Improving Transport Project Appraisals
In the Islamic Countries
64
The European Investment Bank (EIB) provides standard values for the calculation of
environmental costs such as carbon emissions and noise pollution. The value of carbon is
determined by the level of damage associated to a tonne of carbon dioxide emission. On top of
that, the EIB prescribes annual increases in the value of carbon to reflect the increasingmarginal
damage of emissions in the future.
The EIB applies the following values of air- and noise pollution, measured in EUR per passenger
per kilometre, for various modes of transport.
Table 2.6: Pollution values in EUR per passenger per km
Mode EUR per passenger kilometre
Local air pollution Noise
New Rail 0.0049 0.0029
Existing Rail 0.0049 0.0039
Car 0.0173 0.0057
Plane 0.0019 0.0036
Source: European Investment Bank (2013)
Another crucial aspect of appraisal according to the EIB is the need to determine a project’s
evaluation period. This calculation is necessary for an evaluation of the project’s economic
profitability, and is therefore necessary also to determine the maturity of loans made by the EIB
to finance the project. In order to do so, one must first estimate a project’s total average physical
life using the approach illustrated i
Table 2.7: Estimation of project physical life
Cost component
(1)
Cost in EUR
(2)
% of total cost
(3)
Physical life
(4)
Average project
physical life
(5) = (4) x (3)
Component A € % T
Component B € % T
Component C € % T
Component D € % T
Component E € % T
TOTAL 100 % (6)
Source: European Investment Bank (2013)
The project’s economic life is then determined by taking into account further considerations
such as market risk, or the infrastructure’s rate of obsolesce.
Following the estimation of a project’s life, the EIB also prescribes values for discount rates to
be used throughout the appraisal process. The EC recommends a discount rate of 5.5% for
Cohesion countries (see below) and 3.5% for other EU countries.