Guidance on Rail Appraisal TAG Unit

Transcription

1 TAG Unit August 2012 Department for Transport Transport Analysis Guidance (TAG)

2 Contents 1 Introduction Background Scope and Structure 1 2 SRA Appraisal Criteria Status of the SRA Appraisal Criteria 1 3 Principles of Rail Appraisal Basic Appraisal Principles Project Development Demand Forecasting Unit of Account in Appraisal GDP Growth Uplifts Risk, Uncertainty and Optimism Bias Appraisal Period and Discounting 6 4 Impacts on Wider Society (Present Value Benefits) Non-Marketed Impacts External Costs of Car Use Estimates Changes in Train Operating Company's Revenue Disruption Costs Freight Appraisal Indirect Tax Impacts 10 5 Impacts on Government (Present Value Costs (PVC)) Financing Assumption 12 6 Further Information 12 7 References 13 8 Document provenance 13

3 1 Introduction 1.1 Background The SRA Appraisal Criteria (Strategic Rail Authority, April 2003) set out the general framework within which rail appraisal should be conducted. In light of the changed industry structure (as set out in the Railways Act 2005) this unit updates this guidance to bring it in line with current Department for Transport (DfT) Appraisal Guidance. It is also intended to support those conducting rail appraisals by providing a set of recommended values and assumptions The Department for Transport requires that all schemes it funds are appraised in line with the transport appraisal process, formerly NATA, which was set out in A New Deal for Trunk Roads in England: Understanding the New Approach to Appraisal (DETR, July 1998) and A New Deal for Trunk Roads in England: Guidance on the New Approach to Appraisal (DETR, July 1998). Since 1998, the New Approach To Appraisal has been revised and is now set out in the Department s web-based Transport Analysis Guidance, WebTAG. For a concise summary, see Introduction to Transport Analysis (TAG Unit 1.1). 1.2 Scope and Structure This document is applicable to the appraisal of all initiatives with rail elements that are submitted to DfT for funding. For minor schemes with requested public transport funds of less than 5million, the Network Rail Discretionary Fund approach (Network Rail Discretionary Fund schemes: Appraisal guidance, DfT, March 2006) is used. Further guidance on appraisal of franchise specifications is available from DfT; please tasm@dft.gsi.gov.uk. Guidance on appraisal of rail closures and minor modifications is available in the document Government Response to the Consultation on the Implementation of the Railways Act 2005 Provisions on Closures and Minor Modifications, DfT, October 2006 which can be found on the DfT website. Proposals that are seeking funding through the Local Transport Plan (LTP) process should also consult LTP guidance (Final Guidance on LTP1 delivery, DfT, December 2005) Section 2 provides information on the SRA Appraisal Criteria. Section 3 provides further detailed guidance and information on the principals of appraisal within the context of WebTAG. Sections 4 and 5 look specifically at measuring the impacts of a proposal on both wider society and the impact on government within the appraisal process. Section 6 gives a list of documents that are sources for information in this unit or follow on directly from key topics in this unit. 2 SRA Appraisal Criteria 2.1 Status of the SRA Appraisal Criteria The SRA Appraisal Criteria were developed in line with Treasury Green Book (Her Majesty s Treasury (HMT), January 2003) and NATA (A New Deal for Trunk Roads in England: Understanding the New Approach to Appraisal, Department for the Environment Transport and the Regions (DETR), July 1998 and A New Deal for Trunk Roads in England: Guidance on the New Approach to Appraisal, DETR, July 1998) to provide guidance on the appraisal of rail specific initiatives This unit integrates rail appraisal into WebTAG and supersedes the SRA Appraisal Criteria. Interested readers can still find the SRA Appraisal Criteria in the archive section of the WebTAG website. Page 1

4 2.1.3 It should be noted that the SRA Transport Economic Efficiency (TEE) Table (page 16) has been superseded by the Transport Economic Efficiency (TEE), Public Accounts (PA) and Analysis of Monetised Costs and Benefits (AMCB) tables, in line with standard DfT appraisal practise for other modes. 3 Principles of Rail Appraisal 3.1 Basic Appraisal Principles The basic principles of appraisal are explained in Introduction to transport analysis (TAG unit 1.1). These principles should be followed. This document provides more specific guidance on rail appraisal Appraisals must be documented in a standard manner, for ease of assessment within DfT and to enable comparison of rail projects with projects on other modes. Further guidance on reporting may be found in The Appraisal Process (TAG unit 2.5). In particular, appraisals must include: (a) (b) (c) (d) (e) An Appraisal Summary Table (AST), showing the impact of the project on all subobjectives. This is a key output of an appraisal, as it is used by the Department when coming to a view on the value for money of a scheme. The AST can be found in Appraisal Summary Table (TAG Unit 2.7.2) and more detail in The Appraisal Process (TAG unit 2.5). An assessment for every appraisal sub-objective including supporting worksheets for each sub-objective including Transport Economic Efficiency (TEE) and Public Accounts (PA) tables. Where project promoters can clearly demonstrate that there will be no impact on some sub-objectives, the relevant supporting worksheets may be omitted. An Analysis of Monetised Costs and Benefits (AMCB) table An assessment of the extent to which the project addresses the problem and contributes to local and regional objectives (see TAG Unit 2.5) Supporting Analyses: - Distribution and Equity Analysis (TAG Unit 3.8.3) (please seek advice from DfT) - Practicality and Public Acceptability (TAG Unit 3.8.4) - Affordability and Financial Sustainability (note that the guidance in TAG Unit is not applicable to rail schemes. However, the financial impacts of the scheme on DfT will need to be examined in the business case, and this should be discussed with DfT) 3.2 Project Development Guidance on the approach that should be taken to project development can be found in The Overall Approach: The Steps in the Process (TAG Unit 2.1). Problems should be clearly identified and all modes considered in possible solutions The appraisal must include a detailed assessment of the scheme against alternative options that would, as far as possible, broadly meet the same objectives. The testing of alternatives is not an add-on to the appraisal but an integral part of the process of Page 2

5 determining the preferred option. Any scheme for which the appraisal of alternative options is considered inadequate may not be accepted for funding The assessment of alternatives should start from an initial wide base of possible options. The Department requires a clear understanding of why some particular options are preferred to others. Each option must be assessed against Government objectives. The assessment of alternatives must be sufficiently robust to allow a detailed comparison between the preferred scheme and its alternatives. The Department may wish to see ASTs and worksheets (including TEE tables) for the rejected alternatives, though the level of detail provided in these ASTs and worksheets should be proportionate to the stage at which the rejected alternative was considered. Unless agreement has been reached with the Department that these are not necessary they should be produced and made available on request After a thorough justification has been given for the rejection of some of the initial set of options, the Department requires that all major schemes move toward a final appraisal of the preferred option and a 'fully worked up' lower cost alternative. A scaled down version of this may be acceptable for smaller schemes, however only after prior agreement with the Department. A 'next best' alternative may also need to be carried through the appraisal process. In these cases promoters should enter into discussion with the Department to determine the exact requirements for their scheme. 3.3 Demand Forecasting Where demand forecasting in rail is necessary, the Department believes that it is not reasonable to expect that demand will grow indefinitely, and that there should be a final modelled year. For the purposes of appraisal, this means that the Department expects in the majority of cases that demand growth should be capped after a 20 year period from the year the appraisal is undertaken (e.g. an appraisal carried out in 2011/12 would be on the basis of demand capped in 2031/32). Sensitivities of 10 and 30 years of growth should be presented. Under exceptional circumstances, such as with long-term infrastructure projects or where the modelling approach allows, it may be appropriate to use a different demand cap. In these cases advice should be sought from DfT. 3.4 Unit of Account in Appraisal In order to avoid using two units of account in the same appraisal, all impacts in the factor cost unit of account should be converted into the market price unit of account by up-rating by (1+t), where t represents the average indirect taxation rate throughout the economy (see unit for the current recommended indirect tax value). The section below summarises the necessary adjustment. 1. Impacts to non-business users (passengers travelling on non-work purposes) are perceived in the market price unit of account. For rail proposals this includes time saving, the passenger impact of fare changes, reliability, interchange, environmental and safety values. Fares are zero rated for VAT, but they are still perceived in market prices by consumers. In general no adjustments are necessary. 2. Impacts to business users (passengers travelling during work time) are perceived in the factor cost unit of account. This is because businesses can reclaim most indirect taxes paid (including VAT) so consider as excluding indirect taxes. This means value of time (when quoted in factor prices) and revenue impacts perceived by business users (e.g. when fares change) should be up-rated into the market price unit of account. Other impacts to business include reliability and safety. The former are perceived as factor cost and should be converted to market prices whilst the latter should be assumed to be Page 3

6 already quantified in market prices as the value of preventing a fatality used in appraisals (as given in the Highways Economic Note 1) is in market prices. 3. Impacts to private sector providers (e.g. TOCs) are also perceived in the factor cost unit of account. Hence fare revenues, costs, grants, developer contributions, etc. should also be up-rated by average indirect taxation rate to the market price unit of account when they are received by the private sector. Note that: a. When the private sector develops a scheme that results in higher revenues, these revenues received by the private sector should be uprated by average indirect taxation rate to the market price unit of account. This is despite the fact that fares are zero rated for VAT. b. When costs for a project already contain VAT and the other taxes, VAT and all other recoverable taxes should be excluded. The average indirect taxation rate uplift should then be applied on top of these net costs, which should include all other nonrecoverable indirect taxes. 4. Impacts to the government are also in the factor cost unit of account and therefore must be up-rated by the recommended value for average indirect taxation into the market price unit of account. This includes grants, revenues, taxes, operating costs, developer contributions, etc HM Treasury Guidance in the Green Book suggests appraisals be conducted in real terms. This means that the price base of all monetary values to be used will be set to one particular year. The DfT base year is fixed for long periods, see Cost Benefit Analysis (TAG Unit 3.5.4) for details. At the same time, these values will tend to grow throughout the life of an appraisal, to reflect growth in incomes. This leads to two adjustments: Up-rating the values given in Table 1 for inflation and income growth to calculate the base year values. Beyond the base year, up-rating the base values throughout the appraisal period to reflect that these will grow in parallel with real income For the purpose of setting nominal values to the base year the Department recommends the use of a GDP deflator. The GDP deflator can be viewed as a measure of general inflation in the domestic economy. For the latest figures and guidance on how to apply deflators see the "Economic Data and Tools" section of the HM Treasury website GDP Growth Uplifts All monetary values (except the value of time for non-work purposes) should be up-rated in line with GDP growth per capita. See Values of Time and Operating Costs (TAG Unit 3.5.6)) for details on the growth in values of time. Also, note that the growth rate declines when the discount rate changes, as detailed in paragraph Non work values of time (VOT) ("Commuting" and "Other") should be up-rated using an elasticity of 0.8 as shown in the formula below: VOTt+1=VOTt* ((GDPt+1 / GDPt) ^0.8) 3.6 Risk, Uncertainty and Optimism Bias The Department has issued guidance on The Estimation and Treatment of Transport Scheme Costs (TAG Unit 3.5.9). Rail schemes should be consistent with this guidance. Page 4

7 Supplementary guidance is included below giving specific rail optimism bias factors during Network Rail project development stages For new proposals there is usually a difference between the projections of costs and benefits envisaged in appraisal and what happens after implementation. Table 2 below illustrates the two main sources of this error and suggests how these can be accounted for. Table 1 Sources of Error in Cost Estimation Source Description How to address this in appraisal Risk Optimism Bias Events associated with known probabilities, measurable Historically observed tendency to underestimate costs Quantitative Risk Analysis (QRA) - calculating probability weighted costs Add optimism bias adjustment to correct for this bias (see Table 2) The corrections illustrated in Table 1 can be incorporated to costs, following the formula below. Risk over benefits should be treated with the use of sensitivity analysis on key benefit drivers (e.g. patronage forecasts). Project Development Level 1-3 Risk and optimism bias adjusted cost = (Base Cost excluding QRA) * (1+Optimism bias) Project Development Level 4-5 Risk and optimism bias adjusted cost = (Base cost + QRA) * (1+Optimism bias) The use of one of the above equations depends upon which project development level is being assessed. For Project Development Level 1, 2 and 3 any measure of Quantitative Risk Analysis (QRA) and contingency should be excluded from the definition of costs. For Project Development Level 4 and 5 the mean estimate from the QRA should be included in the costs before optimism bias is applied. Realistic assumptions on the changes in real costs over time should be incorporated (for example where costs increase above inflation). Guidance how to deal with inflation rates in the transport sector including construction inflation is given in The Treatment of Costs (TAG Unit 3.5.9) Table 2 below shows the recommended uplifts for optimism bias in rail projects, based on guidance originally issued by the SRA. Any rail risk and optimism bias adjustments are expected to be generally consistent with the principles in the general Departmental guidance, although the figures presented below will not be fully consistent with those in the general guidance (TAG Unit 3.5.9) For opex the general practice has been to apply the optimism bias adjustment to the net cost (the difference in opex between do-minimum and do-something. We will seek additional evidence on operating cost optimism bias. In the meantime the Department may request a test which applies opex optimism bias (OB) only to gross cost elements, leaving any cost savings unadjusted Beyond project development level 2 and 3 (see table 2) optimism bias adjustments of 1% and 1.6% for operational expenditure are likely to be appropriate. However, where more specific evidence is available you should consult with the Department about its use. Page 5

8 Table 2 Recommended risk and optimism bias adjustments Project Development Level(Equivalent to Network Rail s GRIP stages) Activity QRA, contingency Optimism Bias (% of present value capex) QRA, contingency Optimism Bias Level 1 Level 2 Level 3 Level 4 Level 5 Project Pre-feasibility Definition Capital Expenditure Option Selection Single Option Refinement No No No QRA at mean estimate 66% 50% 40% 18% 6% Operational Expenditure No No No QRA at mean estimate 41% of present value opex 1.6% per annum# 1% per annum# Evidence based Sources: Mott MacDonald 2002, Review of Large Public Procurement in UK (HM Treasury website), SRA and Network Rail research # Added to each set of operational costs in the year that they occur. Not to be taken as a cumulative Design Development QRA at mean estimate QRA at mean estimate Evidence based If there is evidence (for example from an early QRA) that a particular scheme is riskier than these levels of optimism suggest than alternative higher values may be used. In these circumstances the department should be contacted All optimism bias values are only required for appraisal purposes. It may be appropriate to use a different way of taking into account potential cost overruns for financial or accounting purposes, such as the use of contingency. 3.7 Appraisal Period and Discounting DfT guidance (section 5 of TAG unit 3.5.4) distinguishes between projects for which determining an exact life is difficult (projects with indefinite lives) and projects with finite lives. For the former, the appraisal period should end 60 years from the opening year of the scheme and no residual value should be used beyond year 60. For projects with finite lives, project sponsors should provide evidence to justify a shorter appraisal period (e.g. asset lives, franchise expiry etc). In these cases residual values will reflect any benefits generated by assets beyond the selected appraisal period up to year 60 or will be based on their resale or scrap values. More guidance on how to calculate residual values and how to address long term modelling issues for a 60 year appraisal period can be found in TAG Unit Rarely, a scheme may involve a large capital expenditure towards the end of the 60 year appraisal. If this expenditure continues to generate large benefits for a significant time after the end of the appraisal period there may be a case to include a residual value for this capital stock. If this situation applies, please contact the Department for advice. Page 6

9 3.7.3 The Government's standard discount rates given in TAG Unit are applied in the following manner: 3.5% for 30 years from the year the appraisal is carried out (e.g. the current year) and 3.0% for the remainder of the appraisal period (the discount rate drops again at 75 years from the current year, but this is unlikely to be relevant in most appraisals). It should be remembered that values should be discounted back to the Departments base year. This will often be before the current year implying more than 30 years discounting at 3.5%. 4 Impacts on Wider Society (Present Value Benefits) This section discusses the Department's approach to calculating the present value benefits and dis-benefits of a scheme to wider society. The net value of benefits and dis-benefits forms the numerator in the BCR. 4.2 Non-Marketed Impacts A transport appraisal aims to identify all the impacts, marketable and non-marketable, of a proposal. Business cases should seek to express non-marketed impacts in monetary terms where robust methods exist to do so. Table 3 provides some suggested sources for parameters to perform this task. However the 'state of the art' on valuing non-marketed impacts varies considerably. Page 7

10 Table 3 Source of values and assumptions for non-marketed impacts Source Prices and Values Comments Journey Time Savings Values of time for invehicle time (IVT) Work Commuting Other WebTAG Unit Value of wait time relative to IVT Work Non-work WebTAG Unit Value of walk and cycle relative to IVT Work Non-work WebTAG Unit Uplift factor applied to unexpected delay time Work Non-work Passenger Demand Forecasting Handbook version 5.0 (PDFHv5.0), Section B5.5 - Please note that a weighting of 1 should be used for in-work time unexpected delay Crowding Value of Crowding Relief All passengers PDFHv5.0, Table B6.2 - Values by sector. Interchanges Interchange Penalty Rolling Stock and Stations Rolling Stock Improvements Station Improvements Safety Value of casualty prevention (fatality) Value of casualty prevention (serious accident) Safety Benefits to remaining car users All passengers All passengers Apply to relevant passengers Apply to car and rail casualties Apply to car casualties PDFHv5.0, Section B4.7 PDFHv5.0, Table B7.1 PDFHv5.0, Chapter B8 Highways 2010 Economic Note (HEN) 1 HEN WebTAG Spreadsheet Values for selected rolling stock enhancements - Some values are available by market segment. Within current DfT practice these benefits do not apply to people travelling in the course of work. Includes lost output, medical and ambulance costs and human costs 2010 These values apply to remaining car users, they should be added to the figures above In Table 3 there are references to PDFH, the Passenger Demand Forecasting Handbook. The Passenger Demand Forecasting Handbook (PDFH) is owned by a rail industry Page 8

11 consortium including most train operating companies (TOCs). Advice about PDFH based estimates of the impact of crowding on patronage and revenues should be sought from the relevant TOC or funding authority. References to PDFH are provided for the convenience of promoters they do not imply that the Department endorses the values and assumptions in PDFH. Project promoters may be required to justify the use of these or any other, values in studies It is important that no benefits are double-counted in appraisal. In particular for rail appraisal there are two similar categories of benefit - journey ambience and transport interchange. Following The Journey Ambience Sub-Objective (TAG unit ) and The Transport Interchange Sub-Objective (TAG unit 3.7.1): (a) (b) Transport Interchange includes station quality and station crowding Journey ambience should include rolling stock quality and in-vehicle crowding. 4.3 External Costs of Car Use Estimates : External Costs of Car Use (TAG unit ) provides a method to estimate the monetised external impacts of road traffic. This unit should be consulted for schemes that are not appraised using multi-modal models. 4.4 Changes in Train Operating Company's Revenue Where a proposal is expected to impact on rail fares (levels or structures) and therefore result in welfare changes for rail users please consult DfT for advice. Fare proposals can have implications for decisions about the longer term provision of services and capacity that would need to taken into account Where a proposal leads to a change in revenue for a train operating company (TOC), revenue transfer may be an issue when the change occurs within the terms of a franchise contract. Under these circumstances the amount of revenue that accrues to the public sector needs to take into account the revenue sharing and allocation aspects of the franchise contract and the likely outcome of an in-franchise contract change. An assumption should therefore be made on the best available evidence and sensitivity tests should be carried out around the assumption. If these sensitivity tests suggest that this is an important element of the appraisal then advice should be sought from DfT. Following refranchising it should be assumed in the central case that all the extra revenue accrues to Government. This should be shown in the TEE table as a change in revenue to the private sector provider, negated by a change in the revenue transfer line. This should then be reflected in the central government revenue transfer line on the Public Accounts table. Where a proposal leads to a predicted change in Network Rail net revenues it should be assumed that this change is taken into account in the Office of Rail Regulation periodic review process. Therefore at the next periodic review process (TOC) operating costs can be assumed to change via track access charges - and these changes passed on to public accounts in the same way as explained above. Sub total 3 in the TEE table should never be a negative number and subsidy should be adjusted to ensure this does not happen. 4.5 Disruption Costs Where the creation of a new rail project causes disruption to rail users and/or non-rail users the disruption costs of the new project should be taken into account as part of the appraisal. Where payments will be due under schedule 4 of the Office for Rail Regulation s Track Access Contract (see ) due to the disruption then the schedule 4 payment should be included as an additional cost to Government. The rail Page 9

12 industry is assumed to be fully compensated for lost revenue by these payments, but rail users and possibly non-rail users still experience a dis-benefit. Therefore the welfare impacts on rail users and non-rail users should be calculated If no schedule 4 payments are going to be paid then the loss of revenue, and any additional costs experienced by the rail industry, should be calculated and included in PVB, as should, any welfare impacts For smaller schemes with mild disruption impacts, the principles of proportionate appraisal will need to be applied to the estimation of these costs. See TAG Unit 2.1c for details. 4.6 Freight Appraisal A scheme expected to change the amount of freight taken on the rail network is likely to lead to a change in the amount of freight taken by road and we wish to account for the benefits and disbenefits of this modal shift. For this purpose a set of HGV specific Marginal External Costs (MECs) have been developed to replace the older Sensitive Lorry Miles(which in the absence of other information were sometimes used in appraisals) and these HGV specific MECs can be accessed by contacting the Department (tasm@dft.gsi.gov.uk). The MECs should only be applied where rail freight will replace road freight and the MECCs should be applied to the number of road kilometres replaced (which may not be equivalent to the number of rail miles generated) Scheme promoters should consider which road journeys would be replaced by rail freight. The following tool from the freight grants calculator may be useful for calculating the road freight distance ( but the monetary values from this source should not be used for appraisal purposes Which type of HGV MECC to use should depend on the type of HGV which would have been used in the counterfactual. If possible this should be evidenced (hauliers or rail freight companies may be able to advise). In the absence of other information, for containers the Artic figure should be used, for aggregates the Rigids figure should be used and for other freight the combined HGV figure should be used DfT does not at present endorse the use of freight user benefits for transport appraisal other than those delivered through operating cost savings (and those operating costs savings should include the wage costs of freight train drivers, guards and other staff). This treatment is consistent across modes. 4.7 Indirect Tax Impacts This section provides a methodology for estimating indirect tax impacts in rail. Please see TAG Unit for information on how indirect tax should be treated in the appraisal process When a proposal generates additional rail patronage, this shifts consumer consumption from alternative goods and services to railways. Some of these new passengers will be the result of modal shift, e.g. passengers switching from road to rail. The rest will be generative travel - new trips that were not undertaken before. Both these changes will affect indirect taxation revenues This indirect taxation element can be substantial for rail proposals as (a) diesel rail fuel duties are considerably lower than road fuel duties and many trains run on electricity, and (b) rail fares are zero rated for VAT. Page 10

13 4.7.4 Changes in indirect tax due to changes in car and public transport expenditure should be calculated using the following equations: ( K F' ) t' ( 1+ t ) Mt' ( 1+ t ) C C F M Work trips: + 1+ t' 1+ F t' M ( K F )( t t ) M ( t t ) C C F M Non-work trips: + 1+ t 1+ F tm Where: KC = Change in car kilometres from the do minimum to the do-something; FC = Average cost of road fuel per km as a final consumption good; F'C = Average cost of road fuel per km as an intermediate good; M = Change in expenditure on public transport fares from the do-minimum to the dosomething; tf = rate of indirect tax on fuel as a final consumption good (i.e. including duty and VAT); t'f = rate of indirect tax on fuel as an intermediate good (i.e. including duty only); tm = rate of indirect tax on fares as final consumption goods; t'm = rate of indirect tax on fares as intermediate goods. t = Average rate of indirect tax; Note that (1+t) gives the indirect tax correction factor (see TAG Unit 3.5.4, section 3) A further calculation for changes in diesel train use needs to be calculated: Change in fuel duty received = (Kr * Cr * τr)(1+t) Where: Kr = Change in diesel train kilometres/train vehicle kilometres Cr = Average rail fuel consumption rate (litres per train/vehicle km) τr = Rail fuel duty ( per litre) Page 11

14 Table 4 Suggested sources to calculate the indirect tax change Variable Symbol Source Change in car kilometres KC Original appraisal or use evidence in : External Costs of Car Use (TAG Unit ) Change in diesel train kilometres/train vehicle kilometres Kr Original appraisal Average cost of road fuel ( per km) as a final consumption good Average cost of road fuel ( per km) as an intermediate good FC F'C Use guidance in section 1.3 of Values of Time and Operating Costs (TAG Unit 3.5.6) Use guidance in section 1.3 of Values of Time and Operating Costs (TAG Unit 3.5.6) Rates of indirect tax tf / t'f / tm / t'm Can be calculated using values in Values of Time and Operating Costs (TAG Unit 3.5.6) Rail fuel1 duty ( per litre) τr HM Excise and Customs: Hydrocarbon Oils2 Average rail fuel consumption rate (litres per train/vehicle km) Cr The Greenhouse Gases Sub-Objective (TAG Unit 3.3.5) 1. Marked gas oil and ultra-low sulphur diesel not for road fuel use 2. HM Revenue and Customs ( ) Hydrocarbon Oils Duty Rates. (See HMRC website) To calculate the average cost of road fuel using the guidance in Values of Time and Operating Costs (TAG Unit 3.5.6) requires information on the speed of traffic. Information on this is published in : External Costs of Car Use (TAG Unit ) The user (work and non-work) and rail duty adjustments should be added together to calculate the indirect tax impact. 5 Impacts on Government (Present Value Costs (PVC)) This section discusses the Departments methodology for calculating the present value cost of a scheme to government. This PVC represents the denominator in the Benefits Cost Ratio (BCR). 5.2 Financing Assumption There is a common method of financing rail schemes known as the Regulatory Asset Base (RAB). This allows Network Rail to borrow the necessary funds and for the Government to make regular payments to NR to allow servicing of the debt. Unless there is good reason to assume alternative financing we would expect the central case in the appraisal to assume RAB financing according to ORR's determination. The stream of future payments would then be discounted, using the public sector discount rate in the usual way. 6 Further Information The following documents provide information that follows on directly from the key topics covered in this Unit. Page 12

15 For information on: See: TAG Unit number: Passenger Demand Forecasting Membership of Passenger _ Handbook (PDFH): Forecasting tools and useful rail specific appraisal values Demand Forecasting Council (PDFC) can be sought from ATOC enquiry@atoc.org Train fuel use and emissions The Greenhouse Gases Sub- Unit Objective Network Rail Discretionary Fund DfT (March 2006) Network Rail - Discretionary Fund schemes: Appraisal guidance Appraisal parameters Values of time and operating costs Unit Appraising transport schemes against government objectives Appraisal Summary Table Completing the appraisal summary table 7 References The Environment Objective The Safety Objective The Economy Objective The Accessibility Objective The Integration Objective Transport Appraisal and the New Green Book The Appraisal Process Objectives and Problems Section 3.3 Section 3.4 Section 3.5 Section 3.6 Section 3.7 Unit 2.7 Unit 2.5 Unit 2.2 ATOC (August 2009), Passenger Demand Forecasting Handbook (version 5.0) DETR (July 1998) A New Deal for Trunk Roads in England: Understanding the New Approach to Appraisal DETR (July 1998) A New Deal for Trunk Roads in England: Guidance on the New Approach to Appraisal DfT (December 2004) Value for Money Guidance DfT (July 2004) The Future of Rail White Paper DfT (December 2005) Final Guidance on LTP1 delivery DfT (March 2006) Network Rail Discretionary Fund schemes: Appraisal guidance HM Revenue and Customs ( ) Hydrocarbon Oils Duty Rates Her Majesty s Treasury (HMT) (January 2003) Treasury Green Book SRA (April 2003) Appraisal Criteria SRA (June 2005) Demand Forecasting Manual 8 Document provenance This Transport Analysis Guidance (TAG) Unit published in draft form in May 2012 is a revision of the guidance published in August The major updates are a change to the demand cap, movement to PDFH 5 for crowding, rolling stock improvements and station facilities and a clarification of guidance on optimism bias. Much of the material that Page 13

16 replicated sections in other units has also been removed. This unit became definitive in August Technical queries and comments on this unit should be referred to: Rail Analysis Department for Transport Zone 3/15 Great Minster House 33 Horseferry Road London SW1P 4DR Page 14