Paper by: Amit Pokharel M.Sc. Urban design and Conservation(MSC06908) Khwopa Engineering College Bhaktapur (Statuary Publication: This document is the sole publication of the Author. Any misuse and the mis-interpretation of this document by anyone, author does not take the responsibility for the same.)
Identify the project cost together with maintainence and operation cost of any newly built complex (such as World Trade Centre, City mall, Kathmandu mall or any other complex) as well as the revenue generation. Also, identify the sources of funding for construction, revenue generation at present and condition of lease (if any) before forecasting the project return? Abstract: Investment decisions are at the core of any development strategy. Economic growth and welfare depends on productive capital, infrastructure, human capital, knowledge, total factor productivity and the quality of institutions. All of these development ingredients imply - to some extent taking the hard decision to sink economic resources now, in the hope of future benefits, betting on the distant and uncertain future horizon. The economic returns from investing in trade development or shopping mall infrastructures or in roads will be enjoyed by society after a relatively short time span following project completion. The source of income is by the revenue generation which can be gained by leasing and by giving rent to the business sectors. Investing in trade, business and development is helpful for the cities economy. Investing in primary education means betting on the future generation and involves a period of over twenty years before getting a result in terms of increased human capital. Preserving our environment may require decision-makers to look into the very long term, as the current climate change debate shows. Every time an investment decision has to be taken, one form or another of weighting costs against benefits is involved, and some form of calculation over time is needed to compare the former with the latter when they accrue in different years. Private companies and the public sector at national, regional or local level make these calculations every day. Gradually, a consensus has emerged about the basic principles of how to compare costs and benefits for investment appraisal.
The paper reviews models and practices in financing the development and operation of the urban infrastructure in developing countries and sheds lights on the Kathmandu challenges and opportunities with preliminary reform suggestions. The main findings include: (i) cities need more resources to cope with urbanization; (ii) Revenue opportunities include income tax surcharge, business tax, property and property transfer tax, and capital gain tax; but also development fee or betterment tax to extract private benefits for financing infrastructure. (iii) Diversifying infrastructure financing instruments by using ring-fenced project financing, municipal enterprises, or public-private partnerships could expand the funds available for infrastructure development. (iv) Debt financing in form of borrowing or bond issuance are among the most immediate options for the Kathmandu valley cities. . Key words: Investment, costs and benefits, revenue generation, lease, rent, Financing
1. Introduction Rapid urbanization is the most substantial growth trend in the developing world in todayâ€™s century. Rural urban migration and the inherent growth of the cities and particular expansion of the larger cities are driven by socio-economic factors. Good plans for developing the urban infrastructure include a vision and broad understanding of the needs and priorities in both recurrent and capital spending, that can be translated into budgets. Cities often formulate capital improvement plans with specific priority projects and actions. In this rapid urbanization, the pattern of urban growth in Nepal is quite astonishing in the form of physical infrastructure development. The pattern of developing the land by infrastructures is the commonest rule around the world, but in Nepal in todayâ€™s context the pattern of development is on the LDO and BOT model. Lease development and operate and Built operate and transfer is the succesful model in Nepal. There are many structures newly built in the form of shopping mall, complexes and super structure for trade, business and development. There are many such cases found in Kathmandu valley that, public lands are given in lease for shopping complex, trade centres development and other physical infrastructure development from the BOT model and is quite success in Nepal. This is the basic idea of Build-Operate-Transfer (BOT). The local budget is the most traditional and common source for financing local services and physical infrastructure development in both the developed and developing world. Operating services and managing the built assests has four critical interlinks with the local infrastructure planning. The first and most obvious among is Operating and Maintainence. Because the operation of a new infrastructure includes costs, sometimes quite substantial. Operation expenses could amount annually about 5 to 7% (or as per the contract lease document and ranges from 5 to 15%). The second interlink is accounting. The third, the proper operation requires systems and procedures for operation and
maintainence i.e. technical and managerial capacities for timely repair and refurbishment of the asests. Finally money paid to cover unnecessary costs of services reduces the current budgets of the firm or organizations, hence reduces the operation surplus and the funds for future investment. The case taken to study is of the United World Trade Centre. United Builders Pvt. Ltd. made an agreement with Tribhuwan University to construct a business complex, the United World Trade Center (UWTC), making it an important project under the BOT model. The concession period for the UWTC is 30 years. And the lease agreement between United Builders Pvt.Ltd and Tribhuwan University was deal in NRS 500 Million as a land lease in FBOT model for 30 years. Similarly the Kathmandu mall was also a form of BOT model which was been signed for 30 years as a lease contract from Citizenâ€™s investment fund with the concerned parties. The aim here is to communicate to the key intellectual underpinings of investment project evaluation, as widely practiced by international organizations, governments, private sector, builder, financial actors and managerial team world-wide. The development of infrastructure projects is a complex and resource-intensive process. It is possible, however, to analyze all projects in terms of a common life-cycle which comprises a series of stages. The stages are illustrated in diagram1.
Project Specification and Feasibility
Procurement of Contractor
Consent and Land acquisition
Handover Diagram 1: The Project Development Cycle
2. Financing oppurtunities There are new financing instruments that have been tested in the developing world in the last decades; including land-based financing and output based aids (OBA). Of these, the land-based financing plays very substantial role in some countries (Bhutan, China, India, Ethiopia, Nepal, Turkey, and the European transition economies), while OBA only supplement the mainstream financing forms. Some of the techniques are listed here. a. Land-based financing The Land-based financing includes various instruments when land-related rights or fiscal or regulatory power is transferred for funding public infrastructure; many of these provide on-budget funds, others are more implemented in off-budget arrangements like via municipal enterprises. The significance of land-based financing arises from the fact that well performing developing countries boost public and private investments in urban areas that in turn appreciate land value in extreme scale (10 to 30 fold increase of land value is not uncommon). Most of these benefits are realized by the private players with little or no financial benefit for the public entities that played great role in land value appreciation. Thus, value capture that is extracting a fair portion form the private benefits to the public budget is an utmost important action the local governments should take in developing countries b. Leasing or Selling Land The Chinese model: The astonishing development of Chinese megacities like Shanghai offers one model when the state-owned land is leased out for private development often for 99 years. The success of this model requires: a strategic development plan with long-term vision of the city development; a corresponding development program; the right of the cities to use land for development freely that includes power for drastic removal of structures and people to clear the sights for new development (virtually impossible to implement in many countries); and a municipal enterprise like the Chengtou Corporation. It is a development and investment company established by Shanghai local government for managing the land-lease, borrowing against the lease revenues, and investing the proceeds for developing basic infrastructure including highways, bridges, water and sanitation, etc. The lease fee is estimated based on demand and the future value of land after the development.
c. Selling public land Selling public land has funded substantial development in many countries. Land-sale has a great and double potential: first, it generates bulky one-time revenues for development;
second if well done, it accelerates adoption and implementation of large urban development or modernization programs. This model works when the local government owns sizable land for development or manages to transform agricultural land to urban land development. Adequate urban development plan, reliable asset management, and accounts on government owned land are key preconditions for using land-sale strategically for infrastructure financing. But land records are often vague or nonexistent in cities in the developing world. Successful land-sales in the developing world include, Mumbai and Bangalore in India and Alexandria and Cairo in Egypt. For instance, Cairo adopted a development plan and then auctioned a desert land for new towns that generated $3.1 bn.; and with this single transaction generated over 100 times larger amount than the total (generally low) annual property tax collection of the country. These cities can sell land, but face less liberal rights than China for moving the people, for instance Mumbai has paid high compensation and had to pool public and private land for implementing large development project. d. Land pooling Land pooling has been successfully tested in many Asian developing countries including India, Nepal, and Bhutan. This model supports urban expansion and development in areas with scattered private or public and private land ownership. The primary objective is the same: urban development increase land values manifold (20-30 fold is not uncommon); with that in mind the local government adopts a detailed town-plan with streets, public spaces, commercial and residential zones and then forms a development partnership with the incumbent land owners. The Ahemdabad case: Ahmadabad, India offers a successful case, but there are many smaller land-pooling schemes in Nepal and Bhutan too. The process starts with adoption a town-plan and completion of a detailed valuation for fair compensation of the owners. The government does not acquire land from the owners/farmers, but still the town plan often manage to retain about 40-50 percent of land for public places (roads, parks, schools, health, culture, and trunk infrastructure). The scheme assigns an agreed small plot back to the initial owners. Finally, the surplus land is sold in open market auctions and proceeds are used for compensating the owners and financing infrastructure. The results are
very positive in terms of creating new liveable urban places and providing houses for thousands of families; but the process is very lengthy and requires great negotiating skills, political support, and strong legal, financial, and technical expertise in the local governments. e. Land development fee Land development fee is a special one-time charge of the developers to cover the cost of on-site or off-site infrastructure development. A huge office or shopping complex requires high capacity trunk network connections, increases traffic substantially, but also generates negative effects like air or water pollution, or noise. Needless to say there are huge positive impacts too, including employment, taxes, economic development in the area nearby, and increased land and real estate value. Land development fees are charged for extracting public share from private gains, for funding the required on- and off-site infrastructure. This is a standard practice in the developed countries, since the basic premise is that user should pay. f. Property tax Property tax is a natural way of extracting private gains for public benefits, and public infrastructure has proven to increase value of the adjacent land and realestates substantially. It is crucially important for cities to revalue the real-estates adjacent to the large public infrastructure development projects and collect higher property tax after completion. Cities in developing countries often fail to benefit from this opportunity. g. Property transfer tax Property transfer tax is another instrument to tap private benefit at the event of transferring properties from one owner to another. This tax is easy to collect because both the sellers and buyers want obtaining land titles and ready to pay a fair transfer tax (often in the range of 1-3% of contracted land sale value. This tax may not work in countries where land transactions are not properly registered. Local governments in Pakistan collect more revenues from transfer tax than from property tax (not a good policy). An excessive transfer tax may aim more revenue, but in fact may discourage fair registering transfer transactions or true price of the sold properties. h. Capital gain tax Capital gain tax on land and real-estate (improvements) is another good source for local governments. This works well if the property transfers are well recorded.
This tax aims extracting private gains from real estate speculation and quick gains. The tax base is the difference between the sales price and the initial purchase/investment price of the property reduced by the verified subsequent improvements made by the last owner. The capital gain tax (often in the range of 20 â€“ 30 %) is typically levied if the property is divested within 10 years following the purchase and maybe less or nil when the property is held over 10 years. This tax could provide substantial revenues for the local governments, while taxes and discourages speculative investments. 3. Methodology Adopted for Cost analysis and Revenue generation There are different methodology for cost analysis and revenue generation. The methods are adopted to know the initial project costs and varying cost factors which will make immense affect on the source of revenue generation. The key determinants of initial project cost are enlisted below: a) Key determinants of initial cost No two infrastructure projects will cost the same amount of money no matter how similar they are. Apart from basic technical factors, the wide range of economic and institutional conditions in different member states will itself always lead to variations. Nevertheless, the fundamental project costs are based on the actual cost of the land, materials, equipment and labour in the region where the project is being procured. This section first focuses on the factors that determine initial project costs and then examines some of the more important determinants of cost changes over time. These basic costs will vary depending upon a number of factors which are discussed below. Diagram 2 summarizes these factors. ď‚§
The Project Specification
The specification defines the physical attributes of a project. For buildings, the required function and expected occupancy rate will lead to a specification of total floor space and floor plate size, height, internal and external appearance, floor loadings, heating and lighting requirements etc. Generally, the more detailed the specification and the larger the project, the more expensive it will be. Location Location affects project costing via institutional factors and through geographical realities. Institutional factors can affect initial project cost estimates in a number of ways. Allowance for the costs involved in sustaining a long public consultation exercise is an example. Where major projects are likely to be strongly opposed on environmental grounds, more cost may have to be allowed for environmental mitigation measures.
In geographical terms, construction and material costs, land costs and design standards vary widely across the Nepal because of the varying distances from suppliers, climate and weather conditions, and general market conditions. Even within a country, variations will exist depending on whether a project is being implemented in a peripheral or central area, or in an urban or rural context. Generally, the more remote a project is, the more expensive it will be because of the cost of transporting construction materials and equipment to the site. In an Urban location, land costs are usually much higher.
Form of Procurement/Contract The form of procurement and contract used by the project sponsor can alter the estimated cost of a project. Cost savings may be made by means of lump sum contracts although these are usually marginal in relation to the total project costs. DBFO contracts, which seek to transfer most of the risk of cost over-run from project sponsor to contractor, may in some circumstances yield savings.
Site Characteristics A site can be affected by soil and drainage conditions and access restrictions which can affect the original cost estimates. The amount of excavation, piling and foundation activities required are particularly affected by poor ground conditions. Where there is uncertainty about ground conditions, accurate project costing cannot be achieved unless a soil survey is undertaken. This may require the sinking of boreholes to obtain soil samples at different levels beneath the surface.
New Build or Improvements Generally, the construction of new infrastructure is more expensive than improvements to existing infrastructure, or the refurbishment of buildings. This is primarily because the “non-building” costs such as land purchase, foundations, services provision etc. do not have to be included when simply upgrading existing structures.
Tax Liabilities An organization will be liable to pay tax on its purchases. Some organizations and types of project are not liable to pay taxes, or else these can be reclaimed. Local government projects and infrastructure for public use are examples. Some public or quasi-public sector companies, voluntary and private sector organizations can be liable and these tax costs can have a significant impact on gross construction costs.
Timescale Generally, the longer a project takes, the greater the project costs will be. Project timescales are dependent on the specification of a project. Usually, the larger a
project is the longer it will take to implement. This is not always the case; if substantial additional resources are used, project implementation can often be accelerated. In some cases, work on a project may take a lot longer than expected because its phasing is dependent upon other, linking projects or public finance programmes. A project which involves non-continuous phases is usually more expensive than one undertaken without interruption because of the additional costs involved in re-mobilizing plant and contractors. ď‚§
Inflation The longer the expected construction period, the more account will need to be taken of expected inflationary price increases over time. This is particularly important where a public authorityâ€™s expenditure programme is involved. Initial cost estimates will need to allow for the value that will need to be paid at the time the project actually goes ahead. Levels of inflation vary amongst member states and can be as low as 1-2% or as high as 10% per annum.
Estimate New Build or Refurbishment
Form of procurement contract
Diagram 2: Key Determinants of Costs
4. Demand Analysis Demand forecasting is an important step in the feasibility study of a project, as it allows us to assess how much of a good or a service will be requested in the future, as well as the revenues that can be expected from the sale of that good or service.
Demand forecasting techniques Several techniques can be used for demand forecasting, depending on the data available, the resources that can be dedicated to the estimates, and the sector involved. The selection of the most appropriate techniques for estimating the actual demand and forecasting the future ones with and without the project will depend on the nature of the good or service, the characteristics of the market and the reliability of the available data. Transparency in the main assumptions and in the parameters and values, as well as the trends and coefficients used in the forecasting exercise, are matters of considerable importance for the accuracy of the estimates. Furthermore, any uncertainty in the prediction of future demand must be clearly stated. The method applied for the forecasting must be clearly explained and details on how the forecasts were prepared may help in understanding the consistency and realism of forecasts. To identify the cost, investment and revenue generation, forecasting techniques is most necessary.
5. Project Performance Indicators A. The Net Present Value The Net Present Value of a project is the sum of the discounted net flows of a project. The NPV is a very concise performance indicator of an investment project: it represents the present amount of the net benefits (i.e. benefits less costs) flow generated by the investment expressed in one single value with the same unit of measurement used in the accounting tables. The Net Present Value of a project is defined as: (Where St is the balance of cash flow at time t and at is the financial discount factor chosen for discounting at time t.) It is important to notice that the balance of costs and benefits in the early years of a project is usually negative and it only becomes positive after some years. As at decreases with time, negative values in the early years are weighted more than the positive ones occurring in the later years of a projectâ€™s life. The value of the discount rate and the choice of the time horizon are crucial for the determination of the NPV of project. NPV is a very simple and precise performance indicator. A positive NPV, NPV>0, means that the project generates a net benefit (because the sum of the weighted flows of costs and benefits is positive) and it is generally desirable either in financial terms or in economic terms. When different options are considered, the ranking of the NPVs of the alternatives indicates the best one. There are cases in which the NPV of one alternative is not greater than the other or for every i value. This is due to a phenomenon referred to as â€˜switchingâ€™ Switching occurs when the NPV curves of two projects intersect one another.
Project 2 i Diagram 3: Project ranking by NPV values
Project 1 Project 2
i Diagram 4: A case of switching
B. The Internal Rate of Return The Internal Rate of Return (IRR) is defined as the discount rate that zeroes out the net present value of flows of costs and benefits of an investment, that is to say the discount rate of the equation below: NPV (S) = Σ [St / (1+ IRRt)] = 0 The Internal Rate of Return is an indicator of the relative efficiency of an investment, and should be used with caution. The relationship between NPV and IRR is shown in the graph below. NPV NPV
Diagram 5: The IRR
Diagram 6: Multiple IRR’s
If the sign of the net benefits, benefits minus costs, changes in the different years of the project’s lifespan (for example - + - + -) there may be multiple IRRs for a single project. In these cases the IRR decision rule is impossible to implement.
C. Benefit-cost ratio (B/C) The benefit-cost ratio is the present value of project benefits divided by the present value of project costs: B/C = PV (I)/PV (O)
Where, I is the inflows and O the outflows. If B/C >1 the project is suitable because the benefits, measured by the Present Value of the total inflows, are greater than the costs, measured by the Present Value of the total outflows. Like the IRR, this ratio is independent of the size of the investment, but in contrast to IRR it does not generate ambiguous cases and for this reason it can complement the NPV in ranking projects where budget constraints apply. In these cases the B/C ratio can be used to assess a project’s efficiency. D. RISK ASSESSMENT In project analysis it is necessary to forecast the future value of variables, with an unavoidable degree of uncertainty. Uncertainty arises either because of factors internal to the project (as, for example, the value of time savings, the timing of the completion of the investment etc.) or because of factors external to the project (for example, the future prices of inputs and outputs of the project). Risk assessment, in the broad sense, requires: - Sensitivity analysis; - Probability distribution of critical variables; - Risk analysis; - Assessment of acceptable levels of risk; - Risk prevention. E. Risk prevention The degree of risk is not always the same over the time horizon of the project realization. It has been demonstrated by past experience, and it is generally accepted in literature, that the riskiest phase of a project is the Start-up. At that time most of the investment costs have been incurred but there may not yet be any feedback from an operational point of view. When the investment enters into the operations phase, the risk involved diminishes because the feedback becomes increasingly evident. Moreover ‘there is a demonstrated, systematic tendency for project appraisers to be overly optimistic. To reduce this tendency, appraisers should make explicit, empirically-based adjustments to the estimates of a project’s costs, benefits and duration. It is recommended that these adjustments be based on data from past projects or similar projects elsewhere, and adjusted for the unique characteristics of the project in hand. In the absence of a more specific evidence base, departments are encouraged to collect data to inform future estimates of optimism, and in the meantime use the best available data’
6. CASE STUDIES United World Trade Centre (UWTC) is one of the largest shopping complex’s in the Kathmandu valley. The complex is spread over 5,596.11 Sq.m. area and built in a lease-
land owned by Trivhuwan University with total investment of Rs 500 million. The complex provide a number of services like Departmental stores, Silver Jewellary shops, Cyber cafe, Party Palace, Health clubs, Heated swimming pool, Clothes and Acessories shops, Social event hall, including more than 50 shops with following services and facilities with advertisement boards as hoarding boards at the roof top floor. The services and facilities inside the UWTC, are: wide range of clothings, textile, gadget shops like Monalisa exclusive textiles, John Player, Landmark, Converse, Fabulous, Temptation, Bajra and Blay, Life, Glamour, Revive, Shringar, Grasshopper, Garlic cafe & bar, Hot breads, Cafe de valley, United bowling and others Jewellary and costumes shop with parking facilities. The case taken to study is of the United World Trade Centre. United Builders Pvt. Ltd. made an agreement with Tribhuwan University to construct a business complex, the United World Trade Center (UWTC), making it an important project under the BOT model. The concession period for the UWTC is 30 years. And the lease agreement between United Builders Pvt.Ltd and Tribhuwan University was deal in NRS 500 Million as a land lease in FBOT model for 30 years. The lease agreement was signed on 2063 B.S. between United Builders Pvt. Ltd and Tribhuwan University. The total investment invest to build the UWTC was known to be NRS 10 Crore excluding lawyer and additive cost. (Source: News paper/Gorkhapatra) Professional real estate developers (United Builders Pvt. Ltd) or business persons have mostly used bank and financial institutions as source for real estate loan. In fact, all the respondents have borrowed loans from commercial banks. However, fifty percent of the respondents have used funds from both the sources (combining either commercial and development banks or commercial banks and finance companies). 7. Analysis of the Investment cost with O & M with Revenue generation The total investment invest to build the UWTC was known to be NRS 10 Crore. Annual Operation and Maintenance Cost Operation expenses could amount annually about 5 to 7% (or as per the contract lease document and ranges from 5 to 15%). The annual O & M cost of the UWTC is found to be NRS 50 Lakhs, from the 5% interest rate on the successive year after completion of the newly building complexâ€™s. Then after successive years again, the price has been increased due to rise in market price in material, labour cost, and in building component accessories. The O & M cost varies due to change or increase in market price of the material, labour cost, additional cost and
overall maintenence and operation cost. The rise in market price is the biggest threat for a developer/ investor to sustain his source of income , known as revenue generation to controlled costs which will create adverse effect for such complexes to maintain it. While estimating O & M costs, long term cost situations must be considered. Certain expenses like major repair/maintenance of machinery, replacement of glass panes, electric wiring, water supply pipes maintenence, sanitary fittings maintenence, colour, painting furnish, railings maintenece, and including each and every thing which is directly related to building works would not be encountered every year. The operation and maintenence cost includes the following cost in successive years to make a complex more fit and durable. Operation Cost Maintenence Cost Plants and Machinery maintenece cost Security guard operating cost Railing/ lift maintainence cost Fuel/generator cost Tiles/joint mortar maintainence cost Solid waste disposal cost Glass pane fitting maintainence cost Floor cleaning cost Re-construction cost including aluminium Manpower cost works, glass fittings cost Watersupply pipe maintainence cost Additive cost including lawyer charge(legal advisor), Roof maintainence cost Layman cost of water supply, electricity and sanitary Underground parking maintainence cost Watersupply pipe operating cost, electricity wire fitting cost, sanitary fitting cost
CCTV operating cost with manpower CCTV material cost Water tank cost to the complex Hauling cost Labour cost
Hoarding board maintainence cost Colour/painting refurbishment and maintainence cost CCTV maintainence cost in maintaining virus free, update of material Metal & utensil cost including shutter Shutter partition maintainence cost
Transportation cost colouring/painting cost
wall maintainence cost extra maintainence cost including fire hazards and other vulnerability
Plants/machinary operating cost
Source of Revenue generation After operating the complex, the price for different shops are been categorized and vary according to their sizes, usage and function: in the sense of allocating spaces used for their purpose. The shops which are found in UWTC, they had a lease agreement again for the rent purpose with the United Builders pvt.ltd for the source of revenue generation by the concerned parties itself. The economic returns from investing in trade development or shopping mall infrastructures will be enjoyed by society after a relatively short time span following project completion. Economic growth and welfare depends on productive capital, infrastructure, human capital, knowledge, total factor productivity and the quality of institutions. Revenue opportunities include income tax surcharge, business tax, property and property transfer tax, and capital gain tax; but also development fee or betterment tax to extract private benefits for financing infrastructure. The source of revenue generation in United World Trade Centre, Kathmandu; included from the different shops, social community hall, party palace and other shopping place which is situated in the same building complex with variation in range of money price for the shops within the UWTC. In the United World Trade Centre, Kathmandu, there are more than 50 shops including swimming pool, party palace, underground parking facilities, social event programme hall and with other services and facilities. The number of services like departmental store with more spaces allocated for it, Silver jewellary shops, cyber cafe, health club, heated sauna, rent shops including wide range of clothing, textile, gadget shops like Monalisa exclusive textiles, John Player, Landmark, Converse, Fabulous, Temptation, Bajra and Blay, Life, Glamour, Revive, Shringar, Grasshopper, Eating and fast food shops like Garlic cafe and bar, Hot breads, Cafe de valley, United bowling and other new rented shops for clothings and accessories. The source of revenue generation are from these shops, party palaces, parking lots and from the other shops which are in the same complex as by lease rent agreement to the concerned parties. There are variation among different shops to pay their rent to the concerned parties. The source of revenue generation is also by the trade fair programme
which will be held in the same building complex per month. The source of maximum income generation or revenue generation are done by fashion shows, organizing event and function; and from that program, the amount of money is collected according to the stall users and the whole event management group. At the first successive years, the rent of the space used by the concerned shops at UWTC is found to be from NRS 62,500 to maximum NRS 1,25,000 per month. The price varies because due to location(front, middle and back) as well as the space used by the rented shops. In the consecutive years after 2 years from that period, due to increase in market price in material cost and infrastructure construction cost, the lease-rent agreement between shops owner and the concerned authorities has a new agreement and the spaces used by the shops are paying from NRS 70,000 to maximum 1,50,000 NRS. (Also depends upon how much spaces used by the rented shops for their space to introduce their shops in lease-rent agreement between concerned shops and parties.) The another source of revenue generation is by of hoarding boards in the roof top. The alternative source of revenue generation can be generated by creating a helipad in the roof top for emergency landings. Therefore, the source of revenue generation per year by the UWTC from the rented shops, parking lots,party palaces, heated swimming pool, cyber cafe, Silver jewellary, social event program, fashion shows, trade fair and from other shops from UWTC, is found to be (in current state) per year: From the UWTC shopping complex, the data are found by observing and measurement that a space used for functioning that shops are: 15*10 Sq.ft=150 Sq.ft=13.93 Sq.m 15*12 Sq.ft=180 Sq.ft=16.72 Sq.m For the departmental store, heated swimming pool, cyber cafe, party palaces, hall for socio-economic and fair, banking ATMâ€™s and other purpose; has the same rate of 1 Sq.m=5025.125 NRS. (By calculating the minimum price rate of Rs. 70,000.00 to maximum 1,50,000.00) From the underground parking lots, the total revenue per month found to be 1,50,000.00 Rs. and per year, it comes out to be: 18,00,000.00 Rs. From the departmental store, the total revenue per year, comes out to be: 90,00,000 Rs. The complex is spread over 5,596.11 Sq.m. area, deducing the lift area, floor passage, space of departmental store and other unused portion for shopping store, the total area for space used for its functioning comes out to be 4,700 Sq.m. Hence from the criteria as shown above, that 1 Sq.m=5025.125 Rs.; the space
used wholly in NRS is found to be per month is Rs. 23,61,8087.5 and yearly the total revenue comes out to be: Rs. 28,341,7050.00 Hence the total source of revenue generation by the United World Trade Centre per year comes out to be: o Parking lots= Rs. 18,00,000.00 o Departmental store= Rs. 90,00,000.00 o Space allocated by other shops in UWTC= Rs. 28,341,7050.00 Total source of revenue generation per year by United World Trade Centre, Kathmandu is: Rs. 29,421,170,50.00 , hence calculating the data for 30 years lease agreement, it comes out to be Rs. 8,8265,115,00.00, which shows a clear evidence of benefit for the concerned parties by this kinds of land-lease agreement under FBOT model.; which shows a clear view that PPP model is a successful model in Nepal. 8. Conclusion It is possible to define as PPP any project in which the investment (or part thereof) is contributed by the private sector and where there is a regulatory contract between the private and public sectors in terms of risk allocation for the provision of the infrastructure and/or the services. The level of PPP complexity will differ according to the sector, the type of project and country, as a function of the risk mitigation mechanisms and the use of project finance to fund the project. The participation of the private sector in the provision of public assets and services assumes that, whatever the contractual arrangement between the two parties, adequate returns on investment â€“ from a strictly financial perspective - must be allowed to occur. The case studies of United World Trade Centre gives us a possible outcomes that, these kinds of land-lease agreement which is a FBOT model under PPP circumstances, helps to forecast for the future. This kinds of project work will be successful model for infrastructure development within the country to revive the economy and to sustain these kinds of land-lease mechanisms to develop under LDO(Lease development and operate) or FBOT model.
9. Reference: www.wikipedia.org www.google.com/ Understanding and monitoring the cost-determining factors of Infrastructure projects, a users guide,2008 ©2001 CCIM Institute. All rights reserved. Version 10/01. ©2002 National Association of REALTORS®. All Rights Reserved Belli, P., Anderson, J. R., Barnum, H.N, Dixon, J. A., Tan, J-P, 2001, Economic Analysis of Investment Operations. Analytical Tools and Practical Applications, WBI, World Bank, Washington D.C. Dasgupta, P., Marglin, S, Sen, A.,1972, Guidelines of project evaluation, Unido, Vienna. Estache, A., Serebrisky, T., 2004, Where do we stand on transport infrastructure deregulation and public-private partnership? in Policy Research Working Paper Series 3356, The World Bank, Washington D.C. European Commission, 2007, EVA-TREN: Improved decision-aid methods and tools to support evaluation of investment for transport and energy networks in Europe, Deliverable 2, and Brussels. OECD, 1999, Household water pricing in OECD countries, OECD Environment programme 1999-2000, Paris. Asian Development Bank, 1997a, Guidelines for the Economic Analysis of Projects, Manila. Economic Development Institute, 1996, The economic evaluation of projects, World Bank, Washington D.C. Kohli, K.N., 1993, Economic analysis of investment projects: A practical approach, Oxford University Press for the Asian Development Bank, Oxford. Sen, A., 2000, The discipline of cost-benefit analysis, Journal of Legal Studies, 29(2): 913-930. Shofield, J.A., 1989, Cost-benefit analysis in urban and regional planning, Allen & Unwin, London. Keeney, R.L., Raiffa, H., 1993, Decisions with multiple objectives: preferences and value tradeoffs, Cambridge University Press, Cambridge (UK). Cost and revenue analysis tools, an user guide for infrastructure planning Kopanyi, M: Financing Municipalities in Turkey, World Bank Note, 2013 MINALOC: National Strategy for Community Development and Local Economic Development 2013-2018; www.minaloc.gov.rw
Peterson, G.: Land-Leasing and Land-sale, in Peterson, Gâ€“Annez, P: Financing Cities, SAGE-World Bank, 2007 World Bank Nepal Municipal Solid Waste Management OBA, World Bank report 2014
Paper on: Cost analysis and Revenue generation A case study of newly built complex under lease land process as a FBOT model.
Published on May 2, 2014
Paper on: Cost analysis and Revenue generation A case study of newly built complex under lease land process as a FBOT model.