Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

Financial investment costs are an outcome of the technical analysis, usually disaggregated by the type ofworks into which the intervention may be broken down and allocated over the construction time. Thecost analysis should distinguish the elementary cost components (labour force, materials, carriage andfreight) so as to facilitate the subsequent application of the conversion factors for converting financial intoeconomic costs.Financial inputs will be represented by the proceeds from the tolls/tariffs applied for the sale of welldefinedservices. The estimate for the proceeds must be consistent with the on demand elasticity andtrends of explanatory variables (see the previous paragraph about pricing criteria). The financial analysis ofnon-revenue generating infrastructures will show the net present cost for the public sector.With regard to the recourse to private funding or Public Private Partnerships, attention should be paid topossible inefficiencies which may result from cost recovery policies. These may, in turn, affect the quantitydemanded (under-utilisation).3.1.1.5 Economic analysisThe economic evaluation of transport investments relies on a well developed and straightforwardframework and differs substantially from the financial analysis, since many of the benefits and costs arepublic goods, or goods without a market. Moreover, following a long and established tradition, theeconomic evaluation is based on a partial equilibrium approach (see box in Chapter 2).With regard to the economic investment and operating costs of vehicles, if market prices are deemed toreflect the opportunity cost of resources, it will be necessary only to eliminate transfers from the financialcosts by applying a conversion factor to each elementary cost component and to take tax burdens intoaccount. If market prices are not deemed to reflect the opportunity cost of resources for somecomponents, it will be necessary to apply shadow prices to correct the costs (see the general methodologydescribed in Chapter 2 of the Guide).Benefits result from variations in the area below the transport demand curve, as well as from thevariations in economic costs, including external costs. Social benefits are obtained by adding the followingcomponents:- variations in the consumer’s surplus: change in generalised transport costs, wich incorporate the moneycosts travel, (i.e. the perceived cost: fares, tariffs and tolls, and vehicle costs perceived by the users 9 );- variations in road user producer’s surplus: the unperceived costs of the private the road users enterinto the calculation of the road users producer’s surplus as they are considered as producers of theservices they supply to themeselves (car users) or to their customers (trucks). The difference betweenthe total costs of producing these services and the vehicle operating costs perceived is defined as‘unperceived operating costs’(e.g. tyres, maintenance and depreciation). These costs enter into thecalculation of the road users producer’s surplus and are then added to the consumer’s surplus.;- variations in infrastructure and services operator producer’s surplus: profits and losses of infrastructuremanagers, if available, and transport service operators;- variations in taxes and subsidies for the government;- variations in external costs (emissions, noise, accidents).The calculation of the consumer’s and producer’s surplus and the external costs, will take into accountgoods that have no market (see below) and whose estimate may require special techniques. Whencalculating the benefits, it is recommended that a distinction be made between:9There is a gap between the operating costs of road vehicles and the costs as perceived by users, the latter beinglower than the real cost. In fact, for istance, car users tend just to take into account fuel expenses and underestimateother expenses. The difference between the operating costs and the perceived costs is defined as ‘unperceivedoperating costs’.75