual number of
collisions is expected to increase or decrease along with the VKT. As the project will reduce the
public transit VKT by about 3 million km per year and replace hazardous transport modes with
safer ones, fatalities and serious injuries are estimated to be 17.5% lower compared to the without
project case. The value of safety savings was calculated by establishing the base-case traffic
collision costs and subtracting the forecasted project case traffic collision costs therefrom using
the data and methodology described above.

4 Estimated from: Cities Development Initiative for Asia. 2014. Peshawar Urban Transport Pre-Feasibility Study. Manila.
5 M. Rafiq. 2011. Estimating the Value of a Statistical Life in Pakistan. Sandee Working Paper No. 63-11. Kathmandu.
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I. Carbon Emissions

25. Carbon emission reductions were calculated using the Transport Emissions Evaluation
Model for Projects (TEEMP), the industry standard developed by Clean Air Asia, ADB, and other
partners. Data on the VKT, ridership, and modal split with and without the project are entered in
the model, which then produces an estimate of tons reduced per year. Carbon emission
reductions were then multiplied by a social cost of carbon of $36.30, consistent with ADB’s
Guidelines (footnote 1).

J. Results and Sensitivity

26. As shown in Table 7, the project EIRR was found to be 15.4%, well above the 9.0%
minimum economic yield required for an ADB-financed project.

27. Sensitivity tests. The analysis included sensitivity tests to ensure a robust result. These
tests considered the following scenarios: a 20% capital cost overrun, a 20% reduction in
passenger ridership, and a 2-year delay in system opening.

28. As shown in Table 7, all scenarios meet the ADB guidelines.

Table 7: Results of the Economic Analysis (Including Sensitivity Tests)
Test Parameter/Result Base Scenario A Scenario B Scenario C
EIRR 15.0% 12.0% 14.0% 12.0%
Net Present Value ($ million)a 201 120 172 261
Cost–Benefit Ratio 1.29 1.15 1.25 1.39
Switching Value N/A 55% –26% N/A
EIRR = economic internal rate of return, N/A = not applicable.
a Net present value discounted at 9%.

Source: Asian Development Bank estimates.

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Table 8: Economic Analysis Results

($ million, 2017 prices, undiscounted)
Total Total Net
VOC Time Safety Carbon Econ. Econ. Econ.
Year Saving Saving Saving Saving Benefit
OPEX CAPEX Costs Benefit
2017 - - - - - - 240.7 240.7 –240.7
2018 - - - - - - 216.1 216.1 –216.1
2019 9.6 93.5 2.5 1.4 106.9 28.1 - 28.1 78.8
2020 9.9 94.0 2.5 1.5 107.9 31.1 - 31.1 76.8
2021 10.3 94.5 2.5 1.6 108.9 31.5 - 31.5 77.4
2022 10.6 95.0 2.5 1.7 109.9 31.9 - 31.9 78.0
2023 11.0 95.6 2.5 1.9 111.0 32.4 - 32.4 78.6
2024 11.4 96.1 2.5 2.0 112.0 32.9 - 32.9 79.2
2025 11.8 96.7 2.6 2.1 113.2 33.4 - 33.4 79.8
2026 12.2 97.3 2.6 2.2 114.3 33.9 - 33.9 80.3
2027 12.6 98.0 2.6 2.2 115.4 34.6 - 34.6 80.8
2028 13.0 98.6 2.8 2.3 116.8 35.2 - 35.2 81.6
2029 13.5 99.3 2.9 2.3 118.0 35.9 - 35.9 82.1
2030 14.0 100.0 2.9 2.4 119.3 36.7 - 36.7 82.6
2031 14.5 100.8 2.9 2.4 120.5 113.0 - 113.0 7.5
2032 15.0 101.5 2.9 2.5 121.9 41.0 - 41.0 80.9
2033 15.5 102.3 2.9 2.6 123.2 42.0 - 42.0 81.2
2034 16.0 103.1 2.9 2.6 124.7 43.1 - 43.1 81.5
2035 16.6 104.0 3.2 2.7 126.4 44.3 - 44.3 82.0
2036 17.2 104.8 3.2 2.7 127.9 45.6 - 45.6 82.3
2037 17.8 105.7 3.2 2.8 129.4 47.0 - 47.0 82.5
2038 18.4 106.6 3.2 2.8 131.1 48.5 - 48.5 82.6
2039 19.0 107.6 3.2 2.9 132.7 50.1 - 50.1 82.7
CAPEX = capital expenditures, Econ. = economic, OPEX = operational expenditures, VOC = vehicle operating costs.
Source: Asian Development Bank estimates.

K. Financial Analysis

29. The financial analysis of the project was carried out in accordance with ADB’s Financial
Management and Analysis of Projects.6 The project and its operational plan have been designed
to ensure that the revenue generated from the BRT system will adequately cover its O&M costs,
which are estimated to reach approximately $32 million in 2020. The ADB loan will cover the civil
works, equipment, consultant, and social and environmental mitigation expenses, including the
purchase of all vehicles with an expected 12-year lifespan. TransPeshawar, the managing
company, is not responsible for repaying the capital cost of the loan.

30. The BRT system generates revenue in four ways: fares, advertising, rent on concessions
and storefronts in stations and depots, and revenue from parking plazas. Fare revenue, the
largest source, was calculated using an average estimated fare of $0.23 (PRs25) per trip.7
Advertising revenue is estimated at 3% of fare revenue, while revenue from concessions and
parking facilities are calculated based on use. Revenue from these sources is estimated to be
$40 million in 2020.

6 ADB. 2005. Guidelines for the Financial Management and Analysis of Projects. Manila.
7 The current average fare in the existing informal public transport system is PRs20. Only a slight increase is proposed
for the BRT system, which will provide a much better transportation experience for a still-affordable average fare.
The new BRT system’s fare will also be distance-based, and a single ticket will vary between PRs15 for short trips
to PRs40 for the longest distance.
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31. This revenue will be used to cover all O&M expenses, as well as the procurement of new
buses to keep up with projected demand increases and fleet replacement costs. A financial
clearinghouse company will collect and distribute fare revenue. Vehicle operation fees will be paid
on a per km basis. Station services, including cleaning, security, and staffing, will also be
contracted out. ADB consultants are currently supporting the development of a detailed
operational and financial plan, including determining the appropriate payment per km for private
bus operators.

32. The Government of Khyber Pakhtunkhwa decided to consider the capital cost (including
that of the BRT infrastructure and initial fleet) a grant, and does not intend to recover this
investment from the system’s operational revenues. The government intends to ensure the
system’s financial sustainability and to limit or even eliminate the need for the operational
subsidies troubling other existing BRT systems in Pakistan, such as in Lahore or Islamabad-
Rawalpindi. In the absence of a cost recovery tariff, a conventional financial evaluation based on
cash flow analysis leading to the computation of a financial internal rate of return is not considered
appropriate.

33. Instead, an operating ratio analysis was conducted to ensure that revenues will cover
operating costs. The analysis results are in Table 9. In addition to the base case, alternative
scenarios were also considered. Scenario A assumes that operating costs are 20% higher than
estimated in the base case, while Scenario B assumes that fare revenue is 20% lower than
projected. In all cases, the ratio remains under 100%, indicating that the project is financially
sustainable.
Table 9: Results of the Operating Ratio Analysis
($ million)
2020 2025 2030
Net Net Net
Cash Cash Cash
Costs Rev. Ratio Flow Costs Rev. Ratio Flow Costs Rev. Ratio Flow
Base Case 34 49 70% 10 37 76 48% 26 40 118 34% 52
Scenario A 41 49 84% 5 44 76 58% 21 48 118 41% 47
Scenario B 34 40 86% 4 37 61 60% 17 40 95 42% 37
Rev. = revenue.
Source: Asian Development Bank estimates.

34. Net cash flows were calculated by applying the 33% tax on benefits. TransPeshawar’s
future financial position confirms solid net cash flows and its financial capacity to cover the
recurrent costs to sustain the facilities developed under the project. Moreover, as ridership and
gross domestic product increase and service coverage improves, the agency may be able to
increase fares and charge more for advertising, parking, and concessions space, thus
strengthening its ability to finance O&M costs.