PAD - LGED

(iv) Performance Based Routine Maintenance Contracts pilot
24. A cost-benefit analysis was carried out for ten roads identified for the first year of the
PBMC component. This includes a total length of about 167 km (out of 450 km for the five years
project). The weighted average EIRR is 40 percent and all the links appraised have a base case
EIRR greater than 12 percent, in many cases substantially greater, with a weighted average
ENPV of about US$8 million. All roads remain economically viable if costs increase up to 136
percent or benefits decrease up to 42 percent. However, again, for some of the roads the results
are sensitive when the benefits from increases in household income are excluded.
Table 8.7: Economic returns of First Year of PBMC sub-projects
Table: EIRR, NPV and sensitivity analysis for PBMC Improvement Component
Indicator
ENPV
EIRR (Base Case,
(Base Case) US$
million)
Cost
Increase
20%
Benefit
Decrease
20%
Sensitivity Test
Both
Cases
EIRR (%) 40% $ 8 32% 30% 22% 17% 15% 136% 42%
Note: These figures are weighted average using number of kms as weight
B. GMC (and ghats) improvement Components:
i) Methodology and main assumptions:
Existing and
generated traffic
only (No Income
Benefits)
Existing
Traffic
only (no
income
Switching Value
Increased
Cost
(%)
Decreased
Benefits
(%)
25. A total of 50 Growth Centre Markets (GCMs) and 20 ghats (boat landing stations) have
been selected for improvement within the RTIP-II project. The improvement of GMCs and ghats
is expected to bring significant benefits in the form of improved access and reduced transport
cost for impoverished rural communities, as well as, more efficient marketing of rural products.
Since the rural market network in Bangladesh historically developed on the myriad of navigable
waterway routes, it is often the case that important ghats are located adjacent to the markets. The
ghats has therefore been regarded as an integral part of the GCMs, connecting the waterways and
land transport as a hub for economic activity.
26. The benefits of GCMs have been compared with the economic costs of the total capital
investment and maintenance cost over the life of the project (assumed to be 20 years) in order to
determine their economic internal rates of return (EIRR), and economic net present values
(ENPV). The project life was assumed to be inclusive of the construction and maintenance
periods for each improved asset and thus defined the period for the project appraisal. A
construction period of 18 months was assumed.
ii) Measurement of Economic Costs:
27. Recent biddings and contract rates for LGED projects now being implemented were used
as the basis for computing the average unit capital costs of GCMs and ghats improvement
investments. These unit costs, expressed in financial values, were converted to economic values
through the application of a Shadow Pricing Factor (SPF). In previous LGED projects, a standard
SPF of 0.80 was applied in order to remove the tax and duty components, as well as to adjust for
any market distortions (such as subsidies) in financial prices. To ensure consistency with other
projects, a SPF of 0.80 was used for the determination of economic costs. At this level, the SPF
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