Description of the Baseline Scenario:

The Suhar-Abu Dhabi railway network is being considered. The purpose of this project is to increase domestic tourism and facilitate the transportation of cargo to each destination. You are commissioned by the Ministry of Transportation to perform an ex-ante cost-benefit analysis of one alternative from a country-level perspective, where the status quo is no railway system. Evaluation shall take place along the 15 years period between 2022 (year 0) and 2036 (year 14).

Railway Project is planned to consist of 2 electric engines at a cost of OMR 6 million each. Each engine pulls 15 trailers; five passenger coaches and 10 cargo vehicles, which cost OMR 4.5 million. The costs of the engines and trailers are budgeted to be incurred in equal sums at the end of 2022, 2023 and 2024 respectively. The government will engage in one maintenance contract renewed annually at a flat rate of 8% of the total cost of the engines trailers, applied from 2025 onward. Additionally, the government designates 10 million square meters (m2) of land to construct the railways. Since land is mostly owned by the government of Oman, a shadow rate of OMR 4/m2 is applied, which is assumed to grow at 3% annually. The railways on the other hand, are expected to cost $125 million each way.

The project will hire 1000 workers during the construction period of 2022, 2023 and 2024, and 500 workers afterwards. All workers would otherwise be unemployed, and the minimum wage in Oman is OMR 325 monthly.

The Railway Project is expected to begin operation in 2025. Each day, 500 passengers are expected to commute between Suhar and Abu Dhabi (the full capacity of 10 passenger coaches), where each one-way ticket will be priced at OMR 30 in 2025 and growing at 5% annually. Evaluations are based on a 365-days year. The project is also expected to create 800 full-time jobs economy-wide starting from 2025 onward, where wages are OMR 5.5 per hour. Each year consists of 52 weeks and a full-time job is defined by 40 hours per week. Furthermore, being a safer means of transportation than road vehicles, the Railway Project is expected to save 75 lives per year, growing at 1.5% annually. The expected statistical value of a life, a shadow price, is found to be OMR 200000. This value is assumed to remain constant during the evaluation period.

As mentioned, the project intends to increase tourism domestic tourism and facilitate the transportation of cargo. To that end, it is expected that 250 tourists, full capacity, will travel between the two cities daily for leisure purposes. The average daily tourism expenditure of a domestic tourist is expected to be OMR 50. In terms of cargo, the daily cargo is expected to be 250 tons in each direction in 2025, operating at 50% capacity at the beginning. This volume is, however, expected to increase at a 5% rate between 2025 and 2036, and each ton of cargo will be transported at a flat cost of OMR 30 with no anticipated change during 2025 2036.

1. One page description of how tourists and cargo are currently transported between the cities, the status quo.

7. Theoretical analysis of the proposed project.

a. Depending on your answer to step (1) currently there can be a monopoly or competition in transportation.