Calculation of rate of inflation for construction costs for M3 motorway?

Calculation of rate of inflation for construction costs for M3 motorway?

Postby Vincent Salafia » Thu Aug 27, 2009 2:52 pm

Hi all,

I was wondering if someone might be able to help us do some calculations?

The M3 motorway was supposed to cost 580 million euros, at 2000 prices.

We are trying to calculate what will be the actual cost, at today's prices.

In the US there is a publication called RS Means which gives you factors for making these calculations. Is there such a guide in Ireland?

We are looking at the tolling contract, and wondering what will be the final cost to the taxpayer for the M3, over the life of the 45 year contract. Our initial estimation, using the NRA's own figures of construction costs, operation costs and traffic volume still led to an additional cost of 1 billion euros to the taxpayer..and that we before we even know there was a shadow toll clause in the M3 contract.

Our rough estimation, using 1bn construction costs, and halving the NRA's traffic projections to realistic levels, shows the M3 will cost 3bn euros over the life of the contract.

We want to make sure we can support the construction cost of 1bn, by properly calculating the construction inflation costs. Land prices alone had increased by 40% by 2004, from what they were in 2000.

Thanks in advance for your help.

Cheers,

Vincent
http://www.tarawatch.org
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby marmajam » Thu Aug 27, 2009 9:32 pm

A drop in the ocean compared to the legal aid bills you've been running up Vinny.

Nulla res carius constat quam quae precibus empta est.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby jimg » Thu Aug 27, 2009 10:12 pm

Vincent Salafia wrote:Hi all,

I was wondering if someone might be able to help us do some calculations?

The M3 motorway was supposed to cost 580 million euros, at 2000 prices.

This was an estimate of what? The construction cost, the running cost, the cost to motorists in tolls, the cost of government subvention or something else? When was the estimate made and has any data emerged since to revise the estimate.

We are trying to calculate what will be the actual cost, at today's prices.

In the US there is a publication called RS Means which gives you factors for making these calculations. Is there such a guide in Ireland?

I haven't a clue what RS Means gives you. Do you want to provide present values PV of future or past costs?
We are looking at the tolling contract, and wondering what will be the final cost to the taxpayer for the M3, over the life of the 45 year contract. Our initial estimation, using the NRA's own figures of construction costs, operation costs and traffic volume still led to an additional cost of 1 billion euros to the taxpayer..and that we before we even know there was a shadow toll clause in the M3 contract.

Our rough estimation, using 1bn construction costs, and halving the NRA's traffic projections to realistic levels, shows the M3 will cost 3bn euros over the life of the contract.

If you provide more details of the inputs you've used and the calculations you've made, there might be some chance of assisting. As it is, it's impossible to assist.

And don't mind marmajam. While very occasionally amusing, if the government were to propose an underground metro system for the Dingle peninsula, marmajam would probably abrasively defend it.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby marmajam » Fri Aug 28, 2009 4:23 am

Vinny knows I love him really.
Who could be against their fantastic campaign to return us to the glorious age of living likes Druids in the forest?

Dingle? full of fairies and leprecauns. They prefer to travel on rainbows.

Let the unwashed of Navan do the same I say.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby Vincent Salafia » Fri Aug 28, 2009 11:01 am

jimg wrote:This was an estimate of what? The construction cost, the running cost, the cost to motorists in tolls, the cost of government subvention or something else? When was the estimate made and has any data emerged since to revise the estimate.


Ji jimg,

Thanks for the detailed questions. We are trying to estimate what the real cost of the M3 will be, both in terms of the actual construction cost, as well as the long term cost to the taxpayer, over the life of the 45 year contract.

The cost of construction was still being quoted as 577 million in 2007 by Cintra, the tolling company:
http://www.ferrovial.com/en/index.asp?MP=23&MS=0&MN=1&TR=A&IDR=6&id=1168

These prices are 2000 prices though, as is stated in the Explanatory Statement Accompanying the M3 Toll Scheme:
http://www.nra.ie/PublicPrivatePartnership/TollingDocumentation/file,2839,en.PDF

The NRA already claimed in 2007 that 150 million had been added to the cost due to alleged delays protests and legal challenges, which is false, because works was never halted, so we can assume that it is now in the region 800 million.

But we know there has been massive inflation in land costs...over 40%...and construction costs went sky high too. So, is there a standard index or standard set of factors for calculating what the inflation of these costs is in Ireland?

jimg wrote:I haven't a clue what RS Means gives you. Do you want to provide present values PV of future or past costs?


I am not the engineer, but we do have one working on this who has tried to register here but hasn't been able to post. But it sounds like we are looking for PV of past costs estimates.

jimg wrote:If you provide more details of the inputs you've used and the calculations you've made, there might be some chance of assisting. As it is, it's impossible to assist.


Thanks. What other values do you need?
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby Frank Taylor » Sat Aug 29, 2009 12:04 am

Vincent Salafia wrote:Hi all,

I was wondering if someone might be able to help us do some calculations?

The M3 motorway was supposed to cost 580 million euros, at 2000 prices.

We are trying to calculate what will be the actual cost, at today's prices.
Here are the cpi inflation figures from the CSO
2000 2.3%
2001 4.9%
2002 4.6%
2003 3.5%
2004 2.2%
2005 2.5%
2006 4%
2007 4.9%
2008 4.1%

For 2000 I've estimated the inflation from 1st August.

In total that's about 38% increase up to the end of 2008

So the state paid roughly 400m to Ferrovial (or 330m ex VAT)

As I read it, Ferrovial paid the rest (who cares what they paid - that's their problem?)

Now the Cintra tolling company will collect tolls for 45yrs from Navan men. The toll will be about €1.50 (inc VAT) in 2010 prices when it opens. There are two tolls so that's 3 quid per journey including VAT - 50 cent of the 3 euro goes to the state.

The project is estimated to bring in tolls of 18.2mil for cintra and 3.8m in VAT in the first year.
Who knows what the traffic will be for the next 45yrs? I guess that's a risk.

I wouldn't count the tolls as a cost to the taxpayer, it's a tax on people who want to drive quickly to Navan. The VAT receipts will help defray the 330m capital cost put up the state.

It's still a stupid road. The real costs are not the direct cost to the state but the fact that the road makes the railway unviable, the increased emissions, the increased supply of car dependent housing to feed the new road, more cars arriving in Dublin. All stuff that's hard to quantify.

If you'd managed to delay the road a little longer it wouldn't have got built as it was driven by speculative demand by landowners at the junctions. This has now evaporated.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby e4enviro » Sat Aug 29, 2009 2:35 pm

Frank,

I am the person Vincent mentioned working on these calculations. Nice to meet you and the other posters here.

One approach is to start with the firm cost estimates by the NRA and inflate them using published determined rates. We could use the CPI, so thank you very much for providing those.

However, at least for the highway construction aspects, I would prefer to use published determined construction inflation rates if possible.

One source for construction inflation factors Vincent found was:

http://www.bruceshaw.ie/industry_info/irish_construction_indice/consumer_price_inflation06/

The deflation certain years is interesting, isn't it?

Better than this would be highway construction inflation factors. Highway construction is sensitive to labor costs, costs of certain materials with high energy input: asphalt, concrete, steel, and costs of large manufactured equipment. So I would ultimately prefer to find data on highway construction cost inflation factors.

On another side of the estimate, as Vincent pointed out, land values at the time of the Compulsory Purchase Orders (CPO) is probably very important. Do you or does anyone know how to ascertain those values or at least come up with a reasonable estimate?

Rod Aldrich


Frank Taylor wrote:Here are the cpi inflation figures from the CSO
2000 2.3%
2001 4.9%
2002 4.6%
2003 3.5%
2004 2.2%
2005 2.5%
2006 4%
2007 4.9%
2008 4.1%

For 2000 I've estimated the inflation from 1st August.

In total that's about 38% increase up to the end of 2008

So the state paid roughly 400m to Ferrovial (or 330m ex VAT)

As I read it, Ferrovial paid the rest (who cares what they paid - that's their problem?)

Now the Cintra tolling company will collect tolls for 45yrs from Navan men. The toll will be about €1.50 (inc VAT) in 2010 prices when it opens. There are two tolls so that's 3 quid per journey including VAT - 50 cent of the 3 euro goes to the state.

The project is estimated to bring in tolls of 18.2mil for cintra and 3.8m in VAT in the first year.
Who knows what the traffic will be for the next 45yrs? I guess that's a risk.

I wouldn't count the tolls as a cost to the taxpayer, it's a tax on people who want to drive quickly to Navan. The VAT receipts will help defray the 330m capital cost put up the state.

It's still a stupid road. The real costs are not the direct cost to the state but the fact that the road makes the railway unviable, the increased emissions, the increased supply of car dependent housing to feed the new road, more cars arriving in Dublin. All stuff that's hard to quantify.

If you'd managed to delay the road a little longer it wouldn't have got built as it was driven by speculative demand by landowners at the junctions. This has now evaporated.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby marmajam » Sat Aug 29, 2009 2:59 pm

You can't herd people onto trains. (at least not until Lisbon is passed and the death camps are reopened - COIR/SF/Libertas-me-arse tell me).
People want to drive, so they need both.
Many people will take the train when the line is reopened for various reasons.

It's interesting that now the argument that world civilisation is threatened by imagined sacrilege on Tara,has been lost, the line has shifted to the M3 being an evil plot to stitch up the plain people and render them paupers.

It's futile and nobody is interested in it but that never stopped the zealot before.........

The essense of it is a sort of upmarket conspiracy theory. A wicked world is flying to hell in a handcart. Unless we revive the great civilisation of the past.
It's also the same core spirit that fires the Taliban.
There was no great civilisation of the past - the past was the same as the present. That greatness has to be found here in what we do now.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby Frank Taylor » Mon Aug 31, 2009 11:55 am

e4enviro wrote:One approach is to start with the firm cost estimates by the NRA and inflate them using published determined rates. We could use the CPI, so thank you very much for providing those.

However, at least for the highway construction aspects, I would prefer to use published determined construction inflation rates if possible. ...
The only figure that matters is the amount that the government agreed to pay when they signed the M3 contract with Eurolink in April 2007. You can find out this number by asking the NRA. If they won't give it to you then you can make a FoI.

http://www.nra.ie/AboutUs/FOI/

We can only speculate on the amount and how they arrived there without seeing the contract. Let us know when you get it.
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby Vincent Salafia » Mon Aug 31, 2009 12:41 pm

Frank Taylor wrote:The only figure that matters is the amount that the government agreed to pay when they signed the M3 contract with Eurolink in April 2007. You can find out this number by asking the NRA. If they won't give it to you then you can make a FoI.

http://www.nra.ie/AboutUs/FOI/

We can only speculate on the amount and how they arrived there without seeing the contract. Let us know when you get it.


FoI Requests for the M3 PPP contract have been refused, because it is said the contract contains sensitive commercial information. However, we do have some figures that claim to represent the actual construction cost. The Government has repeatedly claimed the project will cost 600 million, at year 2000 prices. Later, the NRA claimed that the cost had increased by 150 million due to various delays. Perhaps the most reliable figures come from the tolling company, Cintra:

[INDENT]Cintra signs contract to build and operate the M3, its second toll road in Ireland
http://www.ferrovial.com/en/index.asp?MP=23&MS=0&MN=1&TR=A&IDR=6&id=1168

Madrid, 7 March 2007. After being selected as Preferred Tenderer on 19 September 2006, the Eurolink consortium, headed by Cintra, has signed an agreement with the Republic of Ireland's National Roads Authority (NRA) to design, build, finance and operate (DBFO) the M3 toll road in Ireland under a 45-year concession. Cintra owns 95% of the consortium with Siac Construction Limited, which owns 5% and has the option to attain 25%. Construction work will commence in April.

The M-3 toll road will measure 50 kilometres from Clonee to North Kells (north-west of Dublin). The project also includes the construction of a road between Kells and Carnaross (10 kilometres), the Kells bypass (3.5 kilometres) and related link roads, totalling more over 100 km of new public road.

The project investment is expected to total 575 million euro and will be financed with a 19-year bank loan without recourse to the shareholders (266 million euro) and a government payment during the construction phase (246 million euro). The remainder will be contributed by the shareholders in proportion to their stakes in the consortium.

The M-3 consolidates Cintra's presence in the transport concession business in Ireland, where in 2003 it obtained a 30-year concession for the N4-N6, the country's first toll highway to be put out to tender, which represents an investment of over 338 million euro.

With this new project, Cintra has a stake in a total of 20 toll road concessions in Spain (7), Ireland (2), Greece (1), Portugal (2), Chile (5), Canada (1) and the USA (2). It currently has another four projects pending final award, in Italy (1), Greece (1) and the USA (2), and it is awaiting the transfer of the Azores (Portugal) toll road concession from Ferrovial Infraestructuras. Cintra is also Spain's leading car park operator and manages over 250,000 parking spaces.[/INDENT]
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Re: Calculation of rate of inflation for construction costs for M3 motorway?

Postby Frank Taylor » Mon Aug 31, 2009 4:36 pm

Vincent Salafia wrote:FoI Requests for the M3 PPP contract have been refused, because it is said the contract contains sensitive commercial information.
You can appeal an FOI denial to the information commissioner. I can't see the commercial sensitivity once the contract has been signed.
However, we do have some figures that claim to represent the actual construction cost. The Government has repeatedly claimed the project will cost 600 million, at year 2000 prices.
The Draft toll scheme document from the NRA refers to tolls inflating at CPI from yr 2000 prices. This is standard practice in toll schemes. I don't read the document as stating that the capital costs are also inflated from yr 2000. The relevant section is as follows:
Draft Tolling Scheme wrote:Scheme Cost and Cost of Tolling
The estimated capital cost (excluding the estimated capital cost of tolling the road) for
the M3 Clonee to Kells Motorway (inclusive of design, land acquisition and other
related costs) is approximately €300 million including VAT. However, the overall PPP
scheme, has an estimated capital cost (inclusive of design, land acquisition and other
related costs) of €577 million including VAT, but excluding the estimated capital cost of
tolling the Proposed National Road.

The estimated capital cost of tolling the road is €12.7 million including VAT, and the
annual operating cost is estimated as €3.46 million including VAT. These costs are
based on year 2000 prices.
To me this says that the govt contribution is 300m including VAT in 2007 when the contract was signed. Only the figures relating to tolls and the capital costs and operating costs are in yr 2000 prices. As these tolling costs are paid by the contractor they are not paid by the taxpayer.

Maybe I am misreading this and inflation is applied to the entire scheme costs. It would seem strange to me that the contractor would announce in 2007 that they had signed a 577m contract when they had really signed a contract for 577m 'in year 2000 prices'.
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