52
Public Finance and Management Microeconomics of the Budget M. Baher El-Hifnawi East Asia and the Pacific World Bank May 1, 2006
Public Finance and Management
Microeconomics of the Budget
M. Baher El-HifnawiEast Asia and the Pacific
World Bank
May 1, 2006
Public Expenditure Analysis
• Rationale for Government Intervention
• Instruments/Mechanisms for intervention
• A Framework for the Appraisal of Development Expenditures
When should governments intervene?
• Market failures (public goods, externalities)
• Redistribution
How should governments intervene?
• Subsidy
• Regulation
• Public provision
Mechanisms for intervention
• Regulation
• Grant/Subsidy
• Direct provision
Framework for Appraisal of Development Expenditures
• Sector analysis
• Cost benefit analysis
• Cost effectiveness
Framework for Appraisal of Development Expenditures
• Cost Benefit Analysis– Economic analysis: is the project worthwhile?– Financial analysis: what are the fiscal
impacts? Is the project financially sustainable?
– Stakeholder analysis: Who gains? Who loses? Any contributions to poverty reduction?
– Basic needs analysis: any additional benefits attributed to addressing a basic need?
– Risk analysis: how robust are the results?
Project Parameters
(Tables 1a, 1b, and 1c)
Loan Schedule(Table 7)
Investment and
Depreciation
Schedule
(Table 9 and 10)
Equity Holder’s Cash Flow (Nominal)(Table 14)
Total Investment Cash Flow (Real)(Table 13)
Equity Holder’s Cash Flow (Real)(Table 15)
Production and Sales(Table 3a, 3b, 4 and 5)
Working Capital(Table 6)
Unit Cost of Production(End of Table 5)
(Interest Expense)(Depreciation Expense)(Cost of Good Sold)
(Taxes)
(Loan)
Project Parameters
Financial Analysis
Total Investment Cash Flow (Nominal)(Table 12)
Income Tax Statement(Table 11)
Price Levels and Exchange Rate(Table 2)
Economic AnalysisStep One: National Economic Parameters:a. Economic Opportunity Cost of Capitalb. Foreign Exchange Premium
(Table 16 for FEP)
+Step Two: Economic Conversion Factors for:a. Project Output(s)b. Project Inputs, including• Investments• Operating Expenses• Laborc. Working Capitald. Taxes, Tariffs, Subsidies, and Loans
(Table 17a,17b, 17c, 17d and , 17e)
Statement of Economic Costs and Benefits
(Table 18)
(Applied to Real Financial Cash Flow Statement)
Step Two: Economic Conversion Factors for:a. Project Output(s)b. Project Inputs, including• Investments• Operating Expenses• Laborc. Working Capitald. Taxes, Tariffs, Subsidies, and Loans
Stakeholder Analysis
A. Economic Real Net Resource Flow
(Table 18 of MPR Case)
B. Financial Real Net Resource Flow
(Table 13 of MPR Case)
C. Net Resource Flow of
Externalities (Table 19 of MPR Case)
D. Present
Value
(Table 20 of MPR Case)
E. Allocation of
Externalities
(Table 20 of MPR Case)
- (Minus)
(Yields)
Stakeholder Analysis (Continued)
F. Summary of Stakeholders’ Net Benefits (Costs)
(End of Table 21 of MPR Case)
G. Reconciliation of Economic and Financial Analyses:
(Top of Table 21 of MPR Case)
Economic NPV = Financial NPV + PV Externalities
H. Basic Needs Analysis
Risk Analysis
A. Sensitivity Analysis
(Table 22 of MPR Case)
B. Risk Variables
(Table 23 and 24 of MPR Case)
C. Results
(Table 25 and 26 of MPR Case)
(Figure 1, 2, and 3)
Economic Analysis:Three Basic Postulates forApplied Welfare Economics
A. The competitive demand price for a given unit of an item measures the value of that unit to the demander
• Willingness to pay
B. The competitive supply price for a given unit of a good or service measures the value of that unit to the supplier
• Opportunity cost
C. Costs and benefits accruing to different groups should be added up to determine overall economic benefits; i.e. A dollar is a dollar no matter to whom it accrues
Illustration of Basic Postulates
Postulate A: Willingness to Pay
Qo
Quantity per year
d
0
Market Demand Curve
P
Price
Qo
Market Supply Curve
Quantity per year
Price
s
0P
Postulate B: Opportunity Cost
Non-Tradable Commodities
• A good or service is considered non-tradable when its domestic price is determined by local demand and supply.
• An increase in demand (or supply) by a project could affect the amounts demanded by domestic consumers (or produced by other suppliers).
Non - Tradable Good
Distorted World Supply Price
Price
Quantity per year
Domestic Supply
Domestic DemandD
S
Em * PFOB* (1-tx) - Fx
Pm
Em * PCIF * (1+Tm) + Fm
Distorted World Demand Price
Steps to Estimate the Economic Value of a Non-Tradable Good or Service
1) Adjust for distortions in the market for the item (whether input to, or output of, the project).
2) Correct for the foreign exchange premium if there is an impact on the quantity supplied by other suppliers in the market (ws).
3) Correct for distortions in the markets for the inputs used to produce the item. Correction is applied to the proportion of the item produced by other suppliers in the market (ws).
Price
S0 + Project
S0
D0
P0
P1
A
C
G F E
B
D
Q s1
d1QQ0 QT
Value of Resources Saved
Value of Increased Consumption
Non-Tradable Goods Economic Benefits of Project Output (No Distortions)
Quantity
Calculating the Economic Value of Non-Tradable Goods
Economic Value = W s P s + W d P d
Where: W s = Supply Elasticity
Supply Elasticity - Demand Elasticity - =
W d = Demand Elasticity -
Supply Elasticity - Demand Elasticity - =
P s = Supply Price
P d = Demand Price
= weighted average of supply (Ps) and demand (Pd) price
= (defined positively)own price elasticity of supply
= (defined negatively) own price elasticity of demand
Potable Water Supply Expansion:The Manila South Water Distribution Project
The Economic Benefits of Water to Paying Customers
Washing Water Drinking Water
37.8 pesos
18.9 pesos
5.135 pesos
5.69 pesos
5.135 pesos
Q s1 Q o Q d1 Q s1 Q o Q d1
Cubic Meters Per Day
S
S +Project
D w/ Project
S
S +Project
Cubic Meters Per Day
Q T1
D w/ Project
Q T1
Q d1 - Q s1 = Incremental Project Water consumed by Paying Users
Non-Tradable Goods Economic Benefits of Project Output (Tax on Output)
Example
W s =1/3, W d=2/3 Pm=120, t s =0.15
Pe=1/3(120)+2/3(120)(1+0.15)=132
Pe=40+80(1.15)=132
Qs1
d1QQ
Value of Resources Saved
Value of Increased Consumption
d/s0 Economic Benefits
W s P m0 + W d P m
0 (1+ t s )
Price
S0 + Project
S0
D0 Net of Tax
P
EG
F
J
B
D
Quantity
H
A
Nd0
m0
P
(1+ts)Pm1P
d1 =
(1+ts)
P
P=
s0
m0P=
Pm1
s1
D0
=
Step One: Adjusting for Distortions in the Market for Good or Service
Price
S
SP
E
G
F
J
B
D
Value of Resources Saved
Value of Increased Consumption
Non-Tradable Goods Economic Benefits of Project Output (Subsidized Output)
Quantity
HA
s0
m0
P=
/ (1-k)Pm1P
s1=
/ (1-k)
P
P=
d0
m0P=
Pm1
d1
D0
S0
Q QQs1
d1
d/s0
After Subsidy0+Project
C
I
After subsidy0
Economic Benefits
W s + W d P m0
m0P
(1-k)Example
W s =1/3, W d=2/3 Pm=90, k =0.40
Pe=1/3*(90/(1-0.4))+2/3*(90)
Pe=1/3(150)+2/3(90)=110
Price
S
P
E
G
F J
B
D
Qd1
s
1QQ
Value of Postponed Consumption
Value of Additional Resources
Non-Tradable Goods Economic Costs of Project Input
(Subsidized Input)
Quantity
H
A
s1
m1P=
/ (1-k)Pm0P
s0 =
/ (1-k)
P
P=
d1m1P=
Pm0
d0
D0+Project
S0
d/s0
C
I
After Subsidy
0
D0
Economic Costs W s + W d P m
0
m0P
(1-k)Example
W s =1/3, W d=2/3 Pm=90, k =0.40
Pe=1/3(90/(1-0.4))+2/3(90) ; Pe=1/3(150)+2/3(90)=110
Financial Market Price (P )Net of Tax = .100 pesos/kWh
Example 1: Project Uses Electricity(Sales Tax, Subsidy on Cost of Electricity Production, No Other
Distortions)
Financial Demand Price (P = P + Tax) = .120 pesos/kWhFinancial Supply Price, (P = P + Subsidy) = .167pesos/kWhEconomic Price (Pe) = Wd * Pd + Ws*Ps. If Wd = 2/3, and Ws = 1/3, then Pe = 2/3(.120) + 1/3(.167) = .136 pesos/kWh
m0
m0
d0s
0m0
Pesos/KWhP
E
QQoQuantity
(Million kWh/Yr)
A
s1
P
P s0
P
=P
m0
d0
D Net of Tax + Project
S0L
S After Subsidy
5.8 6.0 6.1
D Net of Tax
D0
.169
.167
.122=
.120
.102
.100
Q
WsWd
H
B
G
F
d1
m1
P
=
=
=
=
d1
s1
Tradable Commodities Classification of a Project’s Inputs and
Outputs
A good or service is considered tradable when an increase in demand (or supply) by a project does not affect the amount demanded by domestic consumers
• An increase in demand for an IMPORTABLE commodity results in an increase in demand for imports
• An increase in demand for an EXPORTABLE commodity results in a reduction in exports
• When a project produces a tradable commodity, there will be either a reduction in imports or an increase in exports.
An Importable commodity includes imported goods and domestically produced goods that are close substitutes for imported goods
An Exportable commodity includes exported goods and close substitutes for exported goods
Importable Good
Distorted World Supply Price
Price
QQuantity per year
Domestic Supply
Domestic DemandD
S
Em * PCIF * (1+Tm) + Fm
do
so Q
Imports = Q - Q
Em = Market Exchange Rate
Tm = Rate of Import TariffFM = Domestic Freight to Market
Pm
so
do
PCIF=Price of imports at entry point to country, including international freight and
insurance changes expressed in units of foreign currency
Price
Quantity
S domestic
S w/ project
Q1 Q2 Q3
D domestic
Project Supplies More of an Importable Good
Project reduces quantity imported. No change in domestic consumption.
S worldEm * PCIF* (1+Tm) + Fm
Price
Quantity
S domestic
Q1 Q2 Q3
D domestic
Project Demands More of an Importable Good
Project requirements will be met by additional imports (world supply). Domestic consumption is not affected.
D w/ project
S worldEm * PCIF * (1+Tm) + Fm
Exportable Good
Distorted World Demand Price
Price
QQuantity per year
Domestic Supply
Domestic Demand
Exports = Q - Q
Em = Market Exchange Rate
tx = Export Tax
Fx = Freight and Trading Costs to Port
D
S
Em * PFOB * (1-tx) - Fx
do
soQd
oso
Pm
PFOB=Price of exports at point of export from country in units of foreign currency
Price
Quantity
S domestic
S w/ Project
Q1 Q2 Q3
D domestic
Project Supplies More of an Exportable Good
Project increases exports. Domestic consumption remains unchanged.
D world Em * PFOB * (1-tx) - Fx
Price
Quantity
S domestic
Q1 Q2 Q3
Project Demands More of an Exportable Good
D w/ ProjectD domestic
D world
Project requirements will reduce quantity exported. Consumption of previous consumers remains unchanged.
Em * PFOB * (1-tx) - Fx
Estimating The Economic Prices of Tradable Goods1. Adjust for commodity - specific trade distortions• Financial prices for the commodities demanded (or supplied) by a project must
be adjusted for commodity-specific distortions and costs that drive a wedge between their international prices and their domestic market prices
• Taxes and Subsidies are transfers between consumers, producers, and the government. Therefore, they are not part of the real resources consumed or produced by a project.
2. Value the foreign exchange at the economic (shadow) exchange rate (Ee)• Multiply the CIF and FOB prices at the border by the economic price of foreign
exchange (Ee)• Alternatively, add a foreign exchange premium [(Ee/Em) - 1], or [(Ee/OER) - 1],
per unit of foreign exchange demanded (or supplied) by a project.
3. Adjust for handling and transportation costs• The economic costs of handling and transportation that are necessary to move
trade commodities to or from the point of entry must be included• In the case of imported commodities, these costs should be added to the CIF
price.• In the case of exported commodities, these costs should be subtracted from
the FOB price.
Visayas Communal Irrigation ProjectBasic Facts• The National Irrigation Administration (Philippine National Agency) proposes to
rehabilitate 55 damaged communal irrigation systems and to build 25 new systems in Visayas.
• The project’s additional components include water protection and erosion control, the strengthening of irrigation association, and the development of agricultural extension services.
• The goal of the project is to alleviate poverty, while improving environmental sustainability of the region.
• The life of project is 20 years.
• The economic benefits arise from the increased production of rice and corn, which must
otherwise be imported.
• The foreign exchange premium is 24.6%.
• The project is expected to cost approximately 480.910 million pesos (US$19.78 million).
• The project will be financed with US$15.1 million loan from the International Fund for
Agricultural Development, and remaining funding would be provided by the Philippine
government.
Table 1: Project Supplies an Importable Good (Rice)
Financial Unadjusted Unadjusted Foreign Exchange
Foreign Economic
Price
(A)
Conversion Factor
(B)
Economic Value
(C =A*B)
Content
(D)
Exchange Premium
(E=A*D*0.246)
Value
=C+E
CIF World(US$) $314.8
CIF Rice (pesos/ metric ton) 7659 1 7659 100 % 1884 9543
PLUS:
Transport and Handling charges 205 1.00 205 30 % 15 220 Trading margin 472 0.68 320 10% 12 332
Wholesale price, Manila 8336 10095
LESS:
Transport cost, project area 515 1.00 515 30% 38 553 to Manila
Ex-mill price of Rice 7821 9542
LESS
Milling cost 346 1 346 50% 43 389
Pre-milled value 7475 9153
Paddy price equivalent (65%) 4859 5950
LESS
Grain dealer margin (4%) 194 0.68 132 10% 5 137 Transport and handling cost farm to mill 130 1.00 130 30% 10 140
Farm gate price of Paddy 4534 5673
Conversion factor (EV/FP) 1.25
Table 2: Project Uses an Importable Good (PESTICIDES)
Financial
Unadjusted
Unadjusted
Foreign
Exchange
Foreign
Economic
Price
(A)
Conversion Factor
(B)
Economic Value
(C=A*B)
Content
(D)
Exchange Premium
(E=A*D*0.246)
Value
F=C+E CIF World (US$) $166 CIF pesticides (pesos)
(per 1000 liters) 4038 1 4038 100% 993 5031
PLUS Tariff 201 0 0 0 % 0 0
Handling and Port Charges 155 1.00 155 30 % 11.4 166 Importer Price, Manila 4394 5197 PLUS Transport cost, Manila to project area 515 1.00 515 30% 38 553 Dealer's margin 201 0.68 137 10 % 5 142
Price at local market 5110 5892 PLUS
Local transport cost 120 1.00 120 30% 8.9 129
Price at farm gate 5230 6021 Conversion Factor (EV/FP) 1.15
Table 3: Project Uses an Exportable Good (Seeds)
Financial Price
(Pesos)
Unadjusted Conversion
Factor
Unadjusted Economic
Value
Foreign Exchange Content
Foreign Exchange Premium
Economic Value
Adjusted (A) (B) (C=A*B) (D) E=A*D*0.246 F =C+E
FOB PADDY SEED (pesos/ ton) 6326 1.00 6326 100. % 1556 7882 LESS Port Handling and transportation From IRRI to port of Manila
155 1.00 155 30% 11.4 166
IRRI Exporter Price 6,171 7716
PLUS: Transport cost, IRRI to local market 515 1.00 515 30% 38 553 Dealer's margin 235 0.68 160 10% 5.8 166
Price at Local Market 6921 8435
PLUS: Local transport cost from market to farm (project)
120 1.00 120 30% 8.9 129
Farm Gate Price 7041 8564
Conversion Factor (EV/FP) 1.22
Table 4: IRRI Supply an Exportable Good (Seeds)
Financial Price
(Pesos) [A]
Unadjusted Conversion
Factor [B]
Unadjusted Economic
Value [C= A *B]
Foreign Exchange Content
[D]
Foreign Exchange Premium
[E=A*D*.246]
Economic Value
(Adjusted) [F = C+E]
FOB Manila US$260
FOB Manila
(Pesos/ Ton)
6326 1.00 6326 100% 1556 7882
LESS:
Port Charges and Transportation to IRRI
155
1.00
155
30%
11.4
166
IRRI Gate Price 6171 7716
Conversion factor
(EV/FP)
1.25
Summary for Tradable GoodsEconomic Cost of Imported Input: CIF (adj. For
Economic Exchange Rate) + Economic Cost of Freight to Project
Economic Value of Import Substitute Production: CIF (adj. For Economic Exchange Rate) + Economic Cost of Local Freight from Port to Market - Economic Cost of Local Freight from Project to Market
Economic Cost of Exportable Input: FOB (adj. For Economic Exchange Rate) + Economic Cost of Local Freight from Export Producer to Project - Economic Cost of Local Freight from Export Producer to Port
Economic Value of Export Production: FOB (adj. For Economic Exchange Rate) - Economic Cost of Local Freight from Project to Port
Stakeholder Analysis
FOR ALL INPUT AND OUTPUT VARIABLES:
NPV economic = NPV financial + Stakeholder Impacts– Stakeholder Impacts are often called externalities of project
Example of a non-traded good with a sales tax:Economic Value = Financial Value + Change in Government Tax
Revenues + Increase in Consumer Benefits - Loss in Profits to other producers
DISTRIBUTIONAL/STAKEHOLDER IMPACTS
Qd
S
Financial, Economic and Distributive Effects of Project to Supply Non-Traded Goods with no Distortions
Q0
Q
C
A
B
S + Project
Financial Value of Output = QsCBQd or P1 (Qd -Qs)
Economic Value of Output = QsCABQd
Difference (Economic - Financial) = CAB
CAB = P1P0AB -P1P0AC
= Gain in Consumer Surplus - Loss in Producer Surplus
Economic Value = Financial Value + Gain in Consumer Surplus - Loss in Producer Surplus = Financial Value + Distributive Impacts
P1
P0
QS
P
D
Qd
S
Financial, Economic and Distributive Effects of Project to Supply Non-Traded Goods with Unit Tax
Q0
Q
CB
S + Project
Financial Value of Output = QsCBQd
Economic Value of Output = QsCAQ0+ Q0ABQd +AEFB
AEFB = Increase in Government Revenue
CAB = P P AB - P P AC
Since P P AB = P P EF Therefore, CAB = P P EF - P P AC
= Gain in Consumer Surplus - Loss in Producer Surplus Economic Value of Output = Financial Value of Output + Change in Government Tax Revenues + Increases in Consumer Surplus - Loss in Producer Surplus
QS
P
P d1
P(P0+T) =d0
Ps1
s0P
E
F
s1
s0 s1 s0
s1
s0 d0
d1
d1
d0
s0
s1
A
Dn D
Measuring Distributive Impact from Financial and Economic Values of Inputs with Tariffs
Q
A H
D + Project
Financial Cost of Importable Goods = Q CFQ
Economic Cost of Importable Goods = Q GHQ (Ee / Em)
Where (Ee / Em - 1) = Foreign Exchange Premium (FEP)
Difference (Financial Cost - Economic Cost) = GCFH - Q GHQ (Ee / Em - 1)
= Gain in Tariff Revenues to Government - Loss in Government Revenues from Additional Use of Foreign Exchange in Importing This Input
Pw
Q
P
PW(1+t)
D
G
C
d2
d1
B F
d1
d2
d1
d2
d2
S
s0
Q s1
d1
d0
Q Q
E
Q
Port Rehabilitation and Expansion: The Makar Project
Basic Facts:• Makar Port, located in General Santos City at the northern side of Sarangani
Bay, a well-protected bay in Mindanao, lies along the main north-south trading axis which skirts Mindanao on its western shore.
• The objectives of the project are to increase the capacity and improve the efficiency of cargo handling facilities at the port to accommodate future flows
• The project will cost approximately 635 million pesos1
• Seventy-five percent of the total project cost will be provided as a grant by the US Agency for International Development (USAID) and the other 25% will be provided from counterpart contribution by the Philippine government
Project Outcome
• Deterministic case appeared good with partial financial analysis NPV Financial (with Project)=10,760,000 million pesos
• Full analysis shows project provide a negative economic performance
• Project was implemented
Port Rehabilitation and Expansion: The Makar Project
Port Rehabilitation and Expansion:
The Makar Project
Incremental Financial-Economic Analysis
NPV (Total Investment Point of View)
NPV (Economic Point of View)
With Project (000s of Pesos)
10,760
(105,576)
Without Project (000s of Pesos)
19,453
25,683
Incremental (000s of Pesos)
(8,693)
(131,259)
Note: Peso is the Philippine currency and in Year 1 is equal to 0.037 US dollar (1994)
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 10 Year 15 Year 16RECEIPTS
Port Revenues - local - - - - 1,359 2,276 6,895 8,120 -Port Revenues - foreign - - - - 216 243 425 452 -Total port revenues - - - - 1,576 2,519 7,319 8,572 -Rental income from Container Yard I - 3,000 3,000 3,000 3,000 3,000 3,000 3,000 -Rental income from Container Yard II - - - - 1,000 2,000 6,000 9,000 -Other Income 69 69 69 69 69 69 69 69 -USAID Grant and Government Contribution 22,148 155,088 219,215 79,719 - - - - -Liquidation Values: - - - - - - - - 340,810Total Cash Receipts 22,217 158,157 222,284 82,788 5,645 7,588 16,388 20,641 340,810EXPENDITURES
Investment cost-non tradable 22,631 103,995 153,285 49,006 - - - - -Investment cost-tradable 2,758 93,124 139,002 57,285 - - - - -Operating Cost: - - - - 9,017 9,017 9,017 9,017 -Loss of rental income from term. shed 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 -Change in Cash balance - - - - 79 54 64 19 (390)Change in Accounts Receivable - - - - 158 109 128 38 (779)Change in Accounts Payable - - - - (1,353) (123) (123) (123) 1,230Total Expenditures 26,489 198,219 293,386 107,392 9,001 10,157 10,186 10,051 61NET CASH FLOW (4,272) (40,063) (71,103) (24,604) (3,356) (2,569) 6,202 10,589 340,750NET PRESENT VALUE (at 9%) (8,693)
.
FINANCIAL ANALYSISIncremental Financial Cash Flow Statement (Real)
(in thousands Peso)
Economic Benefits Makar Port Project
• Additional port revenue from expansion in traffic including foreign exchange premium.
• Additional rental income from containers yards.
• Reduction in waiting time of ships.
• Reduction in animal weight loss from waiting on ship.
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 10 Year 15 Year 16
RECEIPTS:Port revenues - local - - - - 1,359 2,276 6,895 8,120 -Port revenues - foreign - - - - 249 280 488 520 -Total Port Revenues - - - - 1,608 2,556 7,383 8,639 -Benefit to ship owners due to reduction in ships' waiting time - - - 25,484 31,264 33,539 35,444 36,491 -Benefit to shippers due to reduction in animal weight loss - - - - 13,331 13,906 16,204 19,715 -Rental income from Container Yard I - 3,000 3,000 3,000 3,000 3,000 3,000 3,000 -Rental income from Container Yard II - 0 0 0 1,000 2,000 6,000 9,000 -Other Income 69 69 69 69 69 69 69 69 -USAID Grant and Government Contribution - - - - - - - - -Liquidation Values: - - - - - - - - 316,916Total Cash Receipts 69 3,069 3,069 28,553 50,272 55,070 68,100 76,914 316,916EXPENDITURES:Investment cost-non tradable 21,818 96,550 141,822 45,422 - - - - -Investment cost-tradable 2,596 87,515 130,373 54,059 - - - - -Operating Cost: - - - - 9,044 9,044 9,044 9,044 -Loss of rental income from term. shed 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 -Change in Cash balance - - - - 80 55 65 20 (397)Change in Accounts Receivable - - - - 160 111 130 39 (793)Change in Accounts Payable - - - - (1,329) (121) (121) (121) 1,208Total Expenditures 25,514 185,165 273,295 100,581 9,056 10,190 10,219 10,082 19NET CASH FLOW (25,445) (182,096) (270,226) (72,028) 41,216 44,880 57,881 66,832 316,898NET PRESENT VALUE (at 10.3%) (131,259) INTERNAL RATE OF RETURN 5.88%
ECONOMIC ANALYSISIncremental Economic Net Benefit Flow Statement
(in thousands Peso)
(A) (B) (C) (D) (E)PV Financial at PV Economic at PV ofEconomic Discount Economic Discount Externalities Shipowners/
ITEM Rate of 10.3% Rate of 10.3% (B - A) Government ShippersRECEIPTS:Total Port Revenues 25,677 25,928 250 250 -Benefit to ship owners/shippers due to reduction in ships' waiting time - 187,684 187,684 - 187,684Benefit to livestock shippers due to reduction in animal wt. loss - 77,025 77,025 - 77,025Rental income from Container Yard I 22,100 22,100 - - -Rental income from Container Yard II 23,895 23,895 - - -Other Income 577 577 - - -USAID Grant 404,200 - (404,200) (404,200) -Liquidation Values: 81,587 75,867 (5,720) (5,720) -Total Cash Receipts 558,037 413,076 (144,961) (409,670) 264,709EXPENDITURES:Investment cost-nontradable 280,673 260,925 (19,749) (19,749) -Investment cost-tradable 245,332 230,517 (14,815) (14,815) -Operating Cost: 44,000 44,135 135 135 -Loss of rental income from term. shed 9,203 9,203 - - -Change in Cash balance 223 227 4 4 -Change in Accounts Receivable 446 454 8 8 -Change in Accounts Payable (1,145) (1,126) 20 20 -Total Expenditures 578,732 544,335 (34,397) (34,397) -NET CASH FLOW (20,695) (131,259) (110,564) (375,272) 264,709
Allocation of Externalities
STAKEHOLDER ANALYSIS
(in thousands Peso)
Potable Water Supply Expansion:The Manila South Water Distribution Project
Economic Benefits
• Economic benefits will be generated as a result of additional consumption by new connections (paying customers).
• Additional benefits will be generated by increased consumption of water by non-paying customers.
• Saving in the resources. The resources that are released by reduction of water supplied from water vendors and wells are an economic benefit to economy.
Stakeholder Impact Manila South Water Distribution Project
(A) (B) (B-A)PV Financial PV Economicat Economic at Economic PV of GovernmentNon-Paying Paying Engineering WaterDiscount Rate Discount Rate Externalities Users Users* Services Vendors
of 10.30% of 10.30%
BENEFITS Revenue Generated Water 2,148.23 4,515.02 2,366.79 2,570.50 (203.71)
Change in accts. Receivables (86.22) (181.21) (94.99) (103.17) 8.18 Benefits from non-revenue water 939.92 939.92 939.92TOTAL BENEFITS 2,062.01 5,273.74 3,211.73
COSTS Investments Civil works 510.32 500.11 (10.21) 10.21
Equipment and materials 624.87 778.59 153.72 (153.72) Office buildings 7.11 7.25 0.14 (0.14) Consulting services 3.39 3.39 0.00
Land 28.00 28.00 0.00 In-house eng. services 81.26 54.72 (26.53) 26.53
Taxes and duties 162.32 0.00 (162.32) 162.32 Operating and maintenance
Wages 710.43 710.43 0.00 Chemicals 102.19 98.10 (4.09) 4.09
Power 130.22 139.34 9.12 (9.12) Maintenance 89.50 85.92 (3.58) 3.58 Income tax
Change in accts. payable (11.54) (11.54) 0.00 Change in cash balance 1.87 1.87 0.00
TOTAL COSTS 2,439.94 2,396.19 (43.75)
NET BENEFITS (377.93) 2,877.55 3,255.48 17 940 2,467 27 (196)
* As these are the net benefits of the externalities, this includes the the benefits
of the consumer surplus on drinking and wash water, minus the loss in well owner's
producer surplus, due to the fact that the well owners are the consumers.
