Sardar Vallabhbhai Patel

What is the cost of the statue of Sardar Vallabhbhai Patel?

According to several news reports, the cost of this project is estimate at Rs 2980 crores. What is the cost of the statue of Sardar Vallabhbhai Patel  According to several news reports, this figure is base on the work order that L&T receive for the project.

The next-best bid was for Rs4100 crores . L&T won this contract clearly on the basis that they had demonstrated their ability and offer the lowest price.

As per reports, here is the cost: [2]

  • The statue will be built at Rs 1347 crores
  • Exhibition center: Rs 235 crores
  • Research and Development Centers: Rs134 Crores
  • The bridge connecting to the mainland will cost Rs83 crores
  • Maintenance for 15 Years: Rs657 Crores

This leaves nearly Rs500 crores unaccount for. Let’s suppose it’s for sundry expenses. However, that’s still a large number to round off. Let’s not worry about it, we can continue to use what we have.

My final calculation came out to Rs2980 crores.

#2) When was the money spent or to be spent?

The ‘when’ is crucial in order to determine the economic viability and feasibility of a project. It is crucial because it can have a significant impact on the calculations. What is the exact time that money is being spent?

More Suggestion : Two Attempts Were Made On Sargent Major Gandhi life.

First, consider that reports claim that Rs657 Crores is meant for maintenance for 15 year – is this money going to be use now or later? This has not been mention in any reports, but it is there. According to data from Gujarat, they made the following provision in their books.

This amounts to Rs2980 crores. We can assume that the entire project was paid for by the Gujarat government and all other contributions (which will be discuss later) were given to Gujarat.

This is, however, a provision. A provision is an amount that is set aside from profit to be ‘allocated’ to a project. However, this does not necessarily mean the amount was use in those years. We would need to examine the cash flow statement to find out.

It’s not available to me, I fear.

To simplify things, let’s assume that these amounts were use in the previous years. Therefore, I assume that the cash flows are equal to the provisions. To be more lenient, I will assume the maintenance  cost of Rs657 million will be paid at the end the fifth year. This conclusion is base on no evidence whatsoever. We don’t know if the amount was given to L&T. However, we will be more lenient in assuming this.

#3] Whom should we view this?

L&T could make a lot of money from this same project. However, we will be looking at it from the perspective of Gujarat government. It is certain that the money use by Gujarat government was partially reimbursed by contributions from other organizations.

According to a report by the CAG of India the following contributions were made by different PSUs (I am assuming that the Central Government contribution is not include in this). [4]

  • ONGC: Rs 50 crores
  • Indian Oil: Rs 22 Crores
  • Bharat Petroleum: Rs25 crores
  • Hindustan Petroleum: Rs 25 crores
  • Oil India Ltd.
  • Central Government: Rs 200 crores

There are two ways to determine viability of projects:

(1) the equity method, where we assume that we should only consider the amount of the Gujarat government’s investment, net of any reimbursements; or (2) the Project method, which seeks to determine the viability of the project regardless of who funded it.

We know that the majority of those who contribute to the project are government entities, or PSUs. Therefore, it is also people’s money. The project method is sensible and we will therefore consider the total cost.

#4) Revenue-generating assumptions

The initial response was overwhelming with more than 1 lakh people visiting the statue in just 10 days. That’s an average of around 10000 people per day. It is unlikely that the statue will be visit by so many people years later. The initial response is always higher. We will therefore assume that the figure will hover around 5000 over the long-term.

This is an acceptable assumption. The Taj Mahal has more than 30000 daily visitors [6]. It is worth noting that Taj Mahal has a very high international reputation. The ticket price for domestic visitors is Rs50 and for foreigners it is Rs1000. Agra is also more accessible than Statue of Unity.

The current pricing of the tickets is Rs350 per person. [7]We will assume that prices rise by 10% each year. This is a poor assumption, but we’ll just accept it. This generates an average daily income of 5000 people multiply with Rs350 per head.

We will assume that all of this cash has been accrual at year end for ease of calculation. The same goes for cash outflows.

#5] What does this mean?

These are our assumptions:

  • Provisional amounts were use to calculate the amount of money spent.
  • Except for maintenance, which will be incurred during the 5th year
  • Each year, prices rise by 10%
  • Number of people per day is 5000
  • We continue to grow at 5% after 25 years.

While one could argue that there might be an increase in people, all these assumptions must be considerer when comparing prices rising by 10% to all revenue growth.

These numbers give us the following:

  • At a 10% discount, the NPV is Rs-335 Crores (negative).
  • The internal rate of return for a company is 9%

This is a result that the project will generate interest at 9%. It is a loss if you assume that the interest rate require to fund the project will be higher than that. We have made some very positive assumptions in this calculation.

#6] What happens when we change certain assumptions?

  • If the maintenance costs are not spent in the 5th anniversary of the statue’s opening, but at the opening, the NPV drops to Rs-500 crores, and the IRR to 8%.
  • Assuming that there will be only 2000 tickets sold per day and not 5000, the NPV drops to Rs 1600 crores. The IRR drops to a paltry 3%
  • Moreover, if we assume that 10% annual growth is unjustifiable, and should be around 7%, then NPV drops to minus Rs 2000 crore and IRR falls to negative (-5%).

This project has very poor results if you alter the assumptions. Your calculations would have to be base on assumptions. Unfortunately, assumptions can be biased.

#7: Economics for the Tourist

Tourists would not only have to pay Rs350 but also need to pay nearly Rs5000-10000 on return flights from Ahmedabad to their home city. Also, they will have to spend about Rs3000 to stay in a hotel. It is impossible to travel to Ahmedabad in the morning, visit the statue, and then return to catch the return flight.

Statue of Unity of Sardar Vallabhbhai Patel

Alternatively, the traveler might need to spend more than two days on the train and would then have to factor in his time costs, especially since there aren’t many tourist spots in that area.

Let’s say that a tourist visits the Statue of Unity and spends between Rs7000-15000. How likely is it that there will be 5000 visitors daily?

 

Leave a Reply

Your email address will not be published.