Final Report - Asian Development Bank

48 Main Report
represent the NQBG as it does not include the financial costs and revenues of either (i) Louguantai
Forest Farm and (II) the NQBG management overheads. 23
3. Economic Analysis
154. Economic analysis was undertaken for the three commercial enterprises and the project as
whole. The quantified benefit stream for the commercial enterprises was limited to the visitation and
revenue data for each enterprise and did not include the contribution to global species management,
genetic collections for biodiversity, cultural and religious values, and scientific contribution to
biodiversity conservation. No economic benefits were quantified for the impacts and benefits arising
from the profit redistribution to the CDA program.
155. The EIRR’s range from 11% to 23% and indicate a economic feasible investment. The QBG
enterprise is the least feasible investment however the base revenue assumptions are purposively
conservative which results in an EIRR set to the hurdle rate see Table 7. The EIRR for Component
One is 14.2%. The EIRR for the combined Qinling Botanical Garden and SARC is 13.7%. The EIRR
for the home stay (10 enterprises) is estimated to be 23%.
156. No EIRR was calculated for Component Two and three due to the public good and uncertainty
attached to the quantification of benefits. The benefits are substantial in terms of potential livelihood
and environmental improvements in the CDA zone and the wider Qinling Mountains. The EIRR for the
total Project is estimated to be 10.9%. Further details on economic analysis can be found in Appendix
16.
Table 8 Economic Assessment of Commercial Enterprises
Parameter QBG SARC Hot Spring
NPV(10%) 2,496 22,965 5,657
EIRR 11% 17.9% 23%
EIRR (costs +10%) 10% 16% 20%
EIRR (revenue -10%) 9.3% 15.4% 17.9%
4. Risks
157. The Project will introduce commercial enterprises into a small less ecologically sensitive part
of Project area. The revenue and net profit generated will be reinvested in the larger CDA important
for conservation purposes. Past models of conservation management have proven to be successful
during the life of a project but have often failed on Project completion due to the lack of institutional
arrangements and non-sustainable financing arrangements. The Project will address both of these
issues directly. A major risk to the investment is the continuation of the layering of government units
over the same land and forest resources resulting in competitive institutional behavior that is
contradictory to the Project requirements and goals of sustainability.
158. The overall Project impact and outcomes will not be achieved unless there is a formal
commitment to the transfer of a profit share to fund the CDA program. As a minimum this should be
set as a charge against the business assets both land and capital invested once these values are
known as part of the institutional reforms. For the intervening period the ADB and PRC need to
formally agree that a minimum of USD 400,000 will transfer starting from 2012.
159. The QBG enterprise currently has little or no commercial experience and the existing capacity
is assessed as being inadequate for the proposed Project in terms of financial management,
commercial market orientation, and use of capital efficiently. The forecast cash flow and economic
return is marginal and when combined with the current assessment of capacity creates a risk that
needs to be addressed. While there is a proposal for an institutional strengthening TA grant from ADB
this remains unconfirmed. Without the input to institutional strengthening the Project has a high
chance of failure.
23
The NQBG was not agreed until Loan Fact Finding and the staffing needs and financial projections for both of
these units have not been provided.