ECON 3509A- DEVELOPMENT PLANNING AND PROJECT EVALUATION
ECON 3509A- DEVELOPMENT PLANNING AND PROJECT EVALUATIONInstructions:
select only ONE from the three World Bank Project reports provided to you. Read your selected report carefully and summarize by answering the questions below (**Note: Do not write more than 2 pages for part 1 [Times New Roman point fonts 12])
A. Describe or summarize the issue
B. What is the objective of the Project?
C. Do you see a rationale for public sector involvement? Explain
D. Discuss the potential benefits?
E. Discuss the potential cost
F. Are there any external impacts? Explain
G. Describe who are the winners and losers?
Let’s assume that the government of Samoa would like to develop a project to increase the production of coconut oil to support 400 families who were affected by the Tsunami.
• The government is proposing to rebuild the coconut oil industry by developing a program that will provide technical support and training to the 400 families to rebuild and increase production.
• The cost of the program will total 25 Million Tala per year for 5 years
• It is expected that the program will increase production of coconut oil from 40,000 MT to 60,000 MT per year for the first 6 years and to 70,000 MT for the following 6 years
• The Coconut oil can be sold in the local market for 1600 Samoan Tala per MT or can be exported. There are export taxes of 2%.
• Assume also that Samoa is a net exporter of coconut oil to Australia. The CIF at Brisbane in Australia is AU$1850 per MT.
• Assume freight, insurance and unloading (FIU) cost at Brisbane is AU$150 per MT.
• Assume also that local port charges (LP) at Samoa is 250 Talaper MT. Local transport and marketing costs (TM) to point of exports in Samoais 220 Tala per MT. Also assume local storage cost of 120 Talaper MT.
• Labour is considered non-tradable. Each family has 2 adult family members who work solely in the small family coconut oil business and employs an additional full time individual. The unemployment rate is high in Samoa. Theemployees are paid at a minimum wage of 10 Tala per hour. It is estimated that the marginal value product of labour for coconut oil production is 15 Tala per hour. Employees work 7 hours a day and 5 days a week. However, coconut oil production is seasonal and employees work only 6 months in any given year.
• Other production inputs are obtained domestically and not traded with a unit cost of 200 Tala per MT of coconut oil.
• New infrastructure is required for effective implementation of the project at a total cost of 12 MillionTalaand an annual maintenance cost of 3.5 Million Tala.
• Assume the production of coconut oil generates water contamination to a nearby river. The cost of cleaning the river is estimated at 150 Tala per year per MT of coconut production.
• Currently the 400 families are costing the Samoan government 800 Tala per month per family from the government’s welfare program. The increase in family income for the 400 families will mean that they will not have access to the welfare program anymore.
• AU$1 = 2.35 Samoan Tala. The Tala is said to be 10% overvalued
• The project’s life span is 12 years
• Assume a discount rate of 7%
With the above information, answer the following
A. With a spreadsheet estimate
• The Present Value Cost – Financial
• The present Value Benefits – Financial
• The Present Value Cost – Economic
• The present Value Benefits – Economic
B. With the following criteria, determine whether the project is (i) Financially feasible, (ii) Economically feasible
• Net Present Value Criteria
• Benefit Cost Ratio
C. Who are the winners and the losers