The results of these analyses are summarised below:-
-
(a)
Case 1 Simultaneous Construction
(b)
The cash flow discounted at 10% produces a Net Present Value (NPV) of minus $490m and Internal Rate of Return (IRR) of approximately 2.5%.
an
Case 2 - Phased Construction
The cash flow discounted at 10% produces a Net Present Value (NPV) of minus $443.4m and an Internal Rate of Return (IRR) of approximately 2.5%.
Further sensitivity tests were undertaken using the more extreme inputs of a $10 flat rate toll throughout the period but with no reduction in traffic, and using:
(a) 100% loan finance; and
(b) 100% equity finance.
Sub test (a) resulted in an IRR of 4% and (b) resulted in an IRR of 11%.
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These results show that the project is unlikely to be commercially viable. Even with the toll levels assumed for the basic cases, which are considered to be on the high side, the internal rate of return of 2.5% would be insufficient to raise the necessary loans. Furthermore, the sensitivity tests with a high toll indicate that the tunnel would still not be an attractive commercial project. It was also noted that whether or not the two tubes of the tunnel are constructed simultaneously or phased makes little difference to the long term commercial viability of the project.
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While it may be concluded that as a strictly commercial venture the project is unlikely to be
be viable, there may be other methods of involving the private sector in the project. The construction of the first tube of the Junk Bay Tunnel through the Public Works Programme does not preclude the involvement of the private sector in the construction of the second tube and/or subsequent operation of the Tunnel should these options look more commercially attractive in the future. A more general study of privatisation of present and future tunnels is currently being carried out by Transport Branch, which will include the Junk Bay Tunnel. (This study will be completed before the engineering studies for the Tate's Cairn Tunnel, which will allow the possible private sector development of this tunnel to be properly considered.)
the