Transport- og Bygningsudvalget 2015-16
TRU Alm.del Bilag 129
Offentligt
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To be presented at the 19. International Working Seminar on Production Economics
Innsbruck, Austria, 22-26 February, 2016
Construction and operation of the Fehmarn Belt immersed tunnel
is a high risk business case
Hans Schjær-Jacobsen
RD&I Consulting
Dyssebakken 19, 2900 Hellerup, Denmark
[email protected]
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 but
this has been put on hold awaiting clarification of major uncertainty issues. Since the official financial model is
publically 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.
Keywords:
Fehmarn Belt, uncertainty profile, probabilistic representation, Monte Carlo, high risk, business case.
1.
Introduction
By February 25, 2015, the Danish Minister of Transport on behalf of the social-liberal
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. Preparatory construction work was already
under way according to the Planning Act (Danish Parliament 2009).
The Fehmarn Belt immersed tunnel is a visionary endeavor and a technological marvel. It is
approximately 18 km long and will consist of individual elements that will be manufactured
on land at a production site specifically constructed for the purpose at Rødbyhavn. There are
two types of tunnel elements: 79 standard and 10 special elements. Each of the standard
elements is approximately 217 m long, 42 m wide and 9 m high. One element weighs around
72,000 tons. The financing of the Fixed Link across the Fehmarnbelt is based on a state
guarantee model. This model entails financing of the project via loans guaranteed by the
Danish Government and which are to be repaid via revenue from the users of the Fixed Link.
These and further details of the Fehmarn Belt immersed tunnel project are available from the
project company (Femern A/S 2016) fully owned by the state company Sund & Bælt Holding
A/S.
The Fehmarn Belt immersed tunnel project is the third in a row of large Danish infrastructure
projects supported by a great majority of political parties in the Parliament. The first one was
the Great Belt fixed link comprising two bridges and a tunnel inaugurated in 1997 – 1998 that
turned out to become a big financial success due to positive traffic development beyond
forecasts and despite a substantial construction cost overrun. 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%
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 TRU, Alm.del - 2015-16 - Bilag 129: Henvendelse af 11/1-16 vedrørende Femern Bælt-projektet, fra Hans Schjær-Jacobsen
To be presented at the 19. International Working Seminar on Production Economics
Innsbruck, Austria, 22-26 February, 2016
lower than budget in 2001). The latter was partly explained by unexpected tactical responsive
actions by competing ferry services.
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 Liberal Party does not want to go into the yellow or red zone,
thereby taking the risk that the taxpayers will have to pay part of the project.
When asked
about what lengths of the payback period he associated with the colored zones mentioned, he
responded:
We have the rule of thumb in the Liberal Party – and I think this is also the case
elsewhere – that as long as we are under 40 years we are in the green zone, then we are on
safe ground regarding the taxpayers avoiding to pay. When we are between 40 and 50 years
we are in the yellow zone, then it begins to be on shaking ground. When we are over 50 years
we are in the red zone and we have to stay completely out of that one, that is what I mean.
(Lorentzen 2015).
In accordance with these statements the uncertainty profiles in this paper are presented in
terms of the three color categories in order to facilitate a match with the preferences of the
Liberal Party, that are generally shared among the majority of political parties. Although L141
was passed on 28 April by the Parliament without much debate, it became clear from the
comments that there were three hurdles to be satisfactorily passed before the project
eventually can be launched politically. Firstly, an application about subsidies of the
construction works of approximately DKK 11.3 billion should be positively responded to by
the EU. (Rate of exchange: DKK 100 ≈ € 13.16). Secondly, continuing negotiations with the
building consortia concerning an expected construction budget overrun of DKK 8.9 billion
should be successfully completed. Thirdly, the environmental project approval by the German
authorities should be obtained. At the time of debate in the Parliament, it was assumed that all
three issues would be resolved by September 2015. As it becomes clear from the following
this is far from being the case.
Section 2 of this paper presents a brief summary of the underlying work on which the actual
uncertainty analysis of the Fehmarn Belt project is based. In Section 3 a series of official
construction cost estimates is collected and discussed. Traffic forecasts are presented in
Section 4 and critically discussed. In Section 5 the author presents and validates the financial
model intentionally developed to match the official financial model not publically available.
The first uncertainty profile is presented in Section 6 and the second one in section 7.
Conclusions are found in Section 8 and future developments after the project has been put on
hold are discussed in Section 9.
2.
Modelling of risk and uncertainty in large infrastructure projects
Recent research has revealed that large infrastructure projects are seldom realized within
scheduled budget, time and specifications. Most often cost budgets are overrun, benefits
falling short, time schedules are not met etc. Studies of discrepancies between
ex ante
estimation and
ex post
reality typically fall in two categories. The first category studies the
discrepancy as a mere difference between the forecasted performance at the time of decision
to build and the realized performance after project completion. Flyvbjerg and associates have
done extensive research into the magnitude of discrepancies in large infrastructure projects.
Basically they offer two explanations for discrepancies, namely
optimism bias
and
strategic
misrepresentation.
They propose to use reference class forecasting applied at the project level
as a cure for optimism bias, Flyvbjerg
et al.
(2004) and Flyvbjerg (2006). According to this
approach any
ex ante
estimation should be adjusted by an amount determined from a
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Innsbruck, Austria, 22-26 February, 2016
reference group of identical, or at least similar, projects already completed. In a later work
they present a more comprehensive analysis and offer prescriptive advices to cope with the
strategic misinterpretation
problem pertaining to various actors in the project processes,
Flyvbjerg
et al.
(2009).
The second category of studies of discrepancies between
ex ante
and
ex post
project
performance may be considered an extension to the first category: Not only is the discrepancy
of project performance studied but also the
ex ante
uncertainty estimations compared to the
ex
post
outcome, see f. ex. Lundberg
et al.
(2011).
A comprehensive modelling of uncertainty and risk may be accomplished by combination of
two approaches, namely the probability approach and the possibility approach compared and
documented in a series of research papers by the author. Initially interval analysis was
proposed as a novel method to representation and calculation of uncertainty in terms of worst
and best case analysis, Schjær-Jacobsen (1996), later on extended to fuzzy numbers and
probability distributions, Schjær-Jacobsen (2002, 2004). In Schjær-Jacobsen (2010) special
attention was devoted to computational challenges using intervals and fuzzy numbers to non-
monotonic performance functions. The concepts of
aleatory
and
epistemic
uncertainty were
explicitly related to
probabilistic
and
possibilistic
representation of uncertainty, respectively,
Schjær-Jacobsen (2013). In Schjær-Jacobsen (2014) the propensity of overlooking uncertain
but indeed possible outcomes with low likelihood of occurrence was focused upon.
In the official financial report on the Fehmarn Belt project, Femern A/S (2014b), uncertainty
was handled by partial sensitivity analysis and stress tests on the main scenario and allocation
of reserves. As is well known the former method is a local analysis based on arbitrary and
small one-at-a-time changes of the uncertain variables and does not give the full picture of the
consequences of uncertainties involved. With a base case payback period (PBP) of 32 years,
changes reported were all within the range [−4; +9] years. As it becomes clear from the
results in this paper the real uncertainties are much larger.
3.
Construction cost estimations
Through the last years a series of construction cost estimates of the fixed link crossing the
Fehmarn Belt have been published, including those of the originally proposed bridge solution
(TRM 2004). In this paper we focus on the construction cost estimates released since
November 2014, when a decisive momentum occurred for taking the project to approval by
Parliament.
Femern A/S (2014b) announced a total construction cost exclusive of reserves to be DKK 7.3
billion for the Danish landworks and DKK 40.5 billion for the coast-to-coast tunnel work,
totalling DKK 47.8 billion for the entire project leaving out German hinterland investments.
As far as reserves are concerned the landworks are subject to guidelines from the Ministry of
Transportation requiring reserves of 30% (TRM 2006, 2010). Costing of the tunnel works are
done in a dialogue process with the construction consortia and less reserves are apparently
required, in this particular case 14% reserves are allocated. In this paper the designation Base
Case N is introduced in order to identify the specific set of assumptions used in different
calculations. The construction costs are summarized under the heading Base Case 0 in Table 1,
identical to the initial Main Scenario in Femern A/S (2014b). However, for reasons not known
to this author, also 30% reserves are used, see Base Case 1 in Table 1. Only a few months
later a 22% cost increase of the coast-to-coast construction work was announced (Femern A/S
2015) whereby the major part of the increase was absorbed by reducing the 30% reserves to
only 11%, see Base Case 1’ and 2 in Table 1. Later on in 2015 Femern A/S announced new
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To be presented at the 19. International Working Seminar on Production Economics
Innsbruck, Austria, 22-26 February, 2016
negotiations with the construction consortia in an effort to reduce costs. No results, however,
have been published so far.
Construction costs
(DKK billion, 2014 level)
Danish landworks
Construction costs excl. reserves
Correction allowance (10%)
Reserves (20%)
Sum reserves
Sum reserves (%)
Sum construction costs incl. reserves
Coast-to-coast construction
Construction costs excl. reserves
Reserve for contractor risk
Other reserves:
Client reserve
Extra reserves (16.4%)
Total other reserves
Sum reserves
Sum reserves (%)
Sum construction costs incl. reserves
Total project
Total construction costs excl. reserves
Total reserves
Total reserves (%)
Total construction costs incl. reserves
Base Case 1’
and 2
7.3
0.7
1.5
2.2
30%
9.5
49.4
1.8
3.7
3.7
5.5
11%
54.9
56.7
7.7
14%
64.4
Base Case 0
Base Case 1
7.3
0.7
1.5
2.2
30%
9.5
40.5
1.8
3.7
3.7
5.5
14%
46.0
47.8
7.7
16%
55.5
7.3
0.7
1.5
2.2
30%
9.5
40.5
1.8
3.7
6.7
10.5
12.3
30%
52.7
47.8
14.5
30%
62.2
Table 1. Project construction costs.
Base Case 0: Main Scenario (Femern A/S 2014b).
Base Case 1: Total reserves 30% (Femern A/S 2014b, Table 20).
Base Case 1’ and 2: Coast-to-coast construction costs increased by 22% (Femern A/S 2015).
It should be mentioned here that while EU subsidies of DKK 10.3 billion were assumed in
Base Case 0, 1 and 1’ but only DKK 4.4 billion were granted by June 28, 2015 on the
condition that construction costs are incurred before a certain deadline. Still an option exists
to apply for supplementary funding at a later time.
4.
Traffic forecasts
Traffic incomes from four categories are budgeted: Passenger cars, trucks, busses and trains.
The traffic forecasts were carried out and reported by Intraplan (2014a, 2014b, 2015)
assuming discontinuation of the existing Scandlines ferry service Rødby − Puttgarden and
adopted in the subsequent analyses (Femern A/S 2014a, 2014b). Graphs for passenger cars
and trucks are shown in Figs. 1 and 2 by volume.
Passenger car traffic is the most important category accounting for a major share of the total
traffic income. It is also by far the most controversial income issue for several reasons.
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Firstly, a forecasted traffic jump of 66% by tunnel opening including a ramp-up period of 3
years, see Fig. 1, has been seriously questioned by Andersen (2015), DIW Econ (2015a) and
LR Consulting (2015a, 2015b). 40% of the traffic jump is made up of transferred traffic from
other existing ferry services calculated by means of the same traffic model as was used in
earlier prognosis work (FTC 1999, 2003). The remaining 60% of the traffic jump is
transferred traffic from the Great Belt link and could not be forecasted by using the same
model but rather by loosely founded
ad hoc
arguments (Andersen 2015). The external quality
assurance report commissioned by the Minister of Transport, COWI (2015), explicitly stated
in the main conclusion that “especially the expected transfer of passenger car traffic from the
Great Belt is difficult to document due to lack of data of the present traffic pattern crossing
the Great Belt link” and further investigations are recommended. In a press release from the
Ministry of Transport the Minister is quoted to say “COWI has found that the traffic
prognosis is thorough and presents a realistic estimate of the tunnel traffic. This is an
important conclusion and then we politicians can concentrate on the remainder of the project”,
TRM (2015). This statement suggests that the Minister chooses to ignore a serious reservation
in the conclusion of the quality assurance report.
Fig. 1. Fehmarn Belt passenger car traffic (1000 one way cars pr. year).
2000-2014, upper: Realized total cars by ferry (Statistikbanken 2015).
2000-2014, lower: Realized non-shopping cars by ferry (Scandlines 2015b).
2011-2021: Forecast total cars by ferry (Femern A/S 2014a).
2022-2050+, upper: Forecast total cars by tunnel (Femern A/S 2014a). Base Case 0, 1, 1’.
2022-2050+, lower: Forecast total cars by tunnel, (DIW Econ 2015b). Base Case 2.
Secondly, today’s ferry traffic consists of two distinctly different passenger car segments.
Approximately 34% of the total traffic is a border shopping segment of local Danish
passenger cars developed since 2000 enjoying a substantial rate reduction whereas 66% are
ordinary travellers, mainly for holiday purposes, see Fig. 1. In the simplified model
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calculations (Intraplan 2014a), however, an average rate has been used for the total traffic
thereby introducing an uncertainty of unknown magnitude in the traffic prognosis. It is clear
that by using a too low rate, i.e. the average rate, the forecasted tunnel traffic tends to be too
large due to an overestimated relative preference in comparison with other competing
connections. Furthermore, it is seen from Fig. 1 that the ordinary passenger car segment
shows a decline since 2000.
Thirdly, according to Scandlines (2015a), the total road traffic income in 2014 from the
existing Rødby-Puttgarden ferry services is 19% lower than forecasted by Femern A/S
(2014a). The reason for this is a mix of too high estimations of passenger car volume and rate,
too high estimation of truck rates and too low estimation of truck volume. As for the volumes
consult with Figs. 1 and 2. Also shown in Fig. 1 is an alternative prognosis of passenger car
traffic with a reduced traffic jump claimed to be more realistic (DIW Econ 2015).
Fig 2. Fehmarn Belt truck traffic (1000 one way trucks pr. year).
2000-2014: Realized total trucks by ferry (Scandlines 2015b).
2011-2021: Forecast total trucks by ferry (Femern A/S 2014a).
2022-2050+: Forecast total trucks by tunnel, Femern A/S (2014a). Base Case 0, 1, 1’, 2.
5.
Development and validation of a deterministic financial 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 in Femern A/S (2014b, 2015) as a function of a vast range of input
variables. The financial model includes such features as Danish landworks and coast-to-coast
construction costs, construction reserves, length of construction period, road and rail traffic
volumes and rates, EU subsidies, inflation, nominal and real interest rates, depreciation, VAT,
joint taxation with Sund & Bælt Holding A/S. The present financial model developed and
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validated by the author is limited to a time period of maximum 60 years after tunnel opening.
Input data not explicitly quoted in this paper may be found in Femern A/S (2014b, 2015).
The present financial model has been evaluated against previously calculated payback periods
(PBP) obtained by the official financial model. Some results are shown here:
Base Case 0: Present model: 31 years. Official model (Femern A/S 2014b): 32 years.
Base Case 1: Present model: 37 years. Official model (Femern A/S 2014b): 37 years.
Base Case 1’: Present model: 39 years. Official model (Femern A/S 2015): 39 years.
The present model developed by the author is estimated to have an absolute PBP accuracy of
±1 year and a relative accuracy of approximately ±3% compared to results from the official
financial model, Femern (2014b).
6.
Uncertainty profile of Base Case 1
This uncertainty profile is generated by three major independent and uncorrelated uncertain
input variables to the financial analysis based on Base Case 1:
1) Uncertain road traffic income is represented by a uniform probability distribution with
upper limit equal to the prognosis in Femern A/S (2014b) and lower limit equal to
85% of this same prognosis. It seems reasonable to assume these limits because of the
income shortfall of 19% reported for 2014, Scandlines (2015), which is expected to
increase to 30% at the time of tunnel opening.
2) Uncertain coast-to-coast construction costs excl. reserves are represented by a uniform
probability distribution with an upper limit equal to DKK 49.4 billion and a lower
limit equal to DKK 40.5 billion. The limits are determined by the range of coast-to-
coast construction cost reported so far, Femern A/S (2014b, 2015). The final estimated
costs are expected to be within the range indicated, although the outcomes of ongoing
negotiations have not yet been published. Note that the reserves are varying between
14% and 30%.
3) Uncertain EU subsidies are represented by a uniform distribution with upper limit
equal to DKK 10.3 billion and lower limit equal to DKK 4.4 billion. The limits are
determined by the budgeted and realized EU subsidy so far. The expected EU subsidy
is within this range even though both limits are uncertain.
The resulting Uncertainty Profile 1.1 obtained by Monte Carlo simulation, Palisade (2013), is
shown in Table 2.
The likelihood of a Payback Period (PBP) in the green zone, i.e. PBP ≤ 40 years is only 7,5%
whereas the yellow zone accounts for 55.9% and the red zone 36.6%. This particular analysis
reveals that we have a high risk project with a critically low likelihood of an acceptable PBP
below 40 years.
The probability distribution of PBP is shown in Fig. 3. During the Monte Carlo simulation
outcomes may occur where the project is not paid back within the model limit of 60 years.
Two cases are possible: 1) The project would have a finite PBP larger than 60 years had the
model been extended beyond that period of time. 2) The project would never be paid back
because of ever increasing debts. Both cases are represented as PBP = 61 years in Fig 3.
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Base Case 1
Traffic income
Coast-to-coast construction costs
excl. reserves
EU subsidies
Payback period (PBP)
by Monte Carlo simulation
Total construction costs
incl. reserves
Total reserves
Section 5.3 in
Femern A/S (2014b)
DKK 40.5 billion
DKK 10.3 billion
37 years
DKK 62.2 billion
30%
Uncertainty Profile 1.1
Uniformly distributed
uncertainty factor on road
traffic income [0.85; 1.0]
Uniform distribution
DKK [40.5; 49.4] billion
Uniform distribution
DKK [4.4; 10.3] billion
Red: 36.6%
Yellow: 55.9%
Green: 7.5%
DKK [62.2; 64.4] billion
[14; 30]%
Table 2. Uncertainty Profile 1.1 based on Base Case 1.
Green: PBP ≤ 40 years. Yellow: 40 years < PBP ≤ 50 years. Red: 50 years < PBP.
Fig. 3. Probability distribution of Payback Period (PBP) by Monte Carlo simulation.
Outcomes PBP > 60 years are registered as PBP = 61 years.
By using the interval approach (Schjær-Jacobsen 2010, 2013) best and worst cases of the
uncertain payback period (PBP) may be obtained directly from the uncertain input variables
by interval calculations (Hyvönen and de Pascale 2000): Best case PBP = 37 years and worst
case PBP > 60 years. By comparison with Fig. 3 these results are seen to correspond with the
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results of the probability approach. Generally, this is not so in cases with many uncertain
variables (Schjær-Jacobsen 2014).
7.
Uncertainty profile of Base Case 2
This uncertainty profile is generated by three major independent and uncorrelated uncertain
input variables to the financial analysis based on Base Case 2:
1) Uncertain passenger car traffic volume is represented by a triangular probability
distribution with mode equal to the revised prognosis proposed in Table 11 in DIW
Econ (2015b), also depicted in Fig. 1, upper limit 30% larger and lower limit 10%
smaller. This alternative prognosis is based on a less optimistic assumption concerning
the traffic jump by tunnel opening due to revised estimates of the relative
attractiveness of the tunnel connection compared to already existing ferry services. It
is still assumed that the Rødby – Puttgarden ferry service by Scandlines will be
discontinued by tunnel opening.
2) Uncertain coast-to-coast construction costs are represented by a uniform probability
distribution with an upper limit equal to DKK 49.4 billion and a lower limit equal to
DKK 40.5 billion. This uncertainty is similar to that of Uncertainty Profile 1.1.
3) Uncertain EU subsidies are represented by a uniform distribution with upper limit
equal to DKK 10.3 billion and lower limit equal to DKK 4.4 billion. This uncertainty
is similar to that of Uncertainty Profile 1.1.
The resulting Uncertainty Profile 2.1 obtained by Monte Carlo simulation, Palisade (2013), is
shown in Table 3.
Base Case 2
Passenger car traffic
volume as Table 11,
DIW Econ (2015b)
DKK 49.4 billion
DKK 4.4 billion
Present model:
> 60 years
DKK 64.4 billion
14%
Uncertainty Profile 2.1
Triangularly distributed
uncertainty factor
[0.9; 1.0; 1.3]
Uniform distribution
DKK [40.5; 49.4] billion
Uniform distribution
DKK [4.4; 10.3] billion
Red: 87.7%
Yellow: 12.3%
Green: 0.0%
DKK [62.2; 64.4] billion
[14; 30]%
Traffic income
Coast-to-coast construction costs
excl. reserves
EU subsidies
Payback period (PBP)
by Monte Carlo simulation
Total construction costs
incl. reserves
Total reserves
Table 3. Uncertainty Profile 2.1 based on Base Case 2.
Green: PBP ≤ 40 years. Yellow: 40 years < PBP ≤ 50 years. Red: 50 years < PBP.
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The results of Uncertainty Profile 2.1 show that the project is outside of the green zone, only
marginally in the yellow zone by a likelihood of 12.3% and mainly in the red zone by a
likelihood of 87.7%. We have indeed a high risk business case in the sense of a potential
situation were the Danish Parliament will have to partially finance the project because of the
guarantee issued.
As for the previous uncertainty profile best and worst cases of the uncertain payback period
(PBP) may be obtained directly from the uncertain input variables by interval calculations:
Best case PBP = 48 years and worst case PBP > 60 years. Even the best case is significantly
above the acceptable limit of 40 years.
8.
Conclusions
New financial uncertainty profiles of the Fehmarn Belt immersed tunnel have been derived
and presented. The profiles are based on a deterministic financial model developed by the
author to make the best possible match with the calculations of payback periods obtained by
the official financial model which regrettably was not available to the author. By adopting the
traffic light model proposed in the Danish Parliament and broadly accepted by the political
community it has been established that the uncertainty of the Fehmarn Belt tunnel payback
period is much larger than the impression created by the tunnel proponents. The partial
sensitivity analyses applied to the main scenario of November 2014 are shown to seriously
underestimate uncertainty. Furthermore, official central estimates of construction costs and
traffic forecasts are challenged. Realistic uncertainties based on readily obtainable facts about
traffic volume and income, construction costs, reserves and EU subsidies have been imposed
on a few but important input variables. Monte Carlo simulation has generated the probability
distribution of the payback period allowing the green, yellow and red zone classification of
likelihoods. It is shown that even external quality assurance of traffic forecasts is largely
ignored when making specific reservations and recommendations.
Two uncertainty profiles have been presented none of which is acceptable according to the
criterion of producing a payback period of less than 40 years. The first one shows a likelihood
of 7.5% of being in the green zone, 55.9% of being in the yellow zone and 36.6% of being in
the red zone. Best and worst cases PBP are 37 and >60 years, respectively. The corresponding
likelihoods of the second uncertainty profile are 0%, 12.3% and 87.7%. Best and worst case
PBP are 48 and >60 years, respectively. These results demonstrate that construction and
operation of the Fehmarn Belt immersed tunnel is a high risk business case in contrast to the
official results obtained by partial sensitivity analysis carried out on the main scenario by
November 2014.
9.
Future developments
This paper was finalized and submitted for publication by 6 January 2016 whereas the most
recent official financial analysis was published by February 2015 and most recent partial
sensitivity analysis by November 2014. In addition to the uncertainties accounted for in the
present paper major issues are remaining. Results of the negotiations with the coast-to-coast
construction consortia since February 2015 are expected to result in reduced construction
costs, an extended construction period and revised distribution of risks between project
participants. The German reluctance to build the necessary traffic infrastructure and
procedural complexities of finalizing the environmental approval procedure has already
delayed the beginning of construction work and will delay completion of the tunnel as well.
The issue of realistic traffic forecasts has not been satisfactorily resolved, in particular the
option of continued ferry service and transfer of traffic from the Great Belt that may
eventually lead to financial disaster of the fixed link. A revised official financial analysis has
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1587553_0011.png
To be presented at the 19. International Working Seminar on Production Economics
Innsbruck, Austria, 22-26 February, 2016
been announced by the Ministry of Transport to appear during the Fall of 2015 but has
recently been delayed to be published in 2016, allegedly due to an ongoing external quality
assurance process concerning coast-to-coast construction costs and allocation of reserves.
Upon appearance of the revised financial analysis the uncertainty profiles presented in this
paper may also be revised according to new data and information.
10.
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1587553_0012.png
To be presented at the 19. International Working Seminar on Production Economics
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Final version
6 January 2016
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