Report

90 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA
Table 9.22 Total Benefits from the Project (US $)
Year Avoidance of Additional Net benefits
Feeder Costs Revenue from
Transshipment
1 – – 79,000,000
5 104,338,000 22,843,000 108,478,000
10 153,306,000 47,188,000 93,126,000
15 225,257,000 74,240,000 123,032,000
20 342,876,000 114,975,000 322,570,000
25 455,655,000 74,342,000 396,827,000
Source: ADB, 2007
• Loss of revenues to Sri Lankan terminals from
transshipment; and
• Loss of dues paid to SLPA by container vessels.
Lower freight costs are expected to result in annual
savings of $82 million by 2015, and faster delivery
times will create annual savings of $49 million by
2015.
In addition transshipment traffic is expected to
generate direct net annual income to terminal operators
amounting to $77 million by 2015. The benefits of the
Project are the avoidance of these costs to the economy.
The values assigned to the benefits are compared with
the total investment cost of $1.3 billion for the Project
to 2034.
Benefits Costs Analysis
The economic evaluation compares the economic
benefits and costs of the project from the viewpoint of
the national economy. The economic analysis was based
on the scenario that the three terminals are sequentially
developed to meet the forecasted demands by taking
into account that SLPA provides the basic infrastructure
to accommodate the terminals.
Table 9.23 Results from Benefit-Cost Simulations
Economic Rate Net Present
of Return (%) Value (US$)
Base calculation 17.76 436,655,000
Capital costs up by 10% 16.3
Total costs up by 10% 15.95 346,757,000
Traffic forecasts down 16.0
by 10%
Avoidance of feeder 16.19 331,393
costs down by 10%
Decrease in revenue 17.36 408,354,000
benefits by 10%
Total benefits down 15.76 303,091,000
The economic internal rate of return is estimated
at 17.8%. These assumptions do not include the value
to be placed on fast, direct shipping services by investors
considering alternative countries as locations for setting
up new manufacturing or distribution centers. It also
does not include loss of international investors, who
will include frequent, direct shipping services on their
checklist of preconditions for locating in a country.
Thus the economic analysis is conservative. Sensitivity
and risk analyses indicate that the economic internal
rate of return is robust under most conditions. The
financial analysis of income and expenditure also gives
a robust result of 11.5% for the base case.
CONCLUSION
It has been demonstrated that the trade and transport
facilitation projects under consideration are high benefit
projects for the countries undertaking them. Should
the government choose to finance the projects on their
own from year 1 to year 5, with benefits accruing only
after project completion, both projects yield very high
benefits with high economic internal rates of return,
even in the worst case scenarios. However, the
importance of a supportive overall policy framework
for the promotion of transport, trade, and tourism
cannot be undermined. It is essential for the
governments to develop a meaningful strategy. As
SAFTA is established, additional steps to support the
framework such as facilitating customs procedures at
borders points and improved infrastructure are essential
in order to reap the benefits form reduced tariffs. The
large amount of informal trade in the SAARC region is
attributable to the cumbersome procedures at the
border and improvements in infrastructure will
formalise these figures. But, investments in transportation
systems alone are not sufficient and there is a
need for policy reform, accompanied by improved
procedural and operational efficiency. For the road and
rail project considered at the Indo-Bangladesh and the
Indo-Pakistan border respectively, positioning
appropriate trained customs department personnel and
provision of adequate law and order is necessary. Thus,
besides physical infrastructure gaps, regulatory and
procedural problems need to be looked into, which
includes harmonisation of technical standards, customs,
documentation and procedures which have so far
impeded timely delivery of goods and services.
Therefore, a sustained effort to develop and entire
package of policies for trade facilitation is required to
realise the full trade potential and the effective
exploitation of comparative advantage and competitiveness
among countries. Similarly, a long term master