PAD - LGED

ii)
Measurement of Economic Costs:
44. A hydrographical survey of the project river stretch was carried out during March 2011,
and has concluded that the removal of approximately 193,000 cu. meters of silt and earth will be
required to permit year round navigation. The unit dredging cost was estimated at Taka 125 per
cubic metre, giving a Capital Dredging cost of Taka 24.125 million. 22 The cost stream is valued
in economic terms, i.e. the financial cost estimates are converted to economic cost estimates
through the exclusion of taxes and government charges, as well as, of any subsidies embodied in
input prices.
45. Given that capital dredging would be carried out by labor intensive methods utilizing
indigenous equipment, it is likely that only a value added tax would be applied to project input
prices. Thus, it was considered that a shadow pricing factor of 0.8 would be sufficient to allow
for the conversion of financial to economic costs. This factor is what is commonly used for this
type of investment projects in Bangladesh. After application of a Shadow Pricing Factor of 0.80
to the financial cost, an economic capital dredging cost of Taka 19.37 million was derived. Since
relatively little is known about the siltation characteristics of the river, only a rough estimate of
the maintenance dredging requirement could be made. This was assessed by the RTIP-II
waterway specialists at approximately 25 percent of the capital dredging requirement and cost,
incurred once every four years. As would be the case with capital dredging, maintenance
dredging would be carried out using labor intensive techniques and indigenous dredging
equipment. This would provide income generation opportunities for local communities living
along the project sites. Other capital cost (“other capital”) including survey works and
installations or river signals and marking were also included.
iii) Measurement of economic benefits:
46. The economic benefits of the waterway project may be defined as the difference between
the economic operating costs of waterway and road transport for the projected year round
movement of cargo and passengers. In the case of cargo traffic, a positive difference between the
costs of the two modes (favoring RWT) will divert traffic from road. In the case of passenger
traffic while the cost comparison does not favor RWT, the latter can be expected to generate
additional traffic as a result of passengers deriving non-quantifiable benefits (e.g. improved
transport access to markets) from a year round service. In such cases, passengers are expected to
derive benefits which they perceive to be at least equal to the difference between the costs of
each mode. 23
47. For the purposes of establishing unit waterway operating costs, interviews were
conducted with four operators of representative types and sizes of vessels operating on the
project stretch. These costs were modified to consider through operation of boats during the dry
season between Gorai and Kaliakor. In the case of road operating costs, VOC (Vehicle Operating
Cost) data obtained from an updating of the Road and Highways Department’s HDM-4 (Road
Cost Model) data base were used.
22 Source: Waterway specialist team RTIP II, 21 March, 2011.
23 This is the so-called “consumer surplus” approach to the valuation of benefits from transport projects.
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