Abstract
The Fehmarn Belt immersed tunnel project conditionally approved by the Danish parliament on 28 April 2015 is supposed to be built and commercially operated by a Danish state owned company and financed by loans guaranteed by the Danish government. The loans are going to be amortized by incomes from the tunnel users. According to plans construction work was supposed to start by 2016 followed by tunnel inauguration in 2022, this has been put on hold awaiting clarification of major uncertainty issues. Since the official financial model is publicly unavailable, the uncertainty profiles presented in this paper are based on a financial model developed by the author covering 60 years of future tunnel operation and validated in terms of project payback period (PBP) compared to published results generated by the official model. Uncertainty is represented and calculated by probabilistic uncertainty representation and Monte Carlo simulation as well as interval analysis. The resulting project uncertainty profiles are presented in terms of a traffic light metaphor: Green light corresponds to a payback period less than 40 years, yellow to 40-50 years, and red to larger than 50 years. It turns out that the tunnel project constitutes a high-risk business case and the likelihood of financial project failure in terms of the payback period being outside of the green light zone is substantially larger than acknowledged by the project proponents and presented to the public. This is primarily due to apparently too optimistic base case assumptions of critical, but uncertain, project variables and methodologically insufficient partial sensitivity analyses.
Highlights
By February 25, 2015, the Danish Minister of Transport on behalf of the socialliberal Government proposed a Construction Act L141 (Danish Parliament, 2015) concerning construction and operation of an immersed tunnel connection crossing Fehmarn Belt between Denmark at Rødby and Germany at Puttgarden
Since the official financial model is publicly unavailable, the uncertainty profiles presented in this paper are based on a financial model developed by the author covering 60 years of future tunnel operation and validated in terms of project payback period (PBP) compared to published results generated by the official model
In order to calculate uncertainty profiles a deterministic financial model is needed that is capable of reproducing the project payback period (PBP) compared to what was obtained by the official financial model (Femern A/S, 2014b, 2015) as a function of a vast range of input variables
Summary
By February 25, 2015, the Danish Minister of Transport on behalf of the socialliberal Government proposed a Construction Act L141 (Danish Parliament, 2015) concerning construction and operation of an immersed tunnel connection crossing Fehmarn Belt between Denmark at Rødby and Germany at Puttgarden. The second one is the combined bridge and tunnel project connecting Denmark and Sweden inaugurated in 2000 This project was haunted by a substantial construction cost overrun and a car traffic income shortfall (60% lower than budget in 2001). At the first readings of L141 in the Danish Parliament on 18 March 2015, the spokesman of Venstre—The Liberal Party of Denmark said (using the metaphor of traffic lights): With the actual economic assumptions, the expected payback period is 39 years This means that we are still in the green zone. The main objective of this paper is to produce scientifically sound evidence of the Fehmarn Belt immersed tunnel being a financially high risk business case This is certainly challenging the official partial sensitivity analyses allowing the project proponents to claim robustness and low risk. An earlier version of the paper has been presented at a working seminar (Schjær-Jacobsen, 2016)
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