Improving Transport Project Appraisals
In the Islamic Countries
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Costs and benefits
In the road sector, the HDM-4 model is often applied, as presented in the section above. HDM-4
considers capital costs and benefits in the form of road user costs (RUC) reduction as a result of
savings in Vehicle Operating Costs (VOC) and time savings.
The evaluation period and discount rate are often set at 20 years and 12% respectively, such as
in a broad range of appraisals in which HDM-4-was used, for example the projects Abuja-
Kaduna-Kano; and Shagamu-Benin-Asaba, both solely funded by the Government of Nigeria99.
However, it should be noted that there is variation in the use of these input parameters. For
example, for the Lekki Epe Expressway, a 30 year evaluation period and 30% discount rate was
applied100.
CBA is also carried out for other modes of transport. As with roads, this applies to all IFI funded
projects and to the larger projects funded though domestic resources. Evaluation periods vary
with the type of infrastructure, as is the case elsewhere in the world. Costs included are capital
costs and benefits almost always include time savings. In addition, a range of other benefits may
be included, depending on the nature of the project, such as safety, social and environmental
impacts. Sometimes, such benefits are addressed only in a qualitative way, as additional
arguments justifying a project (without being included in the CBA calculation and being reflected
in the NPV or ERR). This traditional way of appraising a project, often relying on travel time
savings in combination with increased traffic density, as well as other selected benefits (for
example vehicle operating costs for road projects), does not take into account growth related
benefits that transport infrastructure could bring. An alternative approach is presented in the
special case presented below (Evaluating Transport Infrastructure Projects in Low Data
Environments).
Special case: Evaluating Transport Infrastructure Projects in Low Data Environments
Against the background of the importance in investing in infrastructure and the situation often
faced of low data availability, an approach has been developed to assess the differential impacts
of alternative investment proposals in data constrained environments where conducting
reliable impact analyses is difficult101 . The approach first demonstrates a technique for
estimating the cost of transporting products to markets. Next, the impact of improving the road
network on economic activity is estimated. Finally, simulations are performed to demonstrate a
methodology for prioritising alternative investments. The analysis demonstrates a pragmatic,
though rigorous, approach for assessing transport infrastructure benefits.
It should be noted that this innovative approach is still under development and does not provide
a widely accepted means for appraising projects. The approach certainly has its merits (wider
99 Both projects are presented in the Road Infrastructure & Related Development in Nigeria - An Investor’s Manual (2013).
100 See American Journal of Economics 2013. Infrastructural Development in Nigeria: A Study of the Lekki Epe Expressway:
(The Cost-Benefit Analysis between 2010 - 2040). A 30 Year Period Analysis.
101 Jason Russ, Claudia Berg, Richard Damania, A. Federico Barra, Rubaba Ali & John Nash. Evaluating Transport
Infrastructure Projects in Low Data Environments: An Application to Nigeria (2017).