Economic, Environmental and Social Impacts of Changes in Maintenance Spend on Local Roads in Scotland

13 Asset Valuation

13.1 Overview

The standard analysis period adopted for appraisal of transport schemes is 60 years. For such long periods, the effect of different salvage values at the end of the analysis period is generally small due to discounting. For reduced time period analyses, the effect of assumptions of salvage value becomes more important. Discussion of the basis of the calculation of the salvage value for the whole network is beyond the scope of this study.

As an asset deteriorates, the value depreciates. Local Authorities are required to show the change in the value of the road asset (i.e. the depreciation) in the annual financial accounts. The valuation methodology adopted in the UK for valuation of the local road network is based on the condition of the network and the depreciated value is the cost to return the asset to the as new condition.

The WDM network condition projection model produces an estimate of the depreciation for each length of road in the network based on the predicted future condition. This information has been used to show the overall change in the local road network for each Scenario.

The analysis included only the carriageway and did not include other parts of the infrastructure (e.g. structures, footways) and was based on the predicted carriageway condition. Other factors may impact on the condition and, therefore, the valuation as well as the predictions in the analysis (e.g. weather, utility excavations and company access from a road).

13.2 Results

An example of the results from one Authority for one road type is shown in Table 13.1 for Scenario 1 (i.e. retaining the current budget). Full details for each of the eight Local Authorities are included in Appendix K.

Table 13.1 Example asset valuation from one Authority for one road type
Year Accumulated depreciation
Percent (of asset life) Value (£m)
2009 prices
2010 52.9 81.027
2020 61.2 93.757
2030 65.6 100.424

Table 13.1 shows that maintaining the current level of spend (for this road type in this Authority) is not sufficient to prevent the further depreciation in the value of the road.

13.3 Scaling the results to the network

The results have been scaled up in accordance with the methodology described in Section 12 to derive an overall value of depreciation for the Scottish local road network during the analysis period. The results are shown at 2002 prices for the three scenarios in Table 13.2. The difference in the accumulated depreciation, compared to the base case (Scenario 1) is carried forward to the summary of the quantified impacts of reduced maintenance funding given in Section 14.2.

Table 13.2 Estimated cumulative depreciation for Scottish local roads
Year Scenario 1 Scenario 2 Scenario 3
2010 4,105 4,105 4,105
2020 4,577 4,728 4,866
2030 4,832 4,950 5,066

Note: 2002 prices undiscounted (£m)

The undiscounted budgets for Scenarios 1, 2 and 3 over the analysis period are £7,990m, £7,043m and £6,014m. From Table 13.2, the increases in depreciation (i.e. loss in value) for the network over the analysis period with Scenarios 1, 2 and 3 are £727m, £845m and £961m respectively.

Hence, although Scenario 1 budget is £1,976m more than the budget for Scenario 3, the depreciation is only £234m more with Scenario 3. Similarly, the Scenario 1 budget is £947m more than the budget for Scenario 2 but the depreciation is only £118m more with Scenario 2.