PED guidebook main sxn rev6. FINAL.pdf - LGRC DILG 10

Strengthening Provincial/LocalPlanning and Expenditure ManagementProject Evaluationand Developmentt t d d s sP= s *CF*P + (1− s )*[w P + w P ]where s t is the proportion that is tradeable, CF is the conversion factor orthe amount used to express financial prices to economic prices and theothers are as defined before.vi. Labor inputsThe true cost of labor is equal to the opportunity cost of labor. Skilled laboris more scarce than unskilled labor, but the income of skilled labor istaxable while the income of unskilled labor is non-taxable. In effect, thereare negative and positive tradeoffs. In the Philippines, wages of skilledlabor is taken to be the true cost of skilled labor while wages of unskilledlabor is multiplied by a factor of 0.6 to arrive at the true cost of unskilledlabor. This conversion factor may change over time. The PED technicianshould verify with the NEDA-PIS about the current value.Example (q): Consider the following example of a rural roads project where thecost of inputs at the project site is known. Most of the inputs that will be used,e.g., gravel and sand are nontradeable but they make use of some tradeableinputs. Meanwhile, labor is considered tradeable and is valued at the opportunitycost of labor In A, we specify the cost structure of the project in terms ofmaterials, equipment and labor. This is further broken down in B into local andforeign (tradeable) component and for labor, into skilled and unskilled. Assume aforeign exchange premium of 1.2.Input Factor Financial Cost ECF Economic CostA B C D E F = D*Eof whichMaterials 40 Php326,000.00Local 40 130,400.00 1 130,400.00Foreign 60 195,600.00 1.2 234,720.00Equipment 35 285,250.00Local 25 71,312.50 1 71,312.50Foreign 75 213,937.50 1.2 256,725.00Labor 25 203,750.00Skilled 30 61,125.00 1 61,125.00Unskilled 70 142,625.00 0.6 85,575.00TOTAL Php815,000.00 815,000.00 Php839,857.50vii. The case of projects that generate negative effectsThe technical term for these negative effects is negative externalities.What is needed is to identify the cost of preventing these externalities andinclude this as part of project cost.RGEdillon January 200644