Final Report - Asian Development Bank

4
TA 4721-PRC: Preparing the Shaanxi-Qinling Mountains Integrated Ecosystem Management Project
Final Report Appendix 13
has experienced major increases in wage rates for casual unskilled labor for construction and casual
farm labor in the past few years. As a consequence a conservative SWRF of 0.8 has been applied to
casual and unskilled labor costs.
16. There continues to be high unemployment and underemployment particularly in the in-situ
zone. The team applied a SWRF to the construction expenses. This was based on an SWRF of 0.8
with labor costs assumed to account for 50% of the total construction investment. The SCF for
construction costs to economic values was therefore 0.9. For planting of trees and the Botanical
garden unskilled labor is assumed to be 50% of total costs (excluding the semi-skilled labor costs
used to produce nursery plants) and as such the SCF for planting programs was 0.9. Road
construction and upgrading costs were also assumed to involve 50% unskilled labor and a SCF of 0.9
was applied. For the Mountain pathways program 80% of costs were assumed to be casual labor and
a SCF of 0. 84 used. Finally the home stay investment had a total unskilled labor input amounting to
20% of total costs for a SCF of 0.96).
17. In contrast, tourism workers are semi-skilled to skilled with training included in the investment.
No shadow wage rates are applied to workers operating in the tourism enterprises. All of these
workers will receive training and arguably should receive a higher wage to retain trained workers and
provide a high quality service to their customers. In this situation, it is assumed the opportunity cost of
labor equals prevailing market wage rate.
18. The Team’s review of previous national and international project feasibility studies indicated
that real discount rates of 8%, 10% and 12% were used as the benchmark rate for the economic
internal rate of return (EIRR), depending on the project. An 8% benchmark discount rate was
proposed in the PRC document “Indicators and Methodology of Economic Evaluation for the
Construction Projects” issued by the National Development & Reform Commission and Ministry of the
Construction in 2006. The NPV was assessed at 10% with sensitivity applied at the other levels.
19. The PRC document noted earlier recommended a shadow exchange rate (SER) of 1.08 to be
applied to the costs of imports and Project revenues from e.g. international tourists. The analysis did
not apply this SER as few Project construction and operating costs involve importation and the
number of international visitors to the sites are small relative to overall visitation. In short,
internationally traded goods and services will play a minor role in project costs and benefits particularly
in the early years. Over a longer time period, the SER will trend towards 1.00 as PRC becomes further
integrated with the international economy and its tariff and non-tariff barriers decline through
implementing the WTO and other trade agreements. For both reasons, applying a SER would have
little impact on the EIRRs computed for the revenue-earning entities of the Project.
C. Project Assessment
20. Benefit and cost estimates are based on the Feasibility study estimates which have been
reviewed by the PPTA and modified or reformulated if necessary. Those subprojects with quantified
benefit streams – all within Component One – have benefits derived from visitor numbers and visitor
receipts including ticket sales, and assorted retail sales. The following section provides the summary
of the financial and economic costs for Component One. Benefits are based on marginal increases in
visitor numbers for each enterprise.
21. In addition to the quantified benefits that have been incorporated into the Project financial and
economic assessments, the project will generate many benefits that have not been or cannot be
quantified. Most of these benefits fall into two major categories: environmental and ecosystem benefits
and cultural, religious and heritage values. Together these are significant benefits that add further
justification for the implementation of the Project whose primary impact seeks to develop sustainable
conservation of biodiversity. Included in these categories are:
(i) Benefits accruing from the improved welfare of animals in the SARC
(ii) Benefits from the advancement of science related to endangered species recovery
from SARC
such as Xi’an where wages for unskilled and casual labor reportedly have increased by as much as CNY 10 per
day in the last few years.