Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

CHAPTER FOURCASE STUDIESOverviewThis chapter presents five case studies providing worked examples of the methodology presented in theprevious chapters. The case studies include:- investment in a motorway- investment in a railway line- investment in an incinerator with energy recovery- investment in a waste water treatment plant- industrial investmentEach case study is organized in such a way to allow, as far as possible, a ‘horizontal’ reading structuredalongside the six steps required for a consistent project appraisal. Nevertheless, they are at the same time‘personalized’ in order to take into account sectoral specifics and to show the operational application ofsome of the guidelines proposed in Chapter 2 and Chapter 3.As already mentioned, the economic evaluation of transport projects is traditionally based on a partialequilibrium approach. For this reason, in the first two case studies, the economic analysis is presentedbefore the financial analysis and the economic benefits are obtained by adding the consumer with theproducer’s surpluses and not by applying conversion factors to the project revenues.The other three case studies are based on a general equilibrium approach, which implies the use of shadowprices. Each has, however, developed in more depth a certain topic to provide the reader with a practicalapplication of the concepts illustrated in Chapter 2. For example:- both the environmental case studies use an adjustment for the change of real prices (i.e. relative togeneral inflation);- the incinerator case study presents a valuation of a negative externality by means of an hedonic price(see also Annex F);- the waste water treatment plant investment offers an example of PPP and how to calculate the returnon own capital to private investors (K p );- the industrial investment shows how risk analysis can question the project design, because, despite thebaseline case seems to be acceptable, there is a high probability of a negative economic return.The case studies are illustrative examples of the methodology of project analysis presented in the previousChapters. They are not to be seen as synopsis of complete reports. All figures are purely indicative andshould not be taken as benchmark values 54 .54Particularly transport projects are often based on highly variable assumptions, for example because of different traffic models, the network orcorridor considered, etc. The case studies cannot represent a ‘typical’ project, because each actual project will be based on specific ingredients.129