Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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As shown in Figure 3.1, only under exceptional circumstances (a combination of low construction costsplus high time savings) could a new HSR line be justified with a level of patronage below 6 millionpassengers per annum in the opening year; with typical construction costs and time savings, a minimumfigure of 9 million passengers per annum is likely to be needed.3.1.3 Ports, airports and intermodal facilities3.1.3.1 Project objectivesProjects in these sectors aim to increase accessibility and promote transport intermodality as well ascompleting the national and international transport networks. Moreover, in many cases, theseinfrastructures are expected to support local economic development and employment through support toproductive activities and the satisfaction of the transport needs of the local population.3.1.3.2 Project identificationThe first step in evaluating the project is to clearly specify whether it is a new construction, extension orupgrading of an existing one and to describe its scope, objectives and technical and physicalcharacteristics. In order to be fully exploited, ports, airports, inter-modal facilities and nodal centres needto have appropriate connections with the inland networks (road, rail, inland waterways). The projectidentification should therefore include all the relevant investments needed to guarantee the correctfunctioning of the entire system.MAIN ENGINEERING FEATURES TO BE CHECKEDPhysical features (for example):- Airports: number and total length of runways;- Ports: number and total length of piers or quays;- Inter-modal facilities: storage area, parking terminals.Technical characteristics of the major structures (for example):- Airports: sections of runways;- Ports: structural arrangement of the quays;- Inter-modal facilities: capacity.Equipment (for example):- Airports: equipment for computerised traffic control;- Ports: cargo handling facilities, storage areas, roads and rail tracks, operational building, electronic equipment for cargohandling;- Inter-modal facilities: cargo handling facilities, storage areas, logistics services.Levels of services (for example):- Airports: maximum capacity of runways, passengers and tons moved;- Ports: servicing time, number of ships;- Inter-modal facilities: servicing time, reliability.3.1.3.3 Feasibility and option analysisIn order to verify the feasibility of the project, the key issue is the quantification of the present volume ofpassenger and/or goods traffic, based on daily and seasonal trends and forecasts for the future pattern oftraffic flows.Traffic projections should, as far as possible, subdivide freight flows by type of commodity and handlingcharacteristics (containers, liquid and solid bulk, etc.,) and passenger flows according to purpose of trip(business, tourism and leisure). Indeed, the different flows might have quite different growth rates as wellas behavioural parameters (value of time, elasticities). Quite often ports, airports and intermodal andlogistics facilities compete with other similar infrastructure. The strategies of competing nodes should beexplicitly considered in the estimate of future demand.Alternative technical solutions to be explored could include the upgrading of existing facilities, forinstance by adding a new berth, or the use of new technologies, like innovative air traffic control devices.The advantages and drawbacks of each solution are to be carefully compared.82
3.1.3.4 Financial analysisExamples of financial inflows and outflows are:Financial InflowsFinancial Outflows• Revenues from landing fees, • Investment costs are mainly• Rents - Civil works• Taxes - Land acquisition• Payments for additional services - Equipments- Water supply - Road and rail links to the main networks- Fuel supply - General expenses- Catering • Operating costs- Maintenance services - Technical and administrative personnel costs- Storage services - Energy- Logistics services - Maintenance costs- Shopping malls - MaterialsThe time horizon for project analysis is usually around 30 years.Investors and operators may be different, so the financial analysis will generally be conducted from theviewpoint of the infrastructure owner. If required, the analysis may initially be carried out separately forthe owners and operators and then in a consolidated way.3.1.3.5 Economic analysisThe main benefits and costs are as follows:BenefitsCosts3.1.3.6 Risk assessment- time savings: waiting and servicing time for ships, travel time as well as time wasted in modal changes andon the transport networks linking the nodal facilities to the origin/destination of the flows- reduction in operating costs, in the nodal infrastructure as well as on the links connecting the nodalfacilities to the origin/destination of the flows- time and cost savings as a result of the shift from other modes- environmental impact reduction, due to better performing infrastructure and equipments, modal shiftfrom highly polluting modes (motorways of the sea) etc.- safety improvements and accident reduction, for modernisation projects, for both users and staff- indirect positive impacts on land values and real estate near to a port or an airport, on economic activities(retail, hotels, restaurants etc.), with the warning to avoid double counting- lower costs and time of intermodality- indirect negative impacts on land values and or economic activities- increased noise and pollution- environmental impacts and congestion due to traffic increase on the links connecting the nodal facilities tothe main networksCritical factors- Transport demand- Investment and operating cost overruns- Coordination with complementary projects (investments on the connecting links)Mainvariablesto consider- Assumptions concerning GDP- Rate of increase of traffic over time- Competition with other existing infrastructure- Value of time for users- Investment costs- Maintenance costs- Fares and tariffs of the projected facility and of the competing ones83
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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
Page 31 and 32: 2.3.2 Feasibility analysisFeasibili
Page 34 and 35: This approach will be presented in
Page 36 and 37: Current assets include:- receivable
Page 38 and 39: The following items are usually not
Page 40 and 41: Mainly, the examiner uses the FRR(C
Page 42 and 43: The dynamics of the incoming flows
Page 44 and 45: eturn on their own capital (Kp). Th
Page 46 and 47: While the approach presented in thi
Page 48 and 49: 2.5.1 Conversion of market to accou
Page 50 and 51: Table 2.9 Electricity price dispers
Page 52 and 53: 2.5.1.2 Fiscal correctionsSome item
Page 54 and 55: previously estimated in projects wi
Page 56 and 57: FOCUS: ENPV VS. FNPVThe difference
Page 58 and 59: 2.6 Risk assessmentProject appraisa
Page 60 and 61: Table 2.14 Impact analysis of criti
Page 62 and 63: Figure 2.6 Probability distribution
Page 64 and 65: eneficiary. The project proposer sh
Page 66 and 67: There are many ways to design an MC
Page 68 and 69: PROJECT APPRAISAL CHECK-LISTCONTEXT
Page 70 and 71: - reduction of congestion by elimin
Page 72 and 73: - the methods applied to estimate e
Page 74 and 75: - the marginal external costs: cong
Page 76 and 77: - the benefits for the existing tra
Page 78 and 79: The following tables show some refe
Page 80 and 81: 3.1.1.6 Risk assessmentDue to their
Page 84 and 85: 3.1.3.7 Other project evaluation ap
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Page 89 and 90: The time horizon for a project anal
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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 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
Page 123 and 124: expectancy suitably adjusted by the
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
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c) Road users producer’s surplus:
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4.1.5 Scenario analysisTwo scenario
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The financial performance indicator
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Table 4.10 Economic analysis (Milli
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Table 4.12 Financial return on capi
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4.2 Case Study: investment in a rai
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4.2.4 Economic analysisThe benefits
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Financial investment costs have bee
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Figure 4.6 Results of the risk anal
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Table 4.22 Economic analysis (Milli
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4.3 Case Study: investment in an in
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ate of 0.6% per year is assumed for
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The shadow price of the CO 2 avoide
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As a result, the probability distri
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16 17 18 19 20 21 22 23 24 25 26 27
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4.4 Case Study: investment in a was
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4.4.2 Financial analysisAlthough in
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THE CALCULATION OF REVENUESReferrin
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0.15 m 3 /m 2 a depreciation of 20%
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As result, the probability distribu
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Figure 4.13 Probability distributio
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Table 4.48 Financial return on nati
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Table 4.50 Financial return on priv
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16 17 18 19 20 21 22 23 24 25 26 27
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4.5 Case Study: industrial investme
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4.5.4.1 Investment costsThe total i
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Finally, a residual value was estim
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This analysis shows the need to pay
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Table 4.62 Financial return on inve
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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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