Improving Transport Project Appraisals
In the Islamic Countries
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The three approaches for demand analysis set out in ADB’s guidelines on economic analysis are:
surveys, trend extrapolation and forecasting models. The use of regression-based models is the
most robust approach, as it related demand to a set of explanatory variables.
2.3.6 Results of project appraisals
The NPV of a project is the standard economic criterion that the WB uses for accepting or
rejecting a project. Exceptions to this standard are made for three particular types of projects. It
may be the case that a relatively large project, compared to the national economy, may have a
significant impact on the national income. Given the importance of such a project, the country
should be willing to accept a lower, but more certain NPV. A so-called ‘correlated’ project is a
project whose value is correlated to an exogenous variable such as the national economy. When
comparing a project that is expected to do better in times of distress to one that is expected to
do better in times of prosperity, it may be preferable to select the former project, even when the
latter is expected to have a higher NPV. Finally it may also be the case that a project benefits or
burdens, a particular population group in a disproportionate manner. In such cases it may be
preferable to select a fair project with a lower NPV rather than an unfair project with a higher
NPV.
ADB’s guidelines on economic analysis of projects describes indicators for making investment
decisions. These are: NPV, IRR, BCR and cost-effectiveness ratio (CER). ADB uses a discount rate
of 9% as the minimum required Economic Internal Rate of Return (EIRR) to accept or reject a
project and to choose the least-cost (or most efficient) project option for all investment projects
such as transport, energy, urban development, and agriculture.
In the case of the EC, for example, the CBA is one among other information to be included in the
application form, which includes also a risk assessment, a technical design with cost estimates,
details concerning the body responsible for implementation of the major project and its capacity
and several other items. For major projects co-funded in the framework of the EU Cohesion
policy, the EC justifies the funding decisionwhen the application shows not only that the projects
provides net benefits to the society (positive economic performance) but also that it is in need
of co-financing (negative financial performance).
2.3.7 Follow-up and learning
In “Transport Project Appraisals at the World Bank”, it is stated that about 25% of the funded
projects are subject to a Performance Audit Report (PAR). This PAR is carried out on average
about three years after completion and is done by the WB’s internal Operations Evaluation
Department (OED). In the PAR, it is assessed whether the objectives are achieved effectively,
efficiently and economically.
A key part of an investment project of ADB, is the design and monitoring framework (DMF). The
DMF is a tool used by ADB that sets out the long-term strategy for a project, the medium-term
goal and the outputs which the project must target, along with the inputs and activities
necessary to achieve these. The targets specified in the DMF are assessed, typically 12-24
months after project completion.