SBEP Projana Cases--April 2012

7/31/2019 SBEP Projana Cases--April 2012

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UA&PSBEP 2011-2012PROJECT ANALYSIS CASESApril 2012

Rolando T. Dy, Ph.D.Executive Director, Center for Food and Agri BusinessFellow, FIDEIUniversity of Asia and the Pacific

OVERVIEW

The divergence between financial profits and social profits are well-known. This isbecause financial and economic values (revenues and costs) have different valuation.

It is good for top executives to have a better understanding of this public policy tool.

What is Economic Analysis?

The economic analysis of a project helps select and design projects that contribute tothe welfare of a country. Various tools of economic analysis help determine theeconomic and fiscal impact of the project, including the impact on society and the majorstakeholders involved, as well as the projects risks and sustainability. A good economicanalysis answers the following questions:

What is the project objective?

This helps identify tools for the analysis. A clearly defined objective also helps inidentifying the possible alternatives to the project.

What will be the impact of the project?This question concerns a counterfactual as the difference between the situationwith or without the project is crucial for assessing the incremental costs andbenefits of the project.

Are there any alternatives to the project? If so how would costs and benefits ofthe alternatives to achieve the same goal compare to the project in question?

Is there economic justification of each separable component of the project? Who gains and who loses if the project is implemented?

The analysis has to make sure that the most benefit accrues to the poor. What is the fiscal impact of the project? Is the project financially sustainable and what are the risks involved? Are there any other externalities? What is the environmental impact of the

project?

(Adapted from Belli, P. et al (1998) Handbook on Economic Analysis of Investment)


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The following cases are meant to provide analytical depth in the application of projecteconomics. It also serves to integrate learnings from various modules. The cases are:

1. Agriculture Development Project2. Road Improvement Project

3. Multi-band Project4. Rice Irrigation Project5. Sugar Industry Project6. Cargo Handling Project*7. Business Education Project*

The priority cases are: Cases 1-5. .

The basic skills requirements include:

(a) The with project and without projectcomparison;

(b) Internal rate of return - IRR;(c) Net present value -NPV; and(d) Sensitivity analysis of the rate of return.

Caveat: I would appreciate if you can call my attention regarding suggestedimprovements.


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CASE 1. AGRI DEVELOPMENT PROJECT

Pacifica is an impoverished province with 80% of the 200,000 inhabitants earningincome below the poverty threshold of about Php7,500 per family per month. The majoroccupations are: coconut, subsistence fishing, and overseas employment.

The area is ripe with insurgency due to low income and, in turn, extreme poverty. Thereare about 20,000 hectares of coconut trees, half of them senile (over 40 years old). Thefisher folks also harvest coconut during the lean fishing season of June to October. Bothgroups are severely under-employed. The educated children have migrated to Manilaand Central Luzon, or took up overseas work.

The European Union (EU) has approved a poverty reduction program of P300 million. Itwill fund 80 percent of the project while the provincial government will contribute 20percent. The EU is optimistic with the project outcomes as the governor, a UA&P-SBEPalumna, could chart a transparent, ethical and accountable government.

However, before the EU releases the project, it wants to see viable programcomponents from the financial and economic standpoints. Without hesitation, thegovernor calls on her SBEP classmates to conduct the economic evaluation andformulate a development strategy. She is confident at the quality of work of her SBEPclassmates.

Here are the relevant facts:

A. Coconut Hybrid Planting

With Project (Replanting) The replanting cost totals Php60,000 per hectare (ha), spread over three years:

Php30,000 in year (Yr) 1, Php20,000 in Yr 2, and Php10,000 in Yr 3.

The projected farm yield (kilograms copra per hectare (ha)): Yr 1-3 - nil; Yr 4 -750; Yr 5 - 1,000; Yr 6 - 1,500; Yr 7 - 2,000; Yr 8 - 2,200; Year 20-25, 2,500

Financial Farm Price: Php20 per kg constant prices. Maintenance Cost: Yr 4: Labor Php 7,500; Materials Php5,000

Yr 5-onwards: Php10,000, and Php5,000, respectively.

Without Project (Business as Usual) Yield: 500 kilograms (kg)/ha constant over the years.

Yr 0-onwards: Labor, P5,000.

Economic Price Economic farmgate price is 20% higher than the financial price. Economic price of labor is 60% of the financial price Economic price of materials is 90% of financial price.

Questions:


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1. What is the individual farmer FIRR?2. What is the overall project FIRR?3. What is the overall project EIRR?4. What happens to FIRR and EIRR if

(a)Copra price falls by 30%?

(b) Replanting cost increases by 30%?5. How much will price and cost variable change for the FIRR to be 15percent?

B. Spice Component

The EU is concerned that replanting takes time to bear fruits. It suggests that inter-cropping part of the senile coconut trees would provide front-end dividends. Blackpepper was suggested since it is high value and labor-intensive. It can employ surpluslabor, particularly, women.

Pepper Farm (Per hectare)

ItemYear

1 2 3 4 5 6-12Yield (kilograms) dried 0 0 200 800 1,200 1,500Farm price (Php/kg) 100Gross Production Value(GPV) (Php)Costs:Materials* 70,000 30,000 20,000 30,000 40,000 50,000LaborTotal Cost (Php)

Memo items:Labor: person days/ha 100 50 50 150 200 200Unit cost: Php150/day*Fertilizers, etc. as well asland clearing and seedlings in the first year.

Questions:

1. What is the FIRR of the pepper farm?2. How much will the price and cost variables change for the FIRR to be 15

percent?.3. Assuming that the forex conversion for GPV is 1.2, materials 1.0; and labor

0.6, what is the expected EIRR?4. What do you think is the limitation for large expansion of pepper compared to coconut?5. Would planting vegetables a good option given the distance of Pacific from the market?


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2. RURAL ROAD IMPROVEMENT PACKAGE

Bagong Silangan is a remote community with agriculture and fishing as major sourcesof incomes. It is 15 kilometers (km) from the main highway. The road is impassableduring the rainy months of June to October.

The project will rehabilitate some 10 km of access roads from their impassable stateduring the rainy season into an all-weather road under the project.

(a) Construction period: Year 1 at Php 30 M and, Year 2, Php20 M(b) Maintenance: 4% of project cost annually; and rehabilitation every 5 years at 10% of

project cost

Project Benefits(a) Development Benefits with higher agriculture production; and(b) Savings in vehicle operating costs.

The development benefits are calculated from area expansion and increase in farmyield. Below are the main assumptions

Development Benefit Streams at economic pricesWith Project (Per ha)

Year 1 Year 2 Year 3 Year 4 Year 5-25Harvested area (hectare) 100 100 150 250 300Yield (ton/ha) 2..5 2.6 3.2 3.8 4.5Production (ton)Farm Price (Php/ton) 25,000

Gross Prod Value (Php) MLess: Prod Cost (Php) MLabor Cost (Php) M

Net Production Value (Php)M

Farmgate Price: Php25,000/ton constantProduction Cost: Php30,000 per hectare/year (Years 1-2);

Php35,000/ha/year thereafter.Labor cost: Php10,500/ha/year (Years 1-2); and Php11,250/ha /year thereafter.


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Development Benefit Streams at economic pricesWithout Project (Per ha)

Year 1 Year 2 Year 3 Year 4 Year 5-25Harvested area (hectare) 100 100 100 100 100Yield (ton/ha) 2.5 2.6 2.7 2.8 3.0

Production (ton)Farm Price (Php/ton) 22,000Gross Prod Value (Php) MLess: Prod Cost (Php) M

Labor Cost (Php) MNet Prod Value (Php) M

Production Cost/ year: Php30,000/ha/yearLabor Cost/year: Php10,500/ha/year

Savings in Vehicle Operating Costs (VOC)

(With Project and Without Project)Year 1 Year 2 Year 3 Year 4 Year 5-25With ProjectAverage Daily Traffic* 1 1 4 10 14Annual TrafficAverage VOC per km 50 50 20 20 20Total VOCWithout ProjectAverage Daily Traffic* 1 1 2 3 4Annual TrafficAverage VOC per km 50 50 50 50 50

Total VOCIncremental Benefits*Jeep, light trucks, etc.

Summary of Incremental Project Benefits (Php million)Yr 1 Yr 2 Yr 3 Yr 4 Yr 5-25

Development BenefitsVOC SavingsProject CostO&M Cost

Net Incremental Benefits

Questions:1. What is the EIRR of the road improvement project?2. If the development benefit is cut in half, what is the EIRR?3. What do you think are the direct and indirect financial benefits of the project?


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CASE 3. MULTI-BAND PROJECT

The Akinyan Republic is a large country. Its national telecom agency desires tomodernize the government ICT infrastructure under a public-private partnership. Theproject is expected to link 80 provinces, 100 cities, and 1,600 municipalities. It will have

large multiplier effects on the economy.

The government currently spends at least US$25 million in annual telecom fees toprivate sector providers. The project is expected to dramatically reduce the amount.

The project has two interested parties ABC Holdings, controlled by the DiCuenta Family; and XYZ Group, controlled by the De Abono Family.

ABC Holdings first submitted an unsolicited bidfor US$250 million (M). It will fully fundthe project from private financing under the BOT (Build-Operate-Transfer) Law. The

BOT Law is first in Central Africa. ABC claims it is cheaper as it will use the backboneof the major private telco firms.

Some 80% of the costs will be imported equipment. The revenues for the project will bepaid by the government over 20 years at the rate of US$32 million a year. Thegovernment payment will be derived from annual savings of payments for varioustelecom services. It also expects to receive corporate taxes at 30 percent of income.

XYZ Group. When the Abono group heard about the proposal, it formed a joint venture(JV) with XYZ Ltd. The JV submitted a counterproposal valued at US$400 M The costwill comprise of: US$300 M in imported equipment, and US$60 M in engineering design

and project supervision. Some US$45 M are local costs. The sensitive equipment partswill be imported from Israel and then assembled in China.

The project will be financed by a government loan (Renminbi RMB 2,800 M) from TRCExIm Bank, at 3 percent interest a year, with a grace period of 5 years, and principaland interest payable over years 6-20. The annual amortization after the grace period willbe US$34 M at the current exchange rate, and the interest payment during the graceperiod is US$12 M for 5 years. It is estimated that the US dollar will depreciate versusthe RMB at the rate of 5 percent a year over the next five years.


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Project Costs(US$ M)

ABC Proposal XYZ ProposalLocal Foreign Total Local Foreign Total

Equipment 0 200 200 - 300 300

Installation 5 5 10 5 15 20Design and Engg 3 7 10 5 25 30Supervision 5 15 20 10 20 30

Sub total 13 227 240 20 360 380Contingency 5 5 10 5 15 20

Total 18 232 250 25 375 400

Reports indicated by competing quarters indicate:

The ABC BOT proposal is better as there is no front-end outlay from thegovernment. The NPV of the government payments at 12% discount rate is

US$240 M.

However, XYZ claims that the ABC proposal is ampaoand lutong macao. Thecoverage is inferior and the equipment is of poor design and quality the reasonwhy it is cheaper.

ABC countered that the XYZ proposal is a bloated pancit canton.

Meanwhile, the Akinyan Business Club claims that the government will have topay US$570M in principal and interests for the XYZ option.

The Akinyan Parliament decided to launch an investigation and asked for SBEPConsultants, a leading management and economics group, to undertake due diligence.

Questions:

1. Compare and contrast the two proposals on the basis of financial criteria(NPV and Risk analysis).

2. Assuming equal economic benefits stream of Php1,800 million a year from Year3 to Year 20, which is the better proposal in terms of EIRR? (Use forex premiumof 20%).

3. Are there certain information in the case that are missing?


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CASE 4. RICE IRRIGATION OPTIONS

The global rice situation has generated intense interest in expanding rice areas andenhancing farm productivity. Today (2011), the Philippines consumes nearly 32,000tons of rice per day. At 95 million people, this works out to 120 kilograms (kg) per

capita, up from only 100 kg per capita ten years ago. The Philippines is one country tatdefies global trends: per capita rice demand is rising insread of falling.

The Philippines has been a net rice importer since the Spanish era. Export has alwaysbeen an unusual event. The high rice prices in the world market and, in turn, in thedomestic market is a convergence of many events, particularly the low global stocks,climate change, shift to biofuel crops (which caused wheat/bread prices to increase andinduced shift to rice) and commodity speculators. Undoubtedly, the sharp rise in worldprices has changed the rice economics equation.

A team of SBEP alumni is tasked with project analysis by President Aquino.

1. Does it make sense to construct new irrigation systems? or just2. Restore existing systems.

The current world price is at US$500 per ton, but its long-run price (2011 onwards)should be about U$550 in real terms. The price structure is as follows:

Rice Price StructureItem Financial EconomicIn US$/tonThai rice, FOB Bangkok 500 500+ Freighg and insurance 50 50CIF Manila 550 550Forex (Php:US$1) 42 50In Php/tonCIF Manila 23,100 27,720+ 50% Tariff 11,550 0+ Handling 2,000 1,800= Wholesale Price 36,650 29,520- Transport to trade center 1,000 900- Milling cost net of by products 500 450- Trading margin, etc. 5,500 4,950= Ex-mill price, Central Luzon 29,650 23,220Palay equivalent (0.65) 19,273 15,093

- Transport (farm-mill) 500 400Est. Farm gate price 18,773 14,693Actual farmgate price (dry) 16,000

With the project, the irrigation area will provide two harvests a year (or 200% croppingintensity).

Option 1: New Irrigation System


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With Project : Irrigated: two harvests a year (200% cropping intensity)

Without Project: Rainfed: Only one harvest a year (100% intensity)

New Irrigation System (Per Hectare)(In Pesos unless otherwise indicated

Year1 2 3 4 5 6 7-25

With ProjectCrop Area (ha)Yield (ton/ha) 2.0 2.1 2.2 2.6 3.1 3.6 4.1Econ. Farm Price(Php/ton)

26,000

Gross Prod Value(GPV) (Php)Cost (Php)Materials(Php) 20,000 20,000 22,000 26,000 27,000 29,000 30,000Labor(Php) 10,000 10,000 10,000 10,000 13,000 14,000 15,000

Total Cost (Php)NPV (Php)

Without Project(Rain fed)Crop Area (ha) 1 1 1 1 1 1 1Yield (ton/ha) 2.0 2.1 2.2 2.3 2.4 2.5 2.5

Econ Price ( Php/ton)

26,000

GPV (Php)Materials(Php) 20,000 20,000 22,000 22,000 23,00 25,000 25,000

Labor (Php) 10,000 10,000 10,000 10,000 10,000 10,000 10,000Total Cost (Php)Net Prod Value(Php)IncrementalBenefits(Php)

Project Costs 150,000 100,000 50,000O&M Costs 0 0 0 3,000 3,000 3,000 3,000Net Inc. Benefit

Option 2: Restore an Existing Irrigation System

-With Project: Two harvests/year (180% cropping intensity, exactly 1.8xharvests a year)

-Without Project: Two harvests/year (130% cropping intensity, 1.3x harvests a\year)


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Irrigation Restoration (Per Hectare)(In Pesos unless otherwise indicated)

Per HectareYear

1 2 3 4 5 6 7-25With ProjectCrop Area (ha)Yield (ton/ha) 2.5 2.6 3.0 3.3 3.6 3.9 4.2Econ. Farm Price(Php/ton)

26,000

Gross Prod Value(GVP) (Php)CostMaterials 25,000 25,000 26,000 28,000 29,000 30,000 30,000Labor 10,000 10,000 11,000 12,000 13,000 14,000 15,000Total Cost (Php)Net Prod Value (PhP)

Without ProjectCrop Area (ha)Yield (ton/ha) 2.5 2.6 2.7 2.8 2.9 3.0 3.0Econ Price (Php/ton) 26,000GVP (Php)Cost (Php)Materials 25,000 25,000 25,000 25,000 25,000 26,000 26,000Labor 10,000 10.000 10,000 11,000 11,000 11,000 11,000Total Cost (Php)Net Prod Value (Php)Incremental Benefits(Php)

Project Costs (Php) 60,000 60,000 *O&M Costs 0 0 0 3,000 3,000 3,000 3,000Net Incr Benefit (Php)* Every 5 years thereafter

To do:1. Compute the IRR of both options2. Which is a better use of scarce resources: to build a new system or restore

existing ones?3. At what rice farm will the EIRR of each settle at 15 percent?


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CASE 5. SUGAR INDUSTRY PROJECT

Central Mindanao hosts a sugar mill that serves some 10,000 hectares (ha) of farmlandwithin its 30-kilometer (km) radius. The mill employs about 300 workers and managers,while the 2,000 farms employ about 10,000 workers. It is under threat from low world

prices (due to rich worlds subsidy) as well as low productivity and efficiency.

Due to low productivity and relatively high cost of labor, a large part of the Philippinesugar industry is not competitive in the world market. Its cost in raw sugar basis is aboutUScents 35/kg, ex-mill. By the contrast, the prevailing world price was about UScents30/kg till 2006. Lately, world sugar prices dramatically rose to over UScents 50/kgwhich pushed local sugar prices to the highest levels (at one point in late 2010 to overUScents 100/kg). Some experts believe that this is only a two- to three-year situationand not sustainable. World prices will again fall to its 2006 level of about US cents30/kg.

Below are the long-term financial and economic price structures:

ItemFinancial

PriceEconomic

Price RemarksIn US$/tonCIF Manila port 270 270Forex rate 42 50 20% forex premiumIn Php/tonCIF Manila 11,340 13,608+ Tariff 4,309 0 38%+ Handling, etc. 1,500 1350 Conversion factor (Cf) = 0.9+ Mark-up 1,715 1496 10%

= WholesalePrice

18,864 16,454

- Transport 1,000 900 Cf = 0.9= Millgate price 17,864 15,554In Php/50 kgbag, millgate

893 778

The Threat. Under the ASEAN Free Trade Area (AFTA) Common Effective PreferentialTariff commitment, the tariff on sugar will fall to 5% in 2014 from 38% in 2010

Below are related facts for sugar farming:

1. Yield: 60 tons cane per ha (plant crop)2. Sugar recovery: 2 bags of 50 kg (LKG) per ton cane3. Sharing of sugar: 70% planter and 30% mill4. Farm production costs: unskilled labor - 100 man-days at Php200/day;

Material costs - Php60,000 per ha (60% imported component)5. SWR factor: 0.60 Forex factor: 1.20Questions:


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1. Will the industry in the region survive with 5% tariff in 2014?2. How much should productivity increase to make it survive?

Plan B

What if the farmers shift to hybrid corn at 2 crops per year? Are they going to be betteroff? Is this a practical solution or a partial and risky one?

Use the following data:

1. Yield/harvest: 5 tons/ha2. Farm price: Php12/kg3. Farm Production costs - labor: 60 days at Php150/day; material costs -

P30,000/ha

Assume that the financial/market values are identical to economic values.

Plan C

The Bio Fuels Act mandates E10 gasoline in the Philippines. Present demand needs10 or so ethanol plants. The Law, however, mandates that the plant should be built atsome distance from an existing sugar mill in order not to deprive the latter of rawmaterials. With the recent rise in sugar prices came higher prices of cane. This led toclosure of several ethanol plants.

Plan C is a non-starter at this time.* Case under review.


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CASE 6. PORT CARGO HANDLING PROJECT

The project involves the installation of cargo-handling equipment. The cargo, about140,000 tons a year, is now being handled by manual labor. The benefits with projectare: faster unloading of ships which reduces their turnaround time and allows greater

port utilization and reduction in labor costs.

Cost and Economic Life(In thousand rupees, unless otherwise stated)

Item Capital CostsAnnual Operating

CostsEconomic Life

(years)Forklifts (10) 1,650 255 8Tractors (7) 600 120 12Trailers (54) 750 15 12Pallets (2,375) 2,100 90 4Total 5,100 480

Note: Numbers in parenthesis are number of units

Reduced Ship Turnaround Time

The actual increase in handling rate could be as high as 60 percent, but given differenttypes of cargo, an improvement of 25 percent might be reasonable. This does not leadto an equivalent 25 percent reduction of the time of ships in the port because ships workonly 16 hours a day, six days a week, and time is lost in bringing ships alongside,opening and closing hatches, starting work late and quitting early, and so forth. Thesavings in turnaround time are estimated at half the 25 percent rate, or 12.5 percent.

The present average turnaround time at berth is 94 hours per ship. A saving of 12.5percent is 11.7 hours per ship. The average number of ships at berth per year is about75. The total annual savings is about 880 hours. The value per hour (mostly in foreignexchange) is Rs1,500, so that the total annual benefit is Rs----. (please compute).

Increased Berth Capacity

The reduction in turnaround time also allows more ships to dock. The value of additionalcapacity depends on the port situation. Additionalcapacity of any form is not requiredfor about two years because of the recent expansion in capacity from the newequipment, physical expansion can be postponed for a year. Since the additional berth

would cost about Rs18 million, a delay of one year at an opportunity cost of capital of 12percent gives a benefit of about Rs2.16 million in the 3rd year.

Reduction in Labor Costs

The cargo handling equipment might lead to reduction in labor force. The labor cost ofcargo handling is about Rs21 per ton. For the increased annual output of 35,000 tons(25 percent of 140,000 tons), this is a saving of Rs 735,000. Since labor is mostly


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unskilled, the shadow wage rate is 50 percent. The economic cost of labor is Rs ------(please compute).

Costs and Benefits: Cargo Handling Equipment(in Rs 000)

Costs Benefits Net

Year Capital Operating TotalReducedshiptime

Increasedberthcap.

Laborsaving

Total

1 5,100 480 1,320 0 368 1,688

2

3

4

5

6

7

8

9

10

11

12

13 0 0 0 0 0

To do:

1. Compute for the IRR and NPV at 12 percent2. What happens to the IRR and NPV if the annual time savings in ship turnaround

falls by 30 percent?

A problem: the labor union has lodged a complaint that the operator is connected to the

powers that be and will not execute the project as planned. Its intention was only toreplace the prevailing high cost of labor.


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CASE 7. BUSINESS EDUCATION PROJECT*

The government of the Republic of South Islands is considering the establishment of anew department of business management at one of the countrys better knownuniversities - University of Pacific Islands (UPI). Surveys of the employers of the region

where UPI is located reported a severe shortage of business management graduatesand managers. This has affected investments in tourism, fisheries and services. It isplanned that after four years, there will be eventually 400 students in the program invarious specialties: supply chain management, business economics, hotel andrestaurant management, business IT, and accountancy.

Data showed that the additional income that locally employed graduates of suchcourses could expect to earn would be about M$190,000 a year after graduation. Thelost income of a high school graduate will be about M$20,000 a year while the livingexpenses of each student will be M$5,000. Altogether, these will average M$25,000per year per student.

The government will spend for the infrastructure (buildings and equipment) andteachers salaries. However, it expects to benefit from: (a) skilled graduates, and (b)government tax on salary income of 33%.

PROJECT COST(M$ 000)

Year 1 Year 2 Year 3 onwardsBuildings and Equipment 100,000 30,000 0Faculty salaries 0 11,200 12,400Administration 0 200 400

Other costs 0 50 100Total Government Costs 100,000 41,450 12,900

Assume that the financial cost is identical to economic cost.

Calculate the following NPV (at 10% hurdle rate) and IRR:1. Economic2. Private (Financial)3. Private Individual (Financial)4. Government (Financial)

What if:1. Building cost increases by 20 per cent?2. Additional salaries of graduates fell by 20%?

Estimate the impact on the economic and private returns.

*Adapted from: Frances Perkins, Practical Cost-Benefit Analysis, MacMillan Education Australia .1994.


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BUSINESS EDUCATION PROJECT TEMPLATE(In M$000)

Year

1 2 3 4 5 6 7 8-40

COSTS

BuildingsFaculty salariesAdminOther costsTotal Govt CostsTotal Private Costs@M$25,000/student/yrTOTAL ECON COSTS

BENEFITS

Additional income perstudent, MP190,000/yr

No of students/yearTotal graduatedTotal extra incomeIncome tax rate (33%)Tax RevenueCalculate:

Net Economic BenefitsTotal Net Private Benefits(after tax)Individual net privatebenefits (after tax)Net government financialbenefits


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Annex: Key tasks for design and review

Formulate the without-projectscenario in the financial and economic analysis,taking into account underlying trends in technology, policy, local economy andphysical environment in the project and wider system area, in order to reflect

changes in productivity (positive or negative) that would have occurred withoutthe intervention. For the with-project scenario in economic analysis, check forpossible substitution effects to determine net incremental output and impact.

For the financial analysis, present appropriate measures of the attractiveness ofthe investment. Return to capital calculations can be supplemented with returnsto labor and land. Check the assumptions underpinning the enterprise modelswith regard to availability of inputs, labor, and when relevant- access to credit.Examine the distribution of incremental benefits and incremental private costsalong the value chain in order to arrive at realistic producer prices.

Undertake economic analysis using standard shadow pricing methods for theadjustment of financial prices and the elimination of transfer payments to reflect

the economic prices of resources. Extend shadow pricing to estimate significantnon-marketed project outputs and impacts. Calculate rates of return at the level of the whole project where the total cost of

infrastructure, agricultural development, irrigation, and other hard investments,is dominant in the cost tables. The analysis will be more informative if rates ofreturn are also calculated separately per component and/or a combination ofthem.

Test key project assumptions and risks using sensitivity and risk analysis. At theenterprise level, important parameters for testing are variability of yields andseasonal price volatility; and at the project level implementation delays andavailability of counterpart financing (especially the projected contributions fromtargeted communities and government institutions to meet O&M and otherrecurrent costs; and donor co-financing for critical investment components). Useswitching values for sensitivity analysis, and justify the choice of scenariosexamined.

Source: IFAD (http://www.ifad.org/rural/learningnotes/cci/5.htm)

SBEP Projana Cases--April 2012

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