Improving Transport Project Appraisals
In the Islamic Countries
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5.4 Capacity and tools
Capacity
Overall, in Iran technical capacity to perform transport project appraisals appears to be ensured,
particularly thanks to the certified experts included in the PBO list, which the MRUD
organisations widely resort to. The case of Ports and Maritime Organisation can be mentioned
as an example of capacity building: while in the past it largely used external consultants for the
appraisal of infrastructural projects, thanks to a successful cooperation with them its internal
technical capacity is today ensured, and the organisation has a smaller need to resort to
specialists from the private sector.
Training programmes are in place in both RAI and PMO. While RAI opts for trainings held by
consultants (both international and Iranian with international qualifications), PMO prefers to
choose trainings held by academics. Moreover, both PMO and RAI hold stable relationships with
national universities. RAI, in particular, promotes university courses (up to PhD level) in the
field of rail engineering and technology. Training programmes, however, do not directly concern
the performance of project appraisal, but rather project preparation more in general, which in
turn positively influences the quality of the appraised projects.
Standards and Guidelines
The PBO has developed general guidelines on project appraisal and it provides some reference
parameters to be used, among which unit prices. The acceptable internal rate of return (IRR) of
a project depends on the location and the project features, and no reference value is provided
by PBO.
Overall, it can be stated that the analyst enjoys a moderate degree of flexibility in performing the
analysis. While no prescriptive rules exist regarding which benefits to be included in the
analysis, which discount rate to adopt, or which time horizon to consider, these choices are not
entirely free, but rather rely either on indications by PBO or on agreements between the analyst
on one side and the MRUD with its organisations on the other side.
In the case of appraisals under the responsibility of PMO, for instance, the analyst has to adopt
a discount rate in the range between 1 and 5% (plus the inflation rate). Generally, however, the
lack of a uniform social discount rate has been highlighted in the literature as one of the possible
causes of mismanagement and poor prioritization of public sector projects in Iran73. As a matter
of fact, given the increasing importance of cost–benefit analysis for public investment decisions,
the choice of a proper social discount rate is a crucial issue.
Tools
Evidence has been found of standard tools such as models or templates that shall be followed
for analysis and reporting. Single organizations (e.g. PMO) have internally developed own
standard forms and templates out of practical needs. Moreover, Art. 5 of the By-Law on
73 Daneshmand et al., 2018. A time preference measure of the social discount rate for Iran. This article, using the social time
preference rate approach, estimates the appropriate value of Iran’s social discount rate at 5.8%.