Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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4.2.4 Economic analysisThe benefits of the two options are measured in terms of:- time savings for the existing passengers rail traffic, fares being equal in all the alternatives;- costs saving for the existing freight traffic, due to fares reduction on account of the reduced marginalcosts made possible by the railway upgrading 60 ;- time and operating costs savings for the passenger traffic diverted from road to rail;- air pollution reduction as a result of the shift of freight and passenger traffic from road to rail;- CO 2 emission reduction as a result of the shift of freight and passenger traffic from road to rail- accident reduction owing to the shift of freight and passenger traffic from road to railThe economic benefits of the two options can be summarized in the following categories:- changes in consumer’s surplus , represented by the changes in users generalised costs;- changes in producer’s surplus (railway operator) and in user’s surplus;- reduction of the negative externalities as a result of the diverted traffic from road to rail (air pollution,CO 2 emissions, accidents).Table 4.16 summarises the unit generalised costs per trip for passengers and freightTable 4.16 Costs per trip (€)PassangersBusiness as usual Scenario Option 1 Option 2RailTime costs 28.6 25.0 22.3Tariffs 16.7 16.7 16.7Generalised costs 45.2 41.7 39.0RoadTime costs 25.1 24.9 24.3Operating costs (including taxes) 17.6 17.6 17.6Generalised costs 42.7 42.4 41.8Freight (per ton)Rail Tariffs 11.6 6.5 6.5Road Tariffs 12.9 12.9 12.94.2.4.1 Consumer’s surplusPassenger’s consumer’s surplus has been calculated according to the so-called ‘rule of half’ for all the railusers and for users remaining on the road network that benefit from a reduction in congestion. Thefollowing Table shows the volumes of traffic in the three options (Business as usual, 1 and 2) and the unitbenefits for the different flows. The unit benefits for the existing traffic are calculated as the differencebetween the generalised costs (tariffs for freight) with and without the project 61 . The unit benefit forfreight is the difference in rail tariffs 62 , no value of time for goods has been considered given the low valueof the goods and the limited time saved. For the modal shifters and the users remaining on the road, theunit benefit is half of the difference of the generalised costs of the rail and the road, respectively 63 .60In this illustrative example we assume that pricing rules for the operator are given by a fixed mark-up on marginal costs. See case studymotorway and Chapter 4 for an explanation of unperceived users operating costs.61For instance, the unit benefit for initial users of Option 1 is (€45.2 - €41.7) = €3.6. The total benefit is 3.6 Euro * 6.3 Million passengers =22.6 Millions of Euros.62For instance, the unit benefit for rail freight service users of Option 2 is (€11.6 - €6.5) = €5.163For instance, the unit benefit for the modal shifters under Option 2 is (€45.2 - €39) = €6.2/2 = €3.1146
Table 4.17 Consumer’s SurplusPassengersPassengers (Millions) Unit benefits (€)Benefits(Millions of Euros)BAU Option 1 Option 2 Option 1 Option 2 Option 1 Option 2RailInitial users 6.3 6.3 6.3 3.58 6.27 22.6 39.5Modal shifters 0.0 4.5 11.0 1.79 3.14 8.1 34.4Total 6.3 10.8 17.3 30.6 73.9RoadUsers 40.7 36.2 29.7 0,22 0.96 8.0 28.5Total consumers’ surplus 38.6 102.4FreightMillions ton Unit benefits (€)Benefits(Millions of Euros)BAU Option 1 Option 2 Option 1 Option 2 Option 1 Option 2RailInitial users 0.3 0.3 0.3 5.16 5.16 1.6 1.6Modal shifters 0.0 1.3 2.9 2.58 2.58 3.3 7.4Total 0.3 1.6 3.2 4.9 9.0RoadUsers 64.7 63.4 61.8 0.04 0.17 2.7 10.4Total 7.6 19.44.2.4.2 Producer’s surplus and Government net revenuesThe producer’s surplus is calculated as the sum of the changes in the rail service operator’s surplus plusthe changes in the road user’s surplus due to the shift of demand from road to rail (changes in freight roadtransport operators surplus plus the changes in unperceived costs for car users). The rail operator’ssurplus is calculated as the difference between the tariff revenues and the marginal costs of producing theservices.The changes in net Government revenues depend upon the changes in fuel taxes, due to the reduction indistance travelled by road and other taxes on railways.Table 4.18 Producer’s surplusPassengersBAU(a)Revenues and costs (Millions)Option 1(b)Option 2(c)Benefits (Millions)Option 1(b) – (a)Option 2(c) – (a)RailOperating costs -184.7 -283.5 -470.0 -98.8 -285.3Tariff Revenues 209.9 359.8 575.7 149.9 365.8Total 25.3 76.4 105.7 51.2 80.5RoadCar users unperceived operating costs -177.3 -157.7 -129.5 19.6 47.8Total producers’ surplus 70.8 128.3GovernmentFuel taxes 366.1 325.6 267.3 -40.5 -98.7Other taxes 40.6 58.1 92.9 17.4 52.2Total Government revenues 406.7 383.7 360.2 -23.0 -46.5FreightRevenues and costs (Millions of Euros)BAU Option 1 Option 2(a)(b)(c)Benefits (Millions of Euros)Option 1 Option 2(b) – (a) (c) – (a)RailOperating costs -0.8 -4.7 -9,4 -3,9 -8,6Tariff revenues 7.2 20.4 40,9 13,3 33,7Total 6.4 15.7 31,4 9,4 25,1RoadProduction financial costs -804.1 -785.5 -758.3 18.5 45.8Tariff revenues 834.4 817.9 797.5 -16.5 -36.9Total 30.3 32.4 39.2 2.1 8.9Total producers’ surplus 11.4 33.9GovernmentFuel taxes 327.4 320.0 309.7 -7.3 -17.6Other taxes 0.2 1.0 1.9 0.8 1.8Total Government revenues 327.5 321.0 311.7 6.5 15.8147
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ACRONYMS AND ABBREVIATIONSBAUB/CCBA
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TABLESTable 2.1 Financial analysis
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FIGURESFigure 1.1 Project cost spre
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Cohesion Fund, and through the leve
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or the plant will not reveal excess
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CHAPTER ONEPROJECT APPRAISAL IN THE
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Some specifications for financial t
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FOCUS: INFORMATION REQUIREDGeneral
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In particular, CBA results should p
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CHAPTER TWOAN AGENDA FOR THE PROJEC
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objectives, are, as far as possible
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considered the appropriate shadow p
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2.3.2 Feasibility analysisFeasibili
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This approach will be presented in
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Current assets include:- receivable
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The following items are usually not
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Mainly, the examiner uses the FRR(C
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The dynamics of the incoming flows
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eturn on their own capital (Kp). Th
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While the approach presented in thi
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2.5.1 Conversion of market to accou
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Table 2.9 Electricity price dispers
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2.5.1.2 Fiscal correctionsSome item
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previously estimated in projects wi
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FOCUS: ENPV VS. FNPVThe difference
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2.6 Risk assessmentProject appraisa
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Table 2.14 Impact analysis of criti
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Figure 2.6 Probability distribution
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eneficiary. The project proposer sh
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There are many ways to design an MC
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PROJECT APPRAISAL CHECK-LISTCONTEXT
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- reduction of congestion by elimin
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- the methods applied to estimate e
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- the marginal external costs: cong
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- the benefits for the existing tra
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The following tables show some refe
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3.1.1.6 Risk assessmentDue to their
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As shown in Figure 3.1, only under
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3.1.3.7 Other project evaluation ap
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- Waste Management Hierarchy rules
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The time horizon for a project anal
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3.2.1.7 Other project evaluation ap
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every user support the total costs
Page 95 and 96: Territorial reference frameworkIf t
Page 97 and 98: Cycle and phases of the projectGrea
Page 99 and 100: One of the most important aims of t
Page 101 and 102: projects, as in other sectors in wh
Page 103 and 104: 3.2.3.2 Project identificationBasic
Page 105 and 106: 3.2.3.7 Other project evaluation ap
Page 107 and 108: In order to evaluate the overall im
Page 109 and 110: for regassification plants, number
Page 111 and 112: Examples of objectives are:- change
Page 113 and 114: decontamination if any;- the techni
Page 115 and 116: 3.3.3.6 Risk AnalysisCritical facto
Page 117 and 118: 3.3.4.6 Risk assessmentCritical fac
Page 119 and 120: 3.4.1.5 Economic analysisThe follow
Page 121 and 122: Financial inflows• Admission fees
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Page 125 and 126: The time horizon for project analys
Page 127 and 128: A Cost-Benefit Analysis should cons
Page 129 and 130: CHAPTER FOURCASE STUDIESOverviewThi
Page 131 and 132: - finally, there is the traffic tha
Page 134 and 135: c) Road users producer’s surplus:
Page 136 and 137: 4.1.5 Scenario analysisTwo scenario
Page 138 and 139: The financial performance indicator
Page 140 and 141: Table 4.10 Economic analysis (Milli
Page 142 and 143: Table 4.12 Financial return on capi
Page 144 and 145: 4.2 Case Study: investment in a rai
Page 148 and 149: Financial investment costs have bee
Page 150 and 151: Figure 4.6 Results of the risk anal
Page 152 and 153: Table 4.22 Economic analysis (Milli
Page 156 and 157: 4.3 Case Study: investment in an in
Page 158 and 159: ate of 0.6% per year is assumed for
Page 160 and 161: The shadow price of the CO 2 avoide
Page 162 and 163: As a result, the probability distri
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Page 168 and 169: 4.4 Case Study: investment in a was
Page 170 and 171: 4.4.2 Financial analysisAlthough in
Page 172 and 173: THE CALCULATION OF REVENUESReferrin
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Page 176 and 177: As result, the probability distribu
Page 178 and 179: Figure 4.13 Probability distributio
Page 180 and 181: Table 4.48 Financial return on nati
Page 182 and 183: Table 4.50 Financial return on priv
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Page 186 and 187: 4.5 Case Study: industrial investme
Page 188 and 189: 4.5.4.1 Investment costsThe total i
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Page 192 and 193: This analysis shows the need to pay
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Table 4.64 Return on private equity
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Table 4.66 Economic analysis (thous
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ANNEX ADEMAND ANALYSISDemand foreca
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The method applied for the forecast
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Furthermore, travel demand depends
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This Guide supports a unique refere
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A higher discount rate for countrie
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Figure C.1 Project ranking by NPV v
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The main problems with this indicat
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EXAMPLE OF SHADOW WAGE IN DUAL MARK
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Another exhaustive way to include d
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Figure E.2 Percentage of low income
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ANNEX FEVALUATION OF HEALTH &ENVIRO
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Figure F.1 Main evaluation methodsS
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- expenditure on capital equipment
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due to air pollution or water conta
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BENEFIT TRANSFER - SELECTED REFEREN
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ANNEX GEVALUATION OF PPP PROJECTSIt
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adjustments for Competitive Neutral
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ANNEX HRISK ASSESSMENTIn ex-ante pr
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Reference ForecastingThe question o
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Figure H.5 Levels of risks in diffe
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ANNEX IDETERMINATION OF THE EU GRAN
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A.4. Technological Alternatives and
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GLOSSARYAccounting period: the inte
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Market price: the price at which a
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BIBLIOGRAPHY1. ReferencesBelli, P.,
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Ray, A. 1984, Cost-benefit analysis
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EnvironmentGeneralAtkinson, G., 200
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European Commission, DG Tren, 2003,
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Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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