Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
(Structural
Fund-ERDF, of investment projects
Cohesion Fund
and ISPA).
Prepared for:
Evaluation Unit
Studio Gatelli
DG Regional Policy
European Commission
Within the framework of the programme of studies and technical assistance in the field of
Regional Policies implemented by the Commission, a working team was given the task
to prepare a new edition of the previous Guide to Cost Benefit Analysis of Major Projects,
published in 1997.
The working team for the Guide was coordinated by Professor Massimo Florio, and included
Ugo Finzi, Mario Genco (risk analysis, water projects), François Levarlet (waste management
project), Silvia Maffii (transport projects), Alessandra Tracogna (text coordination chapter
three, discount rate annex and bibliography), Silvia Vignetti (text coordination).
Acronyms
AEI Analysis of Environmental Impact FNPV Financial Net Present Value
B/C Benefit/cost FRR Financial (Internal) Rate of Return
CBA Cost and Benefit Analysis FRR/C Financial Rate of Return on Investment
CF Cohesion Fund FRR/K Financial Rate of Return on Equity
cf Conversion Factor ISPA Instrument For Structural Policies in
DCF Discounted Cash Flow Pre-Accession Countries
EIB European Investment Bank IWS Integrated Water Supply Services
ENPV Economic Net Present Value PPP Polluter Pays Principle
ERDF European Regional Development SCF Standard Conversion Factor
Fund SF Structural Funds
ERR Economic Rate of Return VAT Value Added Tax
2
Table of contents
Table of contents
3.6 Ports, airports and infrastructure networks 86 Annexes 100
3.6.1 Objectives definition 86
Annex A Project performance indicators 100
3.6.2 Project identification 86
A.1 The net present value (NPV) 100
3.6.3 Feasibility and options analysis 86
A.2 The internal rate of return 101
3.6.4 Financial analysis 86
A.3 B/C ratio 102
3.6.5 Economic analysis 87
Annex B The choice of the Discount Rate 103
3.6.6 Other evaluation elements 87
B.1 The Financial Discount Rate 103
3.6.7 Sensitivity and risk analysis 87
B.2 The social discount rate 104
3.7 Training infrastructure 87
Annex C The determination of the co-financing rate 106
3.7.1 Objectives definition 87
C.1 Regulatory framework 106
3.7.2 Identification of the project 88
C.2 Rules for modulation 106
3.7.3 Feasibility and options analysis 88
C.2.1 Calculation of the financial
3.7.4 Financial analysis 88
Acronyms 2 Chapter Three - Outline of project rate of return on the total investment
3.7.5 Economic analysis 88
cost (before EU intervention) 107
Table of contents 4 analysis by sectors 42 3.7.6 Other evaluation elements 89
C.2.2 Calculation of the financial
Overview 42 3.7.7 Sensitivity and risk analysis 89
Foreword 6 rate of return on national capital
3.1 Waste treatment 43 3.8 Museums and archaeological parks 89
(after EU grant) 108
Outline of the new edition of the Guide 7 Introduction 43 3.8.1 Objectives definition 89
C.2.3 Calculation of the economic
3.1.1 Objectives definition 43 3.8.2 Project identification 89
rate of return 108
3.1.2 Project identification 43 3.8.3 Feasibility and options analysis 90
Annex D Sensitivity and risk analysis 109
3.1.3 Feasibility and options analysis 45 3.8.4 Financial analysis 90
Chapter One - Project appraisal 3.8.5 Economic analysis 90
Annex E Monetary evaluation of environmental
3.1.4 Financial analysis 47 services 112
in the framework of the Structural 3.1.5. Economic analysis 47 3.8.6 Other evaluation elements 90
E.1 Why do we value the environment? 112
Funds, Cohesion Fund and ISPA 10 3.1.6 Other evaluation criteria 50 3.8.7 Sensitivity and risk analysis 90
E.2 Evaluating environmental impacts
Overview 10 3.1.7 Sensitivity and risk analysis 51 3.9 Hospitals and other health infrastructure 90
in development projects 112
1.1 Scope and objectives 10 3.1.8 Case study: Investment in an incinerator 3.9.1 Objectives definition 90
E.3 What do we do measuring
1.2 Definition of the projects 11 with energy recovery 51 3.9.2 Project identification 91
monetary benefits? 114
1.3 Responsibility for prior appraisal 12 3.2 Water supply and depuration 53 3.9.3 Feasibility and options analysis 91
1. Averting expenditures
1.4 Information required 13 Introduction 53 3.9.4 Financial analysis 91
and avoided costs 114
3.2.1. Objectives definition 53 3.9.5 Economic analysis 91
2. Dose-response functions 115
3.2.2 Project identification 55 3.9.6 Other evaluation elements 92
3. Hedonic price method 115
3.9.7 Sensitivity and risk analysis 92
Chapter Two - An agenda for 3.2.3 Feasibility and options analysis 55
3.10 Forests and parks 92
4. Travel cost method 116
3.2.4 Financial analysis 57
the project examiner 15
3.2.5 Economic analysis 59 3.10.1 Objectives definition 92
5. Methods based on hypothetical
Overview 15 markets: the contingent
3.2.6 Other evaluation criteria 60 3.10.2 Project identification 92
2.1 Objectives definition 15 evaluation method 116
3.2.7 Sensitivity and risk analysis 60 3.10.3 Feasibility and options analysis 93
2.2 Project identification 17 6. Benefits transfer 117
3.2.8 Case study: infrastructure sheet for the 3.10.4 Financial analysis 93
2.2.1 Clear identification 17 E.4 The different steps of an
management of the IWS 61 3.10.5 Economic analysis 93
2.2.2 Financial threshold 18 environmental cost-benefit analysis 118
3.3 Transport 70 3.10.6 Other evaluation elements 94
2.2.3 Project definition 18 Annex F Affordability and evaluation of
Introduction 70 3.10.7 Sensitivity and risk analysis 94
2.3 Feasibility and options analysis 18 distributive impact 119
3.3.1 Objectives definition 70 3.11 Telecom infrastructures 94
2.4 Financial analysis 19 Annex G Table of contents of a feasibility study 120
3.3.2 Project identification 70 3.11.1 Objectives definition 94
2.4.1 The time horizon 20 3.3.3 Feasibility and options analysis 71 3.11.2 Project identification 94
2.4.2 Determining Total Costs 24 3.3.4 Financial analysis 75 3.11.3 Feasibility and options analysis 95
2.4.3 Revenue Generated by the Project 25 3.3.5 Economic analysis 75 3.11.4 Financial analysis 95 Glossary - Some key-words
2.4.4 Residual Value of the Investment 25 3.3.6 Other evaluation criteria 77 3.11.5 Economic analysis 95 for project analysis 122
2.4.5 Adjusting for inflation 26 3.3.7 Sensitivity, scenario and risk analysis 78 3.11.6 Other evaluation elements 95 Basic glossary 122
2.4.6 Financial Sustainability (Tab. 2.4) 26 3.3.8 Case study: Investment in a motorway 78 3.11.7 Sensitivity and risk analysis 95 Financial analysis 123
2.4.7 Determining the Discount Rate 26 3.4 Energy transport and distribution 82 3.12 Industrial estates and technological parks 96 Economic analysis 125
2.4.8 Determination of performance indicators 26 3.4.1 Objectives definition 82 3.12.1 Objectives definition 96 Other evaluation elements 126
2.4.9 Determination of the co-financing Rate 28 3.4.2 Project identification 83 3.12.2 Project identification 96
2.5 Economic analysis 28 3.4.3 Feasibility and options analysis 83 3.12.3 Feasibility and options analysis 96
2.5.1 Phase 1 - Fiscal corrections 28 3.4.4 Financial analysis 83 3.12.4 Financial analysis 96
2.5.2 Phase 2 - Externalities corrections 31 3.4.5 Economic analysis 84 3.12.5 Economic analysis 97 Bibliography 127
2.5.3 Phase 3 - From market to accounting prices 32 3.4.6 Other evaluation criteria 84 3.12.6 Other evaluation elements 97 General 127
2.5.4 Discounting 36 3.4.7 Sensitivity and risk analysis 84 3.12.7 Sensitivity and risk analysis 97 Agriculture - Education - Energy 128
2.5.5 The calculation of the economic rate 3.5 Energy production 84 3.13 Industrial and other productive investments 97 Environment - Health 129
of return 36 3.5.1 Objectives definition 84 3.13.1 Objectives definition 97 Industrial projects 130
2.6 Multicriteria analysis 36 3.5.2 Project identification 84 3.13.2 Project identification 98 Tourism & entertainment 130
2.7 Sensitivity and risk analysis 38 3.5.3 Feasibility and options analysis 85 3.13.3 Feasibility and options analysis 98 Transport 130
2.7.1 Forecasting uncertainties 38 3.5.4. Financial analysis 85 3.13.4 Financial analysis 98 Water 132
2.7.2 Sensitivity analysis 38 3.5.5 Economic analysis 85 3.13.5 Economic analysis 98
2.7.3 Scenario analysis 39 3.5.6 Other evaluation elements 85 3.13.6 Other evaluation elements 99
2.7.4 Risk probability analysis 40 3.5.7 Sensitivity and risk analysis 85 3.13.7 Sensitivity and risk analysis 99 Addendum 133
4 5
Foreword Outline of the new edition
of the Guide
Cost-benefit analysis (CBA) of investment cess. It is also a tool to make more transpa- The Guide is structured in the following Regulations the chapter focuses on the legal
projects is explicitly required by the new rent procedures for project selection and chapters: requirements for the co-financing decision
EU Regulations for Structural Funds (SF), financing decision and the related project appraisal process.
Cohesion Fund (CF) and Instrument for • Chapter One. Project appraisal in the fra- The main point of the chapter is that despi-
Pre-Accession countries (ISPA), for pro- Within the framework of its obligations as mework of Structural Funds, Cohesion te the differences of procedures and
jects with a budget upper than to, respecti- regards appraisal of projects which are sub- Fund and ISPA. methods among the three funds the econo-
vely, 50 Meuro, 10 Meuro and 5 Meuro. mitted to it by the Member States in the con- • Chapter Two. An agenda for the project mic logic of analysis and the methodology
text of regional policy, the Commission (DG examiner. should be homogeneous.
While Member States are responsible for the Regio) uses a Guide to cost benefit analysis • Chapter Three. Outline of project analy-
prior appraisal, the EU Commission has to of major projects. Three years since the last sis by sectors. 1.1. Scope and Objectives. This section
evaluate the quality of this appraisal in order updating, the political, legal and technical • Annexes stresses the objectives and instruments of
to admit the project proposal to co-finan- context has developed considerably and • Glossary the ERDF, CF and ISPA. Starting from the
cing and to determine the co-financing rate. requires a new update of the guide. • Bibliography Regulations this section focuses on the
main scopes of the Funds.
Many differences occur between infra- The present guide offers to EU officials, Each chapter comprises:
structure and productive investments; many external consultants, and all the parties A) main text; 1.2. Definition of the projects. This sec-
differences also occur between regions and concerned an agenda for the evaluation B) tables and figures; tion defines the projects to which the
countries, between different theories and process. The text is specifically addressed to C) boxes. appraisal process is applicable for the
methodologies of evaluation and moreover the EU officials but at the same time it ERDF, the CF and ISPA instruments. It illu-
between different administrative procedu- offers helpful indications to the project Boxes are of two different kinds: strates the principal sectors of application
res between the three Funds. proposer about the specific information •Regulation boxes, where the most impor- of the Funds, the financial thresholds for
needs by the Commission. tant statements of SF, CF and ISPA regu- project appraisal and the differences bet-
Despite these differences most of the pro- lations are reminded; ween the co-financing rates.
jects have some aspect in common and their The specific tasks of this updated version •Example boxes, where some examples,
appraisal should be expressed in a common are: both qualitative and quantitative, are 1.3. Responsibility for prior appraisal.
language. • To incorporate into the document the given about a specific issue illustrated in The section illustrates, for each of the three
development of Community policies, the main text. funds, the responsibility for prior appraisal
Beside general methodological aspects, this financial instruments and cost benefit of projects. This section focuses also on the
verification of costs and benefits is a useful analysis; In some cases key information is reported main differences introduced by the new
tool to stimulate dialogue between part- • To feed into the Commission's reflection in boxes and tables, and we suggest the rea- regulations on this issue.
ners, Member States and Commission, pro- on the modulation of rates of co-finan- der invests some time studying them.
ject proposers, officials and consultants: a cing for projects; 1.4. Information required. A list of the
supporting tool for collective decision pro- • To provide technical support to the reader. information required for project prepara-
Chapter One. Project appraisal in the fra- tion and appraisal is provided.
mework of Structural Funds, Cohesion
Fund and ISPA.
This chapter is an introduction to the Chapter Two. An agenda for the project
objectives, scope and uses of the Guide and examiner.
the main subjects it addresses. Starting This chapter provides operational tools for
from the ERDF, CF and the ISPA both the preparation and the appraisal of
6 7
Outline of the new edition of the Guide Outline of the new edition of the Guide
the projects: each section will consider the • the determination of the total revenues; 4. Energy transport and distribution F The evaluation of distributive impacts;
proposer’s and the evaluator’s points of • the determination of the residual value at 5. Energy production G Table of contents of a feasibility study.
view. The structure will be strongly opera- end year; 6. Ports, airports and infrastructure net-
tive and information will be also provided • the treatment of inflation; works
in the form of checklists, frequently asked • the financial sustainability; 7. Training infrastructures Glossary
questions, common mistakes to be avoided. • the choice of an appropriate discount rate 8. Museums and archaeological parks The glossary contains key words for pro-
(see also annex B); 9. Hospitals ject analysis. It includes a list of the most
The paragraphs are the following: • to calculate the financial or econo-
how 10. Forests and parks commonly used technical terms for the
mic rate of return and use it for the 11. Telecommunications infrastructure CBA of investment projects.
2.1. Objectives definition. This section appraisal (see also annex A). 12. Industrial estates and technological parks
focuses on clearly defining the main objec- 13. Industries and other productive invest-
tives and expected results of the project. It 2.5. Economic analysis. Starting from the ments. Bibliography
explains how to stress the socio-economic financial analysis and the table of financial In this section selected references are given
variables that the project can influence, flows, the aim is to assess a standard metho- for a more in-depth study of the most com-
how to measure them in order to assess the dology for the three steps for the definition Annexes mon techniques for CBA analysis.
expected socio-economic impact and the of the final table for the economic analysis: This section discusses some technical issues
degree of consistency of the specific objec- • correction for fiscal aspects; and gives some recommendations to The bibliography is structured as follows:
tives of the project with EU development • correction for externalities; improve the effectiveness of the appraisal •General;
policies. • the determination of the conversion fac- methodology. •Energy;
tors. More specifically the annexes deal with: •Transport;
2.2. Project identification. This section The section focuses on how to calculate the A Project performance indicators; •Water;
contains indications about how to start social costs and benefits of a project and B The choice of the discount rate; •Environment;
defining the general design and the logical how they can influence the final result. This C The determination of the co-financing •Education;
framework of the project, consistently with section provides guidance on how to calcu- rate; •Tourism and entertainment;
the most common recommendations of late the economic rate of return and to D Sensitivity and risk analysis; •Health;
CBA analysis, financial thresholds, and the understand its economic meaning for pro- E Monetary evaluation of environmental •Agriculture;
project definition stated in the regulations. ject appraisal. services; •Industrial projects.
2.3. Feasibility and options analysis. Pra- 2.6. Multicriteria analysis. This section
ctical recommendations are illustrated by will cover situations in which the rate of
simple concrete examples especially for the return is insufficient as an impact indicator
option analysis, distinguishing modal, tech- and complementary analysis is needed.
nological, geographical and chronological
options. A typical index for a feasibility 2.7. Sensitivity and risk analysis. The sec-
study is given in appendix G. tion gives a broad outline on the treatment
of uncertainty in investment projects.
2.4. Financial analysis. Information about Annex D is an operative instrument for
how to conduct a financial analysis will be implementing the technique.
given. Starting from the basic tables this
section explains how to conduct the study,
from the definition of the main items to Chapter Three. Outline of project analysis
include in the tables to the calculation of by sectors.
the FRR and FNPV (both of the investment This chapter offers a more in-depth discus-
and of the equity). The approach is strictly sion of the CBA techniques for specific sec-
operative and some examples will be given tors. These comprise the following:
in the form of case studies (boxes). 1. Waste treatment;
The main technical issues to be solved 2. Water supply and depuration;
when implementing the analysis are: 3. Transport.
• the choice of time horizon; A less detailed outline of the CBA approach
• the determination of the total cost; is proposed for the following other sectors:
8 9
1.2 Definition of the projects
Chapter One
Project appraisal in the framework
of the Structural Funds, Cohesion The European Union SF can finance a wide
variety of projects, from the point of view
of both the sector involved and the finan-
- they are supervised by the same agency
that is responsible for co-ordination and
monitoring.
This chapter is an introduction to the thods among the three funds the economic Some specifications for financial thresholds
objectives, scope and uses of the Guide and logic of analysis and the methodology 1.2 Definition are the following:
the main subjects it addresses. Starting
from the ERDF, CF and the ISPA Regu-
should be homogeneous.
of the projects a) the key economic variable is the total
lations the chapter focuses on the regu- In the Regulations for the Structural Funds cost of the investment. To evaluate that
latory requirements for the co-financing 1.1 Scope the financial size of the projects appraised figure one must not consider the sources
decision and the related project appraisal
process.
and objectives by the Commission is defined: it must not
be less than Euro 50 million.
of financing (for example only public
financing or only Community co-finan-
Investment projects co-financed by the SF, cing), but the overall economic value of
The chapter illustrates the regulatory fra- the CF and ISPA constitute the implemen- In the regulations for the Cohesion fund the infrastructural or productive invest-
mework, which rules the preparation, tation tools for EU regional policy. and the ISPA, on the other hand, in addi- ment proposed;
appraisal and co-financing process of an tion to the financial threshold (Euro 10
investment project. More precisely it This Guide refers to the Structural Funds million for the Cohesion fund and Euro 5
describes: for the major projects, especially the ERDF million for the ISPA) in order to avoid BOX 1.2 Financial thresholds.
(reg. 1260/1999), to the Cohesion fund (reg. excessive fragmentation of the projects and
• Scope and objectives of the Fund; 1264/1999 and 1164/94) and to the ISPA to ensure the utilisation of the Funds in an SF: Art. 25 Reg.1260/1999: As part of any assistance, the Funds
(reg. 1267/1999). integrated and systematic manner, the may finance expenditure in respect of major projects, i.e. those: a)
• project definition for the appraisal process; terms ‘project’ and ‘project phase’ are defi- which comprise an economically indivisible series of works fulfil-
ling a precise technical function and which have clearly identified
According to these regulations both infra- ned in detail. They establish that the follo-
aims and b) whose total cost taken into account in determining
• responsibility of the prior appraisal; structural and productive investments may wing types of measures are financeable by
the contribution of the funds exceeds EUR 50 million.
be financed by one or more of the the Cohesion fund and by the ISPA:
• information required for the ex-ante eva- Community’s financial tools: mainly grants FC: Art. 10(3) cons..Reg.1164/94: Applications for assistance for
luation. without security (SF,CF ) but also repayable • A project, that is an economically indivi- projectssunder Article 3 (1) shall be submitted by the beneficiary
aid for the ISPA, loans and other financial sible series of tasks related to a specific Member State. Projects, including groups of related projects, shall
The main point of the chapter is that despi- tools (European Investment Bank, Invest- technical function and with identifiable be of a sufficient scale to have a significant impact in the field of
te the differences of procedures and me- ment Fund). objectives; environmental protection or in the improvement of trans-
European transport infrastructure networks. In any event, the
BOX 1.1. Scope and objectives of the Funds • A project phase that is technically and total cost of projects or groups of projects may in principle not be
financially independent and has its own less than ECU 10 million. Projects or groups of projects costing
effectiveness; less than this may be approved in duly justified cases.
SF: Art. 1 reg. 1260/1999 (definition and objec- and employment, hereinafter referred to as vergence as laid down in art. 104c of the EU treaty
ISPA: Art.2/4 Reg.1267/1999: Measures shall be of a sufficient
tives): The Structural Funds, the EIB and the
other existing financial instruments shall each
“objective 3”.
CF: finances projects in the environmental field
(Greece, Ireland, Portugal and Spain).
ISPA: Art. 1 reg. 1267/1999 (definition and
• A group of projects, that is projects that scale to have a significant impact in the field of environmental
satisfy the following three conditions:
contribute in appropriate fashion to the attain- (aqueducts, dams and irrigation; purifiers, objectives): ISPA shall provide assistance to protection or in the improvement of transport infrastructure net-
ment of the following three priority objectives: 1) waste treatment plants and other environmental contribute to the preparation for accession to works. The total cost of each measure shall in principle not
promoting the development and structural works, including those related to reforestation, to the European Union of the following applicant
- they are located in the same area or along be less than EUR 5 million. In duly justified cases, taking into
adjustment of regions whose development is checking erosion, safeguarding the natural envi- countries: Bulgaria, Czech Republic, Estonia, the same transport corridor; account the specific circumstances concerned, the total cost of
lagging behind, hereinafter referred to as: ronment, protecting beaches) and infrastructural Hungary, Latvia, Lithuania, Poland, Romania, a measure may be less than EUR 5 million.
“objective 1”; 2) supporting the economic and networks for trans-European transport (railways, Slovakia and Slovenia, hereinafter referred to as - they belong to a general plan for that
social conversion of areas facing structural diffi- airports, roads, motorways, ports) in the Member the “beneficiary countries”, in the areas of eco- area or corridor;
culties, hereinafter referred to as “objective 2”; States with a per capita income of less than 90% nomic and social cohesion, concerning environ-
3) supporting the adaptation and modernisation of the EU average who adopt a programme whose ment and transport policies in accordance with
of
10 policies and systems of education, training target is to achieve conditions of economic con- the provisions of this Regulation.
1.3 Responsibility for prior appraisal 1.4 Information required
b) if one assumes that the investment costs The beneficiary Member States shall provide all regulations stipulate that for the evaluation BOX 1.4 Role of the EIB
will be spread over a number of years, then necessary information, as set out in Article 10 of projects the Commission may avail itself and the World Bank.
one must consider the sum of all the annual (4), including the results of feasibility studies and of the assistance of the European
costs; ex-ante appraisals. Investment Bank, whenever appropriate. In
CF: cons. Reg. 1164/94, article 13 (Appraisal, monitoring and evalua-
practice, recourse to the experience of the tion). In order to ensure the effectiveness of Community assistan-
c) while one needs to consider only the EIB is very common in the case of projects, ce, the Commission and the beneficiary Member States shall, in
cost of the investment, without the run- The regulation for the ISPA (reg. both when the Bank itself is financing the co-operation with the EIB where appropriate, carry out a syste-
ning costs, it is advisable also to include 1267/1999, annex II (C)): project and when it is not. matic appraisal and evaluation of projects.
any one-off expenses incurred in the The beneficiary countries are to provide all neces-
start-up phases, such as hiring and trai- sary information, as set out in annex I, including In any case, the Commission’s decision will ISPA: Reg. 1267/1999, Enclosure II (B). The Commission may
ning expenses, licences, preliminary stu- the results of their feasibility studies and apprai- be the result of a dialogue and a common invite the EIB, EBRD or World Bank to contribute to the appraisal
dies, planning and other technical studies, sals, an indication of alternatives not pursued and commitment with the proposer, in order to of measures as necessary. The Commission is to examine appli-
price revision, appropriation of operating the co-ordination of measures of common interest obtain the best results from the investment. cations for assistance to verify in particular that the administrati-
ve and financial mechanisms are adequate for the effective
capital, etc., in the calculation of the total situated on the same transport route, to make this The Member States often have structures
implementation of the measure.
cost; appraisal as effective as possible. and internal procedures for evaluating pro-
jects of a certain size, but sometimes diffi-
d) sometimes the interrelation among dif- The Commission’s decisions about co-finan- culties may emerge in carrying out a quality
ferent smaller projects is such that it is bet- ced projects must be based on an in-depth evaluation. The Commission can help to supplemented by other evaluation
ter to consider them as one large project evaluation, carried out in the first instance overcome these difficulties in different methods, possibly of a quantitative nature
(for example five stretches of the same by whoever proposes the project. When the ways. Technical assistance for the prepara- such as the multicriteria analysis and
motorway, each costing Euro 6 million, can evaluation presented by the candidate is tion of the evaluation of a project may be respect for Polluter pays principle (see art.
be considered one large project of Euro 30 declared to be insufficient and not convin- co-financed by the Community Support 10 (5), Reg. 1164/94 and the Council’s
million). cing, the Commission may ask for a revision Framework or in other appropriate ways. amendments). Other information that
or a more thorough elaboration of the analy- should be provided in the request for finan-
sis, or it may conduct its own evaluation, if cing from the CF are: an evaluation of the
1.3 Responsibility necessary, availing itself of an independent 1.4 Information requi- direct and indirect effects on employment;
for prior appraisal evaluation (art. 40 reg. 1260/99):
On the initiative of the Member States or the
red an indication of the contribution of the
project to European policies related to the
According to the SF reg. 1260/1999, art. 26, Commission, after informing the Member State Community regulations indicate which environment and to trans-European trans-
the Commission is responsible for the prior concerned, supplementary evaluations if appro- information must be contained in the appli- port networks; a “financial plan that inclu-
appraisal of major projects on the basis of priate on a specific topic may be launched, with cation form for the purposes of an effective des, wherever possible, information about
information given by the proposer. a view to identifying transferable experience. evaluation on the part of the Commission. the economic viability of the project” (see
Article 26 of reg. 1260/99 stipulates its own art. 10 (4), reg. 1164/94).
The regulation for the Cohesion fund (Reg. In the case in point, with specific reference rules for the submission of the request for
1265/1999, art. 1), states that: to the Cohesion fund and the ISPA, the co-financing of major projects. It asks for a A project examiner should consider these
cost-benefit analysis, a risk analysis, an eva- and other similar lists of regulatory norms
luation of the environmental impact (and more as a general indication of the mini-
BOX 1.3 Definition of the project. the application of the Polluter Pays mum information required rather than as a
Principle) as well as the impact on equal rigid set of criteria. The applicant has the
SF: Art. 5, Reg. 2081/93 (SF Framework Regu- CF: Art. 1, Reg. 1265/1999. rational in its own right. opportunities and on employment. responsibility to supply the required infor-
lation). 1. The Commission may, in agreement with the 3. A stage may also cover preliminary, feasibility mation but the Commission should verify
Forms of assistance beneficiary member State, group projects toge- and technical studies needed for carrying out a Regulations for the Cohesion Fund and the that the information provided are consistent,
“1. Financial assistance under the Structural Funds, ther and designate technically and financially project.
ISPA, in addition to stating that the propo- complete and of a sufficient quality to assess
from the EIB and the other existing Community separate stages of a project for the purpose of 4. To comply with the criterion in the third indent
sals for co-financing must contain a cost- the appraisal; otherwise the Commission
financial instruments shall be provided in a variety granting assistance. of article 1 (3), projects meeting the following
benefit analysis, a risk analysis and a detai- should ask for additional information.
of forms that reflect the nature of the operations. 2. For the purpose of this Regulation, the follo- three conditions may be grouped: a) they must be
2. In the case of the Structural Funds and the wing definitions shall apply: a) a “project” shall located in the same area or situated along the
led indication of the alternatives rejected,
FIFG, financial assistance may be provided prin- be an economically indivisible series of works same transport corridor; b) they must be carried also provide some indications of the crite- In general, for any type of investment a
cipally in one of the following forms: (a) part- fulfilling a precise technical function and with out under an overall plan for the area or corridor, ria to be applied in order to ensure the qua- financial analysis is always advisable. As we
financing of operational programmes; … (d) clearly identified aims from which to judge whe- with clearly identified goals, as provided for in lity of the evaluation: in the case of envi- shall explain in the second part of the
part-financing of suitable projects; (…)” ther the project complies with the criterion laid article 1 (3); c) they must be supervised by a body ronmental projects, a cost-benefit analysis Guide, it is particularly important to
This Guide concerns both major individual pro- down in the first indent of article 10, (5); b) a responsible for co-ordinating and monitoring the
jects and those which are a part of an operational “technically and financially independent stage”, group of projects, in cases where the projects are
programme. shall be a stage which can be identified as ope- carried out by different competent authorities.
12 13
1.4 Information required
Chapter 2
BOX 1.5 Information required by the ISPA. An agenda for the project
ISPA: Reg. 1267/1999, annex I : Contents of the
application [article 7, section 3, letter a)]
Applications are to contain the following infor-
5. assessment of the environmental impact simi-
lar to the assessment provided for in Council
Directive 85/337/EEC of 27 June on the asses-
sures with Community policies; 9. information on
the arrangements for ensuring the efficient use
and maintenance of facilities; 10. (environmental
examiner
mation: 1. the name of the body responsible for sment of the effects of certain public and private measures) information on the place and priority
implementation, the nature of the measure and a projects on the environment (1); 6. information on of the measure within the national environmental
description thereof; 2. the cost and location of the compliance with competition law and public con- strategy as laid down in the national programme
measure, including, where applicable, an indica- tract rules; 7. the financing plan including, where for the adoption of the acquis communautaire;
tion of the inter-connection and interoperability possible, information on the economic viability of 11. (transport measures) information on the
of measures situated on the same transport axis; the measure, and the total financing the benefi- national transport development strategy and the
3. the timetable for implementation of the work; ciary country is seeking from ISPA, the EIB inclu- place and priority of the measures within that
4. a cost-benefit analysis, including the direct
and indirect effects on employment to be quanti-
ding its pre-accession facility and any other
Community or Member State source, the EBRD
strategy, including the degree of coherence with
the guidelines for the trans-European networks
Overview
fied where they lend themselves to be quantified; and the World Bank; 8. the compatibility of mea- and the pan-European transport policy. This chapter offers a quick overview of the Each section will take a strictly operational
essential information that the proposer of a perspective and each problem will be analy-
project to be co-financed is advised to sed both from the standpoint of the propo-
understand the extent to which the capital Reading this Guide will help to better include in the application dossier. It also ser and that of the project examiner.
invested in the project may be at least par- understand what information is required provides a reading grid for the Commission
tially recouped over the years. This may by the Commission for the questions men- officials or external consultants to be used
come about, for example, via the sale of ser- tioned previously in the articles of the regu- in their assessment of the cost-benefit 2.1 Objectives
vices, if this is contemplated, or through
other means of non-transitory financing
lations of the FS, the CF, the ISPA and else-
where, on how to evaluate the socio-econo-
analysis of investment projects.
definition
that may generate inflows of cash sufficient mic benefits and costs; how to consider the Definition of the project’s objectives and
to cover expenditure for the whole period impact on regional development and on Frequent Errors the object of the study is essential in order
of implementation of the project. the environment; how to weight the direct Socio-economic variables should be measurable, such as per capi- to identify the project, which represents
and indirect effects on employment, both ta income, rate of employment, consumption value per capita, etc. the starting point for the appraisal.
Another reason why a suitable financial immediate and permanent; how to evalua- It is important to avoid some frequent errors: Generally speaking, the question the appli-
analysis is important for any project, te the economic and financial profitability, • a vague statement that the project will promote economic deve-
cation dossier should be able to answer is
regardless of whether it produces a positive etc. There are different ways of responding lopment or social welfare is not a measurable objective; the following one:
financial return, is that this analysis is the to these requests for information: the • hectares of new forest are easily measurable, but they are not
basis for the CBA and its existence impro- Guide stresses some fundamental que- themselves a social objective: they are project outputs, not out- What are the socio-economic benefits
ves the quality of the project evaluation. stions, methods and criteria. comes. that can be attained with the project im-
• per-capita GDP within a given region is a measurable social
plementation?
objective, but only very large projects, probably those of interre-
BOX 1.6 Information required by the SF and CF. gional or national scale may have a measurable impact on it; only The analysis of the objectives lies in verifying
in such cases may it be worthwhile to try to forecast how aggre- that:
SF: Art. 26 reg. 1260/99: “During the implementa- sector concerned and the anticipated return on the responsible for implementation, the nature of the gate regional GDP will change in the long term with and without
tion of assistance, where a Member State or managing project; f) the direct and indirect effects on the investment and a description thereof, its costs the project. 1. The application dossier or the appraisal
authority envisages the Funds contributing to a employment situation, as far as possible in the and location, including, where applicable, an indi- report should set forth which socio-econo-
major project, it shall inform the Commission in Community; g) information allowing an evaluation cation of projects of common interest situated on mic variables the project is liable to in-
advance, and provide the following information: a) to be made of the environmental impact and the the same transport axis, the timetable for imple- The agenda is structured in seven steps. fluence.
the body to be responsible for implementation; b) implementation of the precautionary principles mentation of the work, a cost-benefit analysis,
the nature of the investment and a description of and the principle that preventive action should be including the direct and indirect effects on Some of these steps are preliminary but 2. The proposer should indicate which of
it, its financial volume and location; c) the time- taken, that environmental damage should as a employment, information enabling impact on the necessary requirements for cost-benefit the specific objectives of EU regional and
table for implementing the project; d) cost-benefit priority be rectified at source and that the polluter environment to be assessed, information on
analysis. cohesion policies could be achieved by the
analysis including financial costs and benefit, a should pay and compliance with the Community public contracts, the financing plan including,
risk assessment and informations on the econo- rules on the environment; h) information needed to where possible, information on the economic via- • Objectives definition project and, in particular, how the project,
mic viability of the project; e) plus: - in the case of assess compliance with competition rules, inter bility of the project, and the total financing the • Project identification if successful, will influence the attainment
investments in infrastructure: the analysis of the alias rules on State aids; i) an indication of the Member State is seeking from the Fund and any • Feasibility and options analysis of these objectives.
costs and the socio-economic benefits of the pro- influence of the contribution of the Funds on whe- other Community source. They shall also contain • Financial analysis
ject, including an indication of the anticipated rate ther the project will be implemented; j) the finan- all relevant information providing the required • Economic analysis The objectives considered should be
of use, the foreseeable impact on the development cing plan and the total financial resources expec- proof that the projects comply with the • Multicriteria analysis socio-economic variables and not just
or conversion of the region concerned, and the ted from the contribution of the Funds and any Regulation and with the criteria set out in section • Sensitivity and risk analysis physical indicators. They should be logi-
application of Community rules on public contrac- other sources of Community finance. 5, and particularly that there are medium-term
ting; - in the case of investment in production faci- CF: Art. 10(4) cons. reg. 1164/94: Applications shall economic and social benefits commensurate
lities: the analysis of the market prospects in the contain the following information: the body with the resources deployed.
14 15
2.1. Objectives definition 2.2 Project Identification
16 17
2.3 Feasibility and option analysis 2.4 Financial Analysis
Example of options
In this regard, please also see the project For instance, in order to assess the quality the scale of the pr oject, its In order to link town A and town B, at least to compare the
identification sub-paragraphs in the third of a given project, the proposer must pro- location, physical inputs, there are three feasible alternati- situations with and with-
chapter. duce an adequate ex ante evaluation, not timing and implementa- ves: out the project. The do
only for the part of the project to be tion, phases of expansion, 1. build a new railway nothing alternative is also
2.2.2 Financial threshold financed with the assistance of SF or CF financial planning , envi- 2. lay a new road called the inertial scenario.
The Regulations presented in Chapter 1 or ISPA, but for the parts that are closely ronmental aspects. In 3. strengthen the existing road (“do
show a financial threshold of acceptable connected to it as well. many cases, the analysis of minimum” option) For example in order to
projects that must be respected. In fact, large pr ojects entails detai- If a project providing for the link two areas the do no-
the total cost (eligible cost for ERDF) of led suppor t studies (eng i- laying of a new road is proposed, thing alternative is to use
proposed investments must be higher than
the values shown in Fig. 2.1 (for the dis-
2.3 Feasibility neer ing , mar keting , etc; see
anne x G, Table of Contents
evidence must be given to show the old ferry service, the do
minimum alternative could
tinction between eligible and total cost of and options analysis of a Feasibility Study, sho-
that it is better than the alternati-
ves of the railway and the develo- be to renew/improve ferry
the investment, see the section on finan- wing a t ypical table of con- ping of the existing road, despite service and the project
cial analysis). Feasibility does not relate only to enginee- tents of a feasibilit y study). their feasibility. could be to construct a
ring aspects, but in many cases, it also con- bridge.
Fig. 2.1 Financial threshold for acceptable cerns aspects of marketing, management, In some cases a pr oject ma y
projects analysis of the implementation, etc. We pass a CB A test, despit e being socially infe- The calculation of the financial and econo-
Fund Threshold in millions of euro may often adopt various project options in rior to alternati ves. mic performance indicators must be per-
ERDF 50 order to achieve a socio-economic objecti- formed on the basis of the difference bet-
CF 10 ve. The proposer should give evidence that Typical e xamples ar e transpor t projects ween the do-something alternative and the
ISPA 5 his project choice is the best option of all wher e differ ent routes or differ ent con- do-nothing alternative or the do-mini-
feasible alternatives. In some cases, a pro- struction timing or differ ent technolog ies mum alternative.
2.2.3 Project definition ject may be considered valid from the CBA may be consider ed; large hospital st ructu-
For project definition the reader is referred standpoint, but inferior to other alternative res rather than a mor e widespr ead offer of
to paragraph 1.2. options. In order to check that project is the
best of all alternative options, the following
health ser vices; the location of a plant in
area A versus ar ea B; differ ent peak-load
2.4 Financial Analysis
As regards the assessment of a series of questions should be answered: ar rangements for energ y supply ; energ y The purpose of the financial analysis is to
projects grouped together according to the efficiency impr ovements r ather than (or in use the project’s cash flow forecasts in order
principles outlined above, generally, the Firstly, has the application dossier given suf- addition t o) the const ruction of new to calculate suitable return rates, specifi-
analysis is not carried out on each indivi- ficient evidence of the project’s feasibility? power plants; etc. cally the financial internal rate of return
dual project, but rather through sample (FRR) on investment (FRR/C) and own
checks or on the major components. Secondly, has the applicant demonstrated For each project at least thr ee alt ernati ves capital (FRR/K) and the corresponding
that alternative options have been adequa- could be c onsider ed: financial net present value (FNPV).
On this point, the examiner’s check con- tely considered?
sists in reconstructing the technical-eco- • the do nothing alternative; While the CBA encompasses more than just
nomic context that justifies the identifica- The project examiner should be certain the consideration of the financial returns of
tion of the subject of the appraisal as the that the applicant has carried out an appro- • the do minimum alternative; a project, most of project data on costs and
key point for project evaluation. However, priate feasibility study as well as an analysis benefits is provided by financial analysis.
sometimes the CBA requires going of alternative options. If there is not suffi- • the do something alternative (or reaso- This analysis provides the examiner with
beyond the administrative definitions. cient evidence to support this, the examiner nable alternative, a project based on an essential information on inputs and out-
may recommend that this be done and that alternative technology or concept). puts, their prices and the overall timing
the project be consequently revised. structure of revenues and expenditures.
The do nothing alternative is the basic
Checklist for project identification Typical feasibility reports for major infra- approach of the project analysis that aims The financial analysis is made up of a series
• Does the project constitute a clearly identified unit of analysis? structures may include information on the of tables that collect the financial flows of
• Is it a project, a phase of a project or a series of projects? (pur- economic and institutional context, foreca- the investment, broken down by total
suant to Art. 25 Reg. 1260/1999, Art. 1, Reg. 1265/1999, Art. 2 Reg. sted demand (either market or non-mar- BOX 2.1 Options Analysis investment (Tab. 2.1), operating costs and
1267/1999) ket), available technology, the production revenue (Tab. 2.2), sources of financing
• Is it a series of projects that satisfy the conditions with regard to loca- plan (including the utilisation rate of the CF: Art 1(2) Reg 1265/1999: Beneficiary Member States shall (Tab. 2.3) and cash flow analysis for finan-
tion, part of a global plan, responsibility of the supervisory board? infrastructure), personnel requirements, provide all necessary information as set out in article 10 (4), inclu- cial sustainability (Tab. 2.4).
• Does the project satisfy the financial thresholds established in by ding the results of feasibility studies and ex ante appraisals. (..)
the Regulations? Member States shall also provide, (…) where appropriate, an indi-
cation of the possible alternatives that were not chosen.
19
2.4 Financial Analysis 2.4 Financial Analysis
Years
1 2 3 4 5 6 7 8 9 10
2. Total operating costs
4. Financial sustainability 2.1 Raw materials 1564 5212 5212 5212 5212 5212 5212 5212 0
and revenues
2.2 Labour 132 421 421 421 421 421 421 421 0
2.3 Electric power 15 51 51 51 51 51 51 51 0
2.4 Combustible 5 18 18 18 18 18 18 18 0
2.5 Maintenance 20 65 70 70 70 70 70 70 0
3. Sources of finance 6. Calculation of FRR/K 2.6 General industrial costs 18 75 80 80 80 80 80 80 0
Fig. 2.2 Structure 2.7 Administrative costs 48 210 224 224 224 224 224 224 0
of financial analysis 2.8 Sales expenditures 220 1200 1400 1400 1400 1400 1400 1400 0
2.9 Total operating costs 2022 7252 7476 7476 7476 7476 7476 7476 0
2.10 Product A 400 1958 2458 2458 2458 2458 2458 2458 0
BOX 2.2 Time Horizon 2.11 Product B 197 840 1140 1140 1640 1640 1640 1640 0
2.12 Product C 904 2903 3903 3903 4403 4403 4403 4403 0
2.13 Sales 1501 5701 7501 7501 8501 8501 8501 8501 0
CF Guidelines: “The lifetime varies according to the renewal of infrastructure with a shorter lifeti- represents a rough estimate of their economic life 2.14 Net operating revenue -521 -1551 25 25 1025 1025 1025 1025 0
the nature of the investments: it is longer for civil me must be included in the analysis). The lifetime span. Although the physical assets may last signifi-
engineering works (30-40 years) than for technical may also be determined by considerations of a cantly longer than this – e.g. a bridge may last for
installations (10-15 years). In the case of a mixed legal or administrative nature: for example the 100 years - it is not generally worthwhile trying to During the first year no operating revenues and
investment comprising civil engineering works duration of the concession where a concession forecast over longer periods. In the case of assets costs occurs, but only investment costs (see tab.1).
and installations, the lifetime of the investment has been granted”. with a very long life, a residual value may be added
may be fixed on the basis of the lifetime of the ISPA Guidelines: “infrastructure projects are gene- at the end of the appraisal period to reflect their
principal infrastructure (in this case investment in rally appraised over a period of 20-30 years, which potential resale value or continuing use value”.
20 21
2.4 Financial Analysis 2.4 Financial Analysis
Private equity is the contribution As can be seen from the row numbers, all the items Financial internal rate of return on investment is
of a private investor. of this table have already been calculated in the calculated considering total investment costs as an
previous table. To draw up this table and the next outflow (together with operating costs) and reve-
Tab. 2.3 Sources of Financing Table - Thousands of Euro
one it is necessary to include all the requested nues as an inflow. It measures the capacity of ope-
items and calculate the rates. rating revenues to sustain the investment costs.
Years
1 2 3 4 5 6 7 8 9 10
3.1 Private equity 100 200 100 0 0 0 0 0 0 0 Tab. 2.5 Calculation of the Financial Internal Rate of Return of the Investment -Thousands of Euro
3.2 Local level
3.3 Regional level 200 Years
3.4 Central level 200 200 100 1 2 3 4 5 6 7 8 9 10
3.5 Total national public contribution (=3.2+3.3+3.4) 400 200 100 0 0 0 0 0 0 0
3.6 EU grant 1132 1056 1013 532 496 2.13 Sales 0 1501 5701 7501 7501 8501 8501 8501 8501 0
3.7 Bonds and other financial resources 5.1 Total revenues 0 1501 5701 7501 7501 8501 8501 8501 8501 0
3.8 EIB Loans 0 1822 2.9 Total operating costs 0 2022 7252 7476 7476 7476 7476 7476 7476 0
3.9 Other Loans 4.3 Retirement bonus 0 0 0 0 0 0 0 0 0 197
3.10 Total financial resources (=3.1+3.5+...+3.9) 1632 1456 3035 532 496 0 0 0 0 0 1.21 Total investment costs 1186 1088 1590 80 400 0 91 0 0 -1500
5.2 Total expenditures 1186 3110 8842 7556 7876 7476 7567 7476 7476 -1303
5.3 Net cash flow (=5.1-5.2) -1186 -1609 -3141 -55 -375 1025 934 1025 1025 1303
5.4 Financial internal rate of return (FRR/C)
Loan is here an inflow and it is The EU grant should be included in this of the investment -3.16%
accounted as a financial resource table. It is also included in the financial 5.5 Financial net present value (FNPV/C)
coming from third parties. sustainability table below. of the investment -2058
Years
1 2 3 4 5 6 7 8 9 10
Tab. 2.4 Financial Sustainability Table - Thousands of Euro
2.13 Sales 0 1501 5701 7501 7501 8501 8501 8501 8501 0
Years 1.19 Residual value 0 0 0 0 0 0 0 0 0 1500
1 2 3 4 5 6 7 8 9 10 6.1 Total revenues 0 1501 5701 7501 7501 8501 8501 8501 8501 1500
2.9 Total operating costs 0 2022 7252 7476 7476 7476 7476 7476 7476 0
3.10 Total financial resources 1632 1456 3035 532 496 0 0 0 0 0 4.2 Interests 0 0 8 8 8 8 8 8 8 0
2.13 Sales 0 1501 5701 7501 7501 8501 8501 8501 8501 0 4.3 Retirement bonus 0 0 0 0 0 0 0 0 0 197
4.1 Total inflows 1632 2957 8736 8033 7997 8501 8501 8501 8501 0 4.4 Loans reimboursement 0 0 0 168 189 211 237 265 300 451
2.9 Total operating costs 0 2022 7252 7476 7476 7476 7476 7476 7476 0 3.1 Private equity 100 200 100 0 0 0 0 0 0 0
1.21 Total investment costs 1186 1088 1590 80 400 0 91 0 0 0 3.5 Total national public contribution 400 200 100 0 0 0 0 0 0 0
4.2 Interest 0 0 8 8 8 8 8 8 8 0 6.2 Total expenditures 500 2422 7460 7652 7673 7695 7721 7749 7784 648
4.3 Retirement bonus 0 0 0 0 0 0 0 0 0 197 6.3 Net cash flow (=6.1-6.2) -500 -921 -1759 -151 -172 806 780 752 717 852
4.4 Loans reimboursement 0 0 0 168 189 211 237 265 300 451 6.4 Financial internal rate of return (FRR/K) of capital 2.04%
4.5 Taxes 0 62 78 83 95 95 95 95 95 0
4.6 Total outflows 1186 3172 8928 7815 8168 7790 7907 7844 7879 648
6.5 Financial net present value (FNPV/K) of capital -439
4.7 Total cash flow 446 -215 -192 218 -171 711 594 657 622 -648
4.8 Cumulated total cash flow 446 231 39 257 86 797 1391 2048 2670 2022
Financial internal rate of return on invested capital (shareholders'
equity) is calculated with the shareholder’s equity of the member state
Loan here is considered at the moment it is reim- Financial sustainabilityyis verified (public and private) when it is paid up, the financial loans at the time
boursed as an outflow. The inflow item of loan is if this rowwissmore than or equal to they are paid back, in addition to operating costs and related interest,
included in the financial resources (row 3.8). zero ffor all theyyearssconsidered. and revenues for the inflows. It does not consider the EU grant.
22 23
2.4 Financial Analysis 2.4 Financial Analysis
2.4.9 Determination of the co-financing costs unconsidered by the financial analysis Tab. 2.5 Calculation of the Financial Internal Rate of Return of the Investment -Thousands of Euro
Rate as they do not generate actual money expen- Years
The co-financing rate (see also annex C) is ditures or income (for example environ- 1 2 3 4 5 6 7 8 9 10
the percentage that defines how much of mental impacts or redistributive effects).
2.13 Sales 0 1501 5701 7501 7501 8501 8501 8501 8501 0
the eligible costs are covered by EU finan- This becomes possible by attribution to each 5.1 Total revenues 0 1501 5701 7501 7501 8501 8501 8501 8501 0
cing by grants. of the inflow or outflow items of an ad-hoc 2.9 Total operating costs 0 2022 7252 7476 7476 7476 7476 7476 7476 0
conversion factor (see below) to change 4.3 Retirement bonus 0 0 0 0 0 0 0 0 0 197
1.21 Total investment costs 1186 1088 1590 80 400 0 91 0 0 -1500
Regulations define the maximum ceiling to market prices into accounting prices.
5.2 Total expenditures 1186 3110 8842 7556 7876 7476 7567 7476 7476 -1303
apply for each Fund and establish the gene- 5.3 Net cash flow (=5.1-5.2) -1186 -1609 -3141 -55 -375 1025 934 1025 1025 1303
ral principles for the formulation of the International practice has assumed stan- 5.4 Financial internal rate of return (FRR/C) -3.16%
percentage. Generally by area of implemen- dardised factors for some input/output of the investment
tation (higher percentages in more disad- classes, others require specific factors to be 5.5 Financial net present value (FNPV/C) -2058
of the investment
vantaged areas) and, more specifically, by defined case by case.
the co-existence of more funds in the same
area. See also box 2.4, Co-financing Rate. The economic analysis, therefore, is repre-
sented by:
Currently, the procedure set forth by the
Commission provides for the calculation of Phase 1: taxes/subsidies and other tran- (1) Phase 1. Fiscal correction. It is necessary to deduct from the
the financing gap, through which the co- sfers corrections; flows of financial analysis, payments that have no real resour-
financing rate to apply to eligible costs is ces counterpart, as for subsidies and indirect taxes on input In the present example there are no fiscal
determined. For details on the recommen- Phase 2: externalities corrections; and output. For direct public tranfers they are already not inclu- corrections. It means that no transfers, sub-
dations proposed for the co-financing rate ded in the starting table for financial analysis which considers sidies or any other fiscal correction have
calculation, refer to annex C. Phase 3: conversion of market prices into investment costs and not financial resources (Tab. 2.5). been included in the financial analysis.
accounting prices to include also social
costs and benefits (determination of con-
2.5 Economic Analysis version factors). Tab. 2.10 Calculation of the Economic Internal Rate of Return of the Investment -Thousands of Euro
Years
The economic analysis appraises the pro- Once the table for the economic analysis is
cf (3) 1 2 3 4 5 6 7 8 9 10
ject contribution to the economic welfare ready, like in the financial analysis the first
(1) Fiscal correction
of the region or country. It is made on step is the discounting made by the selec-
Time saving 42 42 42 42 42 42 42 42
behalf of the whole society (region or tion of a correct social discount rate and Income from increased tourist flow 78 78 78 78 78 78 78 78
country) instead of just the owner of the the calculation of the internal economic (2) Total external benefits 0 120 120 120 120 120 120 120 120 0
infrastructure like in the financial analysis. rate of return of the investment. 2.13 Sales 1.1 0 1651 6271 8251 8251 9351 9351 9351 9351 0
10.1 Total revenues 0 1651 6271 8251 8251 9351 9351 9351 9351 0
Increased pollution 572 572 632 632 632 632 632 632
Moving on from Tab. 2.5 of the financial 2.5.1 Phase 1 - Fiscal corrections (2) External costs 0 572 572 632 632 632 632 632 632 0
analysis (the performance of the investment This phase leads to the determination of 2.9 Total operating costs 0.9 0 1820 6527 6728 6728 6728 6728 6728 6728 0
0 0
regardless of its financial sources), the eco- two new elements for the economic analy- 4.2 Retirement bonus
1.21 Total investment costs
1.2
0.9
0
1067
0
979
0
1431
0
72
0
180
0
0
0
89 0 0
236
-1350
nomic analysis, by mean of the definition of sis: the value of the row ‘fiscal correction’(Tab. 10.2 Total expenditures 1067 2799 7958 6800 6908 6728 6810 6728 6728 -1114
appropriate conversion factors for each of 2.10) and the value of the conversion factor 10.3 Net cash flow -1067 -1600 -2139 938 830 2111 2029 2111 2111 1114
the inflow or outflow items, outlines a table for market prices affected by fiscal aspects. 10.4 Economic internal rate of return (ERR) 19.20%
of investment
(Tab. 2.10) which includes benefits and
10.5 Economic net present value (ENPV) 3598
social costs not considered by the financial Market prices include taxes and subsidies, of investment
analysis. The logic of methodology allowing and some transfer payments, which may
the transfer from financial to economic affect relative prices. While in some cases it
analysis is summarised in fig. 2.3 It consists would be difficult to estimate net-of-tax (2) Phase 2. Externalities correction. It is necessary to include in outflows and (3) Phase 3. From market to accoun-
of the transformation of market prices used prices, some rough, general rules can be inflows also external costs and benefits for which there is no cash flow. Some ting prices. It is necessary to determi-
in the financial analysis into accounting pri- laid down to correct such distortions: examples could be costs for health services or losses in fisheries due to increased ne a vector of conversion factors.
ces (that amend prices distorted by market • prices of inputs and outputs to be consi- pollution, time saved by investment in transports, specific infrastructures sup-
imperfections) and of the consideration of dered for CBA should be net of VAT and plied by public sector for the project (a road built specifically for the project…)
externalities leading to benefits and social of other indirect taxes; increased touristic flows, increased accessibility of the region…
28 29
2.5 Economic Analysis 2.5 Economic Analysis
Traded goods Non traded goods 2.5.2 Phase 2 - Externalities corrections These benefits may accrue not only to the
The objective of this phase is to determine direct users of the product but also to third
external benefits or external costs as one or parties for whom they were not intended. In
Turn directly into Major items Minor items more rows in Tab. 2.10, not considered in this case, they must also be accounted for by
border prices the financial analysis. Examples are costs appropriate evaluation. Examples of such
and benefits coming from environmental positive externalities or beneficial spillovers
Use standard impacts, the time saved by projects in the towards other consumers are the following:
Output Input
conversion factor transport sector, human lives saved by pro- • a railway may reduce traffic congestion
jects in the health sector and so on. on a highway;
Sold Not sold Labour Produced • a new university may sustain applied
force Input Sometimes valuing external costs and research and the future income of em-
benefits will be difficult, even though they ployers will be increased by a better-edu-
may be easily identified. A project may cated work force, etc.
Use sectorial Use long term Use conversion Disaggregate the item cause some ecological damage, whose
conversion factors marginal costs or factors for labour or use specific sectorial effects, combined with other factors, will Externalities should be given a monetary
willingness to pay force based on conversion factors take place in the long run, and are difficult value, if possible. If not, they should be
shadow wage to quantify and value. quantified by non-monetary indicators.
30 31
2.5 Economic Analysis 2.5 Economic Analysis
Example for the calculation of the standard conversion factor for price
raise similar issues. They should be consi- Price distortion of inputs and outputs. distortion of inputs and outputs.
dered in parallel and, whenever possible Current prices of inputs and outputs cannot a) For every traded item border prices are easily available 0,8), 10% of profits (cf=0). Conversion factor is:
should be integrated: this would imply reflect their social value because of market (there are international prices, CIF for imports and FOB for (0,3*0,48)+(0,4*0,75)+ (0,2*0,8)+(0,1*0)=0,60.
giving, if possible, a conventional accoun- distortions, such as monopoly regime, trade exports, expressed in the local currency). e) Machinery: imported without taxes and tariffs (cf=1).
ting value to environmental costs. barriers, etc. Current prices as they emerge b) For non-traded items, equivalent international prices f) Stock of raw material: only one traded material is suppo-
These may be very crude estimates: howe- from imperfect markets and from public should be determined. The standard conversion factor is sed to be used; the item is not subject to taxes and the
ver they may capture at least the most rele- sector pricing policies, may fail to reflect the used for minor non-traded items, while for major non-tra- market price is equal to the FOB price. cf=1.
vant environmental costs. opportunity cost of inputs. In some cases ded items specific conversion factors are used. g) Output: the project produces two outputs: A, imported
this may be important for the appraisal of For an example of data for the estimate of the standard and B, a non-traded intermediate item. To protect dome-
For a more detailed discussion on metho- projects, and financial data may thus be conversion factor (millions euro): stic firms the government has imposed an import tax of
dologies for the monetisation of environ- misleading as welfare indicators. 1) total imports (M) M = 2000 33% on item A. The CF for A is 100/133=0.75. For item B,
mental impacts see annex E. 2) total exports (X) X = 1500 as there is no specific conversion factor, SCF=0,8.
In some cases prices are regulated by States 3) import taxes (Tm) Tm = 900 h) row materials = cf=1.
Accounting value of public sector owned so as to compensate for perceived market 4) export taxes (Tx) Tx = 25 i) intermediate inputs are imported without tariffs and taxes.
capital assets failures and in ways that are consistent with The formula to be used for the calculation of the Standard cf=1.
Many projects in the public sector use capi- their own policy objectives; e.g., when indi- Conversion Factor is (SCF): j) Electricity: there is a tariff that covers only 40% of the
tal assets and land, which may be state- rect taxation is used to correct externalities. SCF= ( M + X )/ ( M + Tm ) + ( X - Tx) marginal supply cost of electricity. There is no disaggrega-
owned or purchased from the general But in other cases, actual prices are distor- SCF= 0,8. tion of cost components and it is assumed that the diffe-
Government budget. ted because of legal constraints, historical c) Land: government provides the land at a reduced price of rence between international and domestic prices for each
reasons, incomplete information, or other 50% compared with market prices. So the market price cost component used to produce a marginal unit of elec-
Capital assets, including land, buildings, market imperfections (for example tariffs is double the current one. The selling price should be tricity is equal to the difference between all traded items
machinery and natural resources should be for inputs such as energy, fuel). doubled to reflect the domestic market, and, as there is considered in the SCF. cf= 1/0,4 * 0,8= 2.
valued at their opportunity cost and not at no specific conversion factor the conversion factor to k) Skilled labour force: the market is not distorted. Market
their historical or official accounting value. Whenever some inputs are affected by turn market price into border price is the standard con- wage reflects the opportunity cost for the economy.
This has to be done whenever there are alter- strong price distortions, the proposer version factor. Conversion factor for land is: Conversion l) Unskilled labour force: supply exceeds demand but there is
native options in the use of an asset, and even should consider the issue in the project Factor= 2 * 0,8= 1,60. a minimum wage of 5 euro per hour. Nevertheless in the
if it is already owned by the public sector. appraisal and use accounting prices that d) Building: the total cost is made by 30% of non-skilled sector the last employed workers come from, the rural
may better reflect the social opportunity workforce (cf of non-skilled workforce is 0,48), 40% of sector, the wage is only 3 euro per hour. Only 60% of
4
If there is no related option value , past costs of the resources. The project examiner imported material cost with import tariffs of 23% and sel- unskilled labour force reflect its opportunity costs.
expenditures or irrevocable commitments needs to carefully assess and consider how ling taxes of 10% (cf 0,75), 20% of local materials (SCF=
of public funds are not social costs to be the social costs are affected by departures
considered in the appraisal of new projects. from the following price structures:
• marginal cost for internationally non-tra-
2.5.3 Phase 3 - From market to accoun- dable goods, such as local transport services; • border price for internationally tradable The proposer, in such cases, may resort to a
ting prices. goods, such as agricultural or manufac- correction of nominal wages and to the use
The objective of this phase is to determine tured goods. of an accounting wage (shadow wages).
the column of conversion factors for the Examples of price distortion In fact, there are often good economic argu-
transformation of market prices into ments for using border prices and/or marginal While the Commission does not recommend
• a land intensive project, e.g. an industrial site, where land is made
accounting prices. costs as accounting prices, when actual prices a specific accounting wage formula, the pro-
available free of charge by a public body, while it may otherwise
Project examiners should check if the pro- are deemed to diverge widely from social poser needs to be prudent and consistent in
earn a rent;
jects proposer has considered social costs opportunity costs. However this general rule his own appraisal of labour social costs.
• an agricultural project that depends upon water supply at a very
and benefits of the project in addition to may be checked under the circumstances of Additional employment is, in the first in-
low tariff, heavily subsidised by the public sector;
financial costs and benefits. the specific project under examination. stance, a social cost. It is the use by the pro-
• an energy intensive project which depends upon the supply of
ject of labour resources that become thus
electricity under a regime of regulated tariffs, when these tariffs
This could happen besides the fiscal or Wage distortion unavailable for alternative social purposes.
are different from long run marginal costs.
externality influence when: In some cases, a crucial input of investment The relevant benefit is the additional inco-
• a power plant under monopoly regime, which determines a sub-
• real prices of inputs and outputs are dis-
stantial price divergence of electricity prices from long-term mar-
projects, particularly of infrastructure, is me generated by job creation, and this is
torted because of an imperfect market; labour. Current wages may be a distorted accounted for by the valuation of direct
ginal costs: in this case economic benefit could be less than finan-
• wages are not related to labour producti-
cial benefit.
social indicator of the opportunity cost of and indirect net output resulting from the
vity. labour because labour markets are imperfect. project.
4
Option value for public goods is the possibility to use that good for an alternative use. Nevertheless for a some goods there may be no alter-
native use (a building used for a museum which is not usable for anything else..). In that case money spent for it is not social costs.
32 33
2.5 Economic Analysis 2.6 Multicriteria analysis
Wage distortion
It is important to under- • some people, particularly in public tional output, have their Tab. 2.11 Expected economic internal rates of 2.5.5 The calculation of the economic rate
stand that there may be sector employment, may receive drawbacks and limitations, return of a sample of 400 major projects of the of return
‘first generation’ and ‘second generation’ combined
two different, mutually wages above or below their coun- but under appropriate con- After the correction of price distortion it is
exclusive ways to estimate terparts in the private sector for ditions they are equivalent. Average Number possible to calculate the economic internal
the social benefit of addi- similar work; rate of projects* rate of return (ERR).
tional employment: • in the private sector, costs of The income multiplier Energy 12.9 6
• as already said, one can labour for the private company method is best applied at Water and environment
Transport
15.8
17.1
51
152
After the choice of an appropriate social
use an accounting wage may be less than the social oppor- macro-economic level or Industry 18.4 14 discount rate it is possible to calculate the
inferior to the actual wage tunity cost because the State for very big investment Other services 16.3 10 economic net present value (ENPV) and
paid by the project. This is gives special subsidies to employ- program. Usually it is advi- Total 16.8 233 the B/C ratio.
one way to take into ment in some areas; sable to use shadow wages (*) Projects for which data was available.
account the fact that, • there may be legislation fixing a where effective wages are The difference between ERR and FRR is
under conditions of minimum legal wage, even if cut proportionally to the • some objectives of the Structural Funds that the former uses accounting prices or
unemployment, actual under heavy unemployment there extent of unemployment. are concerned with particular employ- the opportunity cost of goods and services
wages are higher than the may be people willing to work for In any case: ment targets (e.g. youth, long term instead of imperfect market prices, and it
opportunity cost of less. •
the two methodologies unemployed) and it may be important includes as far as possible any social and
labour. By reducing cannot be used simultane- to consider the different impacts by tar- environmental externalities. Because exter-
labour costs, this accounting ously (double counting!) get groups. nalities and shadow prices are now conside-
procedure increases the social net present • if an investment project already has a red, most projects with low or negative
value of the project income in comparison satisfactory internal rate of return before 2.5.4 Discounting FRR/C will now show positive ERR.
with its private value; corrections for employment, it is not Costs and benefits occurring at different
• alternatively, one can try to estimate the necessary to spend much time and effort time must be discounted. The discounting Every project with an ERR less than 5% or
income multiplier of output, and the on this kind of calculation. process is undertaken, as for the financial a negative ENPV after the actualisation
social income of the project will again be analysis, after the determination of the and with a discount rate of 5% should be
more than its private income because of However, it is important to consider that in table for the economic analysis. carefully appraised or even rejected. The
this positive external impact. some cases the employment impact of a same applies with a B/C ratio less than 1.
project may need a vary careful considera- The discount rate in the economic analysis
Both methods, either subtracting a fraction tion: of investment projects – the social discount In some exceptional cases a negative
of labour costs, or adding up some addi- • it is sometimes important to check for rate - attempts to reflect the social view on ENPV could be accepted if there are
employment losses in other sectors as a how future benefits and cost should be important non-monetized benefits, but
consequence of the project: gross valued against present ones. It may differ these must to presented in detail becau-
Measure employment benefits may overestimate from the financial discount rate when the se such a project will contribute only mar-
the net impact capital market is imperfect (which is always ginally to the objectives of EU regional
Non-employment outputs
• sometimes the project is said to main- the case in reality). development policy.
Physical activity tain jobs that otherwise would be lost:
this may be particularly relevant for Theoretical literature and international In any case the appraisal report should spe-
renovation and modernisation of exi- practice shows a wide range of approaches cify in a convincing way, through a structu-
Gross job creation sting plants: this kind of argument in interpreting and choosing the value of red argument supported by adequate data,
should be supported by an analysis of the social discount rate to be adopted. The that social benefits exceed social costs.
cost structure and competitiveness with international experience is very wide and
deadweight Previous Experience
and without the project has involved different countries as well as
Method
Monitoring data
Evaluation Data
international organisations. However a
5% European social discount rate may
2.6 Multicriteria
displacement Coefficients
Accounting wage or shadow wage.
have different justifications, and may pro- analysis
Multipliers vide a standard benchmark for EU co-
The highest possible remuneration the labour employed in the pro-
financed projects. But project proposers Multicriteria analysis considers simulta-
ject could have earned elsewhere. Because of minimum wage laws,
may wish to justify a different value. neously a variety of objectives in relation to
Net job creation regulations and other rigidities, wages actually paid may not be a
the evaluated intervention. It facilitates con-
correct measure of the real opportunity cost of labour. In an eco-
For a more detailed discussion about the sideration in the investment appraisal of
nomy marked by extensive unemployment or underemployment, the
Fig. 2.4 Employment effects. social discount rate see annex B. policy maker’s objectives that in some cases
Source: “Counting the jobs. How to evaluate the employment opportunity cost of labour used in the project may be less than
effects of Structural Funds Interventions”, European Commission, actual wage rates.
Directorate General XVI Regional Policy and Cohesion, Co-ordina-
34 tion and evaluation of operations. 35
2.6 Multicriteria analysis 2.6 Multicriteria analysis
the context of regional policy. For example, organised as follows: 7. Scores aggregation of different criteria
if the project needs to modify tariffs in a on the basis of revealed preferences. ject is supposed to cut the polluter Z emis-
public service it is probable that it will have 1. Objectives should be expressed in mea- Single scores could be aggregated giving sions by 10% per year.
some effect in terms of equity, the level of surable variables. They should not be a numerical evaluation of the interven-
which should be analysed and appraised redundant but could be alternative (the tion comparable with other similar Now one should ask:
(i.e. through a presentation of the social achievement of a bit more of one objec- interventions.
categories that will pay some costs and the tive could partly preclude the achieve- a) is the forecast of the emission cut in
ones who will gain some benefits; ‘winners ment of the other); In any case, the project examiner should physical terms reliable?
and losers table’). See also annex F for the verify if:
evaluation of distributional impact. 2. Once the ‘objectives vector’ is built a • forecasts for non-monetary aspects have b) is one million Euro an acceptable “price”
technique should be found to aggregate been quantified in a realistic way in the for the reduction of 10% in the emission
Another fundamental principle for the eva- information and to make a choice; the ex-ante evaluation; (how much is the implicit unitary cost of
luation of EU projects is the Polluter Pays objectives should have a weight assigned • there is an accurate non-monetary costs the reduction of emission)?
Principle which, according to regulations reflecting the relative importance given and benefits analysis if it is the case;
should be used for the modulation of the to them by the Commission; • additional criteria have a reasonable c) is there any evidence that such a "price"
cofinancing rate. See the box 2.5, political weight as to determine signifi- of reduced emission is consistent with
Application of the polluter-pays principle. 3. Definition of the appraisal criteria; these cant changes in the financial and econo- the weight that the government of the
criteria could refer to the priorities pur- mic results. Member State or the Commission atta-
In these cases it is necessary to identify the sued by the different subjects involved or ches to similar projects?
effects of the investments on social objecti- they could refer to particular evaluation Such a methodology is particularly effecti-
ves, assign a weight to each objective and aspects (synergy degree with other inter- ve when the monetisation of costs and For instance, one may see whether -regu-
calculate the final impact. For example let ventions, using up of reserves capacity, benefits is difficult or even impossible. Let larly or even occasionally- Member States
us consider three objectives such as con- implementing difficulties etc.); us suppose that a certain project shows, at have funded similar projects in order to
sumption incentive, social equity and a discount rate of 5%, a negative economic obtain a similar cost/effectiveness ratio.
energy self-sufficiency. If a project causes a 4. Impact analysis; this activity consists in net present value of one million Euro. This Otherwise, if there is no evidence of con-
variation of 2% in consumption, of 1% in analysing, for each of the chosen crite- means that the project examiner foresees a sistency, one should enquire why this is
the equality index, of 3% in the energy self- ria, the effects it produces. Results could net social loss of the project in monetary proposed for the project under EU assi-
sufficiency index, three weights to evaluate be quantitative or qualitative (merit terms. The project proposer could assess stance.
the relative importance of each objective judgement); that, despite this, the project should be
financed by the Funds because it has a ‘very One can substitute reduced emissions with
positive' environmental impact that it is many kinds of other non-monetary bene-
BOX 2.5 Application of the polluter-pays principle. not possible to monetize. The Commission fits and repeat the check, when appropriate.
could consider the environmental protec- If the benefits are not just non-monetary,
SF: Art. 29, par. 1 Reg. 1260/1999. “ The contribu- improvement of the environment, principally pays principle”.
tion a merit good. but also physically unmeasurable, there is
tion of the Funds shall be differentiated in the through the application of the precautionary prin- ISPA: Art. 6, par.2, Reg. 1267/1999: “Save in the
no way of appraising the project.
light of the following: (…) c) within the frame- ciple, of the principle of preventive action, and case of repayable assistance or when there is a Therefore the project proposer should be
work of the objectives of the Funds set out in the polluter-pays principle”. substantial Community interest, the rate of assi- asked to make an estimate of environmen- One should be very careful with proposals
Article 1, the importance attaching to the assi- CF: Art. 7, par. 1 Reg. 1264/1999 “ However, from stance shall be reduced to take into account: (a) tal benefits in physical terms. Let us suppo- where the analysis of non-monetary bene-
stance and the priorities from the Community 1 January 2000 this rate may be reduced to take the availability of co-financing; (b) the measu- se that this has been made and that the pro- fits is vague and merely qualitative.
viewpoint, where appropriate, for the elimination account, in co-operation with the Member State re’s capacity to generate revenues, and (c) an
of inequalities and the promotion of equality bet- concerned, of the estimated revenue generated appropriate application of the polluter-pays
ween men and women and for the protection and by projects and of any application of the polluter- principle”.
36 37
2.7 Sensitivity and risk 2.7 Sensitivity and risk
IRR
Investment costs Duration of the building site (delays in realisation), hourly labour cost, hourly productivity, cost of land, 2.5%
assign a new value (higher or lower) to
cost of transport, cost of concrete aggregate, distance from the quarry, cost of rentals, depth of the -5% -4% -3% -2% -1%
0.0% 1% 2% 3% 4% 5%
wells, useful life of the equipment and manufactured goods each variable and recalculate the IRR or
NPV, thus noting the differences (abso- -2.5%
Operating prices Prices of the goods and services used, hourly cost of personnel, price of electricity, gas, and other fuels
lute and percentage) compared to the -5.0%
Quantitative parameters for the operating costs Specific consumption of energy and other goods and services, number of people employed
base case. -7.5%
Prices of revenues Tariffs, sale prices of products, prices of semi-finished goods
-10.0%
Quantitative parameters for the revenues Hourly (or other period) production of goods sold, volume of services provided, productivity, number of
A possible result is shown in figure 2.5. Parameter
users, percentage of penetration of the area served, market penetration
Accounting prices (costs and benefits) Coefficients for converting market prices, value of time, cost of hospitalisation, cost of deaths Since, generally speaking, there is no gua- Energy cost Prices trend Tariffs
avoided, shadow prices of goods and services, valorisation of externalities Demand Productivity
Quantitative parameters for costs and benefits Sick rate avoided, size of area used, added value per hectare irrigated, incidence of energy produced or
secondary raw materials used Fig. 2.5 Sensitivity analysis
39
2.7 Sensitivity and risk 2.7 Sensitivity and risk
Having established the probability distri- The most helpful way of presenting the
bution of the critical variables, it is possi- result is to express it in terms of the proba-
ble to proceed with the calculation of the bility distribution or cumulated probability
probability distribution of the IRR or of the IRR or the NPV in the resulting
NPV of the project. Only in the simplest interval of values. Figures 2.6 and 2.7 pro-
cases is it possible to calculate this by using vide graphic examples.
analytical methods for calculating the pro-
babilities composed of a number of inde- The cumulated probability curve (or a table
pendent events. of values) allows one to assign a degree of
Probability distribution
0.140 1.00
Cumulative probability
0.120 0.80
0.100
0.080 0.60
0.060 0.40
0.040
0.020 0.20
0.000 0.00
3- 3.5- 4- 4.5- 5- 5.5- 6- 6.5-
3.25 3.75 4.25 4.75 5.25 5.75 6.25 6.75 2.00 3.00 4.00 5.00 6.00 7.00 8.00
FRR % FRR %
Fig. 2.6 Probability distribution for FRR. Fig. 2.7 Cumulative probability distribution for FRR.
40 41
3.1 Waste treatment
Chapter Three
Outlines of project analysis Main typologies of waste
by sector 5. Energy production
6. Ports, airports and infrastructure networks
7. Training infrastructure
• Municipal Solid Waste is waste collected by or on behalf of the
Municipalities
• Packaging Waste
8. Museums and archaeological parks • Hazardous waste including industrial hazardous waste and hou-
9. Hospitals sehold hazardous waste (batteries, oils, paints and out-of-date
10. Forests and parks medicines)
11. Telecommunications infrastructure • Specific waste such as oil waste, batteries and accumulators,
12. Industrial estates and technological parks end-of-life vehicles, electrical and electronic waste
13. Industries and other productive invest- • Garden and Bulky Waste from municipalities
Overview ments • Healthcare waste mainly produced by hospitals
• Ash and Slag from Combustion Processes and Fly ash produced
This chapter extends the concepts expres- ments derived from the financial analysis the by waste treatment facilities
sed in the preceding sections, with referen-
ce to the main sectors supported by EU
evaluation of the main social costs and bene-
fits should be included. Both for financial
3.1 Waste treatment • Mining waste
• Agricultural waste included sludge
funds. and economic analysis a comparison bet- Introduction
ween the two situations with and without This section is focussed both on new
The outlines are of a schematic nature and the investment should be conducted; investments and investment in renovation,
not comprehensive. Their main purpose is Multicriteria and other evaluation crite- modernisation or normalisation of waste To highlight the general and specific objec-
to act as a guide for readers and writers of ria: some indications on other evaluation management plants. Projects may refer to tives, the project should define carefully
project proposals, showing, on the one criteria should be discussed, particularly in solid waste collecting and solid waste sor- the following characteristics:
hand, the established methods which relation to on environmental impacts; ting plants, incinerators (with or without • population concerned by the project,
should be the basis of a good appraisal and, Sensitivity and risk analysis: uncertainty energy recovery), landfill or other waste tons of waste collected and treated by
on the other, areas of uncertainty that merit and risk about variables' trends are impor- disposal and waste removal plants. type of waste (hazardous waste, munici-
particular attention. tant points to be considered when apprai- pal waste, packaging waste…)
sing investment projects. Solid waste involved are: • type of technologies implemented (me-
Obviously, all the general methodological • waste listed in the apposite directives (see thods of treatment),
elements mentioned in the previous chapter The outlines follow a common structure to Box 3.1, Legislative framework); • economic impact on the local economy
should also be taken into consideration. The facilitate the task of the user, and also to • waste enumerated in the European Cata- (in terms of employment and revenues),
following outline is valid for all sectors: encourage standardisation in the procedu- logue of Waste (published in January 1994); • risks decrease due to the implementation
Objectives definition: it is necessary to res for analysis and reporting and to make • other available national typologies of of the waste management strategy,
consider the local nature of the objectives communications smoother between pro- waste. • saving in raw material consumption,
as well as the more general significance and posers and appraisers. type of materials recovered and recycled,
impact; 3.1.1 Objectives definition • reduction in air, water and soil pollu-
Project identification: the functional and In some cases, where possible, value ranges Objectives are related to general criteria, tants and type of environmental dama-
physical links of the project to the existing are given for the essential analysis variables, as local and regional development and ges on soil and groundwater avoided,
infrastructure system should always be which have been taken from previous expe- environmental management, but also for example.
clearly explained; rience. These value ranges should be consi- involve specific aims in the short and long
Feasibility and options analysis: compari- dered only a reference for the analyst and term, such as: 3.1.2 Project identification
son with the previous situation (without not as target values. • the development of modern local and
the project) and possible alternatives for regional waste management sectors; Typology of the investment
satisfying the same demand should always A more in-depth discussion is proposed for • the reduction of health risks linked to an The main types of waste management
be included; the following sectors: uncontrolled management of municipal facilities are:
Financial analysis: it should be conducted 1. Waste treatment; and industrial waste; • investment in collecting and recycling
even if the services are totally free of char- 2. Water supply, transport, distribution and • the settle down in raw materials con- waste facilities (with separate collection
ge and the financial rate of return is there- treatment; sumption and the closure of material or not), such as municipal separate col-
fore negative. The analysis should measure 3. Transport. production and consumption cycles; lection centre;
the net cost to public finances and provide • the reduction in pollutant emissions • compost production facilities;
a significant comparison with similar In addition, a less detailed discussion is such as water and air pollutants; • investment in facilities for physical and
investments; proposed for the following sectors: • innovation in new technologies for col- chemical treatment, such as oil waste
Economic analysis: in addition to the ele- 4. Energy transport and distribution lection and waste treatments. treatment facilities;
42 43
3.1 Waste treatment 3.1 Waste treatment
Tab. 3.1 Overview of damages caused by emissions from incineration, illustrated as dose-response relations
Damage Medium Health effects Lower Forest Damage Climate Ecosystem
• The calculation of economic benefits and For landfills and incinerators, the major (response)
Emission
mortality morbidity agricultural
yield
Dis-back to buildings effects
costs. positive and negative externalities are asso-
(doses)
ciated with:
Externalities generated by waste treatment • Air emissions, Particulates
(PM10)
Air + + 0 0 + 0 0
facilities are mainly described by project’s • Waste water emissions, Nox (and O3) Air + + (-) + + 0 (-)
impacts on human health (morbidity or mor- • Residual solid waste production, SO2 Air (+) (+) + + + 0 -
tality due to air, water or soil pollution), the • Energy recovery, CO
VOC
Air
Air
(+)
(+)
(+)
0
0
0
0
0
0
0
+
0
0
0
environmental damages induced such as • Disamenity, such as noise and odour, CO2 Air 0 0 0 0 0 + 0
water and soil contamination, the aesthetic • Risk of accidents. HCl, HF
Dioxins
Air
Air
?
(+)
0
-
(-)
0
(-)
0
(-)
0
0
0
?
-
and landscape impacts and the economic
Heavy metals Air (+) - 0 0 0 0 -
impacts, such as changes in land prices or eco- When methodologies proposed are contro- Dioxins Water ? ? 0 0 0 0 ?
nomic development induced by the project. versial or data are lacking, the analysis of Heavy metals Water ? ? 0 0 0 0 (-)
the externalities can be performed in a qua- Salts Water 0 0 0 0 0 0 ?
Evaluation of external environmental costs litative way (see for example Tab. 3.1 and + Measurable effect (+) Partly measurable effect - Non-measurable effect (-) Non-measurable but minor effects ? Non-measurable uncertain effects
and benefits can be based on the estimation Tab. 3.2 for qualitative analysis of external 0 no Known effect
of morbidity and mortality costs, the aver- effects in incineration and land filling).
ting costs and remediation costs. Some However, in such cases, results cannot be Tab. 3.2 Overview of damages caused by emissions from landfills, illustrates as dose-response relations
contingent markets can also be set up for used in the monetary analysis and must be
Damage Medium Health Lower Forest Damage Climate Ecosystem
the evaluation of the impacts on landscape inserted in a larger multicriteria analysis. (response) mortality morbidity agricultural Die-back to buildings effects
and an “hedonic price” can be calculated Emission yield
where the plant induces market price chan- The conversion factors (doses)
ges in lands or buildings. The items to be considered for the calcula- CH4 Air 0 0 0 0 0 + (-)
tion of the conversion factors for the waste CO2 Air 0 0 0 0 0 + (-)
treatment facilities are the investment costs, VOCs Air (+) 0 (-) 0 0 0 0
dioxins Air (+) - 0 0 0 0 -
Adjustment of market prices the intermediate stocks, the products sold Dust Air ? ? 0 0 ? 0 0
on the market (secondary materials, gas, Leach ate Soil ? ? 0 0 0 0 ?
The economic analysis of the project requires adjustments of market
heat or power), operational costs (inclu- and water
prices used in the financial analysis. Market prices are considered to be
ding labour costs) and decontamination + Measurable effect (+) Partly measurable effect - Non-measurable effect (-) Non-measurable but minor effects ? Non-measurable uncertain effects
far from their long-term equilibrium because of numerous distortions
and dismantlement costs. 0 no Known effect
such as those due to taxes, subsidies, import duties and other financial
* Source: COWI Consulting Engineers and Planners AS., “A Study on the Economic Valuation Externalities from Landfill Disposal and Incineration of Waste”, Final
transfers. To reflect opportunity costs, economic figures must take into
The estimate will be different when consi- main report, European Commission DG Environment, October 2000.
account externalities and remove all types of financial transfers.
dering traded items (raw materials, energy,
A standard conversion factor is applied to internationally traded items
commodities and other capital goods or • Recycled materials • Electricity produced, gas and heat recovery
services) or non-traded items (electricity Many recycled materials are traded, such as The conversion factor for electricity, consi-
to adjust market price and to calculate accounting prices reflecting
and gas recovery, land, some raw materials metallic materials, paper or glass. Prices are dered as an input, can be estimated as fol-
opportunity costs. Prices on world markets represent the country’s
or unskilled labour). strongly correlated to international market lows: (1) a macroeconomic study which try
actual trading opportunities and are thus an appropriate measure of
Externalities should be considered as spe- prices of raw materials and energy. to estimate the opportunity costs of the
opportunity costs. The SCF conventionally reflects the weighted ave-
cial non-marketed goods or services. Information required for the calculation of electricity production (“top down” ap-
rage divergence between border prices and domestic market prices
For waste treatment plants conversion fac- conversion factors for traded items could be proach), (2) a process evaluation which
for all traded goods and services in the economy and may be estima-
tors will be calculated as follows: obtained from eco-industries, national and proceeds by breaking down the marginal
ted based on foreign trade statistics using the following formula:
international statistical offices or Customs. cost structure of the production process
For traded items: (“bottom up” approach); (3) the applica-
M+X
(M+TM) + (X-TX) • Equipment For non-traded items: tion of the standard conversion factor whe-
Equipment for waste management is fre- • Buildings re electricity is a minor input.
quently traded. This is the case for incine- The conversion factors are estimated according
Where: M = CIF value of total imports
ration equipment, such as furnaces, filters to a process analysis which differentiates tra- If electricity is sold at prices below the long
X = FOB value of total exports
and boilers, but also for collection and ded items from non-traded items. Information run marginal cost (or, if not available, the
TM = taxes on imports
recovery equipment. CIF (cost, insurance required for the calculation of conversion fac- consumers' willingness to pay), this latter
TX = taxes on exports
and freights) and FOB (free on board) pri- tors can be in some cases found in official sta- information should be used to calculate the
ces can be applied. tistical compendia published regularly. correction for actual tariffs. In a final step,
The standard conversion factor should be used by default, when
specific sectoral conversion factors are unavailable.
49
3.1 Waste treatment 3.1 Waste treatment
Tab. 3.3 Effects on the total cost of a 10% change in the main variable influencing the cost of incineration
Variables (inputs) Var. Effects on total cost of incineration
the domestic market price has to be conver- waste treatment plants such as authorized Volume of waste +10% -7,5%
ted into a border price by an adequate con- landfills. Furthermore many plants, as Energy price +10% -2,5% -3,5 %
version factor (the SCF may be used). landfills or incinerators, require permits for Ash and Slag from combustion Processes +10% +0,1%
Transport cost of waste from combustion processes +10% +0,3%
prescribed activities which set conditions to
Gas and heat are products usually sold on risk management, dangerous substance Source IFEN (France), 2000
local markets. If they are at the origin of a management and pollution control8. In any
minor financial flow, as usually occurs, the case it is advisable to insert a short environ- 3.1.7 Sensitivity and risk analysis 3.1.8 Case study: Investment in an inci-
SCF could be applied to convert local to mental impact analysis even without speci- Critical factors influencing the success of nerator with energy recovery
border prices. Otherwise (for example in fic legal requirement. an investment in this sector are potentially
the case of methane), international price numerous, such as: investment costs, key Financial analysis
to direct substitute could be used as adju- The main elements of an environmental input dynamic costs (energy, raw mate- The cost of the investment is fixed at EUR
sted price. impact analysis are the following: rials…), recovery product prices, costs of 50 million:
• Emissions in the atmosphere, specially remediation and other environmental • The capacity of the furnace is fixed at
• Land greenhouse gas emissions (impacts rele- costs. 200,000 tons of municipal waste (per year).
Land is generally of minor importance for vant for incineration); • In order to make it easier in this example,
industrial projects, and may be converted • Waste water discharges and soil contami- According the list before, it would be advi- the time horizon is only 10 years;
from market into border prices by the SCF. nation (impacts relevant for incineration sable for the sensitivity analysis and risk • The investment is financed by a loan
When land is important, for example in the and land filling); analysis to consider at least the following with a 3% interest rate, the investment
case of a landfill, its economic value is • Impacts on biodiversity (impact relevant variables (potential critical variable): cost is split between 10% for land, 35 %
determined by the valuation – at border for major projects built near protected • The cost of investment; for buildings and 55% for equipment
prices – of the net output that would have area); • The change in demand of waste disposal (furnaces, boiler…);
been produced on the land if it had not • Impacts on human health, linked to pol- related to the diffusion of new products • A 5% financial rate of discount is chosen
been used by the project. lutant emissions and contamination of or new technologies, changes in beha- • The energy recycled is sold as heat and
the environment (impacts relevant for viour, the variation in economic or power with a price of EUR 15 per ton
• Skilled and non-skilled labour any waste treatment facility); population growth; (40% heat and 60% power);
Labour involved in waste management faci- • Noises and odours (impacts relevant for • Variations in the sales price of recycled • The price of treatment paid by final users
lities is mainly non-skilled. many waste treatment plants); products; is fixed at EUR 25 per ton.
The valuation of a price for skilled labour • Aesthetic impacts on landscape (impact • The dynamics of costs over time of some • Ten skilled employments (at 12000
could be done at the market prices, skilled relevant for incineration and land filling); goods and critical services for certain euro/person per year) and forty non-skil-
labour market is in fact reasonably compe- • Risk management of the site such as fire projects (e.g. the cost of electricity and/or led employments (at 10000 euro/person
titive and market wage rates may reflect and explosions (impacts relevant for some fuel or the cost of remediation and per year) are assumed;
marginal productivity. specific waste treatment plants such as oil decontamination of the sites). • Functioning costs are fixed at EUR 10 per ton;
waste treatment plant and incineration). • Elimination cost of ash and slag waste are
For non-skilled labour, some distortion A variation in 10 % (or 1 %) of the input set at EUR 10 per ton;
may occur, due for example to a sectoral In urban area, disturbances can also be regi- variables could be used to assess the asso- • Renovation costs are assumed to be 5%
minimum salary. The output that unskilled stered during the building phase of the plan- ciated changes in ENPV or ERR or in any of the initial cost of the investment and
labour would have produced in its previous ts while in management phase perturba- other relevant variable (see Tab. 3.3). For the net residual value, over the 10 years
occupation should be quantified. The tions, in addition to those listed above, are critical variables a risk assessment must be of life of the plant, is fixed at 50% of the
obtained value represents the economic likely to be linked to the collection of waste. carried out to calculate the probability dis- initial cost of the investment.
opportunity cost of unskilled labour. tribution of the final results. The presentation of the financial analysis
A qualitative approach of environmental can be viewed in the Tab 3.4. The numbers
3.1.6 Other evaluation criteria impacts could always be used in order to Another type of risk analysis could be per- are expressed in 1000 of euro. The Net
rank the potential environmental impacts formed regarding social risk related to the Present Value (FNPV) calculated is 1862
Environmental analysis according to the type of damage it possible reject by people of the project thousand euro, and the Internal Rate of
For a large number of waste treatment pro- induced or its dangerousness. For example because of its potential impacts on quality Return (FRR) is approximately 6 %.
jects, an environmental impact analysis the major impacts of a landfill are likely to of life in the area concerned. The risk is
(EIA) is required by regulatory texts7, espe- be soil and water contamination, while, for usually called NIMBY (“Not In My Back- Economic analysis
cially in the case of hazardous waste depo- incineration, impacts on air quality will be yard”) and can be investigated by a qualita- External costs and conversion factors are
sits or removal plants or for some types of more relevant. tive analysis based on questionnaire or calculated to adjust financials flows and are
direct contacts with stakeholders involved. intended to reflect real opportunity costs.
7
At the European level see the Environmental Impact Assessment Directive (85/337/EEC).
8
European legislation on pollution control and risk management sector is set out in the IPPC Directive (96/61/EC), in the Large Combustion
Plants Directive (88/609/EEC) and the Seveso II Directive (96/82EC).
50 51
3.1 Waste treatment 3.2 Water supply and depuration
Years
• the external costs calculated in this • Equipment and inputs to the produc- cf (3) 1 2 3 4 5 6 7 8 9 10 11
example are connected to atmospheric tion process, such as energy and raw
External benefits 0.95 0 1710 1710 1710 1710 1710 1710 1710 1710 1710 1710
pollution, especially greenhouse gas materials, concerning the incineration Service revenues 1.00 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000
emissions, environmental impacts of sector are supposed to be imported. Tariffs Heat sales 0.95 1282 1282 1282 1282 1282 1282 1282 1282 1282 1282
ash and slag, odours, noise and aesthetic are considered to be equal to the average Electricity sales 0.66 1568 1568 1568 1568 1568 1568 1568 1568 1568 1568
Sales 0 7850 7850 7850 7850 7850 7850 7850 7850 7850 7850
damages; tariffs on national goods and services, so Residual value 0.87 19163
• the external net benefits are assumed to the SCF is used to convert market price Total revenues 0 9560 9560 9560 9560 9560 9560 9560 9560 9560 28723
be EUR 9 per ton (evaluated as the avoi- into border prices. The conversion factor Skilled labour 0.95 114 114 114 114 114 114 114 114 114 114
ded costs for energy production by con- for equipment and inputs is cf = 0,95 Non skilled labour 0.95 380 380 380 380 380 380 380 380 380 380
Raw materials 0.95 95 95 95 95 95 95 95 95 95 95
ventional technology with fuel); Intermediate goods 0.95 1330 1330 1330 1330 1330 1330 1330 1330 1330 1330
• the economic discount rate should be • Buildings constitute a non-traded item Energy for plants 0.95 475 475 475 475 475 475 475 475 475 475
equal to the financial rate. for which a specific conversion factor Other costs 1.00 500 500 500 500 500 500 500 500 500 500
may be calculated. In our example buil- Total operating costs 0 2894 2894 2894 2894 2894 2894 2894 2894 2894 2894
Land 1.19 5950
The value of the standard conversion fac- ding costs consist of 30% unskilled la- Buildings 0.70 12250
tor comes from the following macroecono- bour (see below for the conversion fac- Equipment 0.95 26125
mic data (in millions of euro): M = 3000; tor), 40% of imported building materials Total investment costs 44325 0 0 0 0 0 0 0 0 0 0
X=3500; Tx = 30; TM = 600; for a SCF = that face import duties 25% (therefore cf = Total expenditures 44325 2894 2894 2894 2894 2894 2894 2894 2894 2894 2894
Net cash flow -44325 6666 6666 6666 6666 6666 6666 6666 6666 6666 25829
0,95. 0,75), 20% of local material (SCF) and
Economic internal rate of return (ERR) 11.77%
10% profits (cf=0). So the conversion fac- Economic net present value (ENPV) 17967
• Land is provided by the local authorities tor for building is (0,3 X 0,95) + (0,4 X
at a concession price that is 25% below 0,75) + (0,2 X 0,95) + (0,1 X 0) = 0,7
what would have to be paid on the mar- without local taxes and the conversion supply service (IWS) for all uses of the
ket, consequently the price has to be • Skilled and unskilled labour are not factor is assumed to be equal to the SCF. resource. The IWS segment includes the
increase of 25% to reflect local market differentiated and it is assumed that the The project enjoys a special tariff for supply and delivery of water as well as the
prices. Because of the absence of a speci- labour market is competitive. The con- industrial projects and electricity is sup- collection, elimination, purification and
fic conversion factor, the SCF is used to version factor is 1 x 0,95 = 0,95 posed to be subsidized for 30% of its reutilization of sewage.
convert the market price into border pri- market cost. The resulting conversion
ce. So, the conversion factor for land is • Heat and electricity are non-traded factor will be: 0.7 X 0,95 = 0,66 3.2.1. Objectives definition
1,25 x 0,95 = 1,19. items. Heat is sold at the marginal cost The proposer shall place the project within
• External benefits are estimated to be a general framework which is intended to
free of taxes and the conversion to border show that the planned investments will
Tab. 3.4 Table for the financial analysis
prices is achieved through the use of the have the effect (main purpose) of impro-
Years standard conversion factor. ving the quality, effectiveness and effi-
1 2 3 4 5 6 7 8 9 10 11 ciency of the service.
Service revenues 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000
After taking into account external benefits It is necessary to provide ex ante quantifi-
Heat sales 1350 1350 1350 1350 1350 1350 1350 1350 1350 1350 and costs and having undertaken the cation of the significant parameters of such
Electricity sales 1650 1650 1650 1650 1650 1650 1650 1650 1650 1650 appropriate adjustments to correct major an objective, such as for example:
Sales 0 8000 8000 8000 8000 8000 8000 8000 8000 8000 8000
market failures, the ENPV becomes positi-
Residual value 22000
Total revenues 0 8000 8000 8000 8000 8000 8000 8000 8000 8000 30000 ve for an amount of approximately • the extension of the supply and delivery
Skilled labour 120 120 120 120 120 120 120 120 120 120 EUR 18 million, with an ERR around 12 % or sewer and purification service (num-
Non skilled labour 400 400 400 400 400 400 400 400 400 400 (see Tab. 3.5). ber of users served);
Raw materials 100 100 100 100 100 100 100 100 100 100
Intermediate goods 1400 1400 1400 1400 1400 1400 1400 1400 1400 1400 • the volumes of water saved in civil or
Energy for plants 500 500 500 500 500 500 500 500 500 500 irrigation networks as a result of the
Other costs
Total operating costs 0
500
3020
500
3020
500
3020
500
3020
500
3020
500
3020
500
3020
500
3020
500
3020
500
3020 3.2 Water supply reduction of water leaks and/or the ratio-
nalisation of delivery systems;
Land
Buildings
5000
17500 and depuration • the smaller quantity (m3/year) taken
Equipment 27500 from polluted or injured sources (for
Total investment costs 50000 0 0 0 0 0 0 0 0 0 0 Introduction example river or natural lakes which have
Total expenditures 50000 3020 3020 3020 3020 3020 3020 3020 3020 3020 3020
This section is focussed on the investments been strongly impoverished by resource
Net cash flow -50000 4980 4980 4980 4980 4980 4980 4980 4980 4980 26980
Financial internal rate of return (FRR/C) 5.64% in the management of the integrated water takings or coastal and salty strata, etc.);
of the investment
Financial net present value (FNPV/C) 1862
of the investment
52 53
3.2 Water supply and depuration 3.2 Water supply and depuration
• the continuity of service (frequency and establish the specific objectives of the In this case, the specific objectives should context of incorporation, and the sustaina-
duration of interruptions); investment, i.e. the population to be ser- also refer to the resource volumes made bility analysis may also be of great help in
• the improvement of the water delivery ved and the average resource availability available (millions of cubic metres per many cases.
system in dry weather conditions; (litres/inhabitant*day) or the hectares to 2
year), the maximum flow rates
• the extent of the polluting load which be irrigated, the types of crops, the avera- (litres/second) conveyed, the overall capa- 3.2.3 Feasibility and options analysis
has been removed; ge expected production, the resource city of the long-term resource regulation
• the improvement of environmental para- availability (litres/hectare*year), the time which will be provided by the system. Analysis of the demand
meters; and periodicity of irrigation, etc. The demand for water may be broken down
• the reduction of operating costs. • the projects may have non-local objecti- 3.2.2 Project identification into additional components according to
ves, for example on a regional or interre- the use (demand for drinking water, for irri-
It is necessary to establish the specific ob- gional scale. This is the case of aqueducts Typology of the investment gation or industrial purposes, etc.), and the
jectives. Investment in the sector may be for long-distance transportation of water A precise definition of the type of availa- timing of demand (daily, seasonally, etc.).
grouped into two project categories from from relatively rich areas to arid zones or ble services is the first step to be taken in
this point of view: the construction of dams intended to developing the analysis of the investment. The estimation of the demand curve may
• projects intended to promote local deve- supply wide regions which may be also From this point of view, it may be useful to be based on data gained from previous
lopment1. In this case it is necessary to far away from their location. consider the analysis of demand, the suita- experience in the area involved or from
bility evaluation of the project also from published forecasting methods, particularly
the technological viewpoint and the study those based on the concept of the consu-
of the components of costs, revenues and mer’s willingness to pay.
Typology of investments and offered services benefits.
Type of actions: as well as for civil, industrial or irrigation purposes,
In case of replacements and/or completions
• construction of entirely new infrastructures (aqueducts, se- • works meant for the treatment of primary water (clarifica-
Territorial reference framework it is also useful to make reference to histori-
wer systems, purifyers), intended to meet increasing needs, tion, desalination, purification)
If the project is placed within its territorial cal data of consumption, provided that the-
• works intended to complete aqueducts, sewers and purif- • works meant for the collection and elimination of sewage,
framework, this will provide for a precise se data have been measured by reliable
yers which have been partially constructed, including the • works meant for the treatment and discharge of conditio-
identification of the investment. methods (for example from the readings of
completion of water supply networks or sewer systems, ned sewage,
meters).
• works meant for the reutilization of treated sewage.
the construction of trunk lines for the connection to the The proposer should supply also the ele-
existing conditioning systems, the construction of condi- ments required to ascertain the project’s Demand is made up of two fundamental
tioning systems for the existing sewer systems, the con- Services offered: consistency with planning for the sector, at elements:
struction of purifyers with tertiary treatment plants for the Civil services
reutilization of conditioned sewage, • infrastructures and/or plants serving high-density urban
least from the following three points of • the number of users in the case of civil
view: use, including temporary users like tou-
• partial modernisation and/or replacement of existing areas,
• infrastructures and/or plants serving the districts of towns
• consistency with the economic-finan- rists of the surfaces to be irrigated in
infrastructure in compliance with the strictest rules and cial planning of the water sector, as may case of agricultural use and of produc-
laws in force, or villages,
be inferred from the pluriennial schedu- tion units to be served in the case of
• actions intended to save water resources and/or to provi- • infrastructures and/or plants serving small (agricultural,
les for the use of community and natio- industrial use
de for its efficient use, mining, tourist) settlements and/or isolated houses,
• actions intended to rationally replace the use of the • infrastructures and/or plants serving high-density indu-
nal financing which have been approved • the quantity of water, which is being or
for the various countries or regions; will be delivered to users for a given
resource when it is not regulated (for example irrigation strial settlements and/or industrial areas,
with private uncontrolled wells), • rural aqueducts
• consistency with the national sector period of time
policies, in particular the project should
• actions intended to improve management efficiency Irrigation service
significantly foster the industrialisation It is important to note that, if the water net-
• district aqueducts for collective irrigation,
objectives of the sector, for the countries work has been not well maintened in the
Prevailing typology of investments: • local aqueducts for individual or small-scale (oasis-like)
where this process is under way; past, the analysis of demand should include
• works aimed at collection, regulation or production of the irrigation,
resource, even on a pluriennial basis, Mixed service
• consistency with the community, natio- the problem of leakages. That is to say that
nal and regional environmental poli- the total water supply is made by the final
• works meant for water transportation, • aqueducts for irrigation and civil and/or industrial service,
cies, mainly for the use of water for consumption and the leakages.
• works meant for the local distribution of water resources • industrial and civil aqueducts
human purposes, the treatment of sewage
and the protection of water bodies. An other important point is to consider
the elasticity of the demand to tariffs. In
1
Projects of sewers and depurators are almost always related to local development and they may be considered from a dual point of view: i) The SWOT analysis, evaluating the project some cases it will be necessary to estimate
these actions are aimed at “closing” the water-cycle for hygienic-sanitary reasons and, as such, may be regarded as part of the integrated water
supply service, ii) they are also measures to safeguard the environment and in particular the quality of the bodies of water into which drains potentialities and risks deriving from the the elasticity for different income groups
flow. For this reason it is necessary to take into account also the specific objectives of the environment, as for example the quantity of remo-
ved pollutants, the restoration of physical/chemical and biological quality parameters of water and soil, etc.
2
If the resource is destined to the service of tourist areas, it is necessary to take into account the fluctuation of the population and the seaso-
nality of the demand.
54 55
3.2 Water supply and depuration 3.2 Water supply and depuration
Check
tever may be of use. • the possible alternatives within the same
No infrastructure as for example: different
Yes If the project involves the purification and locations of wells, alternative routes for
discharge of sewage, it is necessary to analy- aqueducts or trunk lines, different buil-
Market prices
se the capacity of the body intended to ding techniques for dams, different posi-
Shadow prices
receive the load of polluting and nouris- tioning and/or process technology for
Availability
hing substances, in a way compatible with plants, utilisation of different energy
environmental protection. sources for desalination plants, etc;
• the possible alternatives of sewage drains
Direct socio-economic benefits Indirect socio-economic benefits Cycle and phases of the project (lagoons, different receptors, etc);
Great attention should be paid to the exi- • the possible global alternatives, as for
stence of propaedeutic stages playing a fun- example a dam or a system of crosspieces
Fig.3.4 Chart for the analysis of the resource demand damental role for the completion of the instead of a wells field or the agricultural
work, such as for example the search for reutilization of properly treated sewage, a
and between small and big users, because potential demand will correspond to the new subsurface resources and their qualita- consortial depurator instead of several
this may produce quite different values and maximum requirement which should be tive and quantitative assessment by means local depurators, etc.
distributive impacts. taken into account for that investment. For of scout borings or hydrologic surveys and
example, demand may be evaluated for studies intended to identify the best loca- 3.2.4 Financial analysis
The project should focus on a demand civil purposes on the basis of water requi- tion of dams and crosspieces, their dimen- The actions in the sector may fall within the
forecast for the period corresponding to rements for the same use (generally expres- sions, the size of suppliers and so on. category of infrastructure generating net
the project cycle. It should take into sed on a daily and seasonal basis) arising revenues. In this case, it is necessary to gua-
account demographic forecasts and migra- from a comparison with any situation It is also necessary to consider the institu- rantee a significant co-financing share
tion flows for an estimate of the users and which will be as close as possible to the tional and administrative aspects related through the proposer’s own funds. Since
the agricultural or industrial development project’s and which has a good service to the project as well as the expected exe- most of them derive from the “advances” of
plans in the other cases. The time structu- level. For irrigation purposes it may be cution and building times. the future proceeds of services which will
re of the short-term demand (daily, seaso- estimated on the basis of specific agrono- be performed by using the infrastructures
nal, etc.) should be considered too. mic studies or, in this case, even by ana- The project must identify the manager(s) which have been built with the project, in
logy. The actual demand is the demand of any (public, private, local, national, these cases the financial analysis should
In general, one can make a distinction bet- which is actually fulfilled by the investment multinational, etc) generated service, show the proposer’s capacity to sustain the
ween potential and actual demand. The in question and which corresponds to the regardless of what its scale may be. The investment from this point of view.
56 57
3.2 Water supply and depuration 3.2 Water supply and depuration
Identification of basic functional data: • capacity (m3) of tanks (attach location plans and sec-
• Number of served inhabitants tions),
the financial analysis should consider the should be fulfilled by the investment and
• Irrigated surface (hectares) • occupied surface (m2), nominal flow rate (l/s) and diffe-
residual value of the investment, according estimated according to an adequate water
• Number and type of served production structures rence in height (m) of any lifting apparatus (attach location
to the methods which have been described accounting price.
• Water availability per capita (l/d*inhabitant) or per hectare plans and sections),
in the second chapter of the Guide.
(l/d*hectare) • Nominal flow rate (l/s), production (m3/g) and absorbed /
A time horizon of 30 years is advisable. Alternatively, if possible, direct valorisation
• Water quality data (laboratory analysis) consumed power (KW or Kcal/h) of purification or desali-
may be applied to benefits such as:
• Number of equivalent inhabitants, flow rates and parame- nation plants (attach lay-out and flow pattern);
ters of the polluting load of the water which should be trea- • Technical features and configuration of the main structu-
3.2.5 Economic analysis • the value of the illnesses and deaths avoi-
The main social benefits to be introduced ded thanks to an efficient drains service;
ted (laboratory analysis) and quality constraints of the water res, for example by enclosing one or several typical sec-
which should be drained (defined by the law). tions and/or sketches (sections of ducts, layouts of con-
in the economic analysis may be usefully • the damage avoided to land, real estate
evaluated according to estimates of expec- and other structures due to potential
trol rooms, etc.) and by specifying the parts which have
ted demand for water resources that the flooding or unregulated rainwater (for
Identification of the territorial construction data of the been recently built;
investment will satisfy. The basis for the “white” or mixed drains), valorised on
infrastructure: • Technical and constructive features of the main lifting
estimation of an accounting price for water the basis of the costs for recovery and
• Location of the works on the territory, shown by properly apparatus, production or treatment plants, by enclosing
may be the user’s willingness to pay for the maintenance;
scaled topographical maps (1:10000 or 1:5000 for net- functional layouts in details;
works and plants; 1:100000 or 1:25000 for collection and • Nominal flow rate (l/s), capacities (equivalent inhabitants),
service. The willingness to pay can be quan- • in the case of purified discharges into
tified by applying the market prices of rivers, lakes and land, the value of the
supply works, trunk lines); conditioning efficiency (at least on BOD, on COD, on pho-
alternative services (tank trucks, bottled water resources in non-polluted collec-
• Physical connections between the structures and the (new sphorous and nitrogen) of purification plants as well as the
drinking water, distribution of drinks, tors, to be estimated according to the
or existing plants); it may be useful to enclose technical dra- technical and constructive features of drain pipes (attach
purification by means of devices installed method shown for aqueducts.
wings of a schematic kind; location plans, lay-outs and flow patterns);
for the users, in situ sanifying process of
• Any interference and/or interconnection with the existing • Technical and constructive features of the buildings or
potentially infected waters, etc.) or by In any case, if no standard economic
infrastructures of any other type (streets, railways, electri- other service structures, by enclosing location plans
adopting other methods, which may be appraisal method is applicable for the spe-
cal lines, etc). and sections;
found in the literature (see bibliography). cific project, it is possible to resort to any
• Relevant technical elements, such as crossings, cave
similar project which may have been deve-
Identification of physical and characteristic data: tanks, galleries, remote control plants or computerised
For any water infrastructure meant for the loped in a context as close as possible to the
• Total length (Km), nominal diameters (mm), nominal flow service management plants, etc. (by enclosing data and
service of either industrial or agricultural one of the affected area.
rate (l/s) and differences in height (m) of suppliers or lay-outs)
areas, it is possible to evaluate the added
trunk lines, • Identification of the main components and materials pro-
value of the additional product which has For the reasons stated in the section regar-
• Nominal filled volumes (millions of m3) and height (m) of posed by the project, by specifying their availability (of
been gained through the water availability. ding objectives, the environmental externa-
dams (location plans and sections attached hereto), local production or importation) in the investment area.
lities should be quantified in any case, con-
• Number, length (m) and nominal flow rate (l/s) for running • Identification of any technology which may have been pro-
For any intervention which is intended to sidering the following:
water taking works (location plans and sections attached posed for the realisation of the infrastructure, by specif-
hereto), ying its availability and convenience (for example from the
guarantee the availability of drinking • the possible valorisation of the served
water in areas with sanitary problems, area, quantifiable, for example, by the
• Number, depth (m), diameter (mm), drained flow rate (l/s) for viewpoint of maintenance).
where water sources are polluted, the revaluation of real estate and building or
wells fields (attach properly scaled location plan), • In case of conditioners, identify the options for the dispo-
benefit may be directly estimated by valua- agricultural area prices;
• Linear development (Km) and characteristic diameters sal of treatment mud. In case of desalination plants, iden-
(mm) of aqueducts or sewers (attach properly scaled loca- tify the options and infrastructures for the disposal of
ting the deaths and illnesses which have • the increased income due to the collateral
been avoided by means of an efficient activities (tourism, fishing, coastal agri-
tion plan), concentrated brine.
water supply service. To make an econo- culture, etc.) that may be settled or main-
mic valuation, it is necessary to make refe- tained, for example in the case of artifi-
rence on the one hand (illnesses) to the cial lakes or projects intended to safe-
For the outflow, the purchasing price of the proceeds for the sale of water in case of reu- total cost of hospital or out-patient treat- guard rivers, lakes, straits and other col-
products and services, necessary both for the se should also be considered, if they exist. ments and to the income loss due to pos- lecting bodies;
operation of plants and for the additional Also in this case, the tariffs or sales prices of sible absence from work and on the other • the negative externalities due to the pos-
services supplied, should be considered. any additional service the manager may hand (deaths) to the human life value sible impacts on the environment (soil
offer to the user (for example hooking up, quantified on the basis of the average consumption, inert consumption, spoi-
The financial inflow generally derives from periodic maintenance, etc.) should be taken income and residual life expectancy. ling of scenery, impact on the natural
tariffs or fees applied for the water supply into account. context) and on any other infrastructure
service. Possible reimbursements (or other The social benefits of sewers and purifica- (e.g. roads and/or railways);
forms of transfers) for the collection and Since water infrastructures are generally tors may be also evaluated on the basis of • the negative externalities during the con-
transport of rainwater as well as possible characterised by a long period of useful life, the potential demand for sewage4 which struction phase due to the opening of
4
Basically the same as the demand for water.
58 59
3.2 Water supply and depuration 3.2 Water supply and depuration
5
Legislation in the majority of member countries requires the compulsory evaluation of the environmental impact for some of these infra-
60 structures (e.g. dams, large aqueducts, depurators, etc.), in the approval stage of projects. Fig. 3.5 Project map 61
3.2 Water supply and depuration 3.2 Water supply and depuration
Tab. 3.6 Some hypothesis for quantification of financial costs and revenues
Years
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 springs providing suitable volumes, that
Demographic increase 235,470 235,941 236,413 236,886 237,359 237,834 238,310 238,786 239,264 239,743 240,222 240,702 241,184 241,666 242,150 242,634 243,119 243,605 244,093 244,581 245,070 245,560 246,051 246,543 247,036 exist only in an area at some distance from
Migratory flow that of use. The small existing aqueduct will
Annual value 2,900 2,900 2,900 2,900 2,900 1,933 1,933 1,933 1,933 1,933 580 580 580 580 580 580 580 580 580 580 580 580 580 580 580 still be used to supplement supply and in
Cumulative value 2,900 5,800 8,700 11,600 14,500 16,433 18,367 20,300 22,233 24,167 24,747 25,327 25,907 26,487 27,067 27,647 28,227 28,807 29,387 29,967 30,547 31,127 31,707 32,287 32,867
Residents served by the water purifier 238,370 241,741 245,113 248,486 251,859 254,267 256,676 259,086 261,497 263,909 264,969 266,029 267,091 268,153 269,216 270,281 271,346 272,412 273,479 274,547 275,617 276,687 277,758 278,830 279,903
peak periods.
Residents served by sewers 59,593 60,435 61,278 62,121 62,965 63,567 64,169 64,772 65,374 65,977 66,242 66,507 66,773 67,038 67,304 67,570 67,836 68,103 68,370 68,637 68,904 69,172 69,439 69,707 69,976
Annual volumes (millions of cubic metres) The needs to be satisfied in the case of irri-
New civil sewer 3.95 4.00 4.06 4.12 4.17 4.21 4.25 4.29 4.33 4.37 4.39 4.41 4.42 4.44 4.46 4.48 4.49 4.51 4.53 4.55 4.56 4.58 4.60 4.62 4.64
gation supply are twofold:
Urban purification 15.79 16.01 16.24 16.46 16.69 16.84 17.00 17.16 17.32 17.48 17.55 17.62 17.69 17.76 17.83 17.91 17.98 18.05 18.12 18.19 18.26 18.33 18.40 18.47 18.54
Industrial sewer and purification 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 3.95 • it is necessary to significantly increase
Supplied the reservoir for the industrial area 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 4.77 the supply of this resource in order to
Supplied to the reservoir for the irrigation area 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 4.14 fully utilise the area already equipped
Substituted to reduce the existing supply 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90 1.90
Additional supplying for the irrigation area 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 2.24 with the distribution network in order
to encourage and accompany the cultu-
Tariffs of services ral transformation process underway
Civil sewerage service 0.09 0.10 0.10 0.11 0.12 0.12 0.12 0.13 0.13 0.13 0.14 0.14 0.14 0.15 0.15 0.16 0.16 0.16 0.17 0.17 0.18 0.18 0.18 0.19 0.19 towards non-surplus and higher added
Civil purification service 0.28 0.30 0.32 0.33 0.35 0.37 0.38 0.39 0.40 0.41 0.42 0.43 0.44 0.45 0.46 0.48 0.49 0.50 0.51 0.52 0.54 0.55 0.56 0.58 0.59 value production;
Industrial sewer and purification service 0.46 0.48 0.49 0.50 0.51 0.53 0.54 0.55 0.57 0.58 0.59 0.61 0.63 0.64 0.66 0.67 0.69 0.71 0.72 0.74 0.76 0.78 0.80 0.82 0.84
Water supply to the reservoir 0.57 0.58 0.60 0.61 0.63 0.64 0.66 0.68 0.69 0.71 0.73 0.75 0.76 0.78 0.80 0.82 0.84 0.86 0.89 0.91 0.93 0.95 0.98 1.00 1.03 • the current use of the water-table and
for industrial purposes of a small body of surface water has put
Water supply to the reservoir 0.15 0.16 0.16 0.17 0.17 0.18 0.18 0.18 0.19 0.19 0.20 0.20 0.21 0.21 0.22 0.22 0.23 0.24 0.24 0.25 0.25 0.26 0.27 0.27 0.28 excessive pressure on these natural
for irrigation purposes
resources, which both show tangible
signs of impoverishment and vulnerabi-
sewers linking to the existing effluent and the water distribution network for the the new services generated by the project. lity; it is therefore necessary to reduce
main1, and the development of a sewer industrial installations already exist. The total supply is considered gross of lea- intake.
and waste collection system in the indu- kages in the water network. The real con-
strial area. The project proposer is the firm which has suption is calculated as follow: The development of these considerations
managed the integrated water service of the led to the solution described in the pre-
For reuse the project contemplates the area object of the investment for the past 20 real consumption= total supply - leakages vious section.
development of three modules of intensive years5. The proposer is prepared to co-
treatment (tertiary), which will treat an finance the investment (the size of the cofi- Project analysis Financial analysis
average of just over 60% of the flow of nancing rate is yet to be decided), taking In the civil segment, the demand for purifi- An explanation of the financial analysis and
purified waste4. Both the irrigation network into account the receipts it will gain from cation comes from both the users of the exi- the result are shown in Tab. 3.7.
sting urban sewer network and those who
will be hooked up to the part to be develped. The time horizon is 25 years.
The water demand
The volume of water to be treated has been estimated on the lar consumption levels, same geographic area, etc.) and cor- In the initial year, the annual volumes of The analysis, conducted from the point of
basis of an average daily water supply of 220 litres per inha- rected in the light of data on historic consumption in the city civil waste amount to 15.57 million cubic view of the financing agency, takes into
bitant and taking into account the fluctuation in the popula- in question, available from the service provider, who is, as metres (Mm3), and industrial waste to 3.95 consideration the costs and differential
tion (in the three summer months the population resident in we have said, also the proposer of the investment2. Mm3, for a total of 19.52 Mm3 to be col-
the city shrinks by an average of 25%). lected by the effluent trunk line and treated
For the industrial area the water demand was estimated on by the water purifier.
The size of the daily water supply was determined on the the basis of the specific consumption of industrial installa- In order to determine the demand for water The dynamics of demand
basis of a study of the needs of the civil population of areas tions and taking into account a period of activity of 11 for reuse a preliminary analysis of different The dynamics of demand were determined bearing in mind the evolu-
similar to those of the project (similar social customs, simi- months per year3. alternatives was made and the following tion of the population resident in the city, which has two components:
conclusions reached. • a demographic rate of growth (the average for the region) of
0.20% per year;
1
The existing urban effluent trunk main and the discharge main from the water purifier will only be modified slightly (the area linking it to the new plant and tertiary
Since a drastic increase in demand is expec- • a migratory flow with a positive balance (mainly due to the growth
treatment), and the rest of the existing system will continue to be used. The purified water is discharged into the river. ted from the industrial area, the optimum in industrial activities) of 2,900 per year for the first 5 years, which
2
The volumes of wastewater take into account a dispersion co-efficient of 0.88. The contamination level (BOD Biochemical Oxygen Demand, COD, Chemical Oxygen solution is to supply it entirely with treated is reduced by a third (to 1,933 per year) from the 6th to the 10th
Demand) was estimated using standard environmental engineering methods.
3
The volumes of waste take into account a dispersion co-efficient of 0.70 in the industrial processes and in the waste collection systems. A specific analysis of the indu-
waste water, rather than to build a new years and finally stabilises at a fifth (580 per year);
strial processes was carried out to determine their contamination levels. aqueduct which would need to be fed by • no change in industrial demand is hypothesised.
4
Below this plant a lift station and a discharge pipe carry the treated water to a separator reservoir, from which, thanks to the force of gravity, it passes down pipes to
the existing header tank of the irrigated area and the new reservoir above the industrial network.
5
Although the firm has no specific experience in reuse technologies, it does have solid managerial experience in the civil field and has thus far achieved good quality
levels in the service offered. It is also in a healthy economic-financial position and regularly and efficiently collects the proceeds from tariffs for the service.
62 63
3.2 Water supply and depuration 3.2 Water supply and depuration
revenue generated by the development of The additional running costs, that is those management experience of the proposer
The tertiary treatement of waste the proposed investment compared to tho- necessary to carry out the services genera- (personnel, other goods and services).
The plant for the intensive (tertiary) treatment of waste will be made
se of a scenario without the investment. ted by the investment (the new sewers for
up of three modules which, using part (520 litres per second) of the
25% of the population, the purification The calculation of the maintenance costs
flow discharged by the water purifier, will treat 11.88 Mm3 of water
Some hypothesis on the calculation of plant for the whole city and for the indu- was carried out on the basis of prices on the
per year with an output of water available for reuse of 8.91
financial costs and benefits are summarized strial area, the supply of water for industry local market, or, when these were not avai-
Mm3/year, which will be utilised as follows:
in Tab. 3.6. and for agriculture), include costs for per- lable, on those of the region or country.
sonnel (subdivided between technical and
• 4.77 Mm3/year are destined for industry, which will be supple-
Among the costs considered are those administrative staff), electricity, mainte- In addition to the costs above, the costs for
mented (0.87 Mm3/year) by the existing aqueduct in order to
necessary for the development of the pro- nance including spare parts, reagents and the replacement of components with a
cover all needs;
ject, including expenses for studies, plan- other goods for purification and tertiary “short” life compared to the time horizon
ning, management of the work, trials, treatment, for eliminating treatment slud- of the project were considered: that is, basi-
• 4.14 Mm3/year are destined for agriculture, during the irrigation
other general expenses, and all costs rela- ge, for the purchase of other goods and cally, machines and other electromechani-
season of roughly seven months, which will serve to half the volu-
ted to the development and testing of the intermediary services (technical and admi- cal equipment for the treatment and raising
mes currently abstracted from natural sources, which will thus fall
works foreseen. The total cost (Euro nistrative). plants which, in accordance with the tech-
from 3.80 Mm3/year to 1.90 Mm3/year and also to supply new
89.15 million) has been subdivided into nical data from the literature, are assumed
resources; the total volume available will be 6.04 Mm3/year.
homogeneous categories, whose values Wherever possible these costs have been to have a useful life of 15 years.
have been attributed (at constant prices) quantified on the basis of the technical data
The non-treated flow from the re-use modules will still be dischar-
to the first three years, on the basis of the for the project (electricity, maintenance,
ged into the river.
schedule for the implementation of the reagents, eliminating sludge), or by extra- Inflation
project. polation of the data obtained from the
• An inflationary dynamic was applied to costs (constant annual
accrual of 2.5%)
Tab. 3.7 Table for the financial analysis - Thousands of Euro • for real salaries a growth accrual of +0.5% annually (accrual of
monetary wages = 3.0% annually),
Years
• prices for energy discount a differential of –0.5% compared to
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
inflation.
New urban sewer system 140 449 480 512 529 548 567 586 603 621 639 657 677 696 716 737 759 781 803 827 850 875 900
New urban purifying system 1711 5491 5871 6253 6471 6695 6926 7164 7373 7588 7808 8035 8269 8509 8756 9010 9272 9541 9817 10102 10394 10695 11005
Industrial sewer and purification system 642 1975 2025 2075 2127 2180 2235 2291 2348 2407 2467 2528 2592 2656 2723 2791 2861 2932 3005 3081 3158 3237 3317 The calculation of revenues
Water supplying for industrial tank 949 2918 2991 3066 3142 3221 3302 3384 3469 3555 3644 3735 3829 3925 4023 4123 4226 4332 4440 4551 4665 4782 4901
The revenue predicted for the initial year (Euro 9,818,000) has been
Water supplying for irrigation (additional) 121 374 383 393 402 412 423 433 444 455 467 478 490 502 515 528 541 555 568 583 597 612 627
Revenue from services 3564 11207 11750 12299 12672 13056 13451 13858 14237 14625 15025 15435 15856 16289 16733 17189 17658 18140 18635 19143 19665 20201 20751 calculated as follows:
Revenues from other services 51 156 160 164 169 173 178 183 188 193 198 203 209 215 220 226 233 239 245 252 259 266 273 • Civil sewerage service (new connections for 25% of residents):
Residual value of infrastructures 39438 3.89 Mm3/year x Euro 0.093 per m3 = Euro 362,000;
Total revenues 3615 11363 11910 12463 12841 13229 13629 14041 14425 14818 15223 15638 16065 16503 16953 17416 17891 18379 18880 19395 19923 20467 60462
Technical personnel 259 444 1372 1414 1456 1500 1545 1591 1639 1688 1738 1791 1844 1900 1957 2015 2076 2138 2202 2268 2336 2406 2479 2553 • Civil purification service (in the current situation “without the
Administrative personnel 76 157 806 830 855 881 907 934 962 991 1021 1052 1083 1116 1149 1184 1219 1256 1293 1332 1372 1413 1456 1499 intervention” no purification charge is applied): 15.57 Mm3/year x
Reagents and other specialist materials 0 0 690 707 725 743 761 780 800 820 840 861 883 905 927 951 974 999 1024 1049 1076 1103 1130 1158 Euro 0.28 per m3 = Euro 4,422,000;
Energy for lifting 0 0 52 53 54 55 56 57 58 60 61 62 63 64 66 67 68 70 71 73 74 76 77 79
• Industrial sewer and purification service: 3.95 Mm3/year x Euro
Energy for plants 0 0 555 566 577 589 601 613 625 637 650 663 676 690 704 718 732 747 762 777 793 808 825 841
Maintenance 119 244 1248 1279 1311 1344 1378 1412 1447 1484 1521 1559 1598 1638 1678 1720 1763 1808 1853 1899 1947 1995 2045 2096 0.46 per m3 = Euro 1,834,000;
Cost of eliminating mud 0 0 597 612 627 643 659 675 692 710 727 745 764 783 803 823 843 865 886 908 931 954 978 1003 • Industrial supply in the reservoir: 4.77 Mm3/year x Euro 0.57 per m3 =
Intermediate goods and technical services 25 52 266 272 279 286 293 301 308 316 324 332 340 349 358 366 376 385 395 405 415 425 436 447
Euro 2,710,000;
Administrative, financial, economic services 0 29 146 150 154 158 161 165 170 174 178 183 187 192 197 202 207 212 217 223 228 234 240 246
Total operating costs 479 925 5732 5883 6038 6198 6361 6529 6702 6879 7061 7248 7439 7636 7838 8046 8259 8478 8703 8934 9171 9415 9665 9921 • Irrigation supply (additional volumes): 2.24 Mm3/year x Euro 0.15
Labour 7698 14456 7860 per m3 = Euro 347,000;
Materials 11688 21950 11934 • Revenue from other services (3% of the first and the second): Euro
Rentals 1017 1909 1038
Transports 895 1680 914 144,000.
Expropriations 1063 767 299 In accordance with the regulations of the country in which the invest-
Project studies, works management, trials 1796 1660 526 ment will be made, the tariffs are revalued according to inflation6.
Total investment costs 24156 42422 22571 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
To take into account the time necessary to construct the infrastructures,
Replacement cost for “short life” components 16109
Total expenditures 24156 42901 23495 5732 5883 6038 6198 6361 6529 6702 6879 7061 7248 7439 7636 23947 8046 8259 8478 8703 8934 9171 9415 9665 9921 a receipts correction co-efficient was introduced into the calculation.
Net cash flow -24,156 -42,901 -19,881 5,631 6,027 6,425 6,643 6,868 7,100 7,340 7,546 7,758 7,975 8,199 8,429 -7,444 8,907 9,157 9,413 9,676 9,946 10,224 10,509 10,802 50,541
Financial internal rate of return (FRR/C) 6.45%
6
of the investment Furthermore, when the investment is being partially co-financed by
Financial net present value (FNPV/C) 15042 the proposer/manager – as it is in this case – an increase greater
than the rate of inflation is allowed. In the analysis we assume a fur-
of the investment
ther increase of 3% annually for the first 6 years, applied only to the
tariffs for civil sewerage and purification services.
65
3.2 Water supply and depuration 3.2 Water supply and depuration
same land in the local situation. For this the accounting price thus obtained refers Tab. 3.11 Table for sensitivity analysis
reason this cost was evaluated considering to the service to the end-user, in order to Change in the parameter % Change in FNPV %Change in ENPV
the added value of the additional agricul- obtain the price required for the analysis Price dynamics
tural production obtainable from well irri- appropriate breakdown coefficients deri- Inflation rate of 3% and 2% +44% / -41% +9.6% / -9.0%
gated land (estimated to be Euro 4,462) – ved from literature and experience were Dynamics of real salaries at +1% and at 0% -14% / +13% roughly constant
Dynamics of energy prices equal to inflation -3% roughly constant
used also for the evaluation of the benefit taken into account7.
due to the additional supply of water for Dynamics of tariffs
irrigation purposes. Obviously the reva- The benefits due to the new sewerage ser- Reduction to 3 years of the period of tariff increases for investments -50% no change
lued cost of the expropriation must be vice have been assimilated into the social
Demographic dynamics
subtracted from the value obtained. value of diseases avoided, without consi- Rate of annual increase in the population (0%) -16% -4%
dering, conservatively, also the deaths Costs of goods and services
For the evaluation of the benefits - in all avoided. Thus the average annual inciden- Cost of reagents increased by +10% -7% -0.4%
Cost of eliminating mud increased by +10% -6% roughly 0%
cases where it was deemed applicable - the ce of potential infections and other Cost of electricity increased by +10% -5% roughly 0%
willingness to pay method was used, esta- serious illnesses on children, adults of
blishing accounting prices for the services working age and old people was evalua- Revenue and benefits
Tariffs for services +10% and –10% +116 / -116% roughly 0%
that may have an alternative market. Since ted, calculating the costs of days of hospi-
Improvement in agricultural production increased by 10% no change +8%
7
Accounting price for the supply of industrial water: Euro 1.29 per m3 x 0.60 (breakdown coefficient only for conduction) = Euro 0.97 per m3.
Accounting price for the supply of irrigation water: Euro 0.21 per m3 x 0.80 (breakdown coefficient only for conduction) = Euro 0.17 per m3
68 69
3.3 Transport 3.3 Transport
Typology of investments
From the cash flows shown in table 3.10, the • improvement of the performance of a laying of a second track or the electrification • new infrastructures (road, rail, ports, airports) to satisfy increa-
following indices are obtained: ENPV = network link or node, in particular by and automation of an existing railway). sing transport demand
185,034 thousands Euro; ERR = 18%. increasing travel speeds and by reducing • completion of existing networks (missing links)
operating costs and accident rates Territorial reference framework • extension of existing infrastructure
Sensitivity analysis through the adoption of safety measures Projects can be parts of national, regional • renovation of existing infrastructure
The sensitivity analysis, carried out on tho- for network links; or local transport plans or promoted by • investment in safety measures on existing links or networks
se parameters that the proposer felt were • shift of transport demand to special bodies of different natures. In both cases • improved use of the existing networks (i.e better use of under-uti-
most critical, produced the results shown in transport modes (many of the invest- the functional incorporation of the plan- lised network capacity)
the table 3.11 in terms ofchange in finan- ments which have been made in the past ned infrastructure into the (existing or • improvement in intermodality (interchange nodes, accessibility to
cial and economic NPV compared to the few years, where the problem of environ- planned) transportation system (whether ports and airports)
values of the basic case. mental externalities has arisen as a critical urban, regional, interregional or national) • improvement in networks interoperability
factor, aim at a modal shift of travel should be facilitate the consideration of • improvement in the management of the infrastructure
Risk analysis was carried out on the most demand, from the most polluting modes network effects.
critical variables: inflation rate, tariffs, popu- to those which impact less from an envi- Functional characteristics of the investments:
lation (this analysis is not presented here). ronmental viewpoint); A second important aspect is consistency • increasing capacity of existing networks
• completion of missing links or poorly lin- with national and European transport • reducing congestion
ked networks. Transport networks have policy: fiscal policies (i.e. on fuel), allocati- • reducing externalities
As to the reference scenario (i.e the do- for transport nodes, but also for the inter- sticity to generalised transport costs At the end of the feasibility analysis, it
nothing or the do-minimum scenario), it is ventions focussing on particularly dense (times, costs, comfort..). Since neverthe- should be necessary to define the relevant
recommended to make clear as follows: networks, above all long-distance traffic. less traffic is dependent upon the spatial alternatives which will be evaluated from an
• the area of influence of the project, this distribution of economic activities and environmental, financial and economic
aspect is important to identify the demand The estimates of the potential demand households, for a correct estimate, it is viewpoint. The ensemble of results will
without the project and the impacts of the should make clear as follows: recommended that the changes in accessi- represent an input for the following envi-
new infrastructure as well as to identify the • the composition of the traffic which is bility of the area induced by the project ronmental, financial and economic analysis.
other transport modes which could be attracted by the new infrastructure or by are analysed. This will normally require
considered (for example in case of corri- the strengthened infrastructure, in terms the use of integrated regional develop- Options analysis
dors where there are often several modes: of the existing traffic, the traffic which ment/transport models which have limi- The construction of a reference solution
road, rail and air transport); has been diverted from other modes and ted application fields at present, but great and the identification of promising alterna-
• the procedure which has been applied to the generated or induced traffic; development prospects. In the absence of tives are two aspects which will influence all
estimate existing demand and to estimate • the elasticity to time and costs which is these instruments, it is necessary to esti- the results of the following evaluations.
future demand (use of single or multi- implicit in the estimates of the traffic mate the generated traffic with caution The reference solution will generally corre-
modal models, extrapolations from past which has diverted from other modes, and to carry out sensitivity (see below) or spond to a do-nothing decision. However,
trends, fares and costs for users, pricing properly disaggregated and compared risk analysis on this traffic component. in some cases it may involve a problem in
and regulation policies, the congestion with literature data or data taken from the transportation sector. If the reference
and saturation levels of networks, the other projects (travel demand characteri- The technical features solution is “catastrophic”, i.e. if the decision
new investments which are expected stics, structure and elasticity are particu- The demand/capacity ratio of the new of not investing would result in a traffic
within the time span of the analysis); larly important in the projects which infrastructure will be analysed for any paralysis and, therefore, in very high social
• the assumptions concerning the compe- may be related to charged infrastructures project alternative which is considerated. costs, any project will bring high benefits,
ting modes and alternative routes (fares since the expected volumes of traffic are This will be based on: however expensive it may be.
and costs for users, pricing and regula- determined by the level of fares); • the service levels of the infrastructure in
tion policies, the congestion and satura- • the sensitivity of the expected traffic terms of a traffic/capacity relationship In the case of great congestion phenomena,
tion levels of networks, the new invest- flows for some critical variables: elasti- (traffic flows on roads, passengers on whether at present or in the future, to avoid
ments which are expected within the city to travel times and costs, congestion public/collective transport systems, etc.). distorting the results of the analysis, it is
time span of the analysis); levels of competing modes, strategies of It is useful to separately analyse the diffe- necessary to configure a reference solution
• any deviation from past trends and com- competing modes, for example in terms rent traffic components both in terms of integrating do-minimum interventions (of
parison with large-scale prospects (on a of fare policies. This point is particularly flow types (internal, exchange or cross management, technological application,
regional, national, European level). important when it is necessary to make traffic) and on the basis of their origin etc.). This could be probably put into
investments requiring long execution (traffic diverted from other transport action to provide for a transport demand
In the presence of a high degree of uncer- times. In the span of time which is requi- modes and any generated traffic); adjustment in the absence of the project
tainty about future demand trends, it may red to complete the intervention, the • the travel times and costs for users (disag- and to reduce the future costs of the refe-
be advisable to develop two or more than traffic, which may be potentially acqui- gregated by traffic and origin typology); rence solution to an acceptable level.
two scenarios, an optimistic and a pessimi- red by the new infrastructure, may • transport indicators: passengers km and
stic one, and to relate the two hypotheses to meanwhile shift to other modes and then vehicles km for passengers, tons km and The analysis of alternative project solutions
the trends of the GNP or of other macroe- it may be difficult to move it back. vehicles km for goods; is equally critical. After having defined the
conomic variables. • the traffic safety levels in the new infra- reference solution and analysed the critical
An aspect, which may be of relevance for structure or in the new configuration of aspects in terms of a demand/capacity ratio
As to the solution/s with a project, it should the financial and economic evaluation, the existing infrastructure; (see below), it is necessary to identify all
be firstly kept in mind that the transporta- concerns the generated traffic, i.e. the traf- promising technical alternatives on the
tion system is a multi-modal system. The fic which only occurs in the presence of a In the presence of several alternatives and basis of physical circumstances and availa-
same transport demand may be, at least new infrastructure (or in case of an increa- of congestion phenomena, it is important ble technologies.
partially, met by various transport modes. se in the capacity/speed of the existing to establish whether the demand is not ful-
Transport modes may compete for the infrastructure) and which is quite different filled and, if this is the case, to find out The main risk of distorting the evaluation is
same demand. from the traffic diverted from other modes which traffic has been “rejected”. the risk of neglecting relevant alternatives,
or routes. This is an important element to evaluate in particular low-cost solutions (managing
There may be competition even inside the the economic consequences of solutions and pricing solutions, infrastructural inter-
same transport mode (for example among At first instance induced traffic could be which are less rich from an infrastructural ventions which are considered as not “deci-
ports or airports, road routes or rail passes) estimated on the basis of the demand ela- viewpoint. sive” by designers and promoters, etc.).
72 73
3.3 Transport 3.3 Transport
Investment costs and operating costs The pricing criteria for transport infra- (“grand-fathers right”). The ensemble of The estimate of proceeds should be consi-
The feasibility analysis is also intended to structures are complex and they may create tolls and regulatory constraints outlines a stent with the hypotheses which have been
estimate for each alternative and reference confusion during the financial and econo- framework which is quite complex for the put forward for the evolution and elasticity
solution the investment costs and the mic evaluation. In particular, the fares correct evaluation of the flows of future of demand (see the previous section about
expenses for renewals and extraordinary which maximise the proceeds for the proceeds, above all if in far-off times. Tolls pricing criteria). The financial analysis of
maintenance operations (which will be managers/constructors of infrastructures may have a significant feedback effect on non-rated infrastructures will show the net
carried out at regular intervals) for the and which therefore maximise the capacity the expected traffic, thus changing the eco- present cost at the public finance’s expense.
whole analysis period. These costs should of self-financing may be quite different nomic profitability of the project.
be allocated all over the time, on the analy- from the efficiency fares. This because the As to the recourse to private financing, it is
sis period. It will be also necessary to defi- latter fares, which take into consideration Similar problems may also affect ports and necessary to pay attention to any ineffi-
ne the technical life of the work and its the surplus for the community consider airports. ciency which may result from the adoption
residual value. also the external costs (congestion as well as of pricing criteria other than those related
environment and safety costs). It is therefore important to make clear the to marginal social costs.
It is necessary to make sure that the project pricing criteria, which have been applied
includes all the works required for its func- for rated infrastructures (in consideration 3.3.5 Economic analysis
tionality (for example the links to the exi- Efficient pricing is based on long-term of the fact that external costs vary accor- The economic evaluation of the sector
sting networks, technological plants, etc.) marginal social costs and requires the ding to traffic levels). shows some specific aspects since the trans-
as well as all the relevant costs of each alter- “internalisation of external costs” (Polluter portation sector is often characterised by
native, that the estimates of implementa- Pays Principle), including congestion and 3.3.4 Financial analysis “administered prices” (for example subsi-
tion costs and times are realistic and pru- environment costs. As to congestion, this Financial analysis should be carried out ac- dies for collective modes) and by high
dent, “on the safe side”, mainly in the pro- type of pricing should generally involve low cording to standard methods, as they are “external” costs (for example environmen-
jects which may have a special significance tolls where or when there is no congestion set forth in the second chapter of this tal costs). These quantities are different
for the local community. so as to maximise the use of the infrastruc- Guide. from those used in the financial analysis.
ture and high tolls where or when this phe-
The operating and ordinary maintenance nomenon occurs. If the infrastructure is The analysis will be generally conducted For economic investment and operating
costs of the planned works should also be not congested, a conflict will arise between from the viewpoint of the infrastructure costs of vehicles, if market prices are dee-
described and quantified. the need for self-financing and the optimal owners (generally managers but not neces- med to reflect the shortage of resources, it
use of the work. In this case, a toll which is sarily operators of the infrastructure). If will be necessary to eliminate transfers
For collective transport modes, it is neces- intended to recover a fraction of the invest- required, it may be carried out for the from the financial costs by applying a con-
sary to develop an operating model and to ment costs can cause underutilisation and owners and the operators, first separately version factor to each elementary cost com-
calculate its costs. A hypothesis should be an inefficient use of the work. and then in a consolidated way. ponent (labour force, materials, carriage
put forward for example for the operation and freightage) and by taking tax burdens
of the railway, as to the number of trains The fares (“network access tolls”) of the Financial investment costs, including the into account. If market prices are not dee-
which may be provided by type of train railway sector represent the most innovati- expenses for renewals and extraordinary med to reflect the shortage of resources for
(goods, passengers, by making a distinc- ve factor which should be analysed with maintenance operations as well as opera- some components, it will be necessary to
tion between short and long-distance great care. ting costs (including the ordinary mainte- apply shadow prices to correct costs (see
traffic), where each service is associated to nance costs of planned works and those the general methodology described in the
the relating costs. The same applies for There are two opposite strategies: the related to tolling) are estimated during the second chapter of the Guide).
node infrastructures, such as ports and Anglo-German strategy (average cost tolls) technical analysis, disaggregated by the type
airports. featuring very high values and the French of works into which the intervention may Benefits traditionally result from the varia-
strategy (marginal cost tolls) featuring very be broken down and allocated all over the tions in the area underlying the transport
Fares low values. This will not completely solve time and on the basis of elementary cost demand curve (Consumer Surplus, see
Just because transport demand may apply either the problem of congestion tolls components (labour force, materials, car- below) as well as from the variations in eco-
to other modes or routes, fares will (when demand exceeds supply) or the pro- riage and freightage) so as to enable the nomic costs (the costs of resources, inclu-
influence the expected volumes of de- blem of track allocation criteria. Special subsequent application of the conversion ding external costs).
mand. It is therefore fundamentally services, for example on a local level, may factors from financial into economic costs.
important for the various tariff hypothe- enjoy partial or total benefits and the allo- Benefits are obtained by adding the follo-
ses to reconsider the estimates of demand cation of tracks (i.e. of capacity) may be Financial inputs will be represented by the wing components:
and to associate the correct traffic volumes subject to constraints for the protection of proceeds from the tolls and/or tariffs • variations in the surplus of consumers
to each of them. the operator who is historically present applied for the sale of well-defined services. (including the time multiplied by the
74 75
3.3 Transport 3.3 Transport
25
20
value of time and all user charges, If the demand level is given, where time and Estimates of values of time per hour per
including fares, tariffs and tolls and money costs changes but demand stays the 15 person during work by car taken can be
changes in vehicles operating costs met same, i.e. in the absence of generated traffic, 10 taken from the EUNET project. The range
by the users, i.e. for private transport); the analysis will be restricted to the varia- 5 of values is largely dependent on variations
• variations in the surplus of producers tions in the economic costs net of any trans-
0
in wage levels.
(including the profits and losses of infra- fer. In the presence of generated traffic, it is Aus Bel Den Fin Fra Ger Gre Ire Ita Nrl Por Spa Swe Uk
structure managers, if available, and of necessary to reconstruct the demand curve 3.3.6 Other evaluation criteria
public transport operators as well as any and to calculate the social surplus for the Fig. 3.6 Quantification of economic benefits. Environmental analysis
variation in taxes and subsidies for the part of traffic which would not exist in the Values of time per persons per hour business (1995 euro) Community and national laws require eva-
government); absence of the project. luation of the environmental impact for
• changes in unperceived costs (car drivers any case, since it is a quantity which can be most investments in the transportation sec-
are in some cases assumed not to percei- A series of goods which have no market hardly estimated, the general description of tor, in particular for the development of
ve non-fuel elements of costs, such as should be given great importance in the the project should make clear the values of new infrastructure. In these cases, reference
tyres, maintenance and depreciation. economic evaluation of any project which time (which have been disaggregated by rea- should be made to the evaluation methods
Changes in car travel can lead to changes may be related to transport infrastructure, son of the travel and flow) and used in the which have been recommended.
in these costs, that must be added to the i.e. the value of time, environmental effects, demand estimate and evaluation as well as
consume surplus calculation; the value of avoided accidents. the ways by which they have been obtained. However, even if is not prescribed by the
• variations in external costs. law, it is advisable to analyse the environ-
• The value of time: time benefits often Values of non-working travel time (including mental impact from a general viewpoint,
Both the calculation of the surplus of con- represent the most relevant part of the homework commuting) vary, in most coun- to identify the impact the project alternati-
sumers and the calculation of external costs benefits of transport projects. Some tries, from 10 to 42% of the working time ves may have and to provide for (if possi-
should take into account goods which have European countries put at the disposal of value. Non-working travel time typically ble) a quantitative evaluation on the basis
no market (see below) and those whose evaluators the national estimates of the makes up a large proportion of the benefits of their impact and localisation in order to
estimate may require special techniques. time value by reason and sometimes by of transport investments. draw a comparison among the alternatives
mode, in particular for passengers. In the and to identify any mitigating and com-
When calculating the benefits, it is recom- absence of these reference estimates, it is • The external costs: environmental exter- pensating measures.
mended to make a distinction between the possible to derive the values of time from nalities generally depend upon the travel
benefits for existing traffic (for example a users’ actual choices or to re-adjust and to distances and exposure degrees to pollu- Impact on the economic development
time and cost reduction as a result of a re-weight the estimates from other studies ting emissions (except for CO2 represen- This is one of the most controversial
speeding up process), the benefits of the on the basis of income levels. ting a “global” pollutant). In order to aspects of the economic evaluation of
traffic diverted from other modes (varia- monetise the environmental effects, in transportation projects from a theoretical
tions in costs, times and externalities as a With a few exceptions (the goods having a the absence of local values, it is possible to and an empirical viewpoint. However, it is
result of the passage from a mode to ano- very high value), the time value of goods is apply to the “physical” estimates of pollu- important to keep in mind that the impacts
ther one) and the benefits of generated generally very low and it should be calcula- tants the “shadow prices” which have on the economic development may be both
traffic (social surplus variation). ted on the basis of the capital lock-up. In been inferred from the scientific literatu- positive and negative. It means that in the
re (properly adjusted for the fractions of presence of market distortions, increased
external costs already internalised for accessibility of a suburban area or region
Tab. 3.12 Estimates of average external costs of transport (EU17)
example by taxes on fuel). may result in a competitive advantage, but
Passenger (Euro/1000 pkm) also in a loss of competitiveness if industry
Car Motorcycle Bus Rail Aviation The present methods, which are intended to is less efficient than in the central regions.
Accidents 36.0 250.0 3.1 0.9 0.6 evaluate the external costs related to preven- In this case, increased accessibility may for-
Noise 5.7 17.0 1.3 3.9 3.6
Air pollution 17.3 7.9 19.6 4.9 1.6
ted accidents, should be referred to the avera- ce local industry out of the market. It is the-
Climate change 15.9 13.8 8.9 5.3 35.2 ge dangerousness levels by transport mode. refore necessary to proceed with caution
For example, for road traffic, the average cost when assigning the project such kinds of
Freight (Euro/1000 tonkm) by vehicle-km or by passenger-km is gene- benefit and, in any case, it is advisable to
LDV* HDV** Rail Aviation Waterborne rally calculated on the basis of the costs of all exclude them from the calculation of profi-
Accidents 100.0 6.8 11.5
road accidents (by adding all the costs of tability indicators.
Noise 35.7 5.1 3.5 19.3
Air pollution 131.0 32.4 4.0 2.6 9.7 dead and injured people), net of the compo-
Climate change 134.0 15.1 4.7 153.0 4.2 nent which has already been internalised by The routine procedure for evaluating these
insurance costs, and of the whole traffic. benefits in terms of a income multiplier/ac-
Source: INFRAS-IWW
* = LDV Light Duty Vehicles (Vans up to 3,5 tonnes gross weight)
** = HDV Heavy Duty Vehicles (Roads truck above to 3,5 tonnes gross weight)
76 77
3.3 Transport 3.3 Transport
2 2 2
81
3.4 Energy transport and distribution 3.4 Energy transport and distribution
Tab. 3.19 Results of the scenario analysis • distribution networks for gas in industrial • physical features: route and length (Km) minimum
maximum
- 3.10
11.00
or urban areas of power lines or gas pipelines (attaching
average 5.12
ERR
• construction of power lines and transfor- pertinent chorographic sketches), sec- standard deviation 5.37
Baseline case 4.4% mation stations tion of electricity conductors (mm2) or
* Sample data: 4 major projects out of 7 in the sector included in the
50% value of time and externalities
Removal of tolls
3.7%
9.0% • electrification of rural areas nominal diameters (mm) of the gas pipe- sample of 400 projects combined.
82 83
3.5 Energy production 3.5 Energy production
3.4.5 Economic analysis • prospecting and drilling natural gas or • building techniques and technical featu- • the cost of the measures necessary to
Environmental impact and risk assessment oil fields res of the other service structures; neutralise possible negative effects on air,
are essential aspects. Externalities to be • actions directed at energy saving • the waste water and fumes treatment water, land.
considered are: systems, with the number and the posi- • the cost of other negative externalities
• the valuation of the area served, quanti- Examples of objectives are: tion of stuks and water discharges; which cannot be avoided such as loss of
fiable by the revaluation of real estate • increased energy production to cover • significant technical elements, such as land, spoiling of scenery…
and land prices, growing demand the constructions in caverns, dams, spe- • the identification of the opportunity cost
• the negative externalities of possible • reduction of energy imports by substitu- cial technical solutions for treating of the various inputs. The economic
impact on the environment (loss of land, tion with local or renewable sources refluences, computerised control sy- costs of raw materials should be evalua-
spoiling of scenery, naturalistic impact) • modernisation of the existing plants for stems, telecommunications systems, etc. ted by considering the loss to society by
and on other infrastructure energy production, e.g. for reasons of the diversion of them from the best alter-
• the negative externalities due to the ope- environmental protection 3.5.3 Feasibility and options analysis native use.
ning of building sites, especially for • modification of the mix of energy sour- Key information: the demand for energy, • the value attributed to a greater or lesser
urban networks (negative impact on ces, e.g. increasing the share of gas or seasonal and long-term trends and also, for dependence on energy from abroad. The
housing, productive and service func- renewable sources. electricity power stations, a typical graph of evaluation should be conducted by appl-
tions, mobility, agricultural framework the daily demand for electricity. ying appropriate shadow prices3 to the
and infrastructure). 3.5.2 Project identification substituted imported energy (to quantify
When defining the functions of the project, The comparison in the options analysis these, it would be advisable to refer to the
Economic rate of return* Energy transport it is advisable to: should consider possible alternatives within suggested reading).
and distribution
• state destination, dimension and loca- the same infrastructure (e.g. different tech-
minimum 8.57 tion of the potential area served (e.g. nologies for production and drilling, diffe- Economic rate of return* Energy production
maximum 25.00
average 14.19
research and drilling of a new well field rent technologies for treating refluences, etc.) minimum 8.17
standard deviation 7.65 may have as its objective the supply of and possible realistic alternatives for produ- maximum 16.10
energy for more than one country, a new cing the energy required (e.g. launching average 11.70
* Sample data: 3 major projects out of 7 in the sector included in the standard deviation 3.29
sample of 400 projects combined. power station may serve an entire region, actions and policies aimed at energy saving
and so on). instead of building a new power station). * Sample data: 3 major projects out of 5 in the sector included in the
sample of 400 projects combined.
3.4.6 Other evaluation criteria • describe the projected positioning of the
See the corresponding section for energy. product on the market 3.5.4. Financial analysis
• state the phases of the investment; e.g. Forecast estimates are required for: 3.5.6 Other evaluation elements
3.4.7 Sensitivity and risk analysis for a well field the prospecting and • price dynamics This section refers to:
Critical factors: investment costs and length research within the target area, initial test • development scenarios of the other sectors • evaluation of the impact on the environ-
of the cycle. drilling, mining and commercial exploi- (trends in energy demand are strongly lin- ment (visual, noise, pollution, and refu-
The variables that should be considered in tation, closure. ked to the dynamics in other sectors). se) which, according to the laws of the
the sensitivity and risk analysis are: • describe the engineering features of the majority of member states, must be a
• the cost of the investment, infrastructure: Time horizon: 30-35 years. part of the approval procedures.
• demand dynamics (i.e. forecasts of • basic functional data, such as: type of • evaluation of the indirect economic
growth rates, of the elasticity of electri- plant for producing electricity1, installed 3.5.5 Economic analysis costs, for example those deriving from
city consumption, etc.), capacity (MWe) and energy produced The major problems to be faced are: the use of exhaustible resources, not pre-
• the dynamics of the sale prices of substi- (TWh/year); annual potential capacity of • the monetary value of benefits. They viously included in the estimates. They
tutes electricity or gas. well fields (millions of barrels/year or should be quantified as the revenue from can be measured as standard physical
millions of m3/year); the sale of energy (at appropriate accoun- indicators and then subject the project to
• physical characteristics2, ting prices) and evaluated, wherever pos- a multi-criteria analysis.
3.5 Energy production • building, technological and processing
techniques for the production plants;
sible, by estimating the community’s wil-
lingness to pay for energy, by, for example, 3.5.7 Sensitivity and risk analysis
3.5.1 Objectives definition • building techniques and technical featu- quantifying the costs the user must incur Critical factors: the high investment costs
Measures may include: res of the plants for mining wells, e.g. off- to acquire energy (e.g. installing and using and the length of the cycle.
• construction of plants to produce electri- shore platforms, attaching building and independent generators, or direct purcha-
city from any source functional sketches; sing of combustibles on the market). The sensitivity and risk analysis should
• the evaluation of environmental externa- consider at least the following variables:
1
In the case of hydroelectric plants (production and/or pumping) linked to aqueducts, one must also bear in mind the observations for the
aqueduct sector.
lities: • cost of the research phase (meaning the
2 2
For example: area covered by well field (Km ) and position. In the case of off-shore drilling, it would also be useful to provide local bathyme-
3
tric profiles; average depth of deposits (m); area occupied (Km2) by plants (thermo-electricity) and relative storage areas, location of dams, pres- If, as often happens, there are strong distortions in the energy market (duties, internal taxes, prices levied, incentives, etc.) it would be wrong
sure water-pipes and generators for hydro-electric production; area occupied by fields of photovoltaic generators (Km2) and their location. to evaluate the value of import substitution using these distorted prices.
84 85
3.6 Ports, airports and infrastructure networks 3.7 Training infrastructure
• homogenization of unequal geographic tial number of pupils and the opportunities Economic benefits: • rate of growth of salaries for teaching
distribution of school services (projects available to them. • the number (or percentage) of pupils who and non-teaching staff (see example
in rural or isolated areas) The description should include: have found (or who are expected to find) shown in the graph below),
• elimination of discrimination between • demographic trends disaggregated by age productive employment and who, • the actual enrolment rate,
social classes, genders range and by geographic area, without this specific training, would have • the rate of employment of pupils who
• improvement of opportunities for the • rate of enrolment, attendance and com- been unemployed or under-employed5. If have completed their studies.
disabled. pletion of studies1, the prominent objective is to improve the
• employment forecasts for various sec- opportunities for potential pupils on the
3.7.2 Identification of the project
It would be advisable to:
tors, including forecasts of the organisa-
tional changes within the various pro-
labour market, the benefits may be quan-
tified and valorised by the expected
3.8 Museums and
• give the following basic data: geographic ductive segments2. increased income of the pupils due to the archaeological parks
location (attaching maps), level and type training received (avoided under-employ-
of educational activity, number of pupils 3.7.4 Financial analysis ment, better positioning on the market)3. 3.8.1 Objectives definition
and geographic catchment area, associated • Financial inflows: school fees, annual • Social costs: may be evaluated on the The investments have generally local objec-
services (libraries, sports-recreational acti- subscriptions, and prices of possible paid basis of the loss to society due to the tives but may also have a more general
vities, reception facilities, canteens, etc.). auxiliary services. deviation of factors from their best alter- value of a cultural nature.
• give the following engineering data for • Financial cost: the cost of the personnel native use4.
the structure: necessary to run the structure (in the • Externalities: loss of land, and other raw 3.8.2 Project identification
• covered area (m2) and uncovered equip- long term) materials, possible mobility or construc- In keeping with the objectives, it is neces-
ped area (m2); • Time horizon: 15-20 years tion congestion brought about by the sary to:
• data and typical construction designs for installation of the infrastructure. If it can • state the type of infrastructure affected
buildings intended for pedagogical pur- Financial rate of return* Schools,
be predicted, the increase in incomes due by the action (creation, renovation or
poses (classrooms) and for related activi- universities, etc. to other possible induced activities, extension): museums, historical monu-
ties (laboratories, libraries, etc.); minimum - 1.88
(commercial activities, restaurants, ments or buildings, archaeological parks,
• functional data and sketches for service maximum 20.00 recreational activities, etc.). industrial archaeology
structures (management, offices, gymna- average
standard deviation
7.01
9.23
• list the services offered (research centres,
siums, stadiums, guest-quarters, can- Economic rate of return* Schools, information and catering services, inter-
teens, etc.); * Sample data: 4 major projects out of 16 in the sector included in universities, etc. nal transport..)
• functional sketches and layout of the the sample of 400 projects combined.
minimum 3.35 • include a summary of the cultural and/or
major technological equipment (internal maximum 47.52 artistic programmes planned for the
networks, central heating, electrical and 3.7.5 Economic analysis average 17.53 medium term
communications systems, etc.); The following variables may be a starting standard deviation 14.20
• give the following engineering data:
• internal viability systems (and possible point for the identification of the benefits: * Sample data: 6 major projects out of 16 in the sector included in √ basic data, primarily the number of expe-
car parks) and links with local communi- • effective enrolment rates compared to the sample of 400 projects combined. cted users (per day, season, year, etc.) and
cation routes; potential ones, the maximum capacity of the structure;
• significant technical elements, such as • the share of students repeating the year, 3.7.6 Other evaluation elements √ physical features: covered and showroom
particularly important architectonic • the percentage of pupils who complete An independent evaluation from a panel of areas (m2) for museums and historical
constructions, laboratory or complex the whole training course, qualified experts of the ability of the educa- monuments or buildings, total area of
calculating equipment, etc. • the average attendance rate per pupil, tional investment to meet the proposed parks or archaeological areas (m2), num-
• Summarize the proposed training plan • the achievement of pre-established, mea- objectives and social needs and of the suita- ber of seats, usable area (m3) for theatres,
over a number of years (number and surable learning standards, bility of the type of training programmes. √ architectural characteristics, construc-
type of courses, length, number and type • the quality of pedagogical material, tion, and layout of museums, historical
of subjects taught, duration and timing • the suitability of equipment and its rate 3.7.7 Sensitivity and risk analysis monuments or theatres,
of pedagogical and related activities, of use, The following parameters should be covered: √ technical features and layout of buil-
didactic methods, diplomas and other • the level of preparation and the commit- • rate of growth of the population (per age dings or parts thereof dedicated to
qualifications obtainable, etc.). ment of the teaching staff, based on range) in the catchment area, additional services
objective examination,
3.7.3 Feasibility and options analysis • the fungibility of the pedagogical con- 5
3
Forecasts for this variable can be based on the long term studies carried out in other countries
Key issue: the demographic and labour tent in as many and varied contexts as An alternative method, theoretically valid for all cases, is to refer to the willingness to pay, valuable as the average fees students would have to
pay to take similar private courses. Great care should be taken when following this method due to possible distortionary effects: e.g. there may
market trends, which determine the poten- possible. be a difference in quality between the training offered by the investment and what is already available privately, or there may be differing
degrees of risk aversion according to income levels, and so forth. Wider discussion of the subject can be found in the suggested readings.
4
1 For example, the social opportunity cost of teaching and other staff is equivalent to the product of these people in alternative occupations
This information will be even more useful if broken down into sex, social class and geographic area. (quantifiable as the average market salaries for people of a similar training). That of the pupils, which should not be forgotten, is based on the
2
It is important to forecast the growth of new professions and the decline of others. estimated product of young people outside the education system, on the marginal basis that the project in question does not affect salaries.
88 89
3.9 Hospitals and other health infrastructure 3.9 Hospitals and other health infrastructure
√ process features and layout of the • Externalities: loss of land and other raw √ professional conditions (traumatology privileged access for the casualty
plants and of air-conditioning, ligh- materials, possible mobility or con- centres for industrial accidents, sports department, attaching appropriate
ting, communications, etc.; struction congestion brought about by or military hospitals, etc.). blueprints;
√ viability and access systems (plus pos- the installation of the infrastructure • could be quantified by the increased life √ significant technical elements, such as
sible car parks) and links with the local and so on. expectancy1. particularly exacting architectonic
communications routes; • Increases in incomes in the tourism sec- constructions, special or experimental
√ significant technical elements, such as tor (increased flow and longer average 3.9.2 Project identification treatment or diagnosis machinery.
particularly exacting architectonic length of stay) induced In order to correctly identify the project it is
constructions, experimental restora- • additional increase in income due to useful to: 3.9.3 Feasibility and options analysis
tion technologies, communication other possible induced activities (com- • clearly define the functions of the propo- Key issue: the patients flows and trends
systems. mercial activities, restaurants, recreatio- sed infrastructure and in particular the (determined on the basis of demographic
nal activities, etc.). group of pathologies involved, the range data) and epidemiological and morbidity
3.8.3 Feasibility and options analysis of the population, the diagnostic func- data for the pathologies involved2.
Key issue: the potential flow of users, bro- 3.8.6 Other evaluation elements tions, the short or long term treat-
ken down according to type. These should give a clear cultural and arti- ment/recovery, reception facilities and The comparison in the options analysis
The comparison in the options analysis stic profile of at least the medium-term connected services should consider possible alternative medi-
should consider: programmes. The decisive element is the • include the following data: cal-technological solutions (different treat-
• variations in structural arrangement or independent experts’ opinion. √ basic data, such as: the average and ment systems, different diagnosis technolo-
lay-out of the infrastructure, maximum numbers of users per day, gies, etc.) and possible general alternatives
• possible alternative technology and 3.8.7 Sensitivity and risk analysis month, year; a list of the departments with the same socio-sanitary objectives
methods of restoration/recovery for exi- Critical factor: the high personnel and for assistance and prevention, treat- (e.g. building an outpatients department
sting buildings, maintenance costs and the long-term dyna- ment and diagnosis; for a hospital the instead of wards in a hospital).
• alternative choices of infrastructure (e.g. mics of admission fees. number of beds in each ward;
one could consider establishing a √ physical data such as the surface area 3.9.4 Financial analysis
museum of technology instead of recove- Sensitivity and risk analysis should consi- and covered area (m2), usable space • Financial inflows: fees for hospital admis-
ring a historical industrial structure, etc.). der at least: (m3), number of treatment rooms, sion (e.g. the number of days the patient
• the cost of the investment, wards, prevention and/or diagnostic spends in hospital), diagnosis and treat-
3.8.4 Financial analysis • the rate of growth of staff salaries, consulting rooms, existence and size of ment which are paid separately and addi-
• Financial inflows: admission fees (which • the rate of growth of effective demand outpatients department; tional services (single rooms, etc.).
cover only a fraction of the real costs), (number of visitors per year), √ the functional arrangement of inter- • Financial costs: personnel, medicines
sales of collateral services and related • the admission fees nal/external areas (lay-out), including and materials, out-sourced medical servi-
commercial activities. • with regard to maintenance, the risks viability between the various buildings ces necessary to run the structure.
• Financial costs: personnel and mainte- related to possible damage, regardless of and within them, under both normal Time horizon: at least 20 years.
nance (which may be predominant in the the cause. and emergency conditions;
medium-long term). √ technical features of the principal 3.9.5 Economic analysis
Time horizon: 15-20 years. equipment and machinery for diagno- The key benefits are:
1
1
It does not seem correct to include the indirect costs of the visitor (journey, food, lodging etc.) to the value attributed to the willingness to These are very rough indications. Obviously, in addition to the quantity there is also the quality of life: some indexes have been proposed
pay, unless one can demonstrate that for the project in question, those expenses must be attributed exclusively to the desire to visit the struc- which take this into account (Q.A.L.Y.), further details can be found in the publications suggested in the reading list.
2
ture or see the particular show and not to other recreational activities e.g. tourism. If no specific data is available for the catchment area in question, it would not be wrong to use data referring to socially similar areas.
90 91
3.10 Forests and parks 3.10 Forests and parks
• the increase in the welfare or the reduc- Sensitivity and risk analysis should consider √ detailed description of projected ope- Comparison in the options analysis should
tion in suffering on the part of the at least the following variables: rations, the extent (number of trees to consider:
patients and their family, identifiable as • the cost of the investment, be removed or planted, etc.) and • different areas of intervention within the
the number of deaths avoided, the • the percentage incidence of pertinent methodologies (chosen species, type of same forestry district,
increased life expectancy of the patient morbidity, disaggregated by pathologi- cultivation, etc.), time period (years), • different methodologies for ameliora-
and the improved quality of life for the cal type, age range, sex, profession, etc., form of management, type of treat- tion, reforestation and cultivation,
patient and his family as a result of the • tariffs for health services and their dyna- ment and execution period; • cultivation of alternative species, compa-
illness avoided or the more effective mics in time, √ surface area (m2) and gradients (m) of tible with the chosen area (e.g. eucalyp-
treatment administered. • dynamics in time of personnel costs, the slopes to be consolidated; tus plantations instead of poplars for the
• dynamics in time of the costs of medici- √ number and length (Km) of the water production of cellulose pulp),
Benefits may be given a money value recur- nes, products and critical services, flows to put into regime; • different perimeters and zoning of the
ring to the market prices of the service (wil- • the value and dynamics of the risks √ number, length (Km) or surface area parks,
lingness to pay)3 or using standard methods, involved in carrying out diagnoses or (m2) and type for access routes and for • different routes or typologies for foot-
as the indices for increased life expectancy, treatment. parking or picnic areas; paths, tracks and equipped areas,
suitably adjusted by the quality (e.g. √ maps showing position and descrip- • different positioning of entrances, visitor
Quality Adjusted Life Years) which can be tion of biotypes and other interesting centres, car parks, camp sites, etc. for pro-
valorised according to the principle of lost
income or to similar actuarial criteria.
3.10 Forests and parks natural phenomena (waterfalls, caves,
springs, etc.); •
jects for equipped parks and forestry areas,
different destination (e.g. agricultural
3.10.1 Objectives definition √ number, position, surface area (m2) and and not forestal) for the areas to be refo-
Economic rate of return* Hospitals Forestry projects can have different pri- lay-out of service buildings, such as visi- rested, for example, within a park.
minimum 10.00 mary objectives: tor centres, lodgings, canteens, observa-
maximum 23.10 • projects aimed at increasing the produc- tion posts, warehouses, sawmills. 3.10.4 Financial analysis
average 14.57 tion of wood or cork for commercial or √ number, position, surface area (m2) • Financial costs: often the largest costs are
standard deviation 6.03
energy purposes; and capacity of possible tourist recep- those for personnel and maintenance
* Sample data: 3 major projects out of 5 in the sector included in the
sample of 400 projects combined.
• projects aimed at increasing the produc- tion structures, such as hotels, refuges, (ordinary and extraordinary).
tion of non-wood products1; restaurants, etc.;
• projects of an environmental character, √ access routes and links with the local Time horizon: 25-35 years can be conside-
3.9.6 Other evaluation elements such as establishing parks and protec- and regional road networks; red appropriate1, but in some cases of
It may be helpful to evaluate the benefits in ted areas, actions for the prevention of √ description of and data for important forestry interventions the horizon should
terms of simple physical indicators e.g. an erosion, control of water, environmen- interventions, such as the re-introduction be extended.
analysis of the cost-effectiveness which is tal protection (naturalistic, improve- of rare or extinct species, remote fire pre-
largely used in the health sector and offers ment of scenery, vision and noise vention surveillance systems, communi- Available literature shows that interven-
comparable data. screens, etc.); cation and information networks, etc. tions in this sector have rather low FRR
• projects for promoting tourist-recreatio- values, which rarely exceed 5%.
A panel of independent qualified experts nal activities2; 3.10.3 Feasibility and options analysis
should also illustrate the intrinsic value of Key issue: 3.10.5 Economic analysis
the project for the health system. All investments in forestry bring about • For projects for wood (or cork) arbori- • The benefits arising from the utilisation
multiple effects (land protection, water culture: the demand for the type of wood and transformation of wood can be valo-
3.9.7 Sensitivity and risk analysis regulation, species conservation, environ- (or cork) to be produced, in addition, if rised using the added value of woodland
Crucial factors: mental protection). this is the case, to the objective of substi- companies.
• the availability and reliability of epide- tuting imports. • The tourist-recreational benefits can be
miological data for the catchment area 3.10.2 Project identification • For mostly tourist-recreational projects: quantified and valorised using the visi-
• the risks incurred by administering It would be advisable to: the forecast trends for tourist flows, tors’ “willingness to pay” method or by a
(new) diagnostic, preventative or thera- • identify the project according to a sche- including their seasonal trends etc. quantitative estimation of the tourist
peutic treatment, etc) me of typologies An impact analysis showing the sustainabi- product realised, evaluated at market pri-
• the difficulty in correctly evaluating • supply the following data: lity of the proposed project also from an ces, net of distortions. If it can be predic-
trends in the costs of personnel, medici- √ geographic position, altitude (m. above environmental point of view would be ted, the increased income for the tourism
nes etc. in the long term. s.l.) and surface area (hectares or Km2); helpful. One possible method is to establish sector and related activities in the areas
a series of physical indicators for each effect adjacent to or linked with the park or
3
This method may, for example, be applied in the case of an odontology clinic, as these services are generally offered by both the public and and then conduct a multi-criteria analysis. forest involved should be also added.
the private sectors.
1
Such as truffles and mushrooms, fruits of the forest (strawberries, bilberries, raspberries, blackberries, aromatic and/or medicinal herbs, etc.),
game, bee keeping, and others.
2 1
Such as bird watching, photographic safaris, camping, horse riding, trekking, etc. The lowest values should be applied to tourist-recreational interventions and to those of a short cycle (e.g. forest fruits, etc.).
92 93
3.11 Telecom infrastructures 3.11 Telecom infrastructures
• The benefits arising from hydro-geologi- • the construction or modernisation of frequency bands (GHz) and power In the case of telephony, the existence of
cal protection can be evaluated on the units for band switching with wider net- (kW), electronic technologies for com- government-controlled tariffs may help in
basis of the costs due to flooding, land- works (this type of project is often linked mutation/ connection, etc.; forecasting price dynamics.
slides etc., which will be avoided thanks to the previous type), √ physical data such as the length of cables
to the project and, if demonstrable, the • the lying of cables, construction of relay (Km) and area covered by the network Time horizon: at least 10 years, except for
higher added value of woodland pro- or satellite stations to link isolated areas (Km2), the number and position of cabled networks and long distance cables
duction compared to a situation without (mountainous areas, islands, etc.). commutation/connection nodes, the (20 years).
the intervention. number and position of radio stations
• The benefits arising from the improve- Projects with objectives of a non-local sca- and the area covered (Km2); 3.11.5 Economic analysis
ment of the countryside and environ- le are: √ data, building techniques and techni- It is necessary to quantify:
mental protection can be evaluated on • the development of international com- cal features of networks; • the time saved for each communication
the basis of the greater “willingness to munications systems, to increase capa- √ data, building techniques and technical (waiting time, transmission time, etc.),
pay”2 or the higher income from tourist city, power and speed (e.g. launching features, layout of commutation/con- quantifiable by unit according to type of
activities compared to a situation telecommunications satellites, building nection centres or radio stations, atta- service (e.g. commercial telephone call,
without the intervention. satellite radio stations, laying long dis- ching plans; transmission of a text, transmission of a
tance cables underwater, etc.), √ data, building techniques and techni- data file, transmission of graphics and
3.10.6 Other evaluation elements • increasing the capacity, power and speed of cal features, layout of auxiliary plants so on); for valorisation purposes the
Whenever the proposed project contains inter-regional communications networks, e.g. electricity supply, lighting, and users may be divided into categories, for
any elements, which are of naturalistic, • the technological updating of the net- remote control; example in the civil sector reference can
environmental or scientific importance in work to enable connection with new ser- √ covered area (m2) and schematic be made to the average income of citi-
themselves (e.g. the protection of threate- vices (e.g. multi-media services, portable layout of possible buildings and other zens, and in the company sector to the
ned species), these should be confirmed by telephones, cable television, civic net- service structures, attaching blueprints average added value.
a panel of qualified independent sector works, virtual museums, etc.). and sections; • The new additional services, which would
experts. √ significant technical elements, such as be impossible without the project. In some
3.11.2 Project identification satellite transmission/reception cases the preceding method can be applied
3.10.7 Sensitivity and risk analysis It is essential to have a clear idea of the fol- systems, underwater cables. for their quantification and valorisation
It is advisable to analyse the following va- lowing two aspects, which are strongly (e.g. on line anagraphic services could lead
riables: inter-related: 3.11.3 Feasibility and options analysis to almost a 100% saving in the time taken
• trend in tourist flows, • the organisation of the intervention Key issue: the volume of traffic, and the to request and obtain certificates), in other
• cost trends for some critical factors, such management, including any possible daily, weekly and seasonal trends (the cases one can estimate the willingness to
as personnel, division into sectors, optimum capacity must be a reasonable pay for the service on the part of the
• the value and the dynamics of the risks • the implementation programme for the compromise between the highest peak public, quantifying the costs the user
related to possible damage, regardless, project itself and the proposed plan for levels of traffic and that which the system would incur to obtain certain types of data
of the cause (natural, human error, te- penetrating the catchment area with the can handle). (e.g. purchasing specialist publications).
chnical). services offered by the new structure.
In the options analysis comparison should 3.11.6 Other evaluation elements
It is also useful to: consider possible alternatives within the Here one should refer to the development of
3.11 Telecom • Identify the potential catchment area the
project is designed to serve
same infrastructure (e.g. different types of
cables, different transmission protocols,
the new telematic and multi-media services.
In this respect it could be helpful to subject
infrastructures • provide an analysis of the potential market. different commutation/connection techno- the project to a flexibility examination, to
• explain the functional and physical links logies etc.), alternative locations or radio see how capable it is, in technological and
3.11.1 Objectives definition between the projected infrastructure and stations and possible global alternatives for construction terms, of satisfying the wider
Projects with objectives of a local scale are the existing telecom-munications system. the projected infrastructure, which can needs stemming from future development.
• local cabling or relay systems to extend • Describe the engineering features of the offer similar services such as a satellite
services to areas not covered, infrastructure: transmission or mixed network (air-cable) 3.11.7 Sensitivity and risk analysis
• cabling a city, metropolitan or industrial √ basic functional data, such as: type of rather than optic fibre cables. Critical factors: forecast of future demand,
areas, etc. to provide faster, more power- communications infrastructure, traffic high investment costs (e.g. for satellite
ful networks which will enable the deve- volume and type, maximum commu- 3.11.4 Financial analysis systems) and rapid technological evolution
lopment of new local services (e.g. the nication speed (baud), type of com- • Financial inflows: sales tariffs for servi- (the investment is totally or partly obsolete
so-called “wide band”) networks, mutation, communication protocol, ces, rents for additional services. long before expected ex-ante).
2
See previous note.
94 95
3.12 Industrial estates and technological parks 3.13 Industries and other productive investments
Sensitivity and risk analysis should consi- √ number and covered area (m2) of 3.12.5 Economic analysis should be considered in the analysis -
der at least the following variables: warehouses, stores, office blocks, exhi- The analysis should consider: may be for the better or for the worse
• investment costs, including those for bition spaces, etc.; • Social benefits: better positioning on the (e.g. systems for controlling refluences
technological development, √ internal viability and mobility (roads market for existing companies, a diffusion may be more effective, etc.).
• forecast for substitution cycles (ageing, and railways) and their links with of entrepreneurial knowledge and skills
technical obsolescence) of the equip- external systems; features of possible among the beneficiary companies, and Financial rate of return* Infrastructure to
ment installed, ports, heliports, etc.; externally, the retraining of personnel, the support production
• demand dynamics (i.e. forecast growth √ internal networks and systems, e.g. aque- effects of various productive factors on minimum 9.10
rates for the population and businesses), ducts, drains, depurators, electricity, employment and incomes, the birth of maximum 36.00
• dynamics of the sales prices for services. lighting, telecommunications systems, new productive companies, the birth of average
standard deviation
18.89
6.91
security, etc., attaching data and layout; new private service companies, etc.
√ number of and area covered by public • Quantification of social benefits: an * Sample data: 12 major projects out of 14 in the sector included in
and technological parks tions centres, etc.); beneficiary companies of the catchment 3.12.6 Other evaluation elements
√ significant technical elements, such as area by size and sector of activity. For Social costs may be measured by the physical
3.12.1 Objectives definition specialised laboratories, multimedia each class it is then possible to evaluate indicators directly or indirectly linked to them
Objectives can be classified in the following services centres, etc. the benefit, with reference, for example, and cost/effectiveness ratio may be computed.
categories: to increased added value thanks to the
• creation of basic infrastructure for esta- 3.12.3 Feasibility and options analysis more advantageous location (e.g. 3.12.7 Sensitivity and risk analysis
blishing industrial estates, commercial Key issue: estimated demand from existing savings in transport costs, greater pene- Critical factors: initial rigidity, difficulty in
and service areas; companies to relocate in the catchment tration of a previously difficult to reach forecasting the real rate of penetration in
• creation of basic infrastructure for the plan- area and the birth rate of new companies, market, effect of possible promotional the catchment area, from the point of view
ned relocation of productive plants from demand and dynamics for real services, activities in the new exhibition areas, of both the relocation of companies2 and
excessively congested or polluted areas; environmental elements. lower costs for basic services, etc.), or the the development of new businesses.
• creation of centres supplying real services availability of real services (e.g. better
to companies in a specific area (accoun- The options analysis should consider global positioning due to the marketing servi- The sensitivity and risk analysis should
ting, financial information, marketing, alternatives, e.g. increased funding direct to ce, better penetration and cost-saving consider:
training..) companies for the same end (moving pre- with telemarketing, technological • the cost of the investment,
• creation of centres promoting the setting mises, purchase of real services, technologi- improvements or new production tech- • the rate of installations in the area,
up of new companies and supporting cal innovation, new production lines or nologies, improved professional level • the cost of some critical input (labour,
existing ones (technological parks, busi- newly constituted companies, etc.) thanks to training, etc.). out-sourced goods and services for the
ness innovation centres, etc.); • The economic costs of raw materials and production of real services),
• a mix of the above, often aimed at sup- 3.12.4 Financial analysis the land used in the construction of the • if they have been quantified, the birth and
porting companies in one particular • Financial inflows: rent or licensing costs project should be evaluated according to early mortality rate of new businesses.
industrial segment. of land and warehouses and the sales pri- the loss to society by the diversion of
ces of services (water, electricity, drains these from an alternative better use.
3.12.2 Project identification
It would be useful to:
and purification, storage, logistics, etc.)
and of real services.
Personnel costs should be evaluated in a
similar manner.
3.13 Industries and
• identify the catchment area, that is the • Financial outflows: costs of goods and • Environmental costs should also be other productive
geographic area, the size of target com-
panies (e.g. craftsmen, SME’s, medium
services necessary for the running of the
infrastructure and the production of real
quantified (land, water and air pollu-
tion, spoiling of the visual impact, noise,
investments
and large.) and the productive segments services. refuse, etc.) as should any possible urban 3.13.1 Objectives definition
• give basic data, such as the number, size Time horizon: at least 20 years. and transport congestion caused by the Intervention may be classified into:
and type of companies involved, the type realisation of the infrastructure. Note, • projects aimed at encouraging the indu-
of real services and scientific/technologi- Financial rate of return* Infrastructure to however, that since the impacts conside- strialisation of all sectors in areas that are
cal laboratories, if present, support production red will increase in the area surrounding relatively backward,
• provide the following engineering data: minimum 2.30 the new infrastructure, they should • strategically important, capital intensive
√ location and surface (Km2) of the equip- maximum 16.87 decrease in the rest of the catchment projects (e.g. certain segments of the
ped area and the breakdown into plots; average 10.49 area, the global effect - which is what energy sector),
standard deviation 5.28
• projects aimed at encouraging technolo- • discharge points for liquid and/or gas (producing goods and services) stimula- te evaluation of the project it would be use-
gical development in specific sectors or waste and a description of treatment ted by the beneficiary company or group ful to make a careful appraisal of these,
at applying new, more promising techno- plants; of companies; even if only in terms of physical indicators,
logies which require a high initial invest- • waste products (type and quantity) and • the economic costs of raw materials and so that the direct and indirect effects may
ment (e.g. applying new materials to the disposal/treatment systems; the land used in the construction of the be measured.
transport industry, developing electric project should be evaluated according to
superconductors, applying technologies 3.13.3 Feasibility and options analysis the loss to society by the diversion of the- These should include the effects on
for the use of renewable energy) Key issue: the parameters are specific and se from the best alternative use; employment, bearing in mind that main-
• projects aimed at creating alternative em- depend on factors such as the sector in • the environmental costs (land, water and taining or developing employment is a cen-
ployment in areas where there has been a which the company operates, the type of air pollution, spoiling of the visual tral objective in many incentive program-
decline in the existing productive units, product, the production technologies impact, noise, refuse, etc.) should for the mes for the productive sector.
• projects aimed at encouraging the instal- employed. most part be evaluated on the basis of the
lation and development of new compa- costs (at distortion corrected market pri- 3.13.7 Sensitivity and risk analysis
nies, both craftsmen and SME’s (new The options analysis should consider alter- ces) of the actions necessary to eliminate Critical factors are specific to each type of
enterprises). native methods of financing (e.g. financing the effects of pollution or by other intervention (new companies, modernisa-
the interest account instead of the capital methods suggested in previous outline. tion or expansion of existing companies)
3.13.2 Project identification account, financing a leasing contract, or • the cost of any possible urban and trans- for every productive segment (mature or
It would be helpful to provide an accurate other methods of financing), technical or port congestion caused by the installa- pioneer segments, strong or weak competi-
description of the company (or group of technological alternatives to the proposed tion of new companies or the increased tiveness, processes with a considerable or
companies) which will benefit from the project and the global alternatives (e.g. activity of existing companies, estimable negligible impact on the environment, etc.).
intervention: supplying low-cost real services). in terms of longer transport times
• a list of the categories of goods or servi- (goods and passengers) on the commu- Sensitivity and risk analysis should consi-
ces produced by the company before the 3.13.4 Financial analysis nications routes involved3 and the possi- der the following variables:
intervention and those predicted as a The financial analysis can be carried out ble depreciation in value of adjacent real • the cost of the investment, for projects
result; comparing the cash flows produced by the estate and land. with a high technological risk,
• a list of the annual quantities of produc- company (or group of companies) as a • the growth rate in demand for the goods
tion input in terms of raw materials, result of the investment, with those it 3.13.6 Other evaluation elements and services produced for the specific
semi-finished articles, services, workfor- would have generated without the subven- Furthermore, considering the difficulties in market,
ce (disaggregated according to category tions2. The various cost and revenue items quantifying and valorising all of the social • the cost of critical input,
and specialisation), etc. both before and should be evaluated according to market benefits, for the purpose of a more comple- • the price of the output.
after the intervention; prices, and discounting the cash flows.
• the turnover, gross operating margin,
gross and net profit, cash-flow, debt ratio Time horizon: around 10 years.
and other balance sheet indicators, both
before and after the intervention; Financial rate of return* Industry
• a description of the market covered by minimum 5.50
the company and its positioning before maximum 70.00
and after the intervention (e.g. giving average 19.59
standard deviation 14.45
quotas per product and geographic area
and their respective dynamics); * Sample data: 64 major projects out of 107 in the sector included in
2
The incremental cash flows coincide tout-court with total flows in the case of newly constituted companies. It should be emphasised that, in
any case, it is necessary to consider two possible alternatives i.e. one where the company would have still made the investment (e.g. it would
have purchased the machinery) at a higher investment cost, and the other where the company would have been unable to purchase the machi-
nery without the financial concessions.
3
For the quantification and valorisation of these effects, see the section on roads.
98 99
A.2 The internal rate of return
Annex A
Project performance indicators NPV
i t=0
This section explains the calculation and Aggregation of heterogeneous data is possi- All the most commonly used data manage-
use of the main performance indicators ble with specific weighting coefficients. These ment software automates the calculation of
for CBA analysis: IRR, NPV and B/C. coefficients should have the following cha- the value of these indicators by applying
Graph. 1 NPV as a function of i.
These indicators are expressly required in racteristics: the appropriate financial function. The
the financial and economic analysis and in results of the calculation of the IRR are the
the Application Forms for the three Funds. • decreasing during time; more heavily than the positive ones in the last interest rates shown in graph. A.
IRR and NPV are included in the main years. This means that the choice of the
tables for financial and economic analysis • they should measure the loss of value of time horizon is crucial for the determina-
(see Tab. 5, 6 and 10, rows 5.4, 5.5, 6.4, 6.5, the numeraire during that time. tion of the NPV. Moreover the choice of the NPV
10.4, 10.5). discount factor (that means the interest
Such a coefficient is the financial discoun- rate in the at formula) influences the calcu- Project 1
These indicators should give concise infor- ting factor at: at= (1+i)-t where t is the time lation of the NPV (see also graph.1).
mation about project performance and horizon, i the interest rate and at is the
could be the basis for ranking projects. coefficient for discounting a future finan- This indicator could be a very simple and
cial value to have the actual value. precise evaluation criteria for an invest-
ment: NPV>0 means that the project gene-
A.1 The net present Thus the net present value ofa project is defined as: rates a net benefit (because the sum of the
weighted Sn is still positive) and it is gene-
value (NPV) NPV (S) =
n
∑ at St = (1+i)
S0 S
+ 1 + n
S
(1+i) (1+i)
0 1 n
rally desirable. In other words it can be a
i
t=0 good measure of the value added of a pro-
Financial and economic tables are defined where Sn is the balance of cash flow funds at ject for the society in monetary terms. It is Project 2
by inflows (I1, I2, I3), outflows (O1, O2, time n and at is the financial discount factor also useful ranking projects on the basis of
O3) and balances (S1, S2, S3 for time 1, 2, chosen for discounting. their NPV values and decide which is the Graph. 2 Project ranking by NPV values.
3). The model is built in a number of years best. As in the graph 2 project 1 is more
and this could generate problems if we want This is a very concise performance indica- desirable than project 2 as it has a bigger
to sum S at time 1 and S at time 2 and so on. tor of an investment project: it is the actual NPV value for every i value. NPV
This is due to the fact that the marginal uti- amount of all the net flows generated by the
lity of one euro today is bigger than the investment expressed in one single value Sometimes NPV values could be non com- Project 1
marginal utility of a euro tomorrow. Some with the same unit of measurement used in parable for every value of i, as in the case of
reasons justify this point, for example: the accounting tables. graph 3. In this case the definition of
• risk aversity for future events; the same i for every project could lead to a
• monetary income is an increasing func- It is important to note that usually the clear choice between projects.
tion and marginal utility for consump- balance of the first years from the investment
tion decreases over time; are negative and become positive after As already described in chapter 2 net pre-
• pure preference for present utility com- some years. As they decrease over time, sent value could be financial net present
pared to future utility. negative values in the first years are weighted value if it is calculated in the financial
analysis with financial variables, and eco- i
nomic net present value in the case it is cal- Project 2
Discount Factors Table
culated in the economic analysis.
Years 1 2 3 4 5 6 7 8 9 10
(1+5%)-n .952 381 .907 029 .863 838 .822 702 .783 526 .746 215 .710 681 .676 839 .644 609 .613 913 Graph. 3 A case of non-comparable NPV.
(1+10%)-n .909 091 .826 446 .751 315 .683 013 .620 921 .564 474 .513 158 .466 507 .424 098 .385 543 1
Here we do not make distinction between financial internal rate of
return (both on investment and on equity) and economic rate of
n: number of years return. For an in-depth explanation on that point see chapter 2.
100 101
A.3 B/C ratio
Annex B
The choice of the Discount Rate
NPV considered not suitable.
i
A.3 B/C ratio Discount Rate Transport
Transport
Espana
Espana
6
6
Transport Espana 6
The B/C ratio is defined by: In theoretical literature and in practice we Transport France 8
can find different points of view regarding Environment
Environment
Lituania
Poland
3
5
Graph. A The internal rate of return. B/C = PV (I)/PV (O) the discount rate to be considered in the Environment Poland 5
financial analysis of investment projects. Industry Portugal 10
As it is clear from the definition of IRR and where I are the inflows and O outflows. If There is a substantial academic literature Energy Portugal 11
its formula, no discount rate is needed for B/C>1 the project is suitable because bene- on the definition and estimation of disco- * Data refers to ISPA, FC and ERDF projects
the calculation of this indicator. fits, measured by the present value of unt rates, and it is not necessary to summari-
the total inflows, are greater than costs, se it here (see bibliography). Yet, project a consequence, the benchmark for a public
The examiner mainly uses the financial rate measured by the present value of the proposers and appraisers should under- project may be the real return on
of return in order to judge the future perfor- total outflows. stand the basic ideas behind the selection of Government bonds (the marginal cost of
mance of the investment. Infact, if i is consi- one discount rate. public deficit), or the long term real interest
dered the opportunity cost of equity IRR is It is a pure number, like IRR, and it is rate on commercial loans (if the project
the maximum value i could assume without independent of the size of the investment. As a general, and quite uncontroversial, needs private finance).
making the investment a net loss compared Moreover it is sometimes easier to use definition, the financial discount rate is the This approach is very simple, but it may be
to an alternative use of the capital. because there are no ambiguous cases like opportunity cost of capital. Opportunity quite misleading. It is important to under-
those shown for IRR. cost means that when we use capital in one stand that under this approach we use the
Thus IRR could be an evaluation criterion project we renounce to earn a return in actual cost of capital to determine the oppor-
for project appraisal: under a specific For this reason it is in some cases very sui- another project. Thus we have an implicit tunity cost of capital, and the two concepts
value of IRR the investment should be table to rank projects. cost when we sink capital in an investment are different. In fact the best alternative pro-
project: the loss of income from an alterna- ject could earn much more than the actual
tive project. interest rate on public or private loans.
NPV NPV
Having in mind this broad definition, we The second approach establishes a max i-
Project 1 need to estimate empirically the relevant mum limit value for the discount rate as it
opportunity cost of capital for a given pro- considers the return lost from the best
ject, in a given country and time. investment alternative. In practice the
NPV 1
opportunity cost of capital is estimated
There are basically three approaches that looking at the marginal return on a portfo-
NPV 2 may be helpful to identify the appropriate lio of securities in the international finan-
financial discount rate, and we should cial market, in the long run and with mini-
IRR 2 briefly mention them below. mum risk. In other words, the alternative to
the project income is not the buying back
i i The first approach estimates a minimum of public or private debt, but it is the return
DR
Project 2 opportunity cost of capital. Sometimes this on an appropriate financial portfolio.
IRR 1 IRR’ IRR’’ IRR’’’
approach suggests that the real discount
rate should measure the cost of the capital However, some investors, particularly in
NPV1>NPV2 but IRR2>IRR1
used for the specific investment project. As the private sector, on the basis of previous
DR: discount rate Graph. 5 Ambiguous cases.
102 103
B.2 The social discount rate B.2 The social discount rate
experience in similar projects, might feel Theoretical literature and international lated through the shadow price capital average per capita consumption, say at 2%,
capable of achieving an even higher return practice show a wide range of approaches approach which allows both consumption and that the value of elasticity of social wel-
on investment. in interpreting and choosing the value of and production displacement. Internal fare to this kind of expenditures is between
the social discount rate to be adopted. government’s investments (those projects 1 and 2. So, if the pure intertemporal prefe-
The third approach is to determine a cut-off The international experience is very wide impacting only the government debt) must rence is about 1%, then the real social dis-
rate. This implies avoiding the detailed exa- and has involved different countries as well be discounted using Treasury borrowing count rate will be in the 3%- 5% range.
mination of the specific cost of capital for a as international organisations. rates. CBO (Congressional Budget Office) This approach leads to values of the disco-
given project (under the first approach) or and GAO (General Accounting Office) sta- unt rate usually lower than those of the pre-
the consideration of specific portfolios on The World Bank and, more recently, the te that public investment may be discoun- vious approach. This is because capital
the international financial markets or on EBRD have adopted a required economic ted by using Treasury borrowing rates. markets are imperfect, and myopic, and
alternative projects for a given investor rate of return of 10%. This is usually regar- discount the future more heavily. In fact
(under the second approach), and to use a ded as a quite high cut-off rate, and accor- This variety of international experience under an extreme view, the State should
simple rule-of-thumb approach. ding to some criticisms it may reflect a kind reflects different theoretical and policy have a zero value for intertemporal prefe-
of cream-skimming of best projects by pri- approaches. rence, because it has to protect the interests
We take a specific interest rate or rate of me lenders. of all future generations.
return from a well-established issuer in a The main approaches for the social disco-
largely traded currency, and use a multi- Usually national governments set the social unt rate estimate are the following: c) a third solution is to consider a standard
plier on this minimum benchmark. discount rate for public projects at a lower a) One traditional view proposes that the benchmark for the discount rate, a requi-
For projects co-financed by the European level than international financial institutions. marginal public investment should have red rate of return, reflecting a real growth
Union an obvious minimum benchmark the same return as the private one, as the objective. In fact, in long run, real interest
may be long term bonds denominated in In the UK the Green Book1 considers the projects can be substitutes. rates and growth rates should converge.
Euro issued by the European Investment social opportunity cost of capital as the cost b) An alternative approach is to use a for-
Bank. The real return on these bonds can due to the displaced private consumption mula based on the long-term rate of On the basis of the first approach a 5%
be established by the consideration of the and production. Social time preference rate growth of the economy. An approxima- social discount rate for public projects will
nominal return rate less the inflationary and private rate of return are set both at 6%, ted formula is the following: be around two times the real return on a
rate in the EU. although several exceptions are allowed. long term EIB bond in Euro, thus not too
r = ng + p far from a reasonable financial rate of
In practice we suggest that a real financial In Italy, according to the new guidelines for return, perhaps on the lower end of the
discount rate of 6% for 2001-2006 will feasibility studies2 the discount rate is cur- where r is the real social discount rate of opportunity cost of capital for private
not be very far from 2 times the value of the rently set at 5%. public funds and expressed in an appro- investors.
real return on EIB bonds. This may be a priate currency (e.g. Euro); g is the growth But a 5% social discount rate will also not
convenient financial cut off rate for public In Spain different values of the social disco- rate of public expenditures, n is the elasti- be too far from a value based on the
projects, except in particular circumstan- unt rate have been set depending on the city of social welfare to public expenditures second approach, perhaps on the higher
ces that must be justified by the project sector involved: 6 % in real terms for trans- and p is a rate of pure intertemporal prefe- end of the range of reasonable values for
proposer. port3 and 4% for water resource projects. rence. For example, suppose that public the different parameters.
expenditures for subsidies to the poor (i.e.
In France, the discount rate set by the the most socially valued expenditures) And eventually, for European regions lag-
B.2 The social Commissariat Général du Plan is equal to
8% in real terms. This rate has not been
grow at a real annual rate equal to that of ging behind, a 5% return is compatible
with the third approach: it may reflect the
discount rate updated since 1984. need for these regions to invest at a higher
8 rate of return in order to achieve a rate of
The discount rate in the economic analysis In the USA the OMB (Office of Manage- 6 growth higher than the average for the EU
of investment projects (i.e. social discount ment and Budget) proposes different disco- 4 area (where in the last decades the real
rate) attempts to reflect the social view on unt rates. In particular, assuming that 2 growth rate has been around 2.5-3%).
how future benefits and cost should be public investments (defined as those pro- 0 In conclusion a 5% European social disco-
-2 1991 1992 1993 1994 1995 1996 1997 1998 1999
valued against present ones. It may differ jects impacting social welfare) do displace -4
unt rate may have different and convergent
from the financial rate of return when the private consumption, the discount rate to -6 justifications, and may be a standard
capital market is imperfect. be used is set at 7% in real terms, or calcu- -8 benchmark for EU co-financed projects.
-10 However, in specific cases, project propo-
-12 sers may wish to justify a different value.
1
HM Treasury (1997) Appraisal and Evaluation in Central Government. The Green Book
2
Conferenza dei Presidenti delle Regioni e delle Province Autonome (2001) Studi di fattibilità delle opere pubbliche. Guida per la certificazio- EU PRE-ACCESSION COUNTRIES
ne da parte dei Nuclei regionali di valutazione e verifica degli investimenti pubblici
3
Ministerio de Transportes, Turismo y Communicaciones (1991) Manual de evaluacion de inversiones en ferrocarriles de via ancha. Anexo 1 Fig.1 GDP growth, constant prices. % variation.
104 105
C.2 Rules for modulation
Annex C
The determination Calculation of FRR/C before EU aid
The new Regulations, while fixing maxi- * This example is based on an ISPA project
mum rates (see Tab. 1) explicitly require FRR > 0% FRR < 0%
Examination of the
the Commission to determine the actual ment, R the present value of the net
financial sustainability
rate, taking into account various circum- revenues generated by the project, inclu-
stances, particularly: ding its residual value, E the eligible cost, Presentation of the
financial structure Non sustainable
• the existence of project revenues; (C-R) is the financing gap, we have that r is
• the polluter pays principle. the cofinancing rate and G is the EU grant Sustainable Reject the project or
defined as follows: modify financial structure
The Regulations require the Commission
to state how it determines its cofinancing r= (C-R)/C and G= E*r Calculation of the ERR
rate, in a transparent and verifiable way.
The current approach for the Cohesion
Fund (imitated by ISPA), is the “equity gap”
or “financing gap” approach.
C.2 Rules for T1=50MEUR T2=6% by way of illustration
modulation the determination of the cofinancing rate. investment costs, total operative costs and
The basic idea is to fill the “financing gap” This would be possible through both the total revenues are considered (without
by EU grants. That means that, if C is the The rule of the financing gap needs some harmonisation of the accounting rules for considering grants, equity capital, loans
present value of total cost of the invest- recommendations to be followed in order financial and economic analysis (see chap- and interests) in order to evaluate the ove-
to better accomplish Commission objecti- ter 2) and a triple checks system based on rall financial profitability of the project or,
Tab. 1 Ceilings for the cofinancing rate as from ves and use cost-benefit analysis to modu- fixing benchmarks for FRR/C, FRR/K and as more often it will be the case, the net
the Regulations. late the cofinancing rate. Infact the general ERR. The logic of this system is showed in cost for public finance when project reve-
Structural Funds and Cohesion Fund rule stated in the CF Guidelines states: the diagram. nues are zero or insufficient.
The rate will be fixed in the light of the charac- If the FRR/C is less than a threshold the
Types of region/country Max co-financing rate
% of total eligible cost teristics of the project and with particular C.2.1 Calculation of the financial rate of applicant should be asked by the Com-
Obj. 1 75 attention to the results of the economic analysis. return on the total investment cost (befo- mission to give evidence on how the project
Obj. 1-Cohesion fund region 80 re EU intervention). will be sustainable in the long term, beyond
Obj. 1-Cohesion fund
region/ultra peripheral 85
This should mean that rates calculated wi- The project proposer should present a cal- the time horizon. This will include a com-
Obj. 2 and 3 50 thin the financial and economic analysis, culation of the (real) financial rate of re- plete financial plan with indication of all
Higher co-financing rate such as FRR/C, FRR/K and ERR might be turn on the total investment, FRR/C, id est financial resources (national subsidies,
% of total eligible cost
Cohesion Fund country 80-85
used to check the quality of the project before the internal rate of return when total loans, shareholder’s equity..).
ISPA
ISPA country 75 (85 in exceptional cases)
106 107
C.2 Rules for modulation
Annex D
Sensitivity and risk analysis
C.2.2 Calculation of the financial rate of chapter 2), on the basis of his expectations
return on national capital (after EU grant). of the EU cofinancing (in other words the
As explained in detail in the Guide, there applicant should state how much own capi-
are two ways to consider financial returns. tal, including national public funds or pri-
FRR/C gives an indication of the overall vate equity, and third parties loans and
financial efficiency of the project. It consi- interests he/she will be prepared to afford).
ders investment cost, and deliberately igno- The financial internal return on national
res how they are financed. capital (FRR/K) usually should not exceed
a real 6%2. For projects with a FRR/K>6%
However it is important to look also at the more contribution with own capital could
financial return of the investor’s own capi- be asked and the FRR/K should be recalcula- The uncertainty of the forecasts carried out
tal. This is done by considering, instead of ted with this new financial structure. in the CBA stem from different causes. As a 600
total investment, the cost of capital for the typical example, figures 1, 2 and 3 show the 500
investor: equity disbursed, reimbursement C.2.3 Calculation of the economic rate results of field surveys conducted to deter- 400
of loans and interest (including EIB and of return. mine which values to attribute to the three
L/day
300
commercial bank loans). EU grants should The project proposer should calculate the variables to be used in the analysis. As we
200
not be included. This is the same as the cal- ERR, with the methods suggested in the can see, even if it is possible to determine a
culation of the FRR ‘without EU’, when the present CBA guide. The difference between value as the best estimate for the data under 100
costs of the investments not covered by the ERR and FRR is that the former uses examination (for example the mean), the 0%
EU grant are completely covered by inve- accounting prices or the opportunity cost parameters show a variability of values. 10 20 30
stor’s capital (no loans and interests). of goods and services instead of imperfect N° sample
market prices, and it includes as far as pos-
Fig. 3 Per capita consumption - (average: 230 litre/day-Standard
sible any social and environmental exter- deviation: 96 litre/day)
100
The applicant should present the nalities. Because externalities and shadow
financial structure he proposes for the pro- prices are now considered, most projects
Observed cases
80
ject (by a simple table of financial planning, with low or negative FRR/C will now show Once the critical variables have been iden-
60
see financial sustainability table 2.3 in positive ERR. tified, in order to conduct the risk analysis
40 it is necessary to associate a probability dis-
tribution to each of them, defined in a pre-
20
cise range of values around the best estima-
0 te, used in the base case, in order to calcula-
700- 800- 900- 1000- 1100- 1200- >1300 te the evaluation indices.
800 900 1000 1100 1200 1300
Price ranges The probability distribution for each varia-
ble may be derived from different sources.
Fig. 1 Distribution of commodity price - Average 1.017 euro - Standard deviation 164 euro The most common one is made up of the
results of studies carried out to obtain the
desired experimental values, in situations
30% that are as similar as possible to those of the
25% project. This is the case shown as an exam-
Frequency
Probability
0.75 30%
0.05 ment of the independent variables.
20%
0.50 0.00
0 5 10 15 20 25 For example there is a 3% probability 10%
(0.15*0.20) that the NPV has a value of 5. 0%
0.25
Fig. 6 Symmetric triangular distribution 65.0 67.5 70.0 72.5 75.0 77.5
Meuro
0.00 60
0.20% 0.30% 0.40% 0.50% 0.60% 0.70%
cially in the analysis of the risks associated 40
Fig. 8 Project cost
110 111
E.2 Evaluating environmental impacts in development projects
Annex E
Monetary evaluation
of environmental services Total economic value
The monetary measure of a change in an individual’s well being rent generation obtains from preserving the environment for
due to a change in environmental quality is called the total eco- future generations. Non-use values are less tangible than use
nomic value of the change. Total economic value of a resource values since they often do not refer to a physical consumption of
can be divided into use values and non-use values: goods and services.
Total economic value = use values + non-use values.
Values are directly linked to ecological services produced by
Use values include benefits from physical use of environmental ecosystems, which support them. For example, fishery depends
resources, such as a recreational activity (sport fishing) or pro- on ecological productivity of water ecosystem as wetlands.
E.1 Why do we value ductive activities (agriculture and forestry). Option value takes Water availability is linked to the entire hydro geological cycle
the environment? Environment impacts and environmental place in this category, even if concerning only future uses. It and groundwater quality depends on the filtering capacity of
services in the project stems from the combination of the individual’s uncertainty soils. A reduction in the provision of ecological services (by pol-
about future demand for the resource and uncertainty about its lution for example) will be likely to depreciate values expressed
The economic evaluation of the environ- Relevant environmental impacts in major projects are related with the
future availability. Non-use values refer to the benefits indivi- by people on environmental quality with, as a final result, a
ment helps decision-makers to integrate in following environmental dimensions:
duals may obtain from environmental resources without directly decrease of social benefits associated with.
• Water: surface water and groundwater availability and quality
decision-making processes the value of using them. For example, many people value tropical ecological
• Air pollution: urban air pollution and greenhouse gas emissions
environmental services provided by ecosy- systems without directly consuming or visiting them. The com- It is important to understand that economic value does not mea-
• Soil pollution: contamination by chemicals and heavy metals
stems. Direct and external environmental ponents of non-use values are existence value and bequest sure environmental quality per se, rather it reflects people’s pre-
• Waste: urban and industrial waste production and treatment
effects produced by economic projects are value. Existence value measures willingness to pay for a resour- ferences for that quality.
• Biodiversity loss
calculated and expressed in monetary ce for some “moral”, altruistic or other reason and is unrelated Evaluation is “anthropocentric” in that it relates preferences
• Landscape deterioration
to current or future uses. Bequest value is the value that the cur- held by people.
terms1. Monetary evaluation is a useful way • Natural and technological risk
to express in the same dimension different • Noise and human health
social and economic costs and benefits and
is required to calculate a homogenous Environmental impacts affect the furniture in environmental goods and Total economic value (TEV)
aggregate indicator of net benefits. services consumed by consumers or used as input by producers.
Example of direct and indirect environmental services provided by
Use Non-use
In the context of strong uncertainty and ecosystems:
• Direct production of oxygen, water, fresh food, fodder and fertilizer,
irreversibility in the future availability of
genetic resources, fuel and energy, raw materials, Direct use Indirect use Option value Bequest value Existence value
the environmental resource or for ethical
• Indirect services as regulation of hydrological cycle, water catch-
reasons, other economic evaluation me- ments and groundwater recharge, regulation of climate, storage and
thods can be applied, such as Environ- recycling of nutriment, biomass production, production of top soils, Goods and Functional Future uses Future Fixed
mental Impact Assessment, multi-criteria assimilation of waste, maintenance of biological diversity and so on. services current generation Values on
analysis or public referenda. These me-
Directly benefits consumption non-use value
thods avoid the need to express all envi-
consumed
ronmental impacts and individual’s prefe-
rences in a single numeraire. landscape degradation, technological and
natural risks. These impacts alter the nor- Tangibility
mal functioning of ecosystems and reduce
E.2 Evaluating (or in some cases increase) the quality of
ecological services provided by ecosystems.
environmental impacts Decrease, or increase, in the quality or the
• food • production • maintenance • famous species and
in development projects quantity of environmental goods and servi-
ces will produce some changes, gains or los-
• wood and biomass function of ecological ecosystems
• recreation • ecological functions • irreversible change
Most public infrastructure projects have ses, in social benefits associated with their
• health function • production • maintenance of life support
negative, or positive, impacts on the local consumption.
• education • recreation of biodiversity function
and global environment. Typical environ-
• sport • regulation • maintenance
mental impacts are associated with local air For example, a road infrastructure will be
function of landscape
quality, climate changes, water quality, soil expected to reduce the superficies of useful
and groundwater quality, biodiversity and rural land, will change rural landscape
1
A Direct effect can be directly observed on markets (through the variation of price and quantity) or in the decision-making process, while
external effects arise when the economic behaviour of an individual (or a firm) affects the behaviour of another (individual or firm), without
any economic compensation or transaction from the former to the latter. In economics, pollution or resource depletions are often analysed
with the help of the externality concept.
112 113
E.3 What do we do measuring monetary benefits? E.3 What do we do measuring monetary benefits?
Infrastructure
availability, will increase pressures on bio- When environmental service markets are chemical products for example, is well
diversity and reduce the general air quality available, the easiest way to measure econo- known. The technique takes natural science
related to the traffic cars in the area. As a mic value is to use the actual related market Environmental impacts information on the physical effects of pol-
result, each of these impacts will reduce the price. For example, when marine pollution on water, soil, air lution and uses this in an economic model
provision of environmental services by reduces fish catches, market values for the and biodiversity of evaluation. Economic evaluation will be
ecosystems and will lower economic bene- lost harvest are easily observed on fish mar- Damage performed by estimation, through a pro-
fits, such as farm activity, landscape con- ket. When there is no “market”, the price function duction or a utility function, of the firm
sumption and other recreational activities can be derived through non-market evalua- Damage on materials, profit variations or the individual revenue
associated with the economic use of the tion procedures. This is the case for exam- buildings, crops gains or losses.
area. On the other hand, investments in ple in measuring the social cost of urban air or other receptors
waste treatment facilities will decrease pollution since no market can be associated Marginal Total of The two steps of the method are:
environmental negative impacts on soil with air pollution. There are two broad cost for population • The calculation of the pollutant dose and
and water and will increase economic approaches to evaluation, each comprising mitigating Total averting (or re- receptor function, and
benefits related to the furniture of high several different techniques (see figure): the the impacts expenditures ceptors) • The economic evaluation by the choice
quality environmental services to econo- indirect approach seeks to infer preferences (€/unit) involved of an economic model.
mic agents (consumers and producers). from actual, observed market-based infor-
mation, the direct approach is based on the To assess the monetary gain or loss of bene-
Benefits associated with
Not taking into account environmental simulation of market goods and uses sur- fits due to the variation in environmental
the environmental quality
impacts, through the calculation of asso- vey and experimental methods. quality requires the analysis of biological and
ciated externalities, will lead to an over or physical processes, their interactions with the
under estimation of social benefits of the 1. Averting expenditures and avoided costs economic agent decisions (consumer or pro-
project and will induce bad economic When changes in the quality of the envi- change, instead of spending money in ducer) and the final effect on welfare.
decisions. ronment occur, firms’ and households' building renovation, owners would pre-
reactions can be observed through the fer sell and move away for example; The major fields of application of the
money they spend to mitigate the impacts. • Averting behaviour may have other bene- methodology are the evaluation of losses
E.3 What do we do For instance, expenditure or sound insula-
tion can indicate householders’ evaluation
ficial effects which are not considered
explicitly, sound isolation for example
(in crops for example) due to pollution, the
pollution effects on ecosystems, vegetation
measuring monetary of noise reduction and expenditures in may also reduce heat loss from a home; and soil erosion and the impacts of urban
benefits? building renovation might reflect the bene- • Much defensive expenditure is often not air pollution on health, materials and buil-
fits of reduced air pollution. Averting continuous and not a reversible decision dings. The approach cannot estimate non-
In practice, economic evaluation tries to expenditures are used for evaluation of but is rather discrete and irreversible, such use value.
reveal (or state) individual willingness to environmental degradation and avoided as double-glazing which is expensive to
pay (or to receive) for benefits associated costs are rather used for the evaluation of remove once installed. In that context, it 3. Hedonic price method
with use (consumption) of environmental environmental quality improvements. could be difficult to measure other future The hedonic price technique analyses exi-
goods and services. The aim of evaluation is Several problems are associated with the variations of environmental quality. sting markets for goods and services whe-
to appraise total economic value, conside- method: re environmental factors have an influen-
ring explicit use and implicit non use values. • Individuals or firms may undertake For these reasons the method often over or ce on the price. Hedonic price approach is
The core concept of the methodology is the more than one form of averting beha- under estimates benefits associated with most often used in analysing the effect of
concept of consumer (or producer) surplus. viour in response to any environmental environmental quality changes.
114 115
E.3 What do we do measuring monetary benefits? E.3 What do we do measuring monetary benefits?
environmental quality on house prices. A or their willingness to accept compensa- extensively used when calculating non -use socio-economic characteristics which
house near an airport, for example, can be tion for a loss. The method uses a que- values or option value. Potential problems can affect the evaluation);
expected to present a lower price than a stionnaire approach, which can be applied with contingent evaluation originate from
house located far away because of the by mail, telephone or face to face. The the construction of the questionnaire and • The calculation of value and their trans-
sound nuisance. The difference in value respondents are requested to answer que- the numerous potential biases associated, fer in the new context of evaluation.
can be viewed as the value attached to the stions such as (for a questionnaire on air such as payment bias (when payment
difference in environmental quality. pollution reduction for instance): method affects the value calculated), star- When there are a number of original stu-
Because of the large number of characte- ting point bias (if value are suggested to the dies available, it is possible to perform a
ristics, which influences the price, advan- “How much are you willing to pay for a respondent and influences his choice), meta-analysis to link the value obtain to its
ced econometric techniques are usually reduction in urban air pollution or how mental account bias (when the respondent different environmental or socio-economic
used to hold other attributes constant and much are you willing to accept in compen- doesn’t separate out his willingness to pay characteristics.
separate out the value of an individual sation for a low air quality standard”? for the good under evaluation from his
characteristic. The questionnaire is structured in such a total willingness to pay for environment in Three possible techniques can be used for
way as to assess the respondent maximum general), and other minor biases. the transfer of benefits:
The hedonic pricing approach has been willingness to pay. In a second step, econo-
applied to labour as well as to measure the metric techniques are applied to the survey 6. Benefits transfer • Transferring average benefit estimates,
benefits or cost associated with a reduction results to derive the average value. Then, in When data are not available, more costly to when assumed that the change in well-
or an increase in risk accidents. a third step, average bid is multiplied by the produce, time is lacking or for other politi- being experienced by average individuals
number of people concerned, to find the cal reason, we can carry out a transfer of on an existing site is equal to that which will
4. Travel cost method total willingness to pay of the population values from data already available in other be experienced at the new site;
The travel cost approach seeks to value the for the environmental service. The market studies (for other sites), to the new context
individual’s willingness to pay for an envi- is said to be contingent because construc- of evaluation. This approach is called • Transferring adjusted benefit estimates,
ronmental good and service by the costs ting a hypothetical market through scena- “benefit transfer”. It’s unlikely to expect when average is adjusted according dif-
incurred to consume it. The consumption rio techniques. from benefits transfer precise estimates, but ferent criteria such as socio-economic
cost will include travel costs, entry fees, on- the method can help to rank various policy characteristics of the individuals, diffe-
site expenditure and expenditure on capital Usually the questionnaire is organised in options for reducing environmental im- rence in quality and availability
equipment necessary for consumption. The three different parts: pacts. Benefits transfer is usually performed
travel cost method is usually used to esti- in three steps:
mate the value of outdoor recreation activi- • An introductory part relies on the • Transferring benefits function: the exi-
ties, such as fishing, hunting boating and description of the environmental good • The compilation of the existing literatu- sting relationship is transferred and data
forest visits. For example, a visit to a natio- and service under investigation (water re on the subject under investigation needed to apply it for the new site is col-
nal park will imply loss of time (to travel), quality, air pollution, soil contamination, (recreational activity, human health, air lected.
entry fee, petrol and other travel costs. biodiversity reduction, or other environ- and water pollution…);
These elements are used to evaluate a mental problems) the general environ- Some databases have been set up in an
demand curve to environmental asset mental context and the methodology • The assessment of the selected studies for attempt to facilitate benefits transfer. This
based on the relationship between travel used (specially the method of payment); their comparability (similarity of the is the case of the EVRI database developed
costs and the number of visitors. environmental services valued, difference by Environment Canada and the US En-
Because of valuating only actual costs arising • The questioner asks about willingness to in revenue, education, age and other vironment Protection Agency. More than
out of direct consumption of environmental pay or to accept compensation.
services, the method does not estimate non-
use values (option value and existence • Questions on the socio-economic (reve- Order Impacts Examples Techniques of references
value). Some other limits can also be poin- nue, position…) and demographic cha- 1 Marketed products • Provision of: food, fuel, timber, fish • Market prices
ted out such as the evaluation of leisure time racteristics (age, family…) to obtain • Averting behaviour
2 Impacts on goods that are • Air quality or noise as reflected • Hedonic pricing
or some econometric specific difficulties. background information and make it not marketed but whose in house prices
easier to extrapolate from the sample to value is indirectly captured
through other goods
5. Methods based on hypothetical mar- the relevant population. 3 Environmental services that • Recreational amenities e .g. fishing, • Hedonic pricing
kets: the contingent evaluation method individuals can fairly readily boating, walking. • Travel costs
value in monetary terms • Many national park services • Contingent evaluation
In contingent evaluation studies, people The contingent method is likely to be the • Scenic viewpoints • Averting behaviour
are asked directly to express their willin- most applied among the economic evalua- 4 Less tangible impacts on • Aesthetic impacts of pollution or a • Protection costs
human welfare not already degraded landscape and • Contingent Evaluation
gness to pay for a benefit or to avoid a cost tion techniques and is the only one to be covered • Impacts on ecological functions such as
loss of biodiversity, climate moderation
5 Non-use and option values • Some ecological functions • Contingent evaluation
• Option value
• Bequest and existence value
116 117
E.4 The different steps of an environmental cost-benefit analysis
Annex F
Affordability and evaluation
700 studies are currently available in the
database, but only a minority are Euro-
pean in origin, this still reduce the usabi-
2. The assessment of environmental impacts
and damages to the ecosystem and human
health associated with the different scena-
of distributive impact
lity of the database in a European context rios available. For major projects an
of evaluation. Environmental Impacts Analysis is usually Tab. 1 Example of weight for distributive impact
required and will contain enough infor- Polation Weight Benefits Distrib.
Except perhaps transfer analysis, the use of mation on the most important local Affordability is an important issue in evalua- (cf) impact
the methodologies reviewed above, will impacts on air, water and soil pollution. ting investments projects, especially in some High income 0.5 1200 600
depend on the socio-economic context, on countries. Income streams will for instance Medium income 0.7 1000 700
the type of environmental impacts studied 3. The description of external effects and take the form of charges for environmental Low income 1 1500 1500
Total 3700 2800
and other characteristics such as the cost economic agents affected directly or indi- services, such as water supply or waste dispo-
and the time for carrying out a new eval- rectly by the environmental impacts of sal. A project affordability analysis will help sider a society made up of two groups of indi-
uation in a new site. the project. The idea is to describe more assess the ability of consumers to pay at least viduals, one rich group and one poor, where
accurately the relationship between the a share of the proposed charges and contri- the income of the poor group is half that of
The list below shows the main types of costs provision of environmental services by bute to operating and maintenance expendi- the rich group. An increase of one Euro in the
and benefits that a cost-benefit analysis ecosystems and the social benefits derived tures, as well as assess the effect of the charges price of a consumer good (or a tariff for the
should appraise. When you move down the from their consumption. A list of people on demand. A Polish study has estimated that use of a public service) does not have the
list, it becomes harder to derive robust esti- involved must be set up at this stage. 4% of household income for water use is the same social effect for both groups. In fact it
mations of the value people place in the upper limit of affordability for consumers. may have double the impact (from the welfa-
good and there will probably be more dis- 4. The choice of an evaluation method and Another importan issue is to take redistributi- re point of view) on the poorer group. The
agreement with the use of evaluations based the validation of the monetary value cal- ve effect into account in evaluating an invest- public planner expresses his redistributive
on the public’s preferences. Consequently, culated. The most satisfactory method of ment project, especially in some regions. intent if he considers the consumption of the
as you move down the list, other methodo- evaluation will be chosen, which depends When project evaluation is carried out from poorer group be more important than that of
logies of evaluation which take into account on the type of project, on the environ- the point of view of the public sector, distribu- the richer group. Thus, if we wish to express
assessed ethical considerations, such as mental goods and services and on the tive equity could be one of the themes of the this effect in monetary terms, the accounting
public consultation or multi-criteria analy- general socio-economic and political social welfare function that should influence units can be weighted by distributive
sis, are likely to be accepted more easily by context. In an ideal evaluation procedu- the choice of public intervention. For example weights, considering 1 Euro for every Euro of
stakeholders, with a greater consensus than re, stakeholders would validate calculated an intervention that contemplates changes in the poor group and 0.5 Euro for every Euro
analysis with monetary values. values in order to assure a consensus on tariffs influences the distributive profiles. of the rich group. At this point one can recal-
the methodology selected. There are two methods for taking the distri- culate the effects of the project including the-
butive effects into account. se considerations in the economic analysis.
E.4 The different steps 5. The choice of a discount rate and the
estimation of the environmental net
The first is to attribute so-called welfare
weights (see section on multicriterion analy-
The second method for evaluating the redi-
stributive impact is impact analysis: as was
of an environmental benefit of the project. The use of a low sis). This approach allows the social objectives the case with the environmental analysis, a
cost-benefit analysis discount rate is sometimes justified by
the fact that environmental impacts pro-
of the public planner to be incorporated in
the shadow prices. The accounting Euro is
separate study is carried out of the redistribu-
tion of income that the project involves. One
Monetary analysis is usually split in diffe- duce negative effects in the long term. weighted to take the distributive effects on constructs an indicator of social inequality
2
rent steps, which are the following: Some people argue for a zero discount different social groups into consideration. (for example a Gini index of the consump-
rate because of ethical considerations for The correction is then included in the subse- tion structure) and one calculates whether
1. The definition and the technical descrip- future generations. In any case, where quent step for the economic analysis. the project determines a gain or a loss in
tion of the different options of the project. strong environmental impacts occur, a Public redistributive preferences in this case terms of equity. The result is then processed
1
Useful information is likely to be available low discount rate (approximately 3 or 5 are expressed by weighting the aggregated as a multicriteria analysis tool (see par. 2.6).
in the feasibility studies and should be %) should be selected in order to inclu- per-capita consumption (or income) for the
Tab. 2 Example distributive impact analysis
enough to state the technical and socio- de some ethical principles such as the various consumer groups. When there is with Gini index
economical context of the project; precautionary principle. income disparity, one Euro at the margin Gini index Without With Impact
does not have the same value for individuals project project
with different incomes (that is it has a diffe- Project A 0.6 0.7 +
rent weight in public evaluation). Let us con- Project B 0.6 0.5 -
1
These weights are not comparable with weight used for multicriteria analysis expressing preferences of the public body for social objectives.
2
The Gini index incorporates the more detailed shares data into a single statistic which summarizes the dispersion of the income shares across
the whole income distribution. The Gini coefficient may be expressed as a proportion or as a percentage. The Gini coefficient will be equal
to 0 when the distribution is completely egalitarian. If the society’s total income accrues to only one person/household unit, leaving the rest
with no income at all, then the Gini coefficient will be equal to 1, or 100%.
118 119
Table of contents of a feasibility study
Annex G
Table of contents of a feasibility
study
A.6 Location
A.1 Summary
6.1 Ideal Requirements for the Location 6.3.5 Waste Disposal
1.1 Project Promoters and Authorities 1.5 Brief Description of the Appraisal Report 6.2 Alternative Options 6.3.6 Government Regulations
1.2 Object of Analysis 1.5.1 Authors of this Report 6.3 Choice of Site and its Characteristics 6.3.7 Policies of the Local Authorities
1.2.1 Project Name 1.5.2 Scope of the Report. Ties to other Projects. 6.3.1 Climatic Conditions, Environmental Aspects (if rele- 6.3.8 Description of the Pre-chosen Site (details in the
1.2.2 Brief Description of the Project 1.5.3 Methodology of the Project Analysis. vant) Appendix)
1.2.2.1 Sector 1.6 Main Results of the Analysis 6.3.2 Site or Territory 6.4 Cost of Land and Site Preparation
1.2.2.2 Location 1.6.1 Financial Returns 6.3.3 Transport and Communications 6.5 Site Availability
1.2.2.3 Area Impacted by the Project (regional, 1.6.2 Economic Returns 6.3.4 Water and Electricity Provisioning 6.6 Infrastructure Requirements
national, international..) 1.6.3 Impact on Employment
1.3 Promoter’s Objectives 1.6.4 Environmental Impact A.7 Implementation
1.4 Previous Experiences with Similar Projects 1.6.5 Other Results
7.1 Analysis of Construction/Start-up Times (project cycle) 7.1.7 Organisational Structure
A.2 Socio-economic Context 7.1.1 Selection of Management Group for the Project 7.1.8 Staff Hiring
7.1.2 Definition of Information System 7.1.9 Personnel Hiring and Training
2.1 Salient Elements of the Socio-economic Context tral goverments, regions, others); private individuals 7.1.3 Negotiations for the Purchase of Know-how and 7.1.10 Supply Agreements
2.1.1 Territorial and Environmental Aspects 2.2.3 Financial Coverage on the part of the Afore- Machinery 7.1.11 Distribution Agreements
2.1.2 Demographics mentioned Sources 7.1.4 Building Planning and Contract Scheduling 7.2 Bar Graph (or PERT chart) of the main phases
2.1.2 Socio-cultural Elements 2.2.4 Administrative and Procedural Obligations; 7.1.5 Financing Negotiations 7.3 Main Information on Execution Times to consider in
2.1.4 Economic Aspects Decision-making Authorities for the Project; 7.1.6 Acquisition of Land and Licences the Financial Analysis
2.2 Institutional and Political Aspects Territorial Planning Obligations; licences/permits;
2.2.1 General Political Outlook. requirements for licences and incentives. A.8 Financial Analysis
2.2.2 Sources of Financing (specify if loans or grants); EU 2.2.5 Expected times for: licences/permits; licen-
tools (ERDF, BEI, CF, FSE, etc.); national authorities (cen- ces/incentive to pay.. 8.1 Basic Assumptions of the Financial Analysis 8.8 Financial Plan (a table showing cash flow for each
8.1.1 Time Horizon year)
A.3 Supply and Demand of the Project’s Outputs 8.1.2 Prices of Productive Factors and Project Outputs 8.9 Balance Sheet (assets and liabilities)
8.1.3 Real Financial Discount Rate 8.10 Profit and Loss Account
3.1 Potential Demand Expectations 3.3 Proposed Strategy 8.2 Fixed Investments 8.11 Determining the Net Cash Flow
3.1.1 Needs the Project Meets within a Set Period of Time 3.3.1 Outputs 8.3 Expenses before Production (Goodwill) 8.11.1 Net Flow to Calculate the Total Return on the
3.1.2 Current and Future Trends in Demand 3.3.2 Prices 8.4 Working Capital Investment (investments in the total project)
3.1.3 Demand Breakdown by Consumer Type 3.3.3 Promotion 8.5 Total Investment 8.11.2 Net Flow to Calculate the Return on Shareholders’
3.1.4 Means of Purchase or Distribution 3.3.4 Distribution 8.6 Operating Revenue and Costs Equity or Funded Capital (public/private)
3.1.5 Specific Market Research: Results 3.3.5 Marketing 8.7 Sources of Financing 8.12 Net Present Value/Internal Rate of Return
3.2 Competition 3.4 Estimate on the Percentage of Potential Use
3.2.1 Supply Features of Similar Outputs 3.4.1 Sales Forecasts for the Project
A.9 Socio-economic Cost-Benefit Analysis
3.2.2 Competitive Structure, if existing or can be foreca- 3.4.2 Market shares, coverage of the shares of various
sted needs 9.1 Accounting and Discount Unit for the Cost-Benefit 9.3.5 Non-monetary Benefits, including Environmental
3.2.3 Success Factors Forecasting hypothesis and techniques Analysis Aspects
9.2 Social Cost Analysis 9.4 Economic Rate of Return or Net Present Value of the
A.4 Technological Alternatives and Production Plan 9.2.1 Output Price Distortions Project in Monetary Terms
9.2.2 Salary Distortions 9.5 Additional Appraisal Criteria
4.1 Description of Significant Technological Alternatives 4.8 Investment Costs 9.2.3 Fiscal Aspects 9.5.1 Presentation of Results in terms of General
4.2 Selection of Appropriate Technology 4.8.1 Planning and Know-how 9.2.4 External Costs Objectives of European Union Policies
4.3 Buildings and Plants 4.8.2 Buildings 9.2.5 Non-monetary Costs, including Environmental 9.5.2 Increase in EU Social Income
4.4 Physical Inputs for Production 4.8.3 Machinery Aspects 9.5.3 Reduction in the Disparities with regard to per capi-
4.5 Personnel Requirements 4.9 Production Plan over the Project Time Horizon 9.3 Analysis of social benefits ta GDP between EU regions
4.6 Energy Requirements 4.10 Combined Output Supply 9.3.1 Output Price Distortions 9.5.4 Increase in Employment
4.7 Technology Providers 4.11 Production Organisation 9.3.2 Social Benefits from Increased Employment 9.5.5 Improvement in the Quality of the Environment
9.3.3 Fiscal Aspects 9.5.6 Other Objectives of the Commission, Regional and
A.5 Human Resources 9.3.4 External Benefits National Authorities
120 121
Financial analysis
Glossary
Some key-words for project
analysis according to a predetermined calendar
and on the basis of significant and repre-
sentative indicators.
Short run the time period in the produc-
tion process during which the fixed factors
of production cannot be changed, but the
level of utilization of variable factors can
Mutually exclusive projects: projects that, be altered.
by their nature, are such that if one is cho-
sen the other one cannot be undertaken.
122 123
Financial analysis Economic analysis
124 125
Other evaluation elements
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