Acost-benefit analysis of Shenzhen-Zhongshan Bridge

The Shenzhen-Zhongshan Bridge is a bridge under construction. It would connect two major cities on the Pearl River Delta (PRD) in China: the city of Shenzhen on the eastern side of the PRD, and the city of Zhongshan on the western side. It will consist of a series of bridges and tunnels, starting from Bao'an International Airport on the Shenzhen side. The proposed 51 km eight-lane link is scheduled to be completed in 2024 and is expected to cost around 50 billion RMB. It will be located about 27 km downriver from the Humen Bridge, the only current bridge crossing of the estuary, and some 32 km north of the new Hong Kong-Zhuhai-Macau Bridge, which links the cities of Hong Kong, Zhuhai, and Macau at the southern end of the PRD. Construction started in May 2017.

The project will consist of a 6.7 km tunnel starting on the Shenzhen side, and 19 bridges totalling 43 km. Construction started in late 2016 and opening is scheduled for 2024. There will be four lanes in each direction, with a maximum speed of 100 km/h. The bridge will join the Guangshen Expressway to the south of Shenzhen airport and the Jihe Expressway to the east of the airport on the eastern side of the delta with the Zhongjiang Expressway on the western side. It will cut travel time from Shenzhen to Zhongshan to less than 30 minutes. The project might draw as much as 80,000 vehicle per day. The bridge is expected to have a service life of 100 years, but the current toll collection period under the toll road management regulations is 15 years. It is assumed that the one-way charge for private car will reach 90 yuan, and the one-way charge for buses and trucks will reach 200 yuan. And Based on the use of Humen bridge, we assume that 20% of the vehicles using the Shenzhen-Zhongshan Bridge are private cars and 80% are trucks.

The discount rate is assumed as 3% per year.

The cost and benefits should be considered are as followed:

Cost

1.Construction Costs

50 billion RMB totally, and the construction period is from 2017 to 2024.

2.Maintenance costs

2 Billion RMB per year, including daily maintenance expenses, staff salaries, financial expenses.

3.Cost of species protection

Given the number of protected animals in the pearl river estuary, it is estimated that a total of about 5 billion RMB will be spent initially to ensure that animals are not affected from 2017 to 2024, and 500 million RMB will still be spent annually on this protection

Benefits

1. Vehicle Operating Cost Saving

Saving in vehicle operating costs for passenger and freight vehicles are the differences in transportation costs between schemes with and without Shenzhen-Zhongshan Bridge as a result of the vehicles traveling on a better and shorter road network, reduced traffic congestion and/or increased speed of traveling with the provision of Shenzhen-Zhongshan Bridge. It is assumed that the one-way charge for private car will reach 90 yuan, and the one-way charge for buses and trucks will reach 200 yuan. But without the Shenzhen-Zhongshan Bridge, the weighted average of the unit vehicle operating cost on this route is 1.72 RMB per km for private car and 2.25 RMB per km for buses and trucks. The distance of travel on this route is 100 km.

1. Reduction of Travel Time

With Shenzhen-Zhongshan Bridge, the time saved for the two passengers in this private car in this trip is 0.66 hour. By analyzing the statistic data, the Mainland consultant estimated that the hourly time value for a passenger is 50 RMB per hour.

1. Benefits Generated from Induced Traffic Volume

The economic benefits as a result of the induced goods traffic volume for trucks are 5000 RMB per trip.

With the information above, please calculate the following questions:

1. Calculate the present value of cost and benefit (the basic year is 2017 and assume that the overall cost can be evenly distributed over each year from 2017 to 2024).
2. Calculate the NPV, IRR and BCR of this project.
3. Is this bridge is cost-efficient?